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Enron Mentions

Layoffs Possible As Enron Reduces Broadband Burn Rate Dow Jones Energy Service, 07/12/01 USA: Losses widen to $102 million for Enron Broadband. Reuters English News Service, 07/12/01 Enron's 2nd-Qtr Profit Rises 40% on Electricity Sales (Update5) Bloomberg, 07/12/01 Enron's Skilling Sees California Energy Crisis Easing (Update2) Bloomberg, 07/12/01 Jeff Skilling Inteview CNBC, 07/12/01 Enron Expects To Cash In On New U.S. Federal Mandate For Open Wholesale Power Markets CNNfn: Market Coverage - Morning, 07/12/01 Jeff Skilling Interview Bloomberg Information TV, 07/12/01 USA: INTERVIEW-Enron chief sees California problems fading. Reuters English News Service, 07/12/01 Enron CEO:Foreseeable Business Prospects Remain Excellent Dow Jones News Service, 07/12/01 Enron 2Q Net Rises 40% As Trading Revenue Soars Dow Jones News Service, 07/12/01 USA: UPDATE 3-Enron quarterly earnings rise, beat estimates. Reuters English News Service, 07/12/01 Enron reports earnings increase of almost 40 percent Associated Press Newswires, 07/12/01 Venture capital chasing next big - and little - thing in energy Associated Press Newswires, 07/12/01 A Volt From Blue, U.S. Grid Rules Get Power Co's Abuzz Dow Jones Energy Service, 07/12/01 Marlin Water Trust II Taps Euro And Dollar Bond Markets Capital Markets Report, 07/12/01 FERC Power Grid Orders Will Open Markets for Traders (Update2) Bloomberg, 07/12/01 Enron CEO Skilling on California Crisis, FERC Talks: Comment Bloomberg, 07/12/01 Enron Chief Executive Sees California's Energy Crisis Easing Bloomberg, 07/12/01 FERC Transmission Decision Will Open Power Markets for Traders Bloomberg, 07/12/01 California Not Due Cash Refunds for Power Purchases (Update1) Bloomberg, 07/12/01 Layoffs Possible As Enron Reduces Broadband Burn Rate By Erwin Seba Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Broadband Services executives said staff redeployments, including possible layoffs and an office closure were part of the plans to reduce losses at the telecommunications unit of Enron Corp. (ENE). The news came shortly after Enron President and Chief Executive Jeffrey Skilling told an investor call Thursday morning that Broadband Services lost $102 million in the second quarter of this year. "We've got to get that burn rate down," Skilling said. "And we will get the burn rate down in the next two weeks." Broadband Services Senior Vice President Kelly Kimberly said Enron hadn't yet determined the exact number of the unit's approximately 1,000 employees to be redeployed. "We will be moving some commercial support people to corporate," Kimberly said. "There will be redeployments. There may be some severances." Commercial support employees are in departments like human resources and legal support offices. Also, the unit will close its Portland, Ore., office, but its back-up network operations center (NOC) there will remain in operation. Portland employees will be offered redeployment in Houston or other offices. Those who do not accept redeployment will be offered severance packages, Kimberly said. EBS's primary NOC is in northeast Houston, one of the areas hardest hit by Tropical Storm Allison. In spite of heavy rains and flooding last month, the Houston NOC continued functioning. However, Enron officials did activate the Portland NOC in case the Houston center could not remain open. This is the second redeployment of Broadband Services employees this year. The earlier redeployment was attributed by executives to the transition from building the EBS optical fiber network to operating the network. Revenues Victim Of Crash In Telecom Prices Skilling blamed the crash of telecommunications prices for the decline in revenues in the second quarter. "There is a meltdown out there," Skilling said during the conference call. Skilling said many potential counterparties among carriers can do only short-term deals in the bandwidth market because their creditworthiness is so weak. The company believes it will be one or two years before the bandwidth market gets to the point Enron had expected it to be this year, Skilling said. Enron is the primary market maker in the bandwidth arena. Skilling and Kimberly said the company will continue to develop the commoditized market. That leadership has left Enron feeling increasingly lonely in recent weeks, said an industry analyst. "Enron was trying to move this market fast," said William Bandt of Arthur Andersen L.L.P. "They've been working to get out at the front of this market. Sometimes that's like being at the end of the high-dive board all by yourself." Overall, Enron is in good financial shape because of its core energy industry. For the second quarter this year, Enron reported net income, excluding non-recurring items, of $404 million on revenues of $50.1 billion. In the second quarter of 2000, the company reported net income of $289 million on net revenues of $16.9 billion. The earnings per diluted share for the quarter is 45 cents compared with 34 cents a year ago. Skilling said the company expects to achieve $1.80 in recurring earnings per diluted share this year. Broadband Services reported a loss of $102 million in the second quarter on $16 million in revenues before interest and taxes. In the same period of 2000, the unit reported revenues of $151 million and a loss before interest and taxes of $8 million. EBS had 759 transactions in the second quarter 2001 compared with 23 in the second quarter of 2000. The company added 45 new customers in the second quarter, giving it a total of 165 customers, Skilling said. Carriers and network services providers made up more than 70% of Enron's broadband customers and accounted for about one-third of its transactions, he said. In the second quarter of this year, the company delivered 98,478 terabytes of data compared with 13,692 a year ago. For the year so far, EBS has delivered 141,878 terabytes of data compared with 19,697 in same period a year ago. Broadband Services has a goal of delivering 570,000 terabytes this year. Enron has signed a long-term contract with MSN to provide broadband services, Skilling said. The deal will allow MSN to provision and pay for bandwidth as it's needed. The company will give more information on that deal later, -By Erwin Seba, Dow Jones Newswires, 713-547-9214 erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Losses widen to $102 million for Enron Broadband. By C. Bryson Hull 07/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, July 12 (Reuters) - The revenue rug got pulled out from under Enron Corp.'s broadband division in the second quarter, leading to a wider-than-expected loss inside the nascent unit, the company said on Thursday. Enron Broadband lost $102 million on revenue of $16 million in the second quarter. In the year-ago quarter, when the telecom sector was much stronger, the unit brought in $151 million in revenue and lost just $8 million. The losses and the shrinking revenue opportunities caused by severe weakness in the telecommunications market led Enron President and Chief Executive Jeff Skilling to announce a restructuring that will include an unspecified amount of job cuts within Enron Broadband Services. "This quarter was the absolute evidence that there is a serious problem in the telecom industry," Skilling told Reuters in an interview. "Revenue opportunities just dried up. People are not contracting." The telecom and Internet network carriers that are Enron Broadband's target customers are suffering from credit problems and other financial difficulties preventing them from entering into the long-term deals that are the unit's bread and butter. Enron plans to turn bandwidth into a tradeable commodity that can be sold and packaged much like natural gas. Enron believes bandwidth capacity is essentially the same as gas pipeline capacity, and can be traded the same way. Skilling said the worse-than-expected telecom weakness should push back plans for profitability inside the unit by about a year. Initially, Enron planned to turn a profit from broadband by at least 2002. But Skilling said near-term cost cutting, the company's agility and small asset position should enable it to quickly react to lower revenue targets. Workers whose jobs are removed from Enron Broadband will be redeployed to other positions within the company, Skilling said. One encouraging sign was the increase in transactions in sequential quarters, from 580 deals in the first quarter to 759 deals in the second, Salomon Smith Barney analyst Ray Niles said. "It was a little bit below our expectations, but the volumes are still up sequentially. The key metric remains growth in transactions. At the end of the day, given enough transactions, it should become a profitable business," Niles said. The flashy unit, which gave Enron a once-valuable telecom cache that drove its stock to record highs last summer, has fallen from grace recently as the telecom market tanked earlier this year. Enron Broadband cut jobs earlier this year and also reduced its capital budget by a half-billion to $250 million as the telecom market first dropped sharply. Broad telecom weakness as well as the California power crisis and a struggling power project in India combined to push the energy giant's stock down 15.7 percent in the quarter. It underperformed the broader Standard & Poor's utility index, which was down 6.32 percent in the same period. Enron shares were down 48 cents, or 1 percent, at $48.62 in afternoon trading on the NYSE. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron's 2nd-Qtr Profit Rises 40% on Electricity Sales (Update5) 2001-07-12 16:25 (New York) Enron's 2nd-Qtr Profit Rises 40% on Electricity Sales (Update5) (Updates shares. Adds analyst comment in fourth paragraph.) Houston, July 12 (Bloomberg) -- Enron Corp., the top energy trader, said second-quarter profit rose 40 percent as its sales of natural gas and electricity surged in the U.S. and Europe. Net income rose to $404 million, or 45 cents a share, from $289 million, or 34 cents, in the year-earlier period, Enron said. Revenue almost tripled to $50.1 billion. The Houston-based company sold almost twice as much power in North America and five times as much in Europe than in the year-earlier quarter. Though electricity and natural-gas prices surged in California, Enron Chief Executive Jeff Skilling said the state ``is just not a big factor'' in Enron's increasing profits. The Houston-based company boosts earnings by increasing sales of energy and other commodities such as lumber and steel rather than raising prices, analysts said. ``That's the nature of the commodities business,'' said Zach Wagner, an analyst with Edward Jones & Co. who has a ``buy'' rating on Enron. ``As markets open up, their volumes will grow. Their margins are basically flat.'' Enron's profit margin was less than 1 percent last year and has averaged 2.1 percent during the past five years, based on Bloomberg data. That compares to a profit margin of 6.5 percent for Exxon Mobil Corp., the largest publicly traded energy company. Shares of Enron have dropped 31 percent during the past year despite steadily increasing earnings, and sales that now rival those of Exxon Mobil. Broadband Meltdown Investors are concerned about lackluster results from the company's broadband business, which was set up to trade space on fiber-optic telecommunications networks. Enron shares surged 87 percent last year when the boom in Internet and telecommunications businesses seemed certain to increase demand for broadband capacity. Enron shares fell 40 percent this year as the boom fizzled. The broadband business had a loss before interest, minority interests and taxes of $102 million in the second quarter, compared with an $8 million loss a year earlier. Broadband revenue plunged 89 percent to $16 million from $151 million. Enron said it is firing broadband staff to reduce costs. ``There's a meltdown out there,' Skilling said. ``You have to do very short-term transactions (in broadband) because people don't have the credit to do long-term transactions.'' Investors are questioning whether Enron can continue to post huge gains in sales in its energy and commodity businesses, analysts said. The earnings news today left the stock up 45 cents, or less than 1 percent, to $49.55. ``It was telecommunications that took the stock to its lofty height . . . and disappointment with telecommunications that has held the stock back,'' Wagner said. ``What they're trading at now is purely as an energy company.'' Spokeswoman Karen Denne declined to say how many people will be fired or where the cuts would take place in the company's broadband business. Enron has broadband staff in Houston, London, Singapore and Portland, Oregon. Denne said Enron would try to find internal jobs for the broadband workers and only cut those employees it can't place. In a conference call, Skilling said the broadband business still has potential. ``We're getting a negative impact on our stock price from the broadband business, and I don't think that's right,'' Skilling said. Buyer and Seller Skilling and his predecessor, Ken Lay, have transformed a natural gas-pipeline company into the biggest competitor in the business of trading commodities such as gas and power. Enron also uses financial instruments such as futures contracts to help protect customers from swings in energy prices. Enron says it makes money regardless of whether prices go up or down in California because it is both a buyer and a seller in the markets where it operates, making much of its money from fees for arranging trades. It also profits from selling risk management contracts to utilities and other companies that want to lock in energy prices. Enron was expected to make 42 cents a share in the quarter, the average estimate of analysts polled by First Call/Thomson Financial. Enron reiterated its 2001 profit forecast of $1.80 a share and said it expects to make $2.15 in 2002. The First Call estimate for 2002 was $2.12. Enron's revenue tripled from $16.9 billion in the year- earlier quarter. Most of the gain came from Enron's Wholesale Services business, which includes commodities trading and development of energy projects such as power plants. Earlier this year, Enron estimated it was owed as much as $500 million for California energy sales. Skilling said he thinks California prices have stabilized and the state is going to get through the summer ``just fine.'' While electricity and natural gas prices in the West are up from a year ago, they are down from the first quarter. ``The financial impact on Enron is over now,'' Skilling said. European Expansion Enron had first-half revenue of $100.2 billion, almost equal its revenue for all of last year. Skilling has predicted revenue will top $200 billion this year, rivaling Exxon Mobil's $232 billion in 2000 sales. Enron is continuing to expand its trading business in Europe. The company entered Europe ahead of its competition and became the dominant trader there, said Bob Christensen, a First Albany analyst who rates Enron a ``strong buy.'' ``We have just started down the path in Europe,'' Skilling said. ``Look for great things from Europe in the future.'' In California and other parts of the U.S., Enron has a growing business in contracts that manage energy supply for big customers such as Owens-Illinois Inc. and Eli Lilly & Co. Contracts increased 89 percent to $7.2 billion in the quarter, Enron said. The energy-services unit's profit increased 30 percent to $60 million in the quarter, and the business is on track to make $225 million this year, more than double 2000's results, Enron said. Profit was little changed at Enron's pipeline and utility businesses, which are more closely regulated than the trading operations. Enron has a 25,000-mile gas pipeline system and owns Portland General, an Oregon utility. The company reported a loss of $109 million for higher ``corporate-wide expenses.'' About a quarter of that was from its Azurix water unit, Skilling said. The loss compares with profit of $17 million a year earlier. Enron's Skilling Sees California Energy Crisis Easing (Update2) 2001-07-12 16:17 (New York) Enron's Skilling Sees California Energy Crisis Easing (Update2) (Updates with closing share price.) Houston, July 12 (Bloomberg) -- Enron Corp. Chief Executive Jeffrey Skilling said higher retail prices for electricity in California has curtailed power demand and should lead to fewer blackouts than expected this summer. ``The expectation of higher retail prices has dampened demand considerably,'' Skilling said in a conference call with analysts and investors. ``I think we're going to get through the summer just fine in California. That will ultimately lead to lower wholesale prices for power.'' The state had been facing about 15 hours of blackouts a week this summer, the North American Electric Reliability Council, a national group that monitors and coordinates U.S. power supplies, said in May. California has been spared outages recently because of conservation efforts, cooler temperatures and new power plants. Prices for power and natural gas in California should stay close to current levels because of the drop in demand, Skilling said in an interview with Bloomberg Television. Power plants producing enough energy for about 1.2 million homes have opened this summer in California, California Governor Gray Davis said yesterday in a statement. ``We're not out of the woods yet, but we are making progress,'' Davis said. California is seeking $8.9 billion in refunds from generators such as Houston-based Enron, the biggest energy trader, for power bought in the last year. Under the formula used by California to derive that figure, Enron is actually owed $44 million because it bought more power than it sold since May 2000, Skilling said. Shares of Enron rose 45 cents to $49.55. The company said today second-quarter profit rose 40 percent as higher sales of electricity more than made up for a loss in its telecommunications business. Enron stock has fallen 40 percent this year. The political rhetoric surrounding the California crisis and negotiations over possible refunds has hurt Enron's stock price, Skilling said. ``All this noise from California has obscured the performance of the company,'' Skilling said. Date July 12, 2001 Time 09:00 AM - 10:00 AM Station CNBC Location Network Program The Squawk Box Mark Haines, anchor: Energy earnings: Enron reporting second quarter earnings, forty-five cents a share, beating expectations of forty-two cents a share. Surpassing last year's earnings of thirty-four cents. Net income roes forty percent to four-hundred-four million dollars. Revenue up one-hundred and ninety-five percent to fifty-billion. (Graphic: Enron (ENE): Actual $0.45, Estimate $0.42, Year Ago $0.34, Revenue up 195% to $50.06b, Net Income up 40% to $404m) Enron said revenue numbers were driven by a surge in wholesale services business. Stock is trading at a fifty-two week range, forty-two to ninety. Right now at the low end, around forty-nine yesterday. Let's take a closer look at the numbers. Joining us now is Enron CEO Jeffrey Skilling. And in the spirit of full disclosure, I have some shares of Enron in my IRA. Mr. Skilling, how does revenue go up so much and the bottom line doesn't benefit more? Jeffrey Skilling (Chairman and Chief Executive Officer, Enron): Well we had a net income increase, Mark, of over forty percent and earnings per share up thirty-two percent, so I think it was a real good quarter. Haines: Yeah, but that doesn't answer the question, well, how can revenue grow like a hundred and fifty and--and the bottom line only benefits forty--forty percent? Skilling: What--what drives our net income, Mark, is the increase in physical volumes delivered. Revenues are impacted by price levels and price levels really don't impact us because we don't own generation facilities, we don't own gas production assets. So prices move up, prices move down, that impacts our revenue. But what really matters to us is how much volume are we delivering to customers and our volumes this quarter up fifty-eight percent, which drove that increase in our wholesale income. Haines: How unusual should we consider the--the last few quarters? Skilling: I think the most lasting legacy of the problems in California may be an order that came out of the Federal Energy Regulatory Commission yesterday. And what they did is they forced open--moved to four mandatory, what they call regional transmission organizations. (Graphic: Enron (ENE) 8-Quarter Earnings History Chart) This will make the marketplace for electricity in North America open. And what that means is there is a tremendous additional amount of growth, we believe, in the electricity markets in North America as these markets open up for competition. Similarly Europe--Europe is really just starting. I don't know if you saw our numbers in Europe, but our gas volumes were up over a hundred percent. Our electricity volumes were up over four hundred percent in Europe. That market's just starting to open and has tremendous future opportunities in it. (Graphic: One of the world's leading electricity, natural gas and communications companies; Delivers physical commodities and financial & risk mgmt. services to customers around the world) Joe Rivkin (Citigroup Investments): Mr. Skilling, I--you are building a global fiber-optic network, which is in effect owning some capacity that you're going to be selling or trading. Can you help us understand the logic behind that? And, also, what will make that network different from several of the other networks that are out there or under construction? (Graphic: Has developed an intelligent network platform to facilitate online business; Divides its business into four core areas: Wholesale, Broadband, Energy and Transportation Services) Skilling: Yeah. Thanks, Jack. It's--it's a very, very different network than what you'll see anywhere else in the world. If you look at most networks, the capacity to input data and the capacity to output data is very similar to what the long-haul capacity is. In our network it's very different, the capacity input and output is enormous relative to the amount of long-haul capacity we have. That allows us to bring data into our system, move it on to other people's systems by creating a marketplace for bandwidth, to get customers lower prices. We think this is the future, particularly given the melt down in client and prices for bandwidth around the world. We think this is exactly the right strategy to have. We're focussing on those areas where we--we believe that marketplace will be good in the future. In fact, we announced in the press release this morning a contract with Microsoft. A multi-year contract to provide bandwidth services that is really geared towards providing instantaneous access to bandwidth for customers, which is really a new product which we think is going to be very important for the future. (Graphic: Formed in July 1985 as a result of the merger of Houston Natural Gas and InterNorth of Omaha, Nebraska; Headquarters in Houston, Texas; Approximately 20,000 employees; Yearly High: 90.75, Yearly Low: 42.35; Market Cap: 36.6b; Top Competitors: AEP, Duke Energy, Reliant Energy) Haines: Does this get you into the technology business? Because if you're dealing with what's coming into a pipe and what has to go out of it, there's--there's a lot of effort going into place to either compress the information or expand the information or route the information... Skilling: Right. Haines: ...how are you dealing with that? Skilling: Well, really, what we're doing in the telecommunications business is identical to what we do in the natural gas and electricity business. They're pipes, and the data moves through the pipes. If they can crush more--more data into the same amount of pipes, that's good, that opens the market, provides additional capacity. What we do is we purchase and sell that capacity and make it available through our switching capabilities to any customer that wants to get real time access to bandwidth. (Enron Corp (ENE) 3-Month Stock Chart and 6-Month Stock Chart) Haines: How much of a cloud on the horizon is this California energy situation? The--you are suing the state of California, California is asking for documents, you're refusing to provide them. The situation doesn't look too pleasant. (Graphic: Enron Corp (ENE) 1-Year Stock Chart and 3-Year Stock Chart) Skilling: Well, Mark, you know, I think--I think the entire California thing I think is past the high water mark. Prices now are moving up in California and economics 101 demand's going down. I think we're going to get through this summer all right. As Joe was saying, the weather's pretty cool out in California. I think that's going to keep the demand for electricity down. As prices come down in California, I think the whole tone of discussion in California will get better. And as I said, this whole thing with the Federal Energy Regulatory Commission--they recognize now it's important to open the grid, it is critical to create efficient markets for electricity. And the step yesterday, I think, is a landmark step in opening that market and I think that's going to reduce the problems from California. (Graphic: Enron Corp (ENE) 5-Year Stock Chart) Haines: All right, sir, thank you very much. We appreciate your bringing us up to date. Skilling: Thanks, Mark. Haines: Jeffrey Skilling, CEO of Enron. # # # Business Enron Expects To Cash In On New U.S. Federal Mandate For Open Wholesale Power Markets Rhonda Schaffler, Barry Hyman 07/12/2001 CNNfn: Market Coverage - Morning (c) Copyright Federal Document Clearing House. All Rights Reserved. RHONDA SCHAFFLER, CNNfn ANCHOR, MARKET CALL: The nation`s number one buyer and seller of energy posted strong second quarter numbers. Enron (URL: http://.www.enron.com/) earned 45 cents a share, beating estimates by 3 cents and the year-ago quarter by 11 cents. Revenue surging almost 200 percent and the company says it`s on track to meet not just expectations this year but expectations for next year. Shares, though, have been slashed in half in the past six months due mostly to the California power crisis and weakness in the broadband market, as Enron continues to build its` global fiber optic network. Joining us from Houston to talk about all this is Jeff Skilling, CEO and president at Enron. Jeff, good to have you back on "Market Call". JEFF SKILLING, CEO, PRESIDENT, ENRON: Thanks, Rhonda. Good to be here. SCHAFFLER: Congrats on the quarter. But it`s an interesting quarter for you in that, for a change, not everything`s firing on all cylinders. SKILLING: Well, you know, it`s a little bit of the tale of two cities. You know, the energy business is very strong. As you can see from our numbers, we had a great quarter-another great quarter in the energy business. Broadband business is suffering from some of the problems the broadband business has, but luckily, in Enron, it`s a very small portion of our net income. So, the real story for Enron is this strong, strong growth and strong profitability of our energy business. BARRY HYMAN, CNNfn GUEST HOST, MARKET CALL: Jeff, I just want to concentrate on the broadband part for a second. You`re significantly cutting costs there and your stock seems to have gotten hit as almost a technology stock since the beginning of this year. Where do you see the broadband part going forward? And how you can make money in that particular sector? Or is it really a viable place to be? SKILLING: Yeah. Barry, I really do believe that they`ve taken all the value of broadband business out of our stock completely. It`s gone. And we`ve also been hurt a little bit by what`s going in California, in spite of the fact that we continue to hit our numbers. We`ve hit our estimates, or exceeded estimates, very quarter for the last four years. But I think people are just a little nervous about us. As far as broadband goes, it is a tough, tough market. The revenues have dried up in that business. There are two areas where we have focused, which have been our primary area focus. One is to create a market place-a real-time market place for bandwidth. We feel very good about that. That is continuing to grow. And a content delivery service where we provide a turnkey service for customers. We just announced, in fact, in the earnings release, a new contract with MSN that really provides that dynamic provisioning of bandwidth for customers. And those are the two areas we`re focusing on. The rest of the market we are just going to eliminate our activities there and just focus on those two activities. And we see those as having enormous future potential for customers. It`s going to be tough for the next year or so as that market kind of digs itself out of a hole. But I think longer-term it`s a great place to be and we have exactly the right strategy for pursing that market. SCHAFFLER: Can you tell us a little bit about what you`re doing in Europe with the energy markets there? Because Europe`s an interesting story as well, because of concerns about the slowdown there? SKILLING: Yeah, it`s interesting, Rhonda. Our volumes in Europe were incredible. Our gas volumes were up over 100 percent. Our electricity volumes were up over 400 percent. What you`re seeing there is, in spite of the slowdown in the economy in Europe, they`re opening up their markets to competition so the non- regulated portion of the energy market, which is the only portion of the market where we compete, is just exploding. It`s growing by leaps and bounds. And so we expect Europe to be a significant contributor to future growth. Similarly, even in North America, as we`re seeing the economy here slowdown. We had a landmark decision come out of Federal Energy Regulatory Commission yesterday. They have mandated now the establishment of four regional transmission organizations. And this sounds kind of technical, but essentially what it does is it is going to force fully open-force fully the North American wholesale power markets in North American. And that, I think, will provide significant new growth opportunities for us in North America. So, I think the North America and the European gas and electric markets are really not dependent on economic activity, as far as Enron`s concerned. They`re really dependent on how quickly we move to open competitive markets and we`re seeing a very, very fast transition there-and great news out of the FERC yesterday. SCHAFFLER: Jeff Skilling, CEO of Enron. Nice to see you again. Congrats on the quarter. We`ll talk soon. SKILLING: Thanks, Rhonda. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Date July 12, 2001 Time 12:30 PM - 01:00 PM Station Bloomberg Information TV Location Network Program Newsline Suzy Assaad, anchor: There's a lot ahead for you in this next half hour. We're going to talk live with the CEO of Enron, Jeffrey Skilling. His broadband division is having some troubles and we're going to ask him why he thinks he can turn it around. * * * Assaad: Enron came out with earnings and they actually beat the Street. The energy and communications company earned forty-five cents a share from continuing operations and that was three cents better than what the Street was expecting. (Graphic: Enron (ENE) 2Q, 2001 > Actual EPS $0.45 > Estimated EPS $0.42 Earnings Alert) The news sent shares of Enron sharply higher in the early part of the session. On the day, though, they have managed to turn a little bit to the downside. (Graphic: Enron intraday stock chart) Enron, though, is having problems with its broadband division. The company is projecting lower revenues for broadband and it is going to eliminate jobs to lower costs. Now can broadband be turned around and if not, what will they do about it? Joining us live from Houston is the CEO of Enron, Jeffrey Skilling. (Graphic: Enron. Enron 2Q profit rises 40% to $404 million as higher sales of electricity more than made up for a loss in its telecommunications business) Mr. Skilling, thank you for being on the show and let's start off with that question. How do you plan to turn broadband around, if--continue to keep it or get rid of it? What are your plans for there? Jeffrey Skilling (Chief Executive Officer, Enron): Well we believe longer term the broadband business is going to be a good business. It's clear, though--absolutely clear that we're going through a meltdown in the business right now. And so what we need to do is we just need to get our cost structure in line with the current view of what revenues can be in that business and that's what we're in the process of doing. (Graphic: Enron. Net income at the top energy trader rose to $404 million, or $0.45/share from $289 million or $0.34/share a year earlier) I think, given our strategy--our strategy has not been an asset-heavy strategy--we should be able to do this pretty easily and pretty quickly. As you've seen from our numbers that we announced today, we have extremely strong growth on the energy side of our business, so we'll end up redeploying people from the broadband business back into our energy business. So we think we can move pretty quickly on it. (Graphic: Enron. Houston-based company says it sold almost twice as much power in North America and five times as much in Europe in the quarter) Assaad: That's--that's quite a drain then. I mean in a year where you're having such great numbers, to have the broadband be such a drain on your bottom line. Skilling: Well it's not that big in the grand scheme of things. You know our energy business is a big business, it's growing very quickly. Our revenues in energy this quarter were over fifty billion dollars. So that's really the big part of our business and, sure, the telecommunications business I think long term is going to be an opportunity. I wish it were an opportunity right now but I think what we need to do is just get that burn rate down, get it consistent with what the revenue opportunity is in the industry. We'll be a survivor and when this business comes back, I think it has all the promise that we all know it has, it's just going to be a little delayed from what we thought before. Assaad: Could we actually get your outlook, Mr. Skilling, on energy prices going forward? Skilling: Sure. It's--it's-- Assaad: Is it a one-way street up? Skilling: I don't think so. We've been really surprised by the decline in demand. If you look at demand for electricity and natural gas in North America, it is way down this year, almost unprecedented decline in demand for a developed economy. I've never seen anything like it before. And--and I think it's been triggered by the fact that prices went up last year and customers--sort of Economics 101--customers have decided that there are cheaper alternatives and so the demand has gone down and that has really driven down prices. You know gas prices are way off from what they were earlier this year. Power prices all across the country are way down from what they were earlier this year. And so I think it's just natural economics taking effect. But what I think it means is that the current price level that we're seeing for gas and electricity are probably likely to be the prices that we'll see for--for some time now. They're on the low side of the range that everyone was expecting but I think that's what it looks like. (Graphic: Enron. President, CEO Jeffrey Skilling has predicted that revenue will top $200 billion this year) Assaad: In terms of what's going on in California, it's--it's said that that has put some pressure on your stock price as of late. What are your predictions down that end? Skilling: Well it has put pressure on our stock price. You know we've--we've hit earnings or exceed earnings expectations every quarter for the last four years and yet our stock's down this year. I think the reason for that is that all of this noise from California has obscured the performance of the company. (Graphic: Enron. In places including CA, Enron has a growing business in contracts that manage energy supply for big clients such as Owens-Corning, Lilly) But I think we're now, because prices are dropping--wholesale prices are dropping for power, I really think we've seen the high water mark of the problems in California. (Graphic: Enron. Contracts increased 89% to $7.2 bln in the quarter, Enron says) It's been cool in California, prices are down and I think as this works its way through the system, I think a lot of the noise and a lot of the antagonism will start to go away and I think--in fact I think probably the greatest legacy of this whole California debacle will be what happened yesterday in the Federal Energy Regulatory Commission. You know they came out with an order that most people weren't really, I don't think, looking at that carefully. But this--this order requires the development of a very, very efficient marketplace for electricity in North America. (Graphic: Enron. While California power prices were double year-ago levels, Enron reiterated its 2001 profit forecast of $1.80/share and said it made no difference to Enron's bottom line) It's a huge step forward, it's very, very positive. And so while it's technical in nature, I think ultimately it will have probably the most impact going forward in time, more than this whole California things has had. Assaad: Interesting. In terms though of--of going forward from here, it's also said that a lot of your wholesale margins, a lot of certainly your volumes are going to be dependent on the development of Europe, that this is really the area of growth for you right now. Do you agree with that and where do you see Europe going for you in the next year? Skilling: Well, Europe is important and Europe is just starting the process of liberalizing markets, the continental countries. And so we think there's enormous growth opportunities there. Gas volumes were up over a hundred percent. Our power volumes were up over four hundred percent. So I think there's great opportunity there and that will be a source of growth in the future. (Graphic: Enron. That's because Enron's risk-management business makes money it expects to make $2.15 in 2002; First Call estimate for 2002 was $2.12, whether power prices rise or fall, analysts say) Assaad: Mr. Skilling, do you think there's greater opportunity for Enron in Europe than there currently is here in the U.S.? Skilling: No. And that's--I was about to say that with this change in the federal policy, this--currently only about twenty percent of the wholesale market for power is accessible. You can only get to about twenty percent of the locations in the country because of flawed regulation in North America. If these rules go through, as was dictated yesterday by the Federal Energy Regulatory Commission, the entire U.S. market opens up and so this is an enormous growth opportunity. And--and because this is our biggest business, we think it will have more effect than Europe. (Graphic: Enron. Enron's ability to boost profit and sales even as its broadband business slumped shows it can manage changing market conditions, analysts say) But longer term, Europe's a great market, great business for us. Assaad: Absolutely. Thank you very much for joining us today. Jeffrey Skilling, joining us to talk about Enron. # # # USA: INTERVIEW-Enron chief sees California problems fading. By C. Bryson Hull 07/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, July 12 (Reuters) - The thus-far cool summer in California and the emergence of specifics about Enron Corp's limited involvement in the embattled California power market should ease pressure on the energy giant's stock, the company's chief executive said on Thursday. "I think we are going to get through the summer just fine. In terms of the financial impact on Enron, it's pretty much over," Enron President and Chief Executive Officer Jeff Skilling told Reuters in an interview. The rhetorical attacks on the Houston company as an out-of-state generator ignore key facts about how much power Enron sold into California, he said. "I don't know how they can keep using us as the poster child when all of the numbers keep coming out. The poster child ought to be the Los Angeles Department of Water and Power," Skilling said. According to sales records maintained by the California Independent System Operator, which manages most of the state's power grid, Enron accounted for 0.4 percent of the alleged $9 billion in overcharges. The U.S. Federal Energy Regulatory Commission is slated to decided if there was an overcharge to California, and if so, how much should be refunded. The same records show that the L.A. municipal utility and other municipal utilities in the state overcharged PG&E Corp.'s Pacific Gas and Electric and Edison International's Southern California Edison utilities millions more than Enron did. "I believe ultimately in the longer term, as people become more knowledgeable about the data and statistics, I don't think they'll harp on Enron so much," Skilling said. Skilling has personally felt the nasty nature of the duel between California and "out-of-state power producers," the label California Gov. Gray Davis, a Democrat, has used to blast energy companies like Enron. During a June 21 speech in San Francisco, a demonstrator threw a cream pie and hit Skilling in the face. "I knew something was going to happen out there, but we wanted to get our facts out and show our commitment to getting the facts out," Skilling said of the reason for his visit. After he was hit with the pie, Skilling calmly explained his and Enron's belief for the reasons behind California's power woes. While Davis blames Enron and others for jacking up wholesale energy prices, the companies pinpoint California's flawed deregulation scheme and a rise in the price for natural gas as the main problems. The latest manifestation of the flat-out war between California politicians and Enron is a California legislative committee's finding that Enron is in contempt for refusing to hand over confidential business documents in a probe into price gouging. The California Senate believes the finding gives them the power to fine Enron and possibly jail its senior officers. But just before the Senate Select Committee to Investigate Market Manipulation voted to hold Enron in contempt on Wednesday, the Houston company sued in a California court on a claim the legislature has no jurisdiction over them. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron CEO:Foreseeable Business Prospects Remain Excellent By Bob Sechler Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) AUSTIN, Texas -(Dow Jones)- Flush from reporting a 40% year-over-year increase in net income for the second quarter and substantially beating Wall Street expectations, Enron Corp. (ENE) Chief Executive Jeff Skilling said Thursday that prospects for his company remain extremely strong. "We are well-positioned for future growth," Skilling told analysts during a conference call. Skilling also downplayed ongoing controversy regarding the power crisis in California - which has contributed to a pall over Enron stock - saying he thinks the issue already has reached "a high-water mark" and should subside. California likely will make it through the summer without much additional power problems, he said, helped by lower prices and cooler weather. Enron, Houston, reported second-quarter net income Thursday of $404 million, 40% more than net income of $289 million in the year-go period. The company surpassed Wall Street expectations for the quarter, reporting earnings of 45 cents a share on revenue of $50 billion. Enron had been expected to earn 42 cents a share, according to the consensus of analysts polled by Thomson Financial/First Call. Enron earned 34 cents a share on $16.8 billion in revenue in the year-ago period. CEO Skilling also heralded the decision Wednesday by the Federal Energy Regulatory Commission ordering that four large electric-transmission organizations be formed to optimize the flow of electricity nationwide. The move will lead to a major improvement in business conditions for companies such as Enron, he said, because it will create a solid foundation for competitive power markets across the country. Enron officials estimated that they'll eventually be able to compete in more than 90% of U.S. power markets because of the commission's order, as opposed to the 20% the company forecasts now. Enron is the nation's largest electricity trader and marketer. "This is a major, major step forward," Skilling said. "All the lights are green right now" for Enron's wholesale-services division, which accounted for about 97% of Enron revenue in the second quarter. Skilling expressed confidence that Enron will meet Wall Street's full-year earnings expectations of $1.80 a share. In addition, he said the company will earn $2.15 a share in 2002, an increase from current 2002 expectations of $2.12 a share. Still, Enron's otherwise solid second-quarter results were marred by the performance of its broadband-services division, where among other activities it has been a pioneer in creating a trading market for broadband, or high-speed Internet capacity. The division lost $102 million in the quarter before interest, minority interests and taxes, compared with an $8 million loss in the year-ago period. Skilling said the division has been the victim of an overall "meltdown" in the broadband industry. "Revenue this quarter, or revenue opportunities, just dried up" in broadband, he said. The business climate eventually will rebound and bear fruit for Enron, Skilling said, but that is probably one to two years away. In the interim, Enron is planning to overhaul the broadband unit, cutting costs and narrowing its scope to focus strictly on intermediation, or trading, activities and on providing specific bandwidth to large enterprise customers. Enron didn't reveal details of the planned cuts Thursday. Still, Skilling did note that he thinks investors already have penalized Enron for the broadband unit, or at best given it no value as reflected in the stock price. He said he thinks that reaction is unwarranted and understates the future potential of the broadband unit. Later, in an interview with Dow Jones Newswires, Chief Executive Skilling reiterated that California's ongoing efforts to resolve its power crisis will have no negative impact on Enron. He also dismissed as "all politics" a move Wednesday by a California Senate committee to forward a contempt charge against Enron to the full California Senate. The committee initiated the action because Enron has refused to provide certain financial documents that the committee has requested as part of an investigation into wholesale power prices in the state. "They have no jurisdiction, and they've made it clear they won't keep confidential" the information that they have requested, Skilling said Thursday. "In the absence of that, we don't particularly want to turn over to them information." Enron shares recently traded at $48.80, down 30 cents, despite the company's strong second-quarter results. Skilling said the stock was being held back because of its tie to the energy sector, which has been struggling overall. "Give it a couple of days," he said. "I think we've hit the low-water mark on our stock price, and I think we have a lot of upside." -Bob Sechler, Dow Jones Newswires; 512-236-9637 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron 2Q Net Rises 40% As Trading Revenue Soars By Bob Sechler Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) AUSTIN, Texas -(Dow Jones)- Enron Corp.'s (ENE) second-quarter net income rose 40%, led by a huge uptick in revenue at its wholesale services division, which includes energy trading operations. "The numbers were excellent, no question about it," said John Olson, an analyst with Sanders Morris Harris. "It was a good quarter, and management has clearly raised the bar for 2001 and 2002." The company reported second-quarter net income Thursday of $404 million, or 45 cents a share, compared with year-ago net income of $289 million, or 34 cents a share. Enron had been expected to earn 42 cents a share, according to Thomson Financial/First Call. Revenue ballooned to $50.06 billion from $16.89 billion in the year-ago period. However, the strong results didn't prevent Enron stock from falling modestly in Thursday's trading. The shares traded recently at $48.80, down 0.6%. Analysts cited a host of reasons for the lack of investor response, not the least of which is lingering uncertainty regarding California's energy crisis and the outcome of energy deregulation efforts overall. Enron is the nation's largest electricity trader and marketer. "There's a perception there that's hurting Enron's stock, creating uncertainty about it," said Louis Gagliardi, of John S. Herold Inc. Enron is "still under the shadow of the California situation and deregulation." Gagliardi and others said they tend to agree with Enron Chief Executive Jeff Skilling that California's efforts to resolve its power problems won't hurt the company. But they said investors are jittery nonetheless. For his part, Skilling blamed the lack of enthusiasm in the stock market Thursday on his company's perceived tie to the overall energy sector, which is slumping after a period of strong growth. He said he expects the stock to respond over the next few days once investors "digest" the strong second-quarter results. "I think we've hit the low-water market on our stock price, and I think we have a lot of upside," he told Dow Jones Newswires in an interview. Skilling told analysts Thursday that Enron will meet full-year earnings expectations of $1.80 a share, and he also raised the forecast for 2002 earnings to $2.15 a share from $2.12 a share. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 3-Enron quarterly earnings rise, beat estimates. By C. Bryson Hull 07/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, July 12 (Reuters) - Energy marketing and trading powerhouse Enron Corp. said on Thursday its second-quarter earnings rose almost 40 percent to beat Wall Street estimates on robust growth in its workhorse wholesale energy business. The Houston-based company, the No. 1 U.S. natural gas and electricity marketer, reported net income excluding non-recurring items of $404 million, or 45 cents a share, compared with $289 million, or 34 cents a share, in the same period a year ago. Analysts had expected earnings in the range of 40 to 44 cents a share, with an average of 42 cents, according to Thomson Financial/First Call. Enron also said it was confident it would reach its target of $1.80 for recurring earnings per diluted share for the full year 2001, while saying it expected to earn a slightly better-than-expected $2.15 per diluted share in 2002. Initially, Wall Street reacted favorably and pushed the stock up by as much as $1.70, but the stock reversed in early afternoon trading on the New York Stock Exchange, shedding 27 cents to move to $48.83. One of the only black marks in the quarterly report was widening losses - $102 million - in Enron's nascent broadband unit due to weak demand for those telecom services. Volume growth in Enron's core wholesale energy business drove all but $1.5 billion of $50.06 billion in second-quarter revenues. Revenues more than doubled from $16.88 billion in the year-ago quarter. "Our wholesale and retail energy businesses continue to dramatically expand business activity and increase profitability," Enron President and Chief Executive Officer Jeff Skilling said in a statement. Total energy volumes, including natural gas, oil and power, increased 58 percent to 74 trillion British thermal unit equivalents per day, the company said. Global power volumes led the growth as they more than doubled to 285 million megawatt-hours, with three-quarters of that coming from North America. Salomon Smith Barney analyst Ray Niles said the wholesale segment was the key earnings driver, propelled by volume growth, high trading volatility and the liquidity added by EnronOnline, the company's marquee Internet trading platform. EUROPEAN OPERATIONS Another key factor, Niles said, is the emergence of Enron's European wholesale operations, which swelled with power volumes nearly quintupling to 73 million megawatt-hours. Gas volumes doubled. "Europe is kicking butt and it's about a quarter of their activity, nearly double what it was last year. And that is a new market that is the size of the U.S.," Niles said. Growth in Europe is coming faster than expected, Skilling told analysts in a conference call. "It's surprising how quickly this thing is opening up and how the volumes are growing," he said. Enron nearly doubled new retail energy services contracts year-over-year, moving to $7.2 billion in total value from $3.8 billion. That growth accounted for $60 million in pre-tax income, up from $46 million a year ago. Skilling said the U.S. Federal Energy Regulatory Commission's order on Wednesday to create four regional power grids should help increase Enron's retail business as larger entities look for ways to package power costs. Enron's retail arm does that by managing costs and trimming usage for large retail customers. "People want direct access, and right now we are the only player that can provide it," Skilling said. On the negative side of the balance sheet, Enron reported a $109 million pre-tax, pre-interest loss attributable to unexpected expenses and the failed spinoff of water company Azurix Inc. BROADBAND BUSINESS HURTING Skilling acknowledged that Enron's budding broadband business endured a rough quarter with $102 million in losses compared to $8 million a year ago. The flashy unit, which gave Enron a once-valuable telecom cache that drove its stock to record highs last summer, has fallen from grace recently as the telecom market tanked earlier this year and revenue dried up from credit-poor customers. Broad telecom weakness, as well as the California power crisis and a struggling power project in India combined to pressure the energy giant's stock down 15.7 percent in the quarter. It underperformed the broader Standard & Poor's utility index, which was down 6.32 percent in the same period. Since the close of the quarter, the stock has been hovering near $49, just over half an all-time high of $90.25 reached last August. It had traded at more than $81 as recently as mid-February. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron reports earnings increase of almost 40 percent 07/12/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - Enron Corp. reported a nearly 40 percent increase in second-quarter earnings on Thursday and beat analysts' expectations due to robust growth in its power marketing and energy management businesses in the United States and Europe. The Houston-based energy wholesaler and retailer earned $404 million for the quarter ended June 30, or 45 cents per share. That compared with $289 million, or 34 cents per share a year earlier. Analysts surveyed by Thomson Financial/First Call predicted earnings of 42 cents per share. Despite continued growth in its natural gas and electricity trading business, though, Enron's stock has faltered in the past year due to unmet expectations for its high-speed Internet business. Enron's broadband business reported a $102 million loss, compared with an $8 million loss for the same quarter a year ago. Enron President and Chief Executive Jeff Skilling said Enron would "significantly" reduce spending in its broadband unit "to match the reduced revenue opportunities currently available." Enron reported $50.1 billion in revenue for the second quarter of 2001, almost triple the $16.9 billion reported for the same quarter a year ago. Company officials expressed confidence of reaching $1.80 per share in earnings for the full year 2001 and $2.15 per share for 2002. "Our wholesale and retail energy businesses continue to dramatically expand business activity and increase profitability," said Skilling. Enron has been embroiled in the conflict over California's energy woes, with a committee of that state's Senate issuing subpoenas to the corporation and other generating companies earlier this year in connection with an investigation of possible price manipulation in energy markets. Shares of Enron were up 26 cents to $49.36 on the New York Stock Exchange on Thursday Morning. Enron's stock was trading above $70 a share at this time last year. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Venture capital chasing next big - and little - thing in energy By JUSTIN POPE AP Business Writer 07/12/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. BOSTON (AP) - Not so long ago, investing in the energy industry meant buying into oil wells, hydroelectric dams and the smokestacks of big, clunky utility companies straight off of a Monopoly board. No longer. Deregulation has unleashed competition, and headlines from the California power crisis have sent entrepreneurs and investors scurrying into the energy sector. While old economy energy companies have attracted much of the attention, there's growing interest in smaller companies that comprise an emerging sector called "energy technology." It encompasses everything from software to microturbines to Internet tools that manage, monitor and even trade electricity. A recent energy industry venture capital fair, which organizers said was the first of its kind, drew 75 start-up companies to Boston - an event many investors who attended said would have been unimaginable even a few years ago. The companies and VCs are after the "$300 billion jump ball" made possible by electricity deregulation, said Todd Klein, managing director of Kinetic Ventures, a Chevy Chase, Md.-based VC firm. Their monopolies gone, power companies are being forced like never before to improve productivity. Start-ups are trying to help them with a new generation of high-tech gadgets. Meanwhile, technology companies are demanding cheaper and more reliable power sources. Entrepreneurial talent also is drifting to energy. And finally, several technologies developed in government labs have recently become commercially viable. "We have been following these technologies 10 years, and they never were anything more than science experiments," said Jeff Miller of Boston's Beacon Group, which manages $1.6 billion in two energy VC funds. "Now you've got the demand coming from the marketplace and very serious managers with very focused business plans." Offsetting the flurry of enthusiasm is tighter funding from the VCs. According to research firm Venture Economics, 77 companies took in more than $1.2 billion in funding in the sector last year, but so far this year just 17 companies have raised a total of $132 million. That pales in comparison to the old economy energy companies, which have raised $7 billion in IPOs this year. David Lincoln, founder of EnerTech Capital in Wayne, Pa., told entrepreneurs at the conference that nobody is in a hurry to make deals, and the conditions that VCs impose now "were virtually unheard of 18 months ago." Still, new public energy companies accounted for a third of all IPOs in the first six months of the year. And the power crisis has caused the entire investment community to take notice. "Three or four years ago, when we were looking at certain deals, we'd go to the banks and we'd never know who to talk to," Lincoln said. "Do you talk to the utility bankers, or the technology bankers?" Now, every major investment bank has begun tracking a sector. "Everybody's backing out of the dot-coms and telecoms," said Bradley Johnson, president of Washington, D.C.-based Pepco Technologies, which was seeking funding here. "They're saying the next new thing is energy, but they haven't figured it out yet. The management groups at these energy funds are sitting back, figuring out where they want to be." They are chasing some of the relative success stories like Chatsworth, Calif.-based Capstone, which makes freestanding microturbines that allow businesses to produce their own electricity. Company shares have traded as high as $100, but have fallen under $20, and the company still hasn't turned a profit. The sector "still hasn't seen its Netscape," Klein said. The upshot - and the lesson from last month's venture capital fair - is that the next little thing is on the minds of VCs as much as the next big one. That means technologies that don't necessarily revolutionize how electricity is produced so much as help traditional companies produce it, and customers use it, even just a little bit more efficiently. "I think with the events which occurred in California and which are threatening to occur in other parts of the company, people are focused on immediate solutions to those problems," Klein said. Many companies touting those types of solutions were at the fair, such as Encinitas, Calif.-based PredictPower, which builds systems to help companies manage their electrical use. Others showed flywheels, which store electricity on site to guarantee a perfectly steady stream of power for sensitive equipment. And some are still fighting to break into the already crowded online electricity exchange market. Other companies target the power companies themselves, with everything from software to satellite meter-readers. "There's just a lot more focussing on taking away the antiquities inherent in the old utilities system," said David Smith, who follows the sector for Solomon Smith Barney. Especially at the venture capital level, where backers tend to be looking for smaller investments and quicker returns. That's meant short shrift for some early-stage "green" companies. "Everybody's supply side," lamented R.W. Cushing, an entrepreneur whose Austin, Texas, alternative energy marketing company generally got the cold shoulder from VCs. "Nobody thinks in demand terms." In fact, alternative energy firms raised $2 billion last year from IPOs and VCs, according to Clean Edge, a research firm that tracks "green" investment. But renewable energy requires deep pockets and patience, and tends to be backed by big power companies which, if they can make alternative energy work, will have the infrastructure in place to connect it to the grid. Many big power companies ensuring they get the needed technology by backing start-ups themselves. Houston-based conglomerate Enron, for instance, has invested $90 million in 12 companies it sees as strategic partners, two of which have gone public. "I don't think there is a dearth of interest or investment in renewable technologies," Lincoln said. "(But)... the reason why you see such a strong level of interest in helping the supply-side companies is, right now, that's where the capital is being spent." With AP Photo Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. A Volt From Blue, U.S. Grid Rules Get Power Co's Abuzz By Arden Dale Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Energy companies, beware. This could mean you win, and it could mean you lose. Not today, not next week, but down the road. Big changes in the way power companies control the U.S. electricity grid are looming because of orders announced by the Federal Energy Regulatory Commission on Wednesday. At stake are billions of dollars companies could make buying and selling electricity. Power companies across the U.S. scrambled Thursday to learn details of the orders, which haven't actually been issued yet. They will probably be available by Friday, FERC spokespeople said. Companies that may benefit most, including Enron Corp. (ENE), Dynegy Inc. (DYN), Duke Energy Corp.(DUK) and Williams Co. (WMB), market electricity but don't own power lines. Big transmission-owners such as Southern Co. (SO), American Electric Power Co. (AEP) and Entergy Corp. (ETR), stand to lose control over their assets, according to analysts. "This is a major, major step forward," Enron Chief Executive Officer Jeffrey Skilling said of the FERC orders in a conference call on the company's earnings Thursday. On Wednesday, the FERC said it would direct transmission owners to form huge regional power grid operators by merging groups that already operate in the Northeast and Southeast. It said it would assign judges to start mediating right away with companies over a 45-day period to work toward compliance. The new grid operating giants must be up and running by December 2001, according to FERC spokesperson Celeste Miller. The FERC is widely expected to issue similar orders for the West and Midwest. The move this week accelerates a push the FERC's been making for several years to form regional transmission operators, or RTOs. In 1999, the agency issued a rule known as Order 2000 that directed companies to come up with plans to form RTOs. Many utilities missed deadlines to file plans, and companies including Enron criticized the FERC for not giving stronger directives and setting more aggressive deadlines. California's energy crisis has also prompted harsh criticism of the FERC, and may have helped push the agency to take stronger actions, according to some observers. Energy companies and Wall Street analysts said the action this week took them by surprise, more because of how fast the agency wants change to occur than because of what it wants done. Some said they doubt change will happen that fast. "It's a departure from the slower transition to the new market, which has been supported by companies like American Electric Power Co. and Southern Co.," said Christine Uspenski, an analyst at Schwab Capital Markets L.P. (SCH) "That doesn't mean necessarily that the older companies won't survive, but clearly FERC is moving to catch up to the trailblazers in the industry." Utilities and other power companies have already formed a number of grid operating organizations. Three are up and running in the East, including one in the New England, one in New York and another in the Mid-Atlantic region. Those groups will be joined under one of the new orders. The orders are intended, in part, to address complaints by some companies that they can't move power freely around the grid to maximize their profits. They say utilities sometimes manipulate markets unfairly by claiming lines are congested and denying others access. "Clearly, there is a benefit for the marketplace," said David Clement, associate director at the Cambridge Energy Research Associates. "It simply makes it easier for wholesale power marketers to do business." Enron expects the orders will open up U.S. wholesale markets dramatically, according to spokesman Mark Palmer. Right now, the market is about 20% open to competitors: after companies comply with the order, it will be more like 90% open, Palmer said. The FERC's orders this week didn't have an impact on energy company stocks. That's partly because changes won't occur immediately, and because transmission assets aren't huge profit centers for companies, according to Steve Fleishman, an analyst at Merrill Lynch & Co. (MER). Transmission lines do offer their owners benefits, however. "They're not as sexy as growth businesses, but they're great cash generators," said Uspenski. The FERC's orders will help to stimulate sorely needed investment in power lines and power plants, said a number of analysts. The U.S. grid is straining under the weight of increased power flows due to deregulation, but investments have been stymied by uncertainty over how the grid will be run, among other factors. "We think it's important that the FERC has put a template out there that indicates what it's next steps are going to be," said Pat McMurray, a spokesperson for the Edison Electric Institute, a utility group. EEI, along with a number of utilities, couldn't comment extensively on the orders yet because it hadn't seen them. Southern Co. was among them. (Kristen McNamara contributed to this article.) - By Arden Dale, Dow Jones Newswires; 201-938-2052 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Marlin Water Trust II Taps Euro And Dollar Bond Markets By Richard A. Bravo Of DOW JONES NEWSWIRES 07/12/2001 Capital Markets Report (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Marlin Water Trust II tapped the investment-grade corporate bond market Thursday with a $475 million issue and a EUR515 million issue. Marlin Water is a special purposes vehicle that was created by Enron Corp. (ENE) in 1998 to finance its purchase of U.K.-based water utility Wessex Water PLC. The current issue was a refinancing of that debt transaction. All interest payments are pre-funded from Enron Credit and principal repayment is backed by Enron equity. The transaction was done through Marlin Water Trust II in order to keep the debt off Enron Corp.'s balance sheet, said syndicate officials involved with the deal. The U.S. portion of the deal was a $475 million offering of Rule 144a debt that was priced to yield 6.31%, or 2.25 percentage points over Treasurys. Gray market levels were quoted at 2.25 percentage points over Treasurys, a level that investors and traders said was a strong showing. "These levels are reasonably positive on a day when the corporate market is so jittery," said Stephen Kane, portfolio manager at Metropolitan West Asset Management. Corporate spreads to Treasurys were out five to 10 basis points on the day. Marlin Water Trust II also priced a EUR 515 million piece, which was priced to yield 6.19%. Credit Suisse First Boston Corp. and Deutsche Bank Alex. Brown were co-leads on both transactions. Enron Corp. officials weren't available for comment. -By Richard A. Bravo, Dow Jones Newswires; 201 938-2087 richard.bravo@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. FERC Power Grid Orders Will Open Markets for Traders (Update2) 2001-07-12 17:03 (New York) FERC Power Grid Orders Will Open Markets for Traders (Update2) (Adds comment from utility consultant in fourth paragraph.) Washington, July 12 (Bloomberg) -- The U.S. Federal Energy Regulatory Commission's decision to restructure the U.S. electricity grid opens the country's power markets to further competition, analysts said, even as California struggles with the aftermath of its deregulation. ``The only reason for doing this is so you can have competition,'' said Christopher Ellinghaus, an analyst at Williams Capital Group LP. ``It's so you can build a transmission system that lets generators deliver power across utility boundaries without interference by the utilities themselves.'' The FERC wants four regional transmission organizations in the U.S. -- one for the Southeast, one for the Northeast, one for the Midwest and one for the West -- that would allow more trading among regions. Florida has the option not to join, and Texas is exempt from FERC jurisdiction. ``The FERC had given some hints,'' said Larry Winter, a partner at Accenture Ltd. who has consulted with utilities forming transmission organizations. ``Now they are telling the utilities, at least in the Northeast and Southeast, exactly what they want.'' Energy traders such as Enron Corp., Mirant Corp. and Aquila Inc. stand to benefit as barriers to electricity transmission fall, Enron officials said. ``We'll have the chance to match hundreds of potential supply sources with thousands of markets,'' Enron Executive Vice President Steve Kean said on a conference call with analysts and investors. ``It's a significant expansion of the market in a very short time.'' California Crisis California's two biggest utilities have racked up about $14 billion in debt because power prices surged after the state deregulated its market, and the utilities weren't allowed to pass higher prices on to customers. The state began buying power on the utilities' behalf in January. A power shortage led to blackouts for millions of Californians this year. Politics and different market rules are the major obstacles to consolidating the transmission organizations that utilities proposed, Winter said. The commission wants the transmission systems of New England, New York and the mid-Atlantic states to combine. ``New York is not on the same page'' as New England's grid operator, which based its rules on those of PJM Interconnection LLC, the grid manager for Pennsylvania, Delaware, and eastern Maryland and New Jersey, Winter said. Enron shares rose 45 cents $49.55. They have fallen 31 percent in the past year. Aquila fell 45 cents to $25.55. Mirant fell $1.20 cents to $36.58. Enron CEO Skilling on California Crisis, FERC Talks: Comment 2001-07-12 15:12 (New York) Houston, July 12 (Bloomberg) -- Enron Corp. Chief Executive Jeffrey Skilling comments on the company's ongoing dispute with the state of California about power sales and the settlement talks on the issue being led by an administrative law judge at the Federal Energy Regulatory Commission. Skilling's remarks were made in a telephone interview following the release of Enron's second-quarter earnings. Houston-based Enron's shares have fallen 41 percent this year. On the settlement talks: ``It's pretty clear that the state has no particular interest in resolving this. It makes for good political fodder, and so I think they'll spend a lot of time making a lot of noise about it, and basically nothing will happen until the judge comes in, and the judge will set some kind of conclusion.'' Skilling said the $8.9 billion in refunds California has requested from power generators and sellers ``has no relevance to any true or valid claim the state of California has. ``They want their $8.9 billion, and then they say they'll continue to sue after the fact. That's not the basis of a settlement.'' On the outlook for the California power crisis: ``If you look at the impetus for this whole thing, it was very, very high prices in the wholesale market. Those prices have abated now. They're down significantly, and I think that's going to reduce the noise level in California.'' On Enron's links to the Republican Party and its relationship with California: ``I think our connection and (Enron Chairman) Ken Lay's connection with the Republican Party has sort of set us up to be their target, but the reality is our business is based on a lot of things, and California is just one of them.'' Enron and its employees gave $113,800 to President George W. Bush's election campaign, making them jointly Bush's 12th-largest contributor, according to the Center for Responsive Politics, which tracks campaign finance. Lay gave the $2,000 maximum for an individual. Lay also gave more than $325,000 in unlimited and largely unregulated ``soft money'' to Republican committees that helped finance Bush's campaign. That was part of at least $1.6 million contributed during the election by Enron and its officers, two- thirds of which went to Republicans, according to FECInfo, which also tracks campaign finance. California Governor Gray Davis is a Democrat, and both houses of the state legislature are controlled by Democrats. Enron Chief Executive Sees California's Energy Crisis Easing 2001-07-12 12:39 (New York) Enron Chief Executive Sees California's Energy Crisis Easing Houston, July 12 (Bloomberg) -- Enron Corp. Chief Executive Jeffrey Skilling said higher retail prices for electricity in California has curtailed power demand and should lead to fewer blackouts than expected this summer. ``The expectation of higher retail prices has dampened demand considerably,'' Skilling said in a conference call with analysts and investors. ``I think we're going to get through the summer just fine in California. That will ultimately lead to lower wholesale prices for power.'' The state had been facing about 15 hours of blackouts a week this summer, the North American Electric Reliability Council, a national group that monitors and coordinates U.S. power supplies, said in May. California has been spared outages recently because of conservation efforts, cooler temperatures and more power plants starting. California Governor Gray Davis said that power plants producing enough energy for about 1.2 million homes have opened this summer in California. ``We're not out of the woods yet, but we are making progress,'' Davis said in a statement yesterday. California is seeking $8.9 billion in refunds from generators such as Houston-based Enron, the biggest energy trader, for power bought in the last year. Under the formula used by California to derive that figure, Enron is actually owed $44 million because it bought more power than it sold since May 2000, Skilling said. Shares of Enron fell 20 cents to $48.90 in early afternoon trading. The company said earlier today second-quarter profit rose 40 percent as higher sales of electricity more than made up for a loss in its telecommunications business. FERC Transmission Decision Will Open Power Markets for Traders 2001-07-12 12:20 (New York) FERC Transmission Decision Will Open Power Markets for Traders Washington, July 12 (Bloomberg) -- The Federal Energy Regulatory Commission decision to restructure the U.S. electricity grid opens the country's power markets to further competition, analysts said, even as California struggles with the aftermath of its deregulation. ``The only reason for doing this is so you can have competition,'' said Christopher Ellinghaus, an analyst at Williams Capital Group LP. ``It's so you can build a transmission system that lets generators deliver power across utility boundaries without interference by the utilities themselves.'' The FERC wants four regional transmission organizations in the nation -- one for the Southeast, one for the Northeast, one for the Midwest and one for the West -- that would allow for increased trading between different regions. Florida has the option not to join any RTO, and Texas is exempt from FERC jurisdiction. Energy traders such as Enron Corp., Mirant Corp. and Aquila Inc. stand to benefit as barriers to electric transmission fall, Enron officials said. ``We'll have the chance to match hundreds of potential supply sources with thousands of markets,'' Enron Executive Vice President Steve Kean said on a conference call with analysts and investors. ``It's a significant expansion of the market in a very short time.'' California's two biggest utilities have racked up about $14 billion in debt because power prices surged after the state deregulated its market, and the utilities weren't allowed to pass higher prices on to its customers. The state began buying power on the utilities' behalf in January. A shortage of power led to blackouts for millions of Californians this year. Shares of Enron fell 3 cents in midday trading to $49.07. They had fallen 31 percent in the past year. Aquila fell 44 cents to $25.56. Mirant fell 52 cents to $37.26. California Not Due Cash Refunds for Power Purchases (Update1) 2001-07-12 18:01 (New York) California Not Due Cash Refunds for Power Purchases (Update1) (Adds comment from judge's recommendation in third paragraph, background in fourth.) Washington, July 12 (Bloomberg) -- California should not receive any cash refund for claims it was overcharged for electricity, a federal judge overseeing settlement talks said in a report to federal regulators. California's debts to power sellers for electricity they sold in the state is higher than any refund the state can claim, Administrative Law Judge Curtis Wagner wrote in a report to the Federal Energy Regulatory Commission. ``While there are vast sums due for overcharges, there are even larger amounts owed to energy sellers'' by California and its utilities, Wagner wrote in his report. He said California is owed ``hundreds of millions of dollars, probably more than a billion dollars.'' FERC ordered Wagner to hold settlement talks on California's claim it was overcharged by $8.9 billion for electricity. The sides failed to reach an agreement and FERC ordered the judge to make a recommendation to the commission. FERC plans to decide on the size of any refunds.

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Subject: Enron Mentions Sender: ann.schmidt@enron.com Recipients: [] File: dasovich-j/all_documents/28682. ===================================== Layoffs Possible As Enron Reduces Broadband Burn Rate Dow Jones Energy Service, 07/12/01 USA: Losses widen to $102 million for Enron Broadband. Reuters English News Service, 07/12/01 Enron's 2nd-Qtr Profit Rises 40% on Electricity Sales (Update5) Bloomberg, 07/12/01 Enron's Skilling Sees California Energy Crisis Easing (Update2) Bloomberg, 07/12/01 Jeff Skilling Inteview CNBC, 07/12/01 Enron Expects To Cash In On New U.S. Federal Mandate For Open Wholesale Power Markets CNNfn: Market Coverage - Morning, 07/12/01 Jeff Skilling Interview Bloomberg Information TV, 07/12/01 USA: INTERVIEW-Enron chief sees California problems fading. Reuters English News Service, 07/12/01 Enron CEO:Foreseeable Business Prospects Remain Excellent Dow Jones News Service, 07/12/01 Enron 2Q Net Rises 40% As Trading Revenue Soars Dow Jones News Service, 07/12/01 USA: UPDATE 3-Enron quarterly earnings rise, beat estimates. Reuters English News Service, 07/12/01 Enron reports earnings increase of almost 40 percent Associated Press Newswires, 07/12/01 Venture capital chasing next big - and little - thing in energy Associated Press Newswires, 07/12/01 A Volt From Blue, U.S. Grid Rules Get Power Co's Abuzz Dow Jones Energy Service, 07/12/01 Marlin Water Trust II Taps Euro And Dollar Bond Markets Capital Markets Report, 07/12/01 FERC Power Grid Orders Will Open Markets for Traders (Update2) Bloomberg, 07/12/01 Enron CEO Skilling on California Crisis, FERC Talks: Comment Bloomberg, 07/12/01 Enron Chief Executive Sees California's Energy Crisis Easing Bloomberg, 07/12/01 FERC Transmission Decision Will Open Power Markets for Traders Bloomberg, 07/12/01 California Not Due Cash Refunds for Power Purchases (Update1) Bloomberg, 07/12/01 Layoffs Possible As Enron Reduces Broadband Burn Rate By Erwin Seba Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Broadband Services executives said staff redeployments, including possible layoffs and an office closure were part of the plans to reduce losses at the telecommunications unit of Enron Corp. (ENE). The news came shortly after Enron President and Chief Executive Jeffrey Skilling told an investor call Thursday morning that Broadband Services lost $102 million in the second quarter of this year. "We've got to get that burn rate down," Skilling said. "And we will get the burn rate down in the next two weeks." Broadband Services Senior Vice President Kelly Kimberly said Enron hadn't yet determined the exact number of the unit's approximately 1,000 employees to be redeployed. "We will be moving some commercial support people to corporate," Kimberly said. "There will be redeployments. There may be some severances." Commercial support employees are in departments like human resources and legal support offices. Also, the unit will close its Portland, Ore., office, but its back-up network operations center (NOC) there will remain in operation. Portland employees will be offered redeployment in Houston or other offices. Those who do not accept redeployment will be offered severance packages, Kimberly said. EBS's primary NOC is in northeast Houston, one of the areas hardest hit by Tropical Storm Allison. In spite of heavy rains and flooding last month, the Houston NOC continued functioning. However, Enron officials did activate the Portland NOC in case the Houston center could not remain open. This is the second redeployment of Broadband Services employees this year. The earlier redeployment was attributed by executives to the transition from building the EBS optical fiber network to operating the network. Revenues Victim Of Crash In Telecom Prices Skilling blamed the crash of telecommunications prices for the decline in revenues in the second quarter. "There is a meltdown out there," Skilling said during the conference call. Skilling said many potential counterparties among carriers can do only short-term deals in the bandwidth market because their creditworthiness is so weak. The company believes it will be one or two years before the bandwidth market gets to the point Enron had expected it to be this year, Skilling said. Enron is the primary market maker in the bandwidth arena. Skilling and Kimberly said the company will continue to develop the commoditized market. That leadership has left Enron feeling increasingly lonely in recent weeks, said an industry analyst. "Enron was trying to move this market fast," said William Bandt of Arthur Andersen L.L.P. "They've been working to get out at the front of this market. Sometimes that's like being at the end of the high-dive board all by yourself." Overall, Enron is in good financial shape because of its core energy industry. For the second quarter this year, Enron reported net income, excluding non-recurring items, of $404 million on revenues of $50.1 billion. In the second quarter of 2000, the company reported net income of $289 million on net revenues of $16.9 billion. The earnings per diluted share for the quarter is 45 cents compared with 34 cents a year ago. Skilling said the company expects to achieve $1.80 in recurring earnings per diluted share this year. Broadband Services reported a loss of $102 million in the second quarter on $16 million in revenues before interest and taxes. In the same period of 2000, the unit reported revenues of $151 million and a loss before interest and taxes of $8 million. EBS had 759 transactions in the second quarter 2001 compared with 23 in the second quarter of 2000. The company added 45 new customers in the second quarter, giving it a total of 165 customers, Skilling said. Carriers and network services providers made up more than 70% of Enron's broadband customers and accounted for about one-third of its transactions, he said. In the second quarter of this year, the company delivered 98,478 terabytes of data compared with 13,692 a year ago. For the year so far, EBS has delivered 141,878 terabytes of data compared with 19,697 in same period a year ago. Broadband Services has a goal of delivering 570,000 terabytes this year. Enron has signed a long-term contract with MSN to provide broadband services, Skilling said. The deal will allow MSN to provision and pay for bandwidth as it's needed. The company will give more information on that deal later, -By Erwin Seba, Dow Jones Newswires, 713-547-9214 erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Losses widen to $102 million for Enron Broadband. By C. Bryson Hull 07/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, July 12 (Reuters) - The revenue rug got pulled out from under Enron Corp.'s broadband division in the second quarter, leading to a wider-than-expected loss inside the nascent unit, the company said on Thursday. Enron Broadband lost $102 million on revenue of $16 million in the second quarter. In the year-ago quarter, when the telecom sector was much stronger, the unit brought in $151 million in revenue and lost just $8 million. The losses and the shrinking revenue opportunities caused by severe weakness in the telecommunications market led Enron President and Chief Executive Jeff Skilling to announce a restructuring that will include an unspecified amount of job cuts within Enron Broadband Services. "This quarter was the absolute evidence that there is a serious problem in the telecom industry," Skilling told Reuters in an interview. "Revenue opportunities just dried up. People are not contracting." The telecom and Internet network carriers that are Enron Broadband's target customers are suffering from credit problems and other financial difficulties preventing them from entering into the long-term deals that are the unit's bread and butter. Enron plans to turn bandwidth into a tradeable commodity that can be sold and packaged much like natural gas. Enron believes bandwidth capacity is essentially the same as gas pipeline capacity, and can be traded the same way. Skilling said the worse-than-expected telecom weakness should push back plans for profitability inside the unit by about a year. Initially, Enron planned to turn a profit from broadband by at least 2002. But Skilling said near-term cost cutting, the company's agility and small asset position should enable it to quickly react to lower revenue targets. Workers whose jobs are removed from Enron Broadband will be redeployed to other positions within the company, Skilling said. One encouraging sign was the increase in transactions in sequential quarters, from 580 deals in the first quarter to 759 deals in the second, Salomon Smith Barney analyst Ray Niles said. "It was a little bit below our expectations, but the volumes are still up sequentially. The key metric remains growth in transactions. At the end of the day, given enough transactions, it should become a profitable business," Niles said. The flashy unit, which gave Enron a once-valuable telecom cache that drove its stock to record highs last summer, has fallen from grace recently as the telecom market tanked earlier this year. Enron Broadband cut jobs earlier this year and also reduced its capital budget by a half-billion to $250 million as the telecom market first dropped sharply. Broad telecom weakness as well as the California power crisis and a struggling power project in India combined to push the energy giant's stock down 15.7 percent in the quarter. It underperformed the broader Standard & Poor's utility index, which was down 6.32 percent in the same period. Enron shares were down 48 cents, or 1 percent, at $48.62 in afternoon trading on the NYSE. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron's 2nd-Qtr Profit Rises 40% on Electricity Sales (Update5) 2001-07-12 16:25 (New York) Enron's 2nd-Qtr Profit Rises 40% on Electricity Sales (Update5) (Updates shares. Adds analyst comment in fourth paragraph.) Houston, July 12 (Bloomberg) -- Enron Corp., the top energy trader, said second-quarter profit rose 40 percent as its sales of natural gas and electricity surged in the U.S. and Europe. Net income rose to $404 million, or 45 cents a share, from $289 million, or 34 cents, in the year-earlier period, Enron said. Revenue almost tripled to $50.1 billion. The Houston-based company sold almost twice as much power in North America and five times as much in Europe than in the year-earlier quarter. Though electricity and natural-gas prices surged in California, Enron Chief Executive Jeff Skilling said the state ``is just not a big factor'' in Enron's increasing profits. The Houston-based company boosts earnings by increasing sales of energy and other commodities such as lumber and steel rather than raising prices, analysts said. ``That's the nature of the commodities business,'' said Zach Wagner, an analyst with Edward Jones & Co. who has a ``buy'' rating on Enron. ``As markets open up, their volumes will grow. Their margins are basically flat.'' Enron's profit margin was less than 1 percent last year and has averaged 2.1 percent during the past five years, based on Bloomberg data. That compares to a profit margin of 6.5 percent for Exxon Mobil Corp., the largest publicly traded energy company. Shares of Enron have dropped 31 percent during the past year despite steadily increasing earnings, and sales that now rival those of Exxon Mobil. Broadband Meltdown Investors are concerned about lackluster results from the company's broadband business, which was set up to trade space on fiber-optic telecommunications networks. Enron shares surged 87 percent last year when the boom in Internet and telecommunications businesses seemed certain to increase demand for broadband capacity. Enron shares fell 40 percent this year as the boom fizzled. The broadband business had a loss before interest, minority interests and taxes of $102 million in the second quarter, compared with an $8 million loss a year earlier. Broadband revenue plunged 89 percent to $16 million from $151 million. Enron said it is firing broadband staff to reduce costs. ``There's a meltdown out there,' Skilling said. ``You have to do very short-term transactions (in broadband) because people don't have the credit to do long-term transactions.'' Investors are questioning whether Enron can continue to post huge gains in sales in its energy and commodity businesses, analysts said. The earnings news today left the stock up 45 cents, or less than 1 percent, to $49.55. ``It was telecommunications that took the stock to its lofty height . . . and disappointment with telecommunications that has held the stock back,'' Wagner said. ``What they're trading at now is purely as an energy company.'' Spokeswoman Karen Denne declined to say how many people will be fired or where the cuts would take place in the company's broadband business. Enron has broadband staff in Houston, London, Singapore and Portland, Oregon. Denne said Enron would try to find internal jobs for the broadband workers and only cut those employees it can't place. In a conference call, Skilling said the broadband business still has potential. ``We're getting a negative impact on our stock price from the broadband business, and I don't think that's right,'' Skilling said. Buyer and Seller Skilling and his predecessor, Ken Lay, have transformed a natural gas-pipeline company into the biggest competitor in the business of trading commodities such as gas and power. Enron also uses financial instruments such as futures contracts to help protect customers from swings in energy prices. Enron says it makes money regardless of whether prices go up or down in California because it is both a buyer and a seller in the markets where it operates, making much of its money from fees for arranging trades. It also profits from selling risk management contracts to utilities and other companies that want to lock in energy prices. Enron was expected to make 42 cents a share in the quarter, the average estimate of analysts polled by First Call/Thomson Financial. Enron reiterated its 2001 profit forecast of $1.80 a share and said it expects to make $2.15 in 2002. The First Call estimate for 2002 was $2.12. Enron's revenue tripled from $16.9 billion in the year- earlier quarter. Most of the gain came from Enron's Wholesale Services business, which includes commodities trading and development of energy projects such as power plants. Earlier this year, Enron estimated it was owed as much as $500 million for California energy sales. Skilling said he thinks California prices have stabilized and the state is going to get through the summer ``just fine.'' While electricity and natural gas prices in the West are up from a year ago, they are down from the first quarter. ``The financial impact on Enron is over now,'' Skilling said. European Expansion Enron had first-half revenue of $100.2 billion, almost equal its revenue for all of last year. Skilling has predicted revenue will top $200 billion this year, rivaling Exxon Mobil's $232 billion in 2000 sales. Enron is continuing to expand its trading business in Europe. The company entered Europe ahead of its competition and became the dominant trader there, said Bob Christensen, a First Albany analyst who rates Enron a ``strong buy.'' ``We have just started down the path in Europe,'' Skilling said. ``Look for great things from Europe in the future.'' In California and other parts of the U.S., Enron has a growing business in contracts that manage energy supply for big customers such as Owens-Illinois Inc. and Eli Lilly & Co. Contracts increased 89 percent to $7.2 billion in the quarter, Enron said. The energy-services unit's profit increased 30 percent to $60 million in the quarter, and the business is on track to make $225 million this year, more than double 2000's results, Enron said. Profit was little changed at Enron's pipeline and utility businesses, which are more closely regulated than the trading operations. Enron has a 25,000-mile gas pipeline system and owns Portland General, an Oregon utility. The company reported a loss of $109 million for higher ``corporate-wide expenses.'' About a quarter of that was from its Azurix water unit, Skilling said. The loss compares with profit of $17 million a year earlier. Enron's Skilling Sees California Energy Crisis Easing (Update2) 2001-07-12 16:17 (New York) Enron's Skilling Sees California Energy Crisis Easing (Update2) (Updates with closing share price.) Houston, July 12 (Bloomberg) -- Enron Corp. Chief Executive Jeffrey Skilling said higher retail prices for electricity in California has curtailed power demand and should lead to fewer blackouts than expected this summer. ``The expectation of higher retail prices has dampened demand considerably,'' Skilling said in a conference call with analysts and investors. ``I think we're going to get through the summer just fine in California. That will ultimately lead to lower wholesale prices for power.'' The state had been facing about 15 hours of blackouts a week this summer, the North American Electric Reliability Council, a national group that monitors and coordinates U.S. power supplies, said in May. California has been spared outages recently because of conservation efforts, cooler temperatures and new power plants. Prices for power and natural gas in California should stay close to current levels because of the drop in demand, Skilling said in an interview with Bloomberg Television. Power plants producing enough energy for about 1.2 million homes have opened this summer in California, California Governor Gray Davis said yesterday in a statement. ``We're not out of the woods yet, but we are making progress,'' Davis said. California is seeking $8.9 billion in refunds from generators such as Houston-based Enron, the biggest energy trader, for power bought in the last year. Under the formula used by California to derive that figure, Enron is actually owed $44 million because it bought more power than it sold since May 2000, Skilling said. Shares of Enron rose 45 cents to $49.55. The company said today second-quarter profit rose 40 percent as higher sales of electricity more than made up for a loss in its telecommunications business. Enron stock has fallen 40 percent this year. The political rhetoric surrounding the California crisis and negotiations over possible refunds has hurt Enron's stock price, Skilling said. ``All this noise from California has obscured the performance of the company,'' Skilling said. Date July 12, 2001 Time 09:00 AM - 10:00 AM Station CNBC Location Network Program The Squawk Box Mark Haines, anchor: Energy earnings: Enron reporting second quarter earnings, forty-five cents a share, beating expectations of forty-two cents a share. Surpassing last year's earnings of thirty-four cents. Net income roes forty percent to four-hundred-four million dollars. Revenue up one-hundred and ninety-five percent to fifty-billion. (Graphic: Enron (ENE): Actual $0.45, Estimate $0.42, Year Ago $0.34, Revenue up 195% to $50.06b, Net Income up 40% to $404m) Enron said revenue numbers were driven by a surge in wholesale services business. Stock is trading at a fifty-two week range, forty-two to ninety. Right now at the low end, around forty-nine yesterday. Let's take a closer look at the numbers. Joining us now is Enron CEO Jeffrey Skilling. And in the spirit of full disclosure, I have some shares of Enron in my IRA. Mr. Skilling, how does revenue go up so much and the bottom line doesn't benefit more? Jeffrey Skilling (Chairman and Chief Executive Officer, Enron): Well we had a net income increase, Mark, of over forty percent and earnings per share up thirty-two percent, so I think it was a real good quarter. Haines: Yeah, but that doesn't answer the question, well, how can revenue grow like a hundred and fifty and--and the bottom line only benefits forty--forty percent? Skilling: What--what drives our net income, Mark, is the increase in physical volumes delivered. Revenues are impacted by price levels and price levels really don't impact us because we don't own generation facilities, we don't own gas production assets. So prices move up, prices move down, that impacts our revenue. But what really matters to us is how much volume are we delivering to customers and our volumes this quarter up fifty-eight percent, which drove that increase in our wholesale income. Haines: How unusual should we consider the--the last few quarters? Skilling: I think the most lasting legacy of the problems in California may be an order that came out of the Federal Energy Regulatory Commission yesterday. And what they did is they forced open--moved to four mandatory, what they call regional transmission organizations. (Graphic: Enron (ENE) 8-Quarter Earnings History Chart) This will make the marketplace for electricity in North America open. And what that means is there is a tremendous additional amount of growth, we believe, in the electricity markets in North America as these markets open up for competition. Similarly Europe--Europe is really just starting. I don't know if you saw our numbers in Europe, but our gas volumes were up over a hundred percent. Our electricity volumes were up over four hundred percent in Europe. That market's just starting to open and has tremendous future opportunities in it. (Graphic: One of the world's leading electricity, natural gas and communications companies; Delivers physical commodities and financial & risk mgmt. services to customers around the world) Joe Rivkin (Citigroup Investments): Mr. Skilling, I--you are building a global fiber-optic network, which is in effect owning some capacity that you're going to be selling or trading. Can you help us understand the logic behind that? And, also, what will make that network different from several of the other networks that are out there or under construction? (Graphic: Has developed an intelligent network platform to facilitate online business; Divides its business into four core areas: Wholesale, Broadband, Energy and Transportation Services) Skilling: Yeah. Thanks, Jack. It's--it's a very, very different network than what you'll see anywhere else in the world. If you look at most networks, the capacity to input data and the capacity to output data is very similar to what the long-haul capacity is. In our network it's very different, the capacity input and output is enormous relative to the amount of long-haul capacity we have. That allows us to bring data into our system, move it on to other people's systems by creating a marketplace for bandwidth, to get customers lower prices. We think this is the future, particularly given the melt down in client and prices for bandwidth around the world. We think this is exactly the right strategy to have. We're focussing on those areas where we--we believe that marketplace will be good in the future. In fact, we announced in the press release this morning a contract with Microsoft. A multi-year contract to provide bandwidth services that is really geared towards providing instantaneous access to bandwidth for customers, which is really a new product which we think is going to be very important for the future. (Graphic: Formed in July 1985 as a result of the merger of Houston Natural Gas and InterNorth of Omaha, Nebraska; Headquarters in Houston, Texas; Approximately 20,000 employees; Yearly High: 90.75, Yearly Low: 42.35; Market Cap: 36.6b; Top Competitors: AEP, Duke Energy, Reliant Energy) Haines: Does this get you into the technology business? Because if you're dealing with what's coming into a pipe and what has to go out of it, there's--there's a lot of effort going into place to either compress the information or expand the information or route the information... Skilling: Right. Haines: ...how are you dealing with that? Skilling: Well, really, what we're doing in the telecommunications business is identical to what we do in the natural gas and electricity business. They're pipes, and the data moves through the pipes. If they can crush more--more data into the same amount of pipes, that's good, that opens the market, provides additional capacity. What we do is we purchase and sell that capacity and make it available through our switching capabilities to any customer that wants to get real time access to bandwidth. (Enron Corp (ENE) 3-Month Stock Chart and 6-Month Stock Chart) Haines: How much of a cloud on the horizon is this California energy situation? The--you are suing the state of California, California is asking for documents, you're refusing to provide them. The situation doesn't look too pleasant. (Graphic: Enron Corp (ENE) 1-Year Stock Chart and 3-Year Stock Chart) Skilling: Well, Mark, you know, I think--I think the entire California thing I think is past the high water mark. Prices now are moving up in California and economics 101 demand's going down. I think we're going to get through this summer all right. As Joe was saying, the weather's pretty cool out in California. I think that's going to keep the demand for electricity down. As prices come down in California, I think the whole tone of discussion in California will get better. And as I said, this whole thing with the Federal Energy Regulatory Commission--they recognize now it's important to open the grid, it is critical to create efficient markets for electricity. And the step yesterday, I think, is a landmark step in opening that market and I think that's going to reduce the problems from California. (Graphic: Enron Corp (ENE) 5-Year Stock Chart) Haines: All right, sir, thank you very much. We appreciate your bringing us up to date. Skilling: Thanks, Mark. Haines: Jeffrey Skilling, CEO of Enron. # # # Business Enron Expects To Cash In On New U.S. Federal Mandate For Open Wholesale Power Markets Rhonda Schaffler, Barry Hyman 07/12/2001 CNNfn: Market Coverage - Morning (c) Copyright Federal Document Clearing House. All Rights Reserved. RHONDA SCHAFFLER, CNNfn ANCHOR, MARKET CALL: The nation`s number one buyer and seller of energy posted strong second quarter numbers. Enron (URL: http://.www.enron.com/) earned 45 cents a share, beating estimates by 3 cents and the year-ago quarter by 11 cents. Revenue surging almost 200 percent and the company says it`s on track to meet not just expectations this year but expectations for next year. Shares, though, have been slashed in half in the past six months due mostly to the California power crisis and weakness in the broadband market, as Enron continues to build its` global fiber optic network. Joining us from Houston to talk about all this is Jeff Skilling, CEO and president at Enron. Jeff, good to have you back on "Market Call". JEFF SKILLING, CEO, PRESIDENT, ENRON: Thanks, Rhonda. Good to be here. SCHAFFLER: Congrats on the quarter. But it`s an interesting quarter for you in that, for a change, not everything`s firing on all cylinders. SKILLING: Well, you know, it`s a little bit of the tale of two cities. You know, the energy business is very strong. As you can see from our numbers, we had a great quarter-another great quarter in the energy business. Broadband business is suffering from some of the problems the broadband business has, but luckily, in Enron, it`s a very small portion of our net income. So, the real story for Enron is this strong, strong growth and strong profitability of our energy business. BARRY HYMAN, CNNfn GUEST HOST, MARKET CALL: Jeff, I just want to concentrate on the broadband part for a second. You`re significantly cutting costs there and your stock seems to have gotten hit as almost a technology stock since the beginning of this year. Where do you see the broadband part going forward? And how you can make money in that particular sector? Or is it really a viable place to be? SKILLING: Yeah. Barry, I really do believe that they`ve taken all the value of broadband business out of our stock completely. It`s gone. And we`ve also been hurt a little bit by what`s going in California, in spite of the fact that we continue to hit our numbers. We`ve hit our estimates, or exceeded estimates, very quarter for the last four years. But I think people are just a little nervous about us. As far as broadband goes, it is a tough, tough market. The revenues have dried up in that business. There are two areas where we have focused, which have been our primary area focus. One is to create a market place-a real-time market place for bandwidth. We feel very good about that. That is continuing to grow. And a content delivery service where we provide a turnkey service for customers. We just announced, in fact, in the earnings release, a new contract with MSN that really provides that dynamic provisioning of bandwidth for customers. And those are the two areas we`re focusing on. The rest of the market we are just going to eliminate our activities there and just focus on those two activities. And we see those as having enormous future potential for customers. It`s going to be tough for the next year or so as that market kind of digs itself out of a hole. But I think longer-term it`s a great place to be and we have exactly the right strategy for pursing that market. SCHAFFLER: Can you tell us a little bit about what you`re doing in Europe with the energy markets there? Because Europe`s an interesting story as well, because of concerns about the slowdown there? SKILLING: Yeah, it`s interesting, Rhonda. Our volumes in Europe were incredible. Our gas volumes were up over 100 percent. Our electricity volumes were up over 400 percent. What you`re seeing there is, in spite of the slowdown in the economy in Europe, they`re opening up their markets to competition so the non- regulated portion of the energy market, which is the only portion of the market where we compete, is just exploding. It`s growing by leaps and bounds. And so we expect Europe to be a significant contributor to future growth. Similarly, even in North America, as we`re seeing the economy here slowdown. We had a landmark decision come out of Federal Energy Regulatory Commission yesterday. They have mandated now the establishment of four regional transmission organizations. And this sounds kind of technical, but essentially what it does is it is going to force fully open-force fully the North American wholesale power markets in North American. And that, I think, will provide significant new growth opportunities for us in North America. So, I think the North America and the European gas and electric markets are really not dependent on economic activity, as far as Enron`s concerned. They`re really dependent on how quickly we move to open competitive markets and we`re seeing a very, very fast transition there-and great news out of the FERC yesterday. SCHAFFLER: Jeff Skilling, CEO of Enron. Nice to see you again. Congrats on the quarter. We`ll talk soon. SKILLING: Thanks, Rhonda. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Date July 12, 2001 Time 12:30 PM - 01:00 PM Station Bloomberg Information TV Location Network Program Newsline Suzy Assaad, anchor: There's a lot ahead for you in this next half hour. We're going to talk live with the CEO of Enron, Jeffrey Skilling. His broadband division is having some troubles and we're going to ask him why he thinks he can turn it around. * * * Assaad: Enron came out with earnings and they actually beat the Street. The energy and communications company earned forty-five cents a share from continuing operations and that was three cents better than what the Street was expecting. (Graphic: Enron (ENE) 2Q, 2001 > Actual EPS $0.45 > Estimated EPS $0.42 Earnings Alert) The news sent shares of Enron sharply higher in the early part of the session. On the day, though, they have managed to turn a little bit to the downside. (Graphic: Enron intraday stock chart) Enron, though, is having problems with its broadband division. The company is projecting lower revenues for broadband and it is going to eliminate jobs to lower costs. Now can broadband be turned around and if not, what will they do about it? Joining us live from Houston is the CEO of Enron, Jeffrey Skilling. (Graphic: Enron. Enron 2Q profit rises 40% to $404 million as higher sales of electricity more than made up for a loss in its telecommunications business) Mr. Skilling, thank you for being on the show and let's start off with that question. How do you plan to turn broadband around, if--continue to keep it or get rid of it? What are your plans for there? Jeffrey Skilling (Chief Executive Officer, Enron): Well we believe longer term the broadband business is going to be a good business. It's clear, though--absolutely clear that we're going through a meltdown in the business right now. And so what we need to do is we just need to get our cost structure in line with the current view of what revenues can be in that business and that's what we're in the process of doing. (Graphic: Enron. Net income at the top energy trader rose to $404 million, or $0.45/share from $289 million or $0.34/share a year earlier) I think, given our strategy--our strategy has not been an asset-heavy strategy--we should be able to do this pretty easily and pretty quickly. As you've seen from our numbers that we announced today, we have extremely strong growth on the energy side of our business, so we'll end up redeploying people from the broadband business back into our energy business. So we think we can move pretty quickly on it. (Graphic: Enron. Houston-based company says it sold almost twice as much power in North America and five times as much in Europe in the quarter) Assaad: That's--that's quite a drain then. I mean in a year where you're having such great numbers, to have the broadband be such a drain on your bottom line. Skilling: Well it's not that big in the grand scheme of things. You know our energy business is a big business, it's growing very quickly. Our revenues in energy this quarter were over fifty billion dollars. So that's really the big part of our business and, sure, the telecommunications business I think long term is going to be an opportunity. I wish it were an opportunity right now but I think what we need to do is just get that burn rate down, get it consistent with what the revenue opportunity is in the industry. We'll be a survivor and when this business comes back, I think it has all the promise that we all know it has, it's just going to be a little delayed from what we thought before. Assaad: Could we actually get your outlook, Mr. Skilling, on energy prices going forward? Skilling: Sure. It's--it's-- Assaad: Is it a one-way street up? Skilling: I don't think so. We've been really surprised by the decline in demand. If you look at demand for electricity and natural gas in North America, it is way down this year, almost unprecedented decline in demand for a developed economy. I've never seen anything like it before. And--and I think it's been triggered by the fact that prices went up last year and customers--sort of Economics 101--customers have decided that there are cheaper alternatives and so the demand has gone down and that has really driven down prices. You know gas prices are way off from what they were earlier this year. Power prices all across the country are way down from what they were earlier this year. And so I think it's just natural economics taking effect. But what I think it means is that the current price level that we're seeing for gas and electricity are probably likely to be the prices that we'll see for--for some time now. They're on the low side of the range that everyone was expecting but I think that's what it looks like. (Graphic: Enron. President, CEO Jeffrey Skilling has predicted that revenue will top $200 billion this year) Assaad: In terms of what's going on in California, it's--it's said that that has put some pressure on your stock price as of late. What are your predictions down that end? Skilling: Well it has put pressure on our stock price. You know we've--we've hit earnings or exceed earnings expectations every quarter for the last four years and yet our stock's down this year. I think the reason for that is that all of this noise from California has obscured the performance of the company. (Graphic: Enron. In places including CA, Enron has a growing business in contracts that manage energy supply for big clients such as Owens-Corning, Lilly) But I think we're now, because prices are dropping--wholesale prices are dropping for power, I really think we've seen the high water mark of the problems in California. (Graphic: Enron. Contracts increased 89% to $7.2 bln in the quarter, Enron says) It's been cool in California, prices are down and I think as this works its way through the system, I think a lot of the noise and a lot of the antagonism will start to go away and I think--in fact I think probably the greatest legacy of this whole California debacle will be what happened yesterday in the Federal Energy Regulatory Commission. You know they came out with an order that most people weren't really, I don't think, looking at that carefully. But this--this order requires the development of a very, very efficient marketplace for electricity in North America. (Graphic: Enron. While California power prices were double year-ago levels, Enron reiterated its 2001 profit forecast of $1.80/share and said it made no difference to Enron's bottom line) It's a huge step forward, it's very, very positive. And so while it's technical in nature, I think ultimately it will have probably the most impact going forward in time, more than this whole California things has had. Assaad: Interesting. In terms though of--of going forward from here, it's also said that a lot of your wholesale margins, a lot of certainly your volumes are going to be dependent on the development of Europe, that this is really the area of growth for you right now. Do you agree with that and where do you see Europe going for you in the next year? Skilling: Well, Europe is important and Europe is just starting the process of liberalizing markets, the continental countries. And so we think there's enormous growth opportunities there. Gas volumes were up over a hundred percent. Our power volumes were up over four hundred percent. So I think there's great opportunity there and that will be a source of growth in the future. (Graphic: Enron. That's because Enron's risk-management business makes money it expects to make $2.15 in 2002; First Call estimate for 2002 was $2.12, whether power prices rise or fall, analysts say) Assaad: Mr. Skilling, do you think there's greater opportunity for Enron in Europe than there currently is here in the U.S.? Skilling: No. And that's--I was about to say that with this change in the federal policy, this--currently only about twenty percent of the wholesale market for power is accessible. You can only get to about twenty percent of the locations in the country because of flawed regulation in North America. If these rules go through, as was dictated yesterday by the Federal Energy Regulatory Commission, the entire U.S. market opens up and so this is an enormous growth opportunity. And--and because this is our biggest business, we think it will have more effect than Europe. (Graphic: Enron. Enron's ability to boost profit and sales even as its broadband business slumped shows it can manage changing market conditions, analysts say) But longer term, Europe's a great market, great business for us. Assaad: Absolutely. Thank you very much for joining us today. Jeffrey Skilling, joining us to talk about Enron. # # # USA: INTERVIEW-Enron chief sees California problems fading. By C. Bryson Hull 07/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, July 12 (Reuters) - The thus-far cool summer in California and the emergence of specifics about Enron Corp's limited involvement in the embattled California power market should ease pressure on the energy giant's stock, the company's chief executive said on Thursday. "I think we are going to get through the summer just fine. In terms of the financial impact on Enron, it's pretty much over," Enron President and Chief Executive Officer Jeff Skilling told Reuters in an interview. The rhetorical attacks on the Houston company as an out-of-state generator ignore key facts about how much power Enron sold into California, he said. "I don't know how they can keep using us as the poster child when all of the numbers keep coming out. The poster child ought to be the Los Angeles Department of Water and Power," Skilling said. According to sales records maintained by the California Independent System Operator, which manages most of the state's power grid, Enron accounted for 0.4 percent of the alleged $9 billion in overcharges. The U.S. Federal Energy Regulatory Commission is slated to decided if there was an overcharge to California, and if so, how much should be refunded. The same records show that the L.A. municipal utility and other municipal utilities in the state overcharged PG&E Corp.'s Pacific Gas and Electric and Edison International's Southern California Edison utilities millions more than Enron did. "I believe ultimately in the longer term, as people become more knowledgeable about the data and statistics, I don't think they'll harp on Enron so much," Skilling said. Skilling has personally felt the nasty nature of the duel between California and "out-of-state power producers," the label California Gov. Gray Davis, a Democrat, has used to blast energy companies like Enron. During a June 21 speech in San Francisco, a demonstrator threw a cream pie and hit Skilling in the face. "I knew something was going to happen out there, but we wanted to get our facts out and show our commitment to getting the facts out," Skilling said of the reason for his visit. After he was hit with the pie, Skilling calmly explained his and Enron's belief for the reasons behind California's power woes. While Davis blames Enron and others for jacking up wholesale energy prices, the companies pinpoint California's flawed deregulation scheme and a rise in the price for natural gas as the main problems. The latest manifestation of the flat-out war between California politicians and Enron is a California legislative committee's finding that Enron is in contempt for refusing to hand over confidential business documents in a probe into price gouging. The California Senate believes the finding gives them the power to fine Enron and possibly jail its senior officers. But just before the Senate Select Committee to Investigate Market Manipulation voted to hold Enron in contempt on Wednesday, the Houston company sued in a California court on a claim the legislature has no jurisdiction over them. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron CEO:Foreseeable Business Prospects Remain Excellent By Bob Sechler Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) AUSTIN, Texas -(Dow Jones)- Flush from reporting a 40% year-over-year increase in net income for the second quarter and substantially beating Wall Street expectations, Enron Corp. (ENE) Chief Executive Jeff Skilling said Thursday that prospects for his company remain extremely strong. "We are well-positioned for future growth," Skilling told analysts during a conference call. Skilling also downplayed ongoing controversy regarding the power crisis in California - which has contributed to a pall over Enron stock - saying he thinks the issue already has reached "a high-water mark" and should subside. California likely will make it through the summer without much additional power problems, he said, helped by lower prices and cooler weather. Enron, Houston, reported second-quarter net income Thursday of $404 million, 40% more than net income of $289 million in the year-go period. The company surpassed Wall Street expectations for the quarter, reporting earnings of 45 cents a share on revenue of $50 billion. Enron had been expected to earn 42 cents a share, according to the consensus of analysts polled by Thomson Financial/First Call. Enron earned 34 cents a share on $16.8 billion in revenue in the year-ago period. CEO Skilling also heralded the decision Wednesday by the Federal Energy Regulatory Commission ordering that four large electric-transmission organizations be formed to optimize the flow of electricity nationwide. The move will lead to a major improvement in business conditions for companies such as Enron, he said, because it will create a solid foundation for competitive power markets across the country. Enron officials estimated that they'll eventually be able to compete in more than 90% of U.S. power markets because of the commission's order, as opposed to the 20% the company forecasts now. Enron is the nation's largest electricity trader and marketer. "This is a major, major step forward," Skilling said. "All the lights are green right now" for Enron's wholesale-services division, which accounted for about 97% of Enron revenue in the second quarter. Skilling expressed confidence that Enron will meet Wall Street's full-year earnings expectations of $1.80 a share. In addition, he said the company will earn $2.15 a share in 2002, an increase from current 2002 expectations of $2.12 a share. Still, Enron's otherwise solid second-quarter results were marred by the performance of its broadband-services division, where among other activities it has been a pioneer in creating a trading market for broadband, or high-speed Internet capacity. The division lost $102 million in the quarter before interest, minority interests and taxes, compared with an $8 million loss in the year-ago period. Skilling said the division has been the victim of an overall "meltdown" in the broadband industry. "Revenue this quarter, or revenue opportunities, just dried up" in broadband, he said. The business climate eventually will rebound and bear fruit for Enron, Skilling said, but that is probably one to two years away. In the interim, Enron is planning to overhaul the broadband unit, cutting costs and narrowing its scope to focus strictly on intermediation, or trading, activities and on providing specific bandwidth to large enterprise customers. Enron didn't reveal details of the planned cuts Thursday. Still, Skilling did note that he thinks investors already have penalized Enron for the broadband unit, or at best given it no value as reflected in the stock price. He said he thinks that reaction is unwarranted and understates the future potential of the broadband unit. Later, in an interview with Dow Jones Newswires, Chief Executive Skilling reiterated that California's ongoing efforts to resolve its power crisis will have no negative impact on Enron. He also dismissed as "all politics" a move Wednesday by a California Senate committee to forward a contempt charge against Enron to the full California Senate. The committee initiated the action because Enron has refused to provide certain financial documents that the committee has requested as part of an investigation into wholesale power prices in the state. "They have no jurisdiction, and they've made it clear they won't keep confidential" the information that they have requested, Skilling said Thursday. "In the absence of that, we don't particularly want to turn over to them information." Enron shares recently traded at $48.80, down 30 cents, despite the company's strong second-quarter results. Skilling said the stock was being held back because of its tie to the energy sector, which has been struggling overall. "Give it a couple of days," he said. "I think we've hit the low-water mark on our stock price, and I think we have a lot of upside." -Bob Sechler, Dow Jones Newswires; 512-236-9637 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron 2Q Net Rises 40% As Trading Revenue Soars By Bob Sechler Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) AUSTIN, Texas -(Dow Jones)- Enron Corp.'s (ENE) second-quarter net income rose 40%, led by a huge uptick in revenue at its wholesale services division, which includes energy trading operations. "The numbers were excellent, no question about it," said John Olson, an analyst with Sanders Morris Harris. "It was a good quarter, and management has clearly raised the bar for 2001 and 2002." The company reported second-quarter net income Thursday of $404 million, or 45 cents a share, compared with year-ago net income of $289 million, or 34 cents a share. Enron had been expected to earn 42 cents a share, according to Thomson Financial/First Call. Revenue ballooned to $50.06 billion from $16.89 billion in the year-ago period. However, the strong results didn't prevent Enron stock from falling modestly in Thursday's trading. The shares traded recently at $48.80, down 0.6%. Analysts cited a host of reasons for the lack of investor response, not the least of which is lingering uncertainty regarding California's energy crisis and the outcome of energy deregulation efforts overall. Enron is the nation's largest electricity trader and marketer. "There's a perception there that's hurting Enron's stock, creating uncertainty about it," said Louis Gagliardi, of John S. Herold Inc. Enron is "still under the shadow of the California situation and deregulation." Gagliardi and others said they tend to agree with Enron Chief Executive Jeff Skilling that California's efforts to resolve its power problems won't hurt the company. But they said investors are jittery nonetheless. For his part, Skilling blamed the lack of enthusiasm in the stock market Thursday on his company's perceived tie to the overall energy sector, which is slumping after a period of strong growth. He said he expects the stock to respond over the next few days once investors "digest" the strong second-quarter results. "I think we've hit the low-water market on our stock price, and I think we have a lot of upside," he told Dow Jones Newswires in an interview. Skilling told analysts Thursday that Enron will meet full-year earnings expectations of $1.80 a share, and he also raised the forecast for 2002 earnings to $2.15 a share from $2.12 a share. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 3-Enron quarterly earnings rise, beat estimates. By C. Bryson Hull 07/12/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, July 12 (Reuters) - Energy marketing and trading powerhouse Enron Corp. said on Thursday its second-quarter earnings rose almost 40 percent to beat Wall Street estimates on robust growth in its workhorse wholesale energy business. The Houston-based company, the No. 1 U.S. natural gas and electricity marketer, reported net income excluding non-recurring items of $404 million, or 45 cents a share, compared with $289 million, or 34 cents a share, in the same period a year ago. Analysts had expected earnings in the range of 40 to 44 cents a share, with an average of 42 cents, according to Thomson Financial/First Call. Enron also said it was confident it would reach its target of $1.80 for recurring earnings per diluted share for the full year 2001, while saying it expected to earn a slightly better-than-expected $2.15 per diluted share in 2002. Initially, Wall Street reacted favorably and pushed the stock up by as much as $1.70, but the stock reversed in early afternoon trading on the New York Stock Exchange, shedding 27 cents to move to $48.83. One of the only black marks in the quarterly report was widening losses - $102 million - in Enron's nascent broadband unit due to weak demand for those telecom services. Volume growth in Enron's core wholesale energy business drove all but $1.5 billion of $50.06 billion in second-quarter revenues. Revenues more than doubled from $16.88 billion in the year-ago quarter. "Our wholesale and retail energy businesses continue to dramatically expand business activity and increase profitability," Enron President and Chief Executive Officer Jeff Skilling said in a statement. Total energy volumes, including natural gas, oil and power, increased 58 percent to 74 trillion British thermal unit equivalents per day, the company said. Global power volumes led the growth as they more than doubled to 285 million megawatt-hours, with three-quarters of that coming from North America. Salomon Smith Barney analyst Ray Niles said the wholesale segment was the key earnings driver, propelled by volume growth, high trading volatility and the liquidity added by EnronOnline, the company's marquee Internet trading platform. EUROPEAN OPERATIONS Another key factor, Niles said, is the emergence of Enron's European wholesale operations, which swelled with power volumes nearly quintupling to 73 million megawatt-hours. Gas volumes doubled. "Europe is kicking butt and it's about a quarter of their activity, nearly double what it was last year. And that is a new market that is the size of the U.S.," Niles said. Growth in Europe is coming faster than expected, Skilling told analysts in a conference call. "It's surprising how quickly this thing is opening up and how the volumes are growing," he said. Enron nearly doubled new retail energy services contracts year-over-year, moving to $7.2 billion in total value from $3.8 billion. That growth accounted for $60 million in pre-tax income, up from $46 million a year ago. Skilling said the U.S. Federal Energy Regulatory Commission's order on Wednesday to create four regional power grids should help increase Enron's retail business as larger entities look for ways to package power costs. Enron's retail arm does that by managing costs and trimming usage for large retail customers. "People want direct access, and right now we are the only player that can provide it," Skilling said. On the negative side of the balance sheet, Enron reported a $109 million pre-tax, pre-interest loss attributable to unexpected expenses and the failed spinoff of water company Azurix Inc. BROADBAND BUSINESS HURTING Skilling acknowledged that Enron's budding broadband business endured a rough quarter with $102 million in losses compared to $8 million a year ago. The flashy unit, which gave Enron a once-valuable telecom cache that drove its stock to record highs last summer, has fallen from grace recently as the telecom market tanked earlier this year and revenue dried up from credit-poor customers. Broad telecom weakness, as well as the California power crisis and a struggling power project in India combined to pressure the energy giant's stock down 15.7 percent in the quarter. It underperformed the broader Standard & Poor's utility index, which was down 6.32 percent in the same period. Since the close of the quarter, the stock has been hovering near $49, just over half an all-time high of $90.25 reached last August. It had traded at more than $81 as recently as mid-February. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron reports earnings increase of almost 40 percent 07/12/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - Enron Corp. reported a nearly 40 percent increase in second-quarter earnings on Thursday and beat analysts' expectations due to robust growth in its power marketing and energy management businesses in the United States and Europe. The Houston-based energy wholesaler and retailer earned $404 million for the quarter ended June 30, or 45 cents per share. That compared with $289 million, or 34 cents per share a year earlier. Analysts surveyed by Thomson Financial/First Call predicted earnings of 42 cents per share. Despite continued growth in its natural gas and electricity trading business, though, Enron's stock has faltered in the past year due to unmet expectations for its high-speed Internet business. Enron's broadband business reported a $102 million loss, compared with an $8 million loss for the same quarter a year ago. Enron President and Chief Executive Jeff Skilling said Enron would "significantly" reduce spending in its broadband unit "to match the reduced revenue opportunities currently available." Enron reported $50.1 billion in revenue for the second quarter of 2001, almost triple the $16.9 billion reported for the same quarter a year ago. Company officials expressed confidence of reaching $1.80 per share in earnings for the full year 2001 and $2.15 per share for 2002. "Our wholesale and retail energy businesses continue to dramatically expand business activity and increase profitability," said Skilling. Enron has been embroiled in the conflict over California's energy woes, with a committee of that state's Senate issuing subpoenas to the corporation and other generating companies earlier this year in connection with an investigation of possible price manipulation in energy markets. Shares of Enron were up 26 cents to $49.36 on the New York Stock Exchange on Thursday Morning. Enron's stock was trading above $70 a share at this time last year. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Venture capital chasing next big - and little - thing in energy By JUSTIN POPE AP Business Writer 07/12/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. BOSTON (AP) - Not so long ago, investing in the energy industry meant buying into oil wells, hydroelectric dams and the smokestacks of big, clunky utility companies straight off of a Monopoly board. No longer. Deregulation has unleashed competition, and headlines from the California power crisis have sent entrepreneurs and investors scurrying into the energy sector. While old economy energy companies have attracted much of the attention, there's growing interest in smaller companies that comprise an emerging sector called "energy technology." It encompasses everything from software to microturbines to Internet tools that manage, monitor and even trade electricity. A recent energy industry venture capital fair, which organizers said was the first of its kind, drew 75 start-up companies to Boston - an event many investors who attended said would have been unimaginable even a few years ago. The companies and VCs are after the "$300 billion jump ball" made possible by electricity deregulation, said Todd Klein, managing director of Kinetic Ventures, a Chevy Chase, Md.-based VC firm. Their monopolies gone, power companies are being forced like never before to improve productivity. Start-ups are trying to help them with a new generation of high-tech gadgets. Meanwhile, technology companies are demanding cheaper and more reliable power sources. Entrepreneurial talent also is drifting to energy. And finally, several technologies developed in government labs have recently become commercially viable. "We have been following these technologies 10 years, and they never were anything more than science experiments," said Jeff Miller of Boston's Beacon Group, which manages $1.6 billion in two energy VC funds. "Now you've got the demand coming from the marketplace and very serious managers with very focused business plans." Offsetting the flurry of enthusiasm is tighter funding from the VCs. According to research firm Venture Economics, 77 companies took in more than $1.2 billion in funding in the sector last year, but so far this year just 17 companies have raised a total of $132 million. That pales in comparison to the old economy energy companies, which have raised $7 billion in IPOs this year. David Lincoln, founder of EnerTech Capital in Wayne, Pa., told entrepreneurs at the conference that nobody is in a hurry to make deals, and the conditions that VCs impose now "were virtually unheard of 18 months ago." Still, new public energy companies accounted for a third of all IPOs in the first six months of the year. And the power crisis has caused the entire investment community to take notice. "Three or four years ago, when we were looking at certain deals, we'd go to the banks and we'd never know who to talk to," Lincoln said. "Do you talk to the utility bankers, or the technology bankers?" Now, every major investment bank has begun tracking a sector. "Everybody's backing out of the dot-coms and telecoms," said Bradley Johnson, president of Washington, D.C.-based Pepco Technologies, which was seeking funding here. "They're saying the next new thing is energy, but they haven't figured it out yet. The management groups at these energy funds are sitting back, figuring out where they want to be." They are chasing some of the relative success stories like Chatsworth, Calif.-based Capstone, which makes freestanding microturbines that allow businesses to produce their own electricity. Company shares have traded as high as $100, but have fallen under $20, and the company still hasn't turned a profit. The sector "still hasn't seen its Netscape," Klein said. The upshot - and the lesson from last month's venture capital fair - is that the next little thing is on the minds of VCs as much as the next big one. That means technologies that don't necessarily revolutionize how electricity is produced so much as help traditional companies produce it, and customers use it, even just a little bit more efficiently. "I think with the events which occurred in California and which are threatening to occur in other parts of the company, people are focused on immediate solutions to those problems," Klein said. Many companies touting those types of solutions were at the fair, such as Encinitas, Calif.-based PredictPower, which builds systems to help companies manage their electrical use. Others showed flywheels, which store electricity on site to guarantee a perfectly steady stream of power for sensitive equipment. And some are still fighting to break into the already crowded online electricity exchange market. Other companies target the power companies themselves, with everything from software to satellite meter-readers. "There's just a lot more focussing on taking away the antiquities inherent in the old utilities system," said David Smith, who follows the sector for Solomon Smith Barney. Especially at the venture capital level, where backers tend to be looking for smaller investments and quicker returns. That's meant short shrift for some early-stage "green" companies. "Everybody's supply side," lamented R.W. Cushing, an entrepreneur whose Austin, Texas, alternative energy marketing company generally got the cold shoulder from VCs. "Nobody thinks in demand terms." In fact, alternative energy firms raised $2 billion last year from IPOs and VCs, according to Clean Edge, a research firm that tracks "green" investment. But renewable energy requires deep pockets and patience, and tends to be backed by big power companies which, if they can make alternative energy work, will have the infrastructure in place to connect it to the grid. Many big power companies ensuring they get the needed technology by backing start-ups themselves. Houston-based conglomerate Enron, for instance, has invested $90 million in 12 companies it sees as strategic partners, two of which have gone public. "I don't think there is a dearth of interest or investment in renewable technologies," Lincoln said. "(But)... the reason why you see such a strong level of interest in helping the supply-side companies is, right now, that's where the capital is being spent." With AP Photo Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. A Volt From Blue, U.S. Grid Rules Get Power Co's Abuzz By Arden Dale Of DOW JONES NEWSWIRES 07/12/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Energy companies, beware. This could mean you win, and it could mean you lose. Not today, not next week, but down the road. Big changes in the way power companies control the U.S. electricity grid are looming because of orders announced by the Federal Energy Regulatory Commission on Wednesday. At stake are billions of dollars companies could make buying and selling electricity. Power companies across the U.S. scrambled Thursday to learn details of the orders, which haven't actually been issued yet. They will probably be available by Friday, FERC spokespeople said. Companies that may benefit most, including Enron Corp. (ENE), Dynegy Inc. (DYN), Duke Energy Corp.(DUK) and Williams Co. (WMB), market electricity but don't own power lines. Big transmission-owners such as Southern Co. (SO), American Electric Power Co. (AEP) and Entergy Corp. (ETR), stand to lose control over their assets, according to analysts. "This is a major, major step forward," Enron Chief Executive Officer Jeffrey Skilling said of the FERC orders in a conference call on the company's earnings Thursday. On Wednesday, the FERC said it would direct transmission owners to form huge regional power grid operators by merging groups that already operate in the Northeast and Southeast. It said it would assign judges to start mediating right away with companies over a 45-day period to work toward compliance. The new grid operating giants must be up and running by December 2001, according to FERC spokesperson Celeste Miller. The FERC is widely expected to issue similar orders for the West and Midwest. The move this week accelerates a push the FERC's been making for several years to form regional transmission operators, or RTOs. In 1999, the agency issued a rule known as Order 2000 that directed companies to come up with plans to form RTOs. Many utilities missed deadlines to file plans, and companies including Enron criticized the FERC for not giving stronger directives and setting more aggressive deadlines. California's energy crisis has also prompted harsh criticism of the FERC, and may have helped push the agency to take stronger actions, according to some observers. Energy companies and Wall Street analysts said the action this week took them by surprise, more because of how fast the agency wants change to occur than because of what it wants done. Some said they doubt change will happen that fast. "It's a departure from the slower transition to the new market, which has been supported by companies like American Electric Power Co. and Southern Co.," said Christine Uspenski, an analyst at Schwab Capital Markets L.P. (SCH) "That doesn't mean necessarily that the older companies won't survive, but clearly FERC is moving to catch up to the trailblazers in the industry." Utilities and other power companies have already formed a number of grid operating organizations. Three are up and running in the East, including one in the New England, one in New York and another in the Mid-Atlantic region. Those groups will be joined under one of the new orders. The orders are intended, in part, to address complaints by some companies that they can't move power freely around the grid to maximize their profits. They say utilities sometimes manipulate markets unfairly by claiming lines are congested and denying others access. "Clearly, there is a benefit for the marketplace," said David Clement, associate director at the Cambridge Energy Research Associates. "It simply makes it easier for wholesale power marketers to do business." Enron expects the orders will open up U.S. wholesale markets dramatically, according to spokesman Mark Palmer. Right now, the market is about 20% open to competitors: after companies comply with the order, it will be more like 90% open, Palmer said. The FERC's orders this week didn't have an impact on energy company stocks. That's partly because changes won't occur immediately, and because transmission assets aren't huge profit centers for companies, according to Steve Fleishman, an analyst at Merrill Lynch & Co. (MER). Transmission lines do offer their owners benefits, however. "They're not as sexy as growth businesses, but they're great cash generators," said Uspenski. The FERC's orders will help to stimulate sorely needed investment in power lines and power plants, said a number of analysts. The U.S. grid is straining under the weight of increased power flows due to deregulation, but investments have been stymied by uncertainty over how the grid will be run, among other factors. "We think it's important that the FERC has put a template out there that indicates what it's next steps are going to be," said Pat McMurray, a spokesperson for the Edison Electric Institute, a utility group. EEI, along with a number of utilities, couldn't comment extensively on the orders yet because it hadn't seen them. Southern Co. was among them. (Kristen McNamara contributed to this article.) - By Arden Dale, Dow Jones Newswires; 201-938-2052 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Marlin Water Trust II Taps Euro And Dollar Bond Markets By Richard A. Bravo Of DOW JONES NEWSWIRES 07/12/2001 Capital Markets Report (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Marlin Water Trust II tapped the investment-grade corporate bond market Thursday with a $475 million issue and a EUR515 million issue. Marlin Water is a special purposes vehicle that was created by Enron Corp. (ENE) in 1998 to finance its purchase of U.K.-based water utility Wessex Water PLC. The current issue was a refinancing of that debt transaction. All interest payments are pre-funded from Enron Credit and principal repayment is backed by Enron equity. The transaction was done through Marlin Water Trust II in order to keep the debt off Enron Corp.'s balance sheet, said syndicate officials involved with the deal. The U.S. portion of the deal was a $475 million offering of Rule 144a debt that was priced to yield 6.31%, or 2.25 percentage points over Treasurys. Gray market levels were quoted at 2.25 percentage points over Treasurys, a level that investors and traders said was a strong showing. "These levels are reasonably positive on a day when the corporate market is so jittery," said Stephen Kane, portfolio manager at Metropolitan West Asset Management. Corporate spreads to Treasurys were out five to 10 basis points on the day. Marlin Water Trust II also priced a EUR 515 million piece, which was priced to yield 6.19%. Credit Suisse First Boston Corp. and Deutsche Bank Alex. Brown were co-leads on both transactions. Enron Corp. officials weren't available for comment. -By Richard A. Bravo, Dow Jones Newswires; 201 938-2087 richard.bravo@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. FERC Power Grid Orders Will Open Markets for Traders (Update2) 2001-07-12 17:03 (New York) FERC Power Grid Orders Will Open Markets for Traders (Update2) (Adds comment from utility consultant in fourth paragraph.) Washington, July 12 (Bloomberg) -- The U.S. Federal Energy Regulatory Commission's decision to restructure the U.S. electricity grid opens the country's power markets to further competition, analysts said, even as California struggles with the aftermath of its deregulation. ``The only reason for doing this is so you can have competition,'' said Christopher Ellinghaus, an analyst at Williams Capital Group LP. ``It's so you can build a transmission system that lets generators deliver power across utility boundaries without interference by the utilities themselves.'' The FERC wants four regional transmission organizations in the U.S. -- one for the Southeast, one for the Northeast, one for the Midwest and one for the West -- that would allow more trading among regions. Florida has the option not to join, and Texas is exempt from FERC jurisdiction. ``The FERC had given some hints,'' said Larry Winter, a partner at Accenture Ltd. who has consulted with utilities forming transmission organizations. ``Now they are telling the utilities, at least in the Northeast and Southeast, exactly what they want.'' Energy traders such as Enron Corp., Mirant Corp. and Aquila Inc. stand to benefit as barriers to electricity transmission fall, Enron officials said. ``We'll have the chance to match hundreds of potential supply sources with thousands of markets,'' Enron Executive Vice President Steve Kean said on a conference call with analysts and investors. ``It's a significant expansion of the market in a very short time.'' California Crisis California's two biggest utilities have racked up about $14 billion in debt because power prices surged after the state deregulated its market, and the utilities weren't allowed to pass higher prices on to customers. The state began buying power on the utilities' behalf in January. A power shortage led to blackouts for millions of Californians this year. Politics and different market rules are the major obstacles to consolidating the transmission organizations that utilities proposed, Winter said. The commission wants the transmission systems of New England, New York and the mid-Atlantic states to combine. ``New York is not on the same page'' as New England's grid operator, which based its rules on those of PJM Interconnection LLC, the grid manager for Pennsylvania, Delaware, and eastern Maryland and New Jersey, Winter said. Enron shares rose 45 cents $49.55. They have fallen 31 percent in the past year. Aquila fell 45 cents to $25.55. Mirant fell $1.20 cents to $36.58. Enron CEO Skilling on California Crisis, FERC Talks: Comment 2001-07-12 15:12 (New York) Houston, July 12 (Bloomberg) -- Enron Corp. Chief Executive Jeffrey Skilling comments on the company's ongoing dispute with the state of California about power sales and the settlement talks on the issue being led by an administrative law judge at the Federal Energy Regulatory Commission. Skilling's remarks were made in a telephone interview following the release of Enron's second-quarter earnings. Houston-based Enron's shares have fallen 41 percent this year. On the settlement talks: ``It's pretty clear that the state has no particular interest in resolving this. It makes for good political fodder, and so I think they'll spend a lot of time making a lot of noise about it, and basically nothing will happen until the judge comes in, and the judge will set some kind of conclusion.'' Skilling said the $8.9 billion in refunds California has requested from power generators and sellers ``has no relevance to any true or valid claim the state of California has. ``They want their $8.9 billion, and then they say they'll continue to sue after the fact. That's not the basis of a settlement.'' On the outlook for the California power crisis: ``If you look at the impetus for this whole thing, it was very, very high prices in the wholesale market. Those prices have abated now. They're down significantly, and I think that's going to reduce the noise level in California.'' On Enron's links to the Republican Party and its relationship with California: ``I think our connection and (Enron Chairman) Ken Lay's connection with the Republican Party has sort of set us up to be their target, but the reality is our business is based on a lot of things, and California is just one of them.'' Enron and its employees gave $113,800 to President George W. Bush's election campaign, making them jointly Bush's 12th-largest contributor, according to the Center for Responsive Politics, which tracks campaign finance. Lay gave the $2,000 maximum for an individual. Lay also gave more than $325,000 in unlimited and largely unregulated ``soft money'' to Republican committees that helped finance Bush's campaign. That was part of at least $1.6 million contributed during the election by Enron and its officers, two- thirds of which went to Republicans, according to FECInfo, which also tracks campaign finance. California Governor Gray Davis is a Democrat, and both houses of the state legislature are controlled by Democrats. Enron Chief Executive Sees California's Energy Crisis Easing 2001-07-12 12:39 (New York) Enron Chief Executive Sees California's Energy Crisis Easing Houston, July 12 (Bloomberg) -- Enron Corp. Chief Executive Jeffrey Skilling said higher retail prices for electricity in California has curtailed power demand and should lead to fewer blackouts than expected this summer. ``The expectation of higher retail prices has dampened demand considerably,'' Skilling said in a conference call with analysts and investors. ``I think we're going to get through the summer just fine in California. That will ultimately lead to lower wholesale prices for power.'' The state had been facing about 15 hours of blackouts a week this summer, the North American Electric Reliability Council, a national group that monitors and coordinates U.S. power supplies, said in May. California has been spared outages recently because of conservation efforts, cooler temperatures and more power plants starting. California Governor Gray Davis said that power plants producing enough energy for about 1.2 million homes have opened this summer in California. ``We're not out of the woods yet, but we are making progress,'' Davis said in a statement yesterday. California is seeking $8.9 billion in refunds from generators such as Houston-based Enron, the biggest energy trader, for power bought in the last year. Under the formula used by California to derive that figure, Enron is actually owed $44 million because it bought more power than it sold since May 2000, Skilling said. Shares of Enron fell 20 cents to $48.90 in early afternoon trading. The company said earlier today second-quarter profit rose 40 percent as higher sales of electricity more than made up for a loss in its telecommunications business. FERC Transmission Decision Will Open Power Markets for Traders 2001-07-12 12:20 (New York) FERC Transmission Decision Will Open Power Markets for Traders Washington, July 12 (Bloomberg) -- The Federal Energy Regulatory Commission decision to restructure the U.S. electricity grid opens the country's power markets to further competition, analysts said, even as California struggles with the aftermath of its deregulation. ``The only reason for doing this is so you can have competition,'' said Christopher Ellinghaus, an analyst at Williams Capital Group LP. ``It's so you can build a transmission system that lets generators deliver power across utility boundaries without interference by the utilities themselves.'' The FERC wants four regional transmission organizations in the nation -- one for the Southeast, one for the Northeast, one for the Midwest and one for the West -- that would allow for increased trading between different regions. Florida has the option not to join any RTO, and Texas is exempt from FERC jurisdiction. Energy traders such as Enron Corp., Mirant Corp. and Aquila Inc. stand to benefit as barriers to electric transmission fall, Enron officials said. ``We'll have the chance to match hundreds of potential supply sources with thousands of markets,'' Enron Executive Vice President Steve Kean said on a conference call with analysts and investors. ``It's a significant expansion of the market in a very short time.'' California's two biggest utilities have racked up about $14 billion in debt because power prices surged after the state deregulated its market, and the utilities weren't allowed to pass higher prices on to its customers. The state began buying power on the utilities' behalf in January. A shortage of power led to blackouts for millions of Californians this year. Shares of Enron fell 3 cents in midday trading to $49.07. They had fallen 31 percent in the past year. Aquila fell 44 cents to $25.56. Mirant fell 52 cents to $37.26. California Not Due Cash Refunds for Power Purchases (Update1) 2001-07-12 18:01 (New York) California Not Due Cash Refunds for Power Purchases (Update1) (Adds comment from judge's recommendation in third paragraph, background in fourth.) Washington, July 12 (Bloomberg) -- California should not receive any cash refund for claims it was overcharged for electricity, a federal judge overseeing settlement talks said in a report to federal regulators. California's debts to power sellers for electricity they sold in the state is higher than any refund the state can claim, Administrative Law Judge Curtis Wagner wrote in a report to the Federal Energy Regulatory Commission. ``While there are vast sums due for overcharges, there are even larger amounts owed to energy sellers'' by California and its utilities, Wagner wrote in his report. He said California is owed ``hundreds of millions of dollars, probably more than a billion dollars.'' FERC ordered Wagner to hold settlement talks on California's claim it was overcharged by $8.9 billion for electricity. The sides failed to reach an agreement and FERC ordered the judge to make a recommendation to the commission. FERC plans to decide on the size of any refunds. =====================================

m..schmidt@enron.com

Enron Mentions

Enron Names Special Committee To Examine Transactions Dow Jones News Service, 10/31/01 Enron says SEC opens formal inquiry into related-party transactions AFX News, 10/31/01 Enron Says SEC Informal Inquiry Now a Formal Investigation Bloomberg, 10/31/01 Key Enron Employees Aren't Jumping Ship, Recruiters Say Dow Jones Energy Service, 10/31/01 Houston, We Have A Problem: How Much Is Enron Worth? Dow Jones News Service, 10/31/01 Enron's stock jumps amid takeover speculation Associated Press Newswires, 10/31/01 USA: Few signs of domino effect among Enron's peers. Reuters English News Service, 10/31/01 Waste Management Will Start Pulp And Paper Trading Tomorrow Bloomberg, 10/31/01 Enron ends 10-day skid with 25% jump CBSMarketWatch.com, 10/31/01 Enron's stock jumps amid takeover speculation Associated Press Newswires, 10/31/01 Class Action Lawsuit Commenced Against Enron Corp. By The Law Offices of Ma= rc S. Henzel PR Newswire, 10/31/01 Some Enron Trading Customers Tighten Credit Reins, Cut Trades Bloomberg, 10/31/01 USA: Enron rebounds, but investors seek more disclosure. Reuters English News Service, 10/31/01 Waiting for Balance Sheets Amid Enron's Debacle: David Wilson Bloomberg, 10/31/01 Enron Shares Rise, Rebounding From Nine-Year Low (Update3) Bloomberg, 10/31/01 Enron Names Special Committee To Examine Transactions 10/31/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Corp. (ENE) created a Special Committee to exam= ine deals related to the Security and Exchange Commission investigation int= o transactions involving Enron's former chief financial officer, which has = now turned into a formal investigation.=20 The energy-trading company also named William Powers Jr. to its board, maki= ng him in charge of the Special Committee, the company said in a press rele= ase Wednesday. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron says SEC opens formal inquiry into related-party transactions 10/31/2001 AFX News (c) 2001 by AFP-Extel News Ltd HOUSTON (AFX) - Enron Corp said the Securities and Exchange Commission has = opened a formal inquiry into the company's transactions with entities conne= cted with related parties.=20 In a statement, Enron said "the SEC has opened a formal investigation into = certain of the matters that were the subject of recent press reports and th= at previously were the subject of its informal inquiry." Earlier this month, Enron announced a charge of 1.01 bln usd, or 1.11 usd p= er share, and an incremental 1.2 bln usd reduction in stockholders' equity,= related to the unwinding of investments with the related LJM partnership.= =20 The SEC requested the company provide information on these related-party tr= ansactions days later, and the company dismissed its chief financial office= r, Andrew Fastow, for his involvement in running the LJM partnerships.=20 In today's statement, the company announced the election of William Powers = Jr to the board, effective immediately.=20 Powers, who is dean of the University of Texas School of Law, will chair a = Special Committee to examine and take any appropriate actions with respect = to transactions between Enron and entities connected to related parties, it= said.=20 In addition to reviewing the transactions in question, the Special Committe= e is charged with communicating with the SEC and recommending any other act= ions it deems appropriate.=20 "I have asked the Board to take this action to address fully and forthright= ly investors' questions and concerns," said Enron chairman and chief execut= ive officer Kenneth Lay.=20 "Responding to the SEC offers us an additional opportunity to achieve this = same goal for investors, and we will cooperate fully. We will also make eve= ry appropriate public disclosure during the course of the SEC's investigati= on."=20 pav/ Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Says SEC Informal Inquiry Now a Formal Investigation 2001-10-31 17:37 (New York) Enron Says SEC Informal Inquiry Now a Formal Investigation Houston, Oct. 31 (Bloomberg) -- Enron Corp. said an informal inquiry by the Securities and Exchange Commission is now a formal investigation, and the Houston-based company's board is appointing a special committee to address allegations related to partnerships run by its former chief financial officer. William Powers Jr., dean of the University of Texas law school, will chair a committee to handle the SEC's requests for information about the partnership, Enron said. --Andy Pratt in the Princeton newsroom at (609) 750-4657 or Key Enron Employees Aren't Jumping Ship, Recruiters Say By Michael Rieke Of DOW JONES NEWSWIRES 10/31/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Corp.'s (ENE) current problems aren't sending i= ts key employees running for the door, according to two executive recruiter= s.=20 While employees at Enron's underperforming units are shopping around for ne= w jobs, those working for its core wholesale energy trading and retail ener= gy units seem content, the recruiters told Dow Jones Newswires. "We've been getting resumes from their international group over the last ye= ar," said Bruce Peterson, managing director for Korn Ferry in Houston. "But= its been a very well-known fact that they're getting out of those business= es."=20 Another Houston recruiter, who didn't want to be identified, said he has go= tten "a flood" of resumes from employees at Enron's natural gas and power a= ssets in South America.=20 Employees at Enron's broadband unit are also sending out resumes, said the = recruiter. That business has brought the company losses of more than $100 m= illion this year despite hundreds of layoffs. Enron continues to cut costs = in its telecom business.=20 Neither recruiter has seen many resumes from Enron's big moneymakers - the = wholesale energy trading group and the retail energy services group.=20 Some of the lower-level employees of those units have sent out resumes but = Peterson said he hasn't seen higher-level executives in the job market. How= ever, he attached a caveat to that statement.=20 "Quite a few of the senior people at Enron have left over the last 6-12 mon= ths," he said.=20 When Enron's share price was flying high last year and early this year, som= e of Enron's top executives cashed out their stock options and left the com= pany.=20 Those executives included Cliff Baxter, former vice chairman and chief stra= tegy officer; Ken Rice, former head of Enron Capital and Trade as well as f= ormer chief executive of Enron Broadband Services; Kevin Hannon, former pre= sident of Enron Broadband Services; and Lou Pai, former chairman and chief = executive of Enron Energy Services.=20 The lure of cashing out lucrative stock options won't cost Enron any more e= mployees any time soon. The company's share price has fallen too far too qu= ickly, leaving the options underwater.=20 The company's shares traded as high as $80 early this year. By July the pri= ce had dropped to around $50, leaving employees with options that were virt= ually worthless. So Enron told employees it would issue new options in Augu= st.=20 But the company's share price continued to fall as more and more bad news c= ame out. The new options issued in August, when the share prices were aroun= d $40, are now underwater also.=20 Now that the options are out of the money, Enron employees are more vulnera= ble to the lure of other companies, Peterson said.=20 Enron could face another problem in keeping key people. Its employees work = under two-year contracts. If they leave Enron before their contracts expire= s, a noncompete clause could prevent them for working for a competitor.=20 Some of those contracts will expire at the end of the year. Without the inc= entive of lucrative stock options, Enron might have a difficult time gettin= g employees to agree to new contracts with a noncompete clause, Peterson sa= id.=20 An Enron spokeswoman said the company isn't planning to issue more new opti= ons to employees.=20 -By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@dowjone= s.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Houston, We Have A Problem: How Much Is Enron Worth? By Christina Cheddar Of DOW JONES NEWSWIRES 10/31/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- With billions of dollars shaved off of the market ca= pitalization of Enron Corp. (ENE) in the past two weeks, the stock is tradi= ng at about its book value, begging the question: so how much is it worth a= nyway?=20 The answer is far from easy. Ever since Enron metamorphosed from a stodgy gas pipeline company into what= was seen by many as a dynamic energy trading firm, the company has become = increasingly more difficult to understand.=20 Just a glance at the wide-range of Wall Street analysts who follow the comp= any illustrates the point. In the mix are analysts who track natural gas an= d the pipeline industry as well as those who follow electric utilities.=20 One enticing prospect is that the assets in its portfolio are valuable in a= nd of themselves and could be seen by some as worthwhile acquisition target= s.=20 By Enron's own definition, the company houses four main divisions: Enron Wh= olesale Services, Enron Energy Services, Enron Transportation Services, and= Enron Broadband Services.=20 Wholesale Services houses the company's energy marketing business and Enron= Online. This segment accounts for the bulk of Enron's profits, and has beco= me synonymous with what Enron means to most people today.=20 Not only does Enron trade gas, oil and coal, but it also trades commodities= such as pulp and paper, petrochemicals, lumber, plastics and even weather = risk.=20 Enron Energy Services is the company's retail arm. The company provides ele= ctricity, gas and commodity risk management services through this division.= =20 Enron Transportation Services operates four natural gas pipelines that span= about 25,000 miles and have a peak capacity of 9.8 billion cubic feet per = day. Through these pipelines the company says it transports about 15% of th= e natural gas the U.S. needs. The segment also includes Portland General, a= Oregon utility company Enron is selling to Northwest Natural Gas Co. (NWN)= for $1.9 billion in cash and stock.=20 In addition, the company provides bandwidth and network services through it= s Enron Broadband services division.=20 But Enron's reach is even wider than this list suggests. The company also h= as a number of other corporate investments, including its stake in the Azur= ix water business, Enron Renewable Energy Corp. as well as methanol and MTB= E plants.=20 Through Enron's unconsolidated affiliates, the company also has investments= in additional water assets, a power plant in India and a natural gas pipel= ine in Argentina among other things.=20 What makes any valuation of Enron difficult is what remains unknown about t= he company's financial structure.=20 Enron has yet to file a balance sheet for the third quarter, and doesn't ex= pect to do so until Nov. 15, when balance sheets must be filed under Securi= ties and Exchange Commission regulations.=20 Without the balance sheet, some of the details needed for calculating a com= pany's value are missing.=20 Also, much still remains unknown about the company's obligations to its off= -balance sheet financing vehicles.=20 Using what is known about Enron's finances, several analysts have arrived a= t their own conclusions about valuation.=20 Merrill Lynch & Co. analyst Donato Eassey said Wednesday he puts Enron's ne= t asset value at between $16 to $24 a share. The calculation assumes Enron = has 850 million diluted shares outstanding.=20 Eassey valued Enron's on-balance sheet assets at nearly $11 billion, and th= e off-balance sheet assets at $1.1 billion. He has valued the company's tra= ding business at between six-to-eight-times its 2001 earnings before intere= st, taxes, depreciation and amortization, or about $19 billion to $26.5 bil= lion, based on his EBITDA estimate of $3.3 billion for this year.=20 "Thus, our total asset value stands in the $32 (billion) to $38.6 billion a= rea," Eassey said.=20 The analyst then deducted $13.8 billion in total balance sheet debt, and es= timated off-balance sheet debt at about $3.4 billion. The estimates bring t= otal debt to $17.2 billion, including $1 billion in preferred stock, he sai= d.=20 Importantly, Eassey's estimate doesn't include any cash balances or the val= ue of its current trading position.=20 At the end of June, Enron had $847 million in cash and was in a net positiv= e trading position of $306 million, Eassey said.=20 Last Thursday, Dain Rauscher Wessels analyst Mark Easterbrook arrived at a = net asset valuation of between $27 to $35 a share.=20 Easterbrook's calculation assumes added writedowns and equity adjustments.= =20 The lower half of the range assumes Enron doesn't complete any asset sales,= and assumes equity funding dilutes the shares outstanding by 24%, the anal= yst said.=20 The higher end of the range assumes asset sales of $3.5 billion, debt reduc= tion of $1 billion from the Portland General sale and no equity financing, = he said.=20 The view doesn't take into consideration the short-term liquidity crunch on= going at the company, Easterbrook said. In addition, he added, the estimate= assumes all of Enron's partnerships and investments no longer have any res= idual value.=20 Early this year, John S. Herold came up with a "rough cut" valuation of Enr= on of "plus or minus something in the $30 range" using appraised net worth = methodology, said John Parry, an analyst at the firm. However, he said, the= firm never published the estimate because it felt it didn't have enough in= formation from Enron about the off-balance sheet financing vehicles to make= a complete assessment.=20 At the time, Enron's stock was trading in the $70's, Parry said. So, he cut= the stock's rating to sell.=20 "I never imaged it would fall this low," he said.=20 Enron shares closed Wednesday at $13.90, up $2.74, or 24.6%.=20 -By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar= @dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's stock jumps amid takeover speculation By JUAN. A. LOZANO Associated Press Writer 10/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - After plummeting to a nine-year low following recent economi= c losses and an investigation by federal securities regulators, shares of E= nron Corp. jumped nearly 25 percent Wednesday amid speculation the company = was ripe for takeover.=20 Shares of Enron, the nation's largest natural gas and power marketer, rose = $2.74 to close at $13.90 Wednesday on the New York Stock Exchange. Shares t= hough are still down 69 percent since the company reported third quarter ea= rnings just over two weeks ago. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said We= dnesday's surge was likely a reaction to a The Wall Street Journal report t= hat Enron's beaten-down stock price has stirred rumors of a possible takeov= er.=20 Others may be buying figuring the stock has hit bottom, she said.=20 On Tuesday, Enron's stock closed at $11.16, its lowest level since 1992.=20 Enron shares began their steady fall in the middle of October, when the com= pany reported a net loss of $638 million in the third quarter, taking a one= -time charge of $1.01 billion attributed to investment losses, troubled ass= ets and unit restructurings.=20 Some of these losses have been tied to partnerships managed by Enron's form= er chief financial officer, Andrew Fastow, who was ousted last week.=20 The potential conflict of interest has prompted an inquiry by the Securitie= s and Exchange Commission.=20 Earlier this week, Moody's Investors Service downgraded the company's long-= term debt and warned of possible further downgrades.=20 Potential buyers include General Electric's GE Capital unit, Warren Buffett= 's Berkshire Hathaway and Royal Dutch Shell, the Journal said.=20 Duane Grubert, an analyst with Sanford C. Bernstein and Co. in New York, sa= id Shell, which has a small presence in energy marketing, would be a good f= it.=20 "Shell tried to be in the merchant energy arena and didn't really succeed,"= he said. "To buy into an established franchise must be attractive to Shell= ."=20 Enron officials did not immediately return telephone calls from The Associa= ted Press on Wednesday.=20 While Enron's stock price has made it attractive, Coale said the energy mar= keter's problems present a substantial drawback.=20 "I would fault a company for acquiring Enron with all of this hanging over = it," she said. "There are too many uncertainties."=20 Grubert said he believes Enron has the ability "to weather the storm and re= store their enterprise on their own."=20 Since reporting its disappointing third quarter losses, Enron has been nego= tiating with banks to establish new credit lines. The company last week dec= ided to cash in about $3 billion in revolving credit it has with various ba= nks to shore up investor confidence.=20 ---=20 On the Net:=20 http://www.enron.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: Few signs of domino effect among Enron's peers. By Andrew Kelly 10/31/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 31 (Reuters) - U.S. energy traders such as Dynegy Inc. and Aqu= ila Inc. have taken a knock as a result of Enron Corp's recent woes, but an= alysts do not expect a broad loss of investor confidence in the sector to t= rigger massive losses in stock prices like Enron has suffered.=20 "The issues impacting Enron are pretty much specific to that company," said= Credit Lyonnais Securities analyst Gordon Howald. "I don't believe that a = lot of its peers have the same type of potential negative impact," he said. Enron's widespread use of complex off-balance-sheet financing deals and its= reluctance to disclose details about them are a key reason why investors h= ave dumped the company's stock, causing it to fall more than 60 percent in = the last two weeks.=20 And while other natural gas and electricity marketers use similar technique= s to avoid overloading their balance sheets with debt, nobody does so to th= e same extent as Enron, analysts said.=20 "Enron is a unique case in the magnitude of off-balance sheet transactions,= " said Prudential Securities analyst Carole Coale.=20 UNCOMFORTABLE WITH DISCLOSURE=20 Coale said she was not comfortable with the level of disclosure provided by= many of Enron's peers about such deals, but she said this was less of a pr= oblem at other companies because they have less exposure to the risky energ= y trading and marketing business which contributes about 80 percent of Enro= n's profits.=20 El Paso Corp., for example is channeling over $1 billion in off-balance-she= et financing into its Project Electron venture which was set up to acquire = and manage power plants.=20 Analysts say they are reasonably pleased with the information that El Paso = has provided to them about Electron.=20 El Paso's stock has fallen a relatively modest 5 percent over the last two = weeks and analysts attribute this in large part to the fact that marketing = and trading operations generate only about one quarter of the company's ear= nings.=20 Dynegy's stock is down some 17 percent over the last two weeks and analysts= said this was linked to Dynegy's assumption of a leadership role among U.S= . energy marketers in many investors' eyes as Enron began to fall out of fa= vor and as Dynegy attained a correspondingly high price-earnings ratio.=20 Asked about Dynegy's use of off-balance-sheet financing, spokesman John Sou= sa drew a contrast between his own company and Enron, saying Dynegy had no = financing that was backed by issuance of stock, nor any "related party tran= sactions".=20 FORMER HIGH-FLIERS SHUNNED=20 Analysts said that in the current uncertain investment climate, investors a= re shunning trading-oriented companies' whose stocks had previously command= ed high price-earnings multiples and seeking out more modestly valued compa= nies which own physical assets such as power plants and natural gas pipelin= es.=20 In terms of recent stock price performance this trend has punished a market= er-trader like Aquila, whose shares are down 27 percent over the last two w= eeks.=20 On the other hand it has been relatively kind to companies such as Williams= Cos. and Duke Energy Corp. , which until recently were treated with scorn = by Enron executives who aggressively propounded an "asset-light" philosophy= .=20 Williams' stock has fallen about 5 percent over the last fortnight while Du= ke's shares are down less than 1 percent and have outperformed the broader = U.S. stock market.=20 J.P. Morgan analyst Anatol Feygin said Enron had fallen victim to its uniqu= e taste for sophisticated financing techniques and its failure to explain t= hem when doubts started to surface.=20 "Enron took it to an extreme in terms of financial engineering, but it didn= 't disclose enough information about what is behind all of these structures= ," he said.=20 Credit Lyonnais Securities' Howald had a simpler explanation, saying that a= s the euphoria which surrounded Enron last year subsided, people began to s= ee Enron for what it was.=20 "Trading companies have always had a history of winning big and losing big,= " he said. "I think the days of the big valuations are over," he added. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Waste Management Will Start Pulp And Paper Trading Tomorrow 2001-10-31 16:52 (New York) Waste Management Will Start Pulp And Paper Trading Tomorrow Houston, Oct. 31 (Bloomberg) -- Waste Management Inc., North America's largest trash hauler, will start trading paper and pulp tomorrow to limit the effects of price fluctuations of recycled materials and offer a service its biggest rivals don't provide. In the past three years, Waste Management has reduced its exposure to price swings by placing 75 percent of its recycled- commodity sales under long-term, fixed-price contracts. Still, the company's revenue from recycling fell 38 percent to $154 million in the second quarter. Chief Executive Officer Maurice Myers is hoping the trading business will help stabilize recycling revenue even when prices for cardboard, newspaper and aluminum cans fall. Trading allows Waste Management to further limit its own exposure to prices, as well as offer contracts to customers who want to lock in prices. ``What Waste Management is doing is going to reduce the company's risk and their customer's risk,'' said Thomas Leritz, an analyst at Banc of America Capital Management, which owns more than 1 million shares of Waste Management. ``I think it's a smart move. It's a reflection of the new management team.'' Myers joined the company in November 1999 as it struggled to track costs from acquisitions. He has put new financial-systems software in place and made other efforts to cut costs. The company has also raised prices where it's the dominant hauler. Myers's efforts, along with the sale of overseas businesses, have helped the company regain regard among investors. The shares have risen 22 percent in the past year. Pulp and Paper Most of Waste Management's solid-waste customers produce or consume pulp and paper. Waste Management collects, processes and sells more than five million tons a year of paper, plastic, glass, aluminum and other metals. Recycled-cardboard prices fell 62 percent to $48 a ton in the second quarter from $125 a year earlier, and the price for recycled newsprint fell to $55 a ton from $90, Myers said in August. Prices were little changed from the second quarter to the third quarter, said Steve Ragiel, Waste Management's vice president of recycling. Waste Management, which will report third-quarter results next week, had expected to begin trading in the third quarter. Its plans were delayed because it took longer than expected to find people to run the operation, Raigel said. Jeff Harbert, formerly of Enron Corp., is heading the operation along with two other Enron traders. Enron, also based in Houston, has created the largest business of trading commodities including electricity, natural gas, pulp and paper. Risk Management Waste Management's initial focus in the trading business will be on managing its own price risk. It probably only will complete five to 10 trades in each of the first few months, Raigel said. The company hopes to set fixed prices for the commodities it picks up, then sell those commodities to a third company, such as a paper producer, at a higher set price. ``We'll get with a counter party such as a paper mill or a consumer-products company and cut a deal,'' Raigel said. ``We can find a paper mill that wants to lock in a fixed price on what they buy and what they sell. They get a minimum return on their investment and greater control on their raw material costs.'' The company hasn't said how much it expects to make from trading. Analysts aren't expecting the business to contribute significantly to Waste Management's earnings. ``They are looking at it as a good time to get in on trading but I don't see it as a major contributor to their business,'' said Stewart Scharf, an analyst with Standard & Poor's Equity Group. He rates Waste Management ``accumulate'' and doesn't own shares. Republic Services Group Inc., the No. 3 U.S. waste company, contracts with individual mills to supply recycled commodities at fixed prices, but hasn't started a trading operation, spokesman Will Flower said. Allied Waste Industries Inc., the second-largest trash hauler in North America, said it has no plans to get into trading. ``We'll leave trading to people like Enron,'' Allied Waste spokesman Michael Burnett said. --Mark Johnson in the Princeton newsroom (609) 750-4662 Enron ends 10-day skid with 25% jump=20 Lisa Sanders CBSMarketWatch.com October 31, 2001 HOUSTON (CBS.MW) -- Shares of Enron, which had lost about 66 percent of the= ir value over the past 10 sessions, spiked Wednesday after a report that pe= gged the beleaguered company as a takeover target. Enron added 25 percent, or $2.74, to close at $13.90. More than 43 million = shares changed hands, making the stock the most actively traded on the New = York Stock Exchange. A.G. Edwards' analyst Michael Heim warned Wednesday against buying Enron sh= ares. He noted that Enron's troubles could be hurting its trading operation= s, the company's strength. "People interested in betting on ENE should ask themselves this -- If a per= son offered to double your money when a coin lands heads and take away half= your money when it is tails, would you take the bet? What if the person fl= ipping the coin is a magician you don't trust?"=20 A Wall Street Journal report Wednesday speculated on Enron's potential as a= n acquisition for a more stable company. An Enron spokesman said the compan= y doesn't comment on such matters. Enron has been under pressure for more than two weeks, beginning when the e= nergy merchant reported a $1 billion charge in its third-quarter earnings. = A Securities and Exchange Commission probe into two of the company's limite= d partnerships and a rating downgrade by Moody's Investors Service haven't = helped. John Olson, an analyst at Sanders Morris Harris, said he thought an Enron t= akeover unlikely at this point. "However, if the stock were to keep coming down, and their financial diffic= ulties were extended, the odds would increase," he said. Olson pointed out that Enron's heavy losses over the last 10 sessions partl= y reflects the end of the tax year for mutual funds. The calendar year for = funds ends at the close of business Wednesday. "Mutual funds who own Enron stock have been trying to offset other gains by= selling off Enron," he said. "Mutual funds have to register all their gain= s or losses and offset them by selling or buying stock by the close today." Taking bets Art Smith, chairman and chief executive of the research firm John S. Herold= , said he'd be surprised if Enron was not entertaining offers. "It's one of= the ways that Enron gets the genie back in the bottle." On the other hand, Smith said, it would take a potential acquirer time to b= ecome comfortable with the valuation of the business.=20 "It's doubtful that a potential acquirer can resolve all the valuation issu= es quickly," Smith said. He said it's likely that any sort of purchase agre= ement would contain what he called a "look-back provision," which would pro= tect the acquirer from being strapped to a fixed value. Smith said he could see either General Electric's GE Capital or Royal Dutch= Shell making a bid. Both were mentioned in the Journal report. "GE Capital is big enough that if it didn't work out it won't cripple GE, a= nd they've been opportunistic on things like this," Smith said. "And Shell = always keeps us guessing." Olson also included AIG and Citigroup as potential acquirers. "Enron has certainly had some appeal to people that are used to an aggressi= ve trading culture," he said. Smith said that even without Enron, the energy marketing and trading busine= ss would continue to thrive.=20 "Even if Enron went away, it would not change what has developed into a hea= lthy market for commodity forward markets and hedging," he said. Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com. Enron's stock jumps amid takeover speculation By JUAN. A. LOZANO Associated Press Writer 10/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - After plummeting to a nine-year low following recent economi= c losses and an investigation by federal securities regulators, shares of E= nron Corp. jumped nearly 25 percent Wednesday amid speculation the company = was ripe for takeover.=20 Shares of Enron, the largest U.S. natural gas and power marketer, rose dlrs= 2.74 to close at dlrs 13.90 Wednesday on the New York Stock Exchange. Thou= gh still down 69 percent since the company reported third quarter earnings = just over two weeks ago. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said We= dnesday's surge was likely a reaction to a The Wall Street Journal report t= hat Enron's beaten-down stock price has stirred rumors of a possible takeov= er.=20 Others may be buying figuring the stock has hit bottom, she said.=20 On Tuesday, Enron's stock closed at dlrs 11.16, its lowest level since 1992= .=20 Enron shares began their steady fall in the middle of October, when the com= pany reported a net loss of dlrs 638 million in the third quarter, taking a= one-time charge of dlrs 1.01 billion attributed to investment losses, trou= bled assets and unit restructurings.=20 Some of these losses have been tied to partnerships managed by Enron's form= er chief financial officer, Andrew Fastow, who was ousted last week.=20 The potential conflict of interest has prompted an inquiry by the Securitie= s and Exchange Commission.=20 Earlier this week, Moody's Investors Service downgraded the company's long-= term debt and warned of possible further downgrades.=20 Potential buyers include General Electric's GE Capital unit, Warren Buffett= 's Berkshire Hathaway and Royal Dutch Shell, the Journal said.=20 Duane Grubert, an analyst with Sanford C. Bernstein and Co. in New York, sa= id Shell, which has a small presence in energy marketing, would be a good f= it.=20 "Shell tried to be in the merchant energy arena and didn't really succeed,"= he said. "To buy into an established franchise must be attractive to Shell= ."=20 While Enron's stock price has made it attractive, Coale said the energy mar= keter's problems present a substantial drawback.=20 "I would fault a company for acquiring Enron with all of this hanging over = it," she said. "There are too many uncertainties." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Class Action Lawsuit Commenced Against Enron Corp. By The Law Offices of Ma= rc S. Henzel 10/31/2001 PR Newswire (Copyright (c) 2001, PR Newswire) BALA CYNWYD, Oct. 31 /PRNewswire/ -- A class action lawsuit was filed in th= e United States District Court for the Southern District of Texas, on behal= f of purchasers of the common stock of Enron Corp. (NYSE: ENE) between Janu= ary 18, 2000 and October 17, 2001, inclusive. The action is pending against= defendants Enron, Kenneth Lay, Jeffrey K. Skilling and Andrew Fastow.=20 The Complaint alleges that defendants violated Sections 10(b) and 20(a) of = the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder,= by issuing a series of material misrepresentations to the market between J= anuary 18, 2000 and October 17, 2001, thereby artificially inflating the pr= ice of Enron common stock. Specifically, the complaint alleges that Enron i= ssued a series of statements concerning its business, financial results and= operations which failed to disclose (i) that the Company's Broadband Servi= ces Division was experiencing declining demand for bandwidth and the Compan= y's efforts to create a trading market for bandwidth were not meeting with = success as many of the market participants were not creditworthy; (ii) that= the Company's operating results were materially overstated as result of th= e Company failing to timely write-down the value of its investments with ce= rtain limited partnerships which were managed by the Company's chief financ= ial officer; and (iii) that Enron was failing to write-down impaired assets= on a timely basis in accordance with GAAP. On October 16, 2001, Enron surp= rised the market by announcing that the Company was taking non-recurring ch= arges of $1.01 billion after-tax, or ($1.11) loss per diluted share, in the= third quarter of 2001, the period ending September 30, 2001. Subsequently,= Enron revealed that a material portion of the charge related to the unwind= ing of investments with certain limited partnerships which were controlled = by Enron's chief financial officer and that the Company would be eliminatin= g more than $1 billion in shareholder equity as a result of its unwinding o= f the investments. As this news began to be assimilated by the market, the = price of Enron common stock dropped significantly. During the Class Period,= Enron insiders disposed of over $73 million of their personally held Enron= common stock to unsuspecting investors. Plaintiff is represented by The Law Offices of Marc S. Henzel. If you are a= member of the class described above, you have until December 21, 2001, to = participate in the case and ask the Court to appoint you as one of the lead= plaintiffs for the Class. In order to serve as lead plaintiff, however, yo= u must meet certain legal requirements. You do not need to seek appointment= as a lead plaintiff in order to share in any recovery.=20 If you have any questions concerning this case or your rights or interests = with respect to these matters, please contact: Marc S. Henzel, Esq. of The = Law Offices of Marc S. Henzel, 273 Montgomery Ave, Suite 202 Bala Cynwyd, P= A 19004-2808, by telephone at (888) 643-6735 or (610) 660-8000, by facsimil= e at (610) 660-8080, by e-mail at Mhenzel182@aol.com or visit the firm's we= bsite at http://members.aol.com/mhenzel182.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X40385151 /CONTACT: Marc S. Henzel, Esq. of The Law Offices of Marc S. Henzel, +1-888= -643-6735 or +1-610-660-8000, fax: +1-610-660-8080, or Mhenzel182@aol.com/ = 16:50 EST=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Some Enron Trading Customers Tighten Credit Reins, Cut Trades 2001-10-31 16:05 (New York) New York, Oct. 31 (Bloomberg) -- American Electric Power Co., Exelon Corp. and Northeast Utilities are among energy companies restricting business with Enron Corp. as the largest energy trader negotiates a credit line to keep access to cash. ``We are keeping a tight dollar limit on trades,'' said John Rowe, co-chief executive officer of Exelon, the largest U.S. nuclear power producer. ``We are keeping a close eye on our exposures.'' Enron has said it is seeking new sources of credit as the company tries to assure trading partners and rating agencies that it can meet day-to-day obligations and keep its investment-grade credit rating. Enron, which handles 25 percent of the energy trading in the U.S., relies on having investment-grade credit to borrow enough to settle its transactions daily. Enron Corp. shares, down 59 percent since Oct. 16, rose 25 percent today to $13.90 from a nine-year low amid speculation the company may be a takeover target. Still, Enron stock is down 83 percent this year. Moody's Investors Service last week lowered Enron's long-term debt to two notches above junk status and placed Enron's commercial paper on review for downgrade. ``We will be tracking very closely their wholesale volumes,'' said Stephen Moore, a vice president at Moody's. ``That will be the leading indicator of where the company is going.'' Credit People Energy trading accounted for about 98 percent of Enron's $773 million in income before interest and taxes last quarter. The company last week drew down a $3 billion credit line after surprising investors by writing off $1.2 billion of shareholder equity. The company also ousted its Chief Financial Officer Andrew Fastow after it reported that a partnership he set up lost $35 million for the company. The Securities and Exchange Commission has asked the company questions about partnerships like Fastow's. Enron spokeswoman Karen Denne said the company's trades have not declined in size while natural gas trading volume has dipped consistent with monthly pattern. Some energy executives said yesterday that companies were limiting Enron trading to reduce credit risks. ``Credit people are coming to their traders and saying, `Enron is on hold for any new positions, and at some point we may need you (to) trade out of your existing positions,''' said Charlie Sanchez, an energy markets manager at Houston-based Gelber & Associates Corp., an energy trading adviser. Watching Closely Minneapolis, Minnesota-based Xcel Energy Inc., an electricity and natural-gas seller, is limiting its business to same-day and next-day delivery, Chief Executive Officer Wayne Brunetti said at an energy conference in New Orleans. American Electric Power Chief Executive Linn Draper said at the same conference that his company is also making only short-term trades. ``We are watching very closely,'' Draper said. ``We are focusing our new deals with them in the short term, November, December. We think they'll make it, but it's a serious situation.'' Northeast Utilities, based in Berlin, Connecticut, will continue to trade with Enron as long as its debt ratings remain investment grade, said Chief Financial Officer John Forsgren, also at the conference. Northeast is New England's biggest utility owner. ``Three weeks ago, we started monitoring our position with Enron,'' said Forsgren. ``Right now, we have a net payable to them, so there's no exposure on our side, and we'll probably keep it that way.'' Overblown Many companies say that Enron remains the most economical and efficient place to trade electricity, and that the company's credit woes are overblown. ``We're still actively trading with them and we believe they will work their way out of this,'' said Mike Griswold, a trader with Hafslund Trading Co., a subsidiary of Norwegian energy company Hafslund ASA. ``They have the best liquidity and the best prices. They are the premier trading market.'' --David Ward and Bradley Keoun in San Francisco=20 USA: Enron rebounds, but investors seek more disclosure. By Carolyn Koo 10/31/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 31 (Reuters) - Shares of Enron Corp. snapped back from 10 str= aight days of losses on Wednesday after investors said the deep plunge had = made the stock attractive.=20 Shares of Houston-based Enron, which lost more than $17 billion in market c= apitalization during the rout, surged almost 27 percent in heavy trade, mak= ing the stock second-most active on the New York Stock Exchange and third-b= iggest gainer by percentage. Despite the surge, investors and analysts said they were still dissatisfied= with Enron's failure to disclose key information and said the rebound coul= d prove short-lived for the largest trader of natural gas and power in Nort= h America.=20 "At this level the stock is attracting money. However, the near term is not= going to be good," said Tim Ghriskey, president of money managers Ghriskey= Capital Partners LLC.=20 "We don't own any Enron. We have in the past and sold a while ago. We've be= en tempted a couple of times during the slide, but the information flow is = not that strong, and there is potential for more negative surprises."=20 Enron closed up $2.74, or 24.6 percent, to $13.90 on the NYSE. The stock su= rged to an intraday high of $14.17, recouping the past two days of losses, = but is far from $33.84, the closing price for Enron on Oct. 16, the last da= y before the 10-day tumble began.=20 Enron shares have been hammered over the past two weeks amid a series of un= welcome disclosures, including murky off-balance-sheet deals with partnersh= ips once run by Chief Financial Officer Andrew Fastow.=20 The disclosures forced Fastow's ouster, led to a Securities and Exchange Co= mmission inquiry into Enron and caused at least one credit rating agency to= cut Enron's senior-debt credit status.=20 The company said Fastow's removal was aimed at assuaging investor concerns = as the almost daily disclosures forced it to draw down about $3 billion fro= m existing credit lines.=20 TRYING TO QUANTIFY 'WORST-CASE SCENARIO'=20 But that's not enough, say analysts and investors.=20 "Enron needs to substantially improve the level of disclosures," said Nitin= Khandkar, a portfolio manager with Dubai-based Al Majid Investment Co., wh= ich owns Enron stock. "The accounting policies it follows should not be mer= ely legal but should also reflect the company's true profitability."=20 As an industry heavyweight, "investors expect Enron to come clean on the co= ntroversial issues," he said.=20 One issue Enron would do well to address is its partnerships and the liabil= ities they may have.=20 "People are still struggling with trying to quantify what the worst-case sc= enario could be," said Mike Heim, an analyst with A.G. Edwards & Sons, of t= he existing partnerships.=20 "Instead of dismissing the worst-case scenario, I think it would make sense= to mathematically show that 'here's what happens under such a scenario' an= d then let analysts make their own assessments."=20 Enron's refusal to make public its finances with greater transparency is a = hallmark of arrogance, noted one academic.=20 "The lack of transparency is an arrogance that says, 'I don't have to expla= in anything because if people don't want to buy my shares, they can just si= t and spin,'" said Paul Kedrosky, a professor at the University of British = Columbia who sits on the board of Exponentia, a company dedicated to improv= ing communications with shareholders.=20 "It's an arrogance that says, 'I do not have to disclose anything until I a= m forced to,'" Kedrosky said. "The crucial thing is to disclose early and d= isclose all." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Waiting for Balance Sheets Amid Enron's Debacle: David Wilson 2001-10-31 16:39 (New York) (Commentary. David Wilson is a columnist for Bloomberg News. The opinions expressed are his own.) Princeton, New Jersey, Oct. 31 (Bloomberg) -- International Business Machines Corp.'s press release about its third-quarter results included this statement, attributed to Louis Gerstner, chairman and chief executive officer: ``IBM's balance sheet remains among the strongest in the technology industry, or any industry.'' The largest maker of computers and provider of computer services wasn't the only company to cite its balance sheet, a statistical summary of what a company owned, what it owed, and what was left over for shareholders on a specific date. General Electric Co., the largest company by stock market value, and Citigroup Inc., the No. 1 financial-services company, made similar references in their third-quarter releases. None of the companies really showed people what they were telling them. IBM, General Electric and Citigroup are among 19 members of the Dow Jones Industrial Average whose most recent quarterly releases didn't include balance sheets. The evidence will come only when the companies submit their quarterly reports to the U.S. Securities and Exchange Commission. Balance sheets are required in the so-called 10-Q filings, along with the 10-K filings that cover the full year. Not Much Publicity By then, statistics about the companies' assets, liabilities and shareholders' equity, the accounting terms for what's owned, what's owed and what's left over, will be rather outdated. U.S. companies have 45 days from the end of a fiscal quarter to submit 10-Q reports, and 90 days from the end of a fiscal year for 10-K reports. These filings usually don't arrive until weeks after the publication of earnings releases. So it's easy to overlook the additional information they provide, especially when it doesn't receive the kind of publicity that the earnings release does. Yet the recent example of Enron Corp. -- another company that omits balance sheets from press releases -- provides evidence that investors who forgo the extra effort needed to find them do so at their own peril. Enron, the largest energy trader, reported $1.01 billion in ``non-recurring'' costs in the third quarter from an expansion into water, telecommunications and retail-energy sales. The expense contributed to a $618 million loss for the quarter. These numbers were part of the Houston-based company's income statement, a summary of sales, costs and expenses, and profits or losses during a specified time period. Income statements are the cornerstone of any company's earnings release. Billion-Dollar Numbers The release didn't even mention a larger figure that affected the balance sheet: a $1.2 billion drop in shareholders' equity during the quarter resulting from the company's repurchase of 55 million shares from two partnerships, LJM Cayman LP and LJM2 Co- Investment LP, that helped finance projects. Andrew Fastow, who ran both partnerships, was ousted from his job as chief financial officer last week. Chairman and CEO Kenneth Lay disclosed the repurchase in a subsequent conference call. Such a one-two punch dealt a blow to investors' fortunes. Since Oct. 17, the day after the earnings release, Enron's shares have fallen each day and have lost two-thirds of their value. The low of $10.90 yesterday was the lowest price since July 1992. Enron's third-quarter statement referred only to a loss on ``finance arrangements with a previously disclosed entity'' which contributed to $544 million of investment losses. The size of that item was later put at $35 million. The latter number amounts to just 3.5 percent of the overall figure for ``non-recurring'' costs, and less than 1 percent of the company's $47.6 billion in revenue for the quarter. Growing Debt Burden The $1.2 billion figure is considerably larger not only in dollars, but also in percentage terms. Enron had $11.74 billion of shareholders' equity as of June 30, according to the balance sheet in its second-quarter 10-Q filing. The reduction equaled more than 10 percent of that total. Among other things, the balance sheet also shows that the company relied more heavily on debt financing during this year's first half. Short-term debt, due in one year or less, doubled to $3.46 billion. Long-term debt, maturing in more than one year, rose 9.4 percent to $9.36 billion. There's even more to the story of Enron's indebtedness. The company guaranteed $3.3 billion in borrowing by Osprey Trust and Marlin Water Trust, which bought some of its power plants. Unless they pay off the debt by reselling the plants, the company may have to come up with the difference. Nevertheless, any summary of a company's financial position provides a more complete picture than the income statement alone. This also holds true for companies whose finances are in better shape -- IBM, General Electric and Citigroup, to name three. Knowing by Showing Other members of the Dow industrials that wait until their filings to provide balance sheets are American Express Co., AT&T Corp., Boeing Co., Caterpillar Inc., Coca-Cola Co., Walt Disney Co., DuPont Co., Eastman Kodak Co., Exxon Mobil Corp., General Motors Corp., Honeywell International Inc., Johnson & Johnson, McDonald's Corp., Merck & Co., Procter & Gamble Co. and SBC Communications Inc. Companies that include them in releases are Alcoa Inc., Hewlett-Packard Co., Home Depot Inc., Intel Corp., International Paper Co., Microsoft Corp., Minnesota Mining & Manufacturing Co., J.P. Morgan Chase & Co., Philip Morris Cos., United Technologies Corp. and Wal-Mart Stores Inc. Citigroup's third-quarter earnings release has this quote from Sandy Weill, chairman and CEO: ``We have the balance sheet strength to make timely acquisitions to expand our franchises.'' The New York-based company had more than $85 billion of ``total equity,'' Weill said in the statement. General Electric's release quoted Chairman and CEO Jeffrey Immelt as saying ``our strong balance sheet, which gives us the flexibility to pursue strategic opportunities,'' is one of the Fairfield, Connecticut-based company's ``fundamental strengths.'' Investors can only take these CEOs at their word for now. Their companies, and many others, are only telling rather than showing -- at least in their earnings releases. Enron Shares Rise, Rebounding From Nine-Year Low (Update3) 2001-10-31 16:20 (New York) Enron Shares Rise, Rebounding From Nine-Year Low (Update3) (Closes shares.) Houston, Oct. 31 (Bloomberg) -- Enron Corp. shares jumped 25 percent, one day after falling to their lowest level in more than nine years, amid speculation the company may be a takeover target. Shares of the top energy trader rose $2.74 to $13.90 in trading of 43.4 million shares, more than four times the three- month daily average of 10.4 million. The shares reached $14.20 earlier in the day. Shares of Houston-based Enron have fallen 83 percent this year. They have dropped 49 percent this month amid a U.S. Securities and Exchange Commission inquiry into partnerships headed by Andrew Fastow, Enron's former chief financial officer. Fastow was ousted last week in an attempt to restore confidence in the stock. ``There are rumors out there that they are a potential takeover target, but I think it's very unlikely that anyone will buy them out at this point,'' said Zach Wagner, an analyst at Edward Jones & Co. ``There are too many uncertainties.'' Enron is more likely to get a large cash infusion from an investor, Wagner said. Wagner has a ``reduce'' rating on Enron shares. He doesn't own the stock. The Wall Street Journal today said General Electric Co.'s GE Capital, Warren Buffett's Berkshire Hathaway Inc. and Royal Dutch Petroleum Co. are ``among the names bandied about'' as potential buyers for all or part of Enron. Merrill Lynch analyst Donato Eassey said in a report issued today that Enron has a net asset value of $16 to $24 a share. He based that on a total asset value of $32 billion to $38.6 billion and total obligations of $18.2 billion. Eassey has a ``near-term accumulate'' rating on Enron's shares. He said Enron should be considered as an investment for ``high-risk profile investors'' because of the uncertainty attached to the company. --Margot Habiby in the Dallas newsroom (214) 954-9452

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Subject: Enron Mentions Sender: m..schmidt@enron.com Recipients: [] File: dasovich-j/deleted_items/1860. ===================================== Enron Names Special Committee To Examine Transactions Dow Jones News Service, 10/31/01 Enron says SEC opens formal inquiry into related-party transactions AFX News, 10/31/01 Enron Says SEC Informal Inquiry Now a Formal Investigation Bloomberg, 10/31/01 Key Enron Employees Aren't Jumping Ship, Recruiters Say Dow Jones Energy Service, 10/31/01 Houston, We Have A Problem: How Much Is Enron Worth? Dow Jones News Service, 10/31/01 Enron's stock jumps amid takeover speculation Associated Press Newswires, 10/31/01 USA: Few signs of domino effect among Enron's peers. Reuters English News Service, 10/31/01 Waste Management Will Start Pulp And Paper Trading Tomorrow Bloomberg, 10/31/01 Enron ends 10-day skid with 25% jump CBSMarketWatch.com, 10/31/01 Enron's stock jumps amid takeover speculation Associated Press Newswires, 10/31/01 Class Action Lawsuit Commenced Against Enron Corp. By The Law Offices of Ma= rc S. Henzel PR Newswire, 10/31/01 Some Enron Trading Customers Tighten Credit Reins, Cut Trades Bloomberg, 10/31/01 USA: Enron rebounds, but investors seek more disclosure. Reuters English News Service, 10/31/01 Waiting for Balance Sheets Amid Enron's Debacle: David Wilson Bloomberg, 10/31/01 Enron Shares Rise, Rebounding From Nine-Year Low (Update3) Bloomberg, 10/31/01 Enron Names Special Committee To Examine Transactions 10/31/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Corp. (ENE) created a Special Committee to exam= ine deals related to the Security and Exchange Commission investigation int= o transactions involving Enron's former chief financial officer, which has = now turned into a formal investigation.=20 The energy-trading company also named William Powers Jr. to its board, maki= ng him in charge of the Special Committee, the company said in a press rele= ase Wednesday. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron says SEC opens formal inquiry into related-party transactions 10/31/2001 AFX News (c) 2001 by AFP-Extel News Ltd HOUSTON (AFX) - Enron Corp said the Securities and Exchange Commission has = opened a formal inquiry into the company's transactions with entities conne= cted with related parties.=20 In a statement, Enron said "the SEC has opened a formal investigation into = certain of the matters that were the subject of recent press reports and th= at previously were the subject of its informal inquiry." Earlier this month, Enron announced a charge of 1.01 bln usd, or 1.11 usd p= er share, and an incremental 1.2 bln usd reduction in stockholders' equity,= related to the unwinding of investments with the related LJM partnership.= =20 The SEC requested the company provide information on these related-party tr= ansactions days later, and the company dismissed its chief financial office= r, Andrew Fastow, for his involvement in running the LJM partnerships.=20 In today's statement, the company announced the election of William Powers = Jr to the board, effective immediately.=20 Powers, who is dean of the University of Texas School of Law, will chair a = Special Committee to examine and take any appropriate actions with respect = to transactions between Enron and entities connected to related parties, it= said.=20 In addition to reviewing the transactions in question, the Special Committe= e is charged with communicating with the SEC and recommending any other act= ions it deems appropriate.=20 "I have asked the Board to take this action to address fully and forthright= ly investors' questions and concerns," said Enron chairman and chief execut= ive officer Kenneth Lay.=20 "Responding to the SEC offers us an additional opportunity to achieve this = same goal for investors, and we will cooperate fully. We will also make eve= ry appropriate public disclosure during the course of the SEC's investigati= on."=20 pav/ Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Says SEC Informal Inquiry Now a Formal Investigation 2001-10-31 17:37 (New York) Enron Says SEC Informal Inquiry Now a Formal Investigation Houston, Oct. 31 (Bloomberg) -- Enron Corp. said an informal inquiry by the Securities and Exchange Commission is now a formal investigation, and the Houston-based company's board is appointing a special committee to address allegations related to partnerships run by its former chief financial officer. William Powers Jr., dean of the University of Texas law school, will chair a committee to handle the SEC's requests for information about the partnership, Enron said. --Andy Pratt in the Princeton newsroom at (609) 750-4657 or Key Enron Employees Aren't Jumping Ship, Recruiters Say By Michael Rieke Of DOW JONES NEWSWIRES 10/31/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Corp.'s (ENE) current problems aren't sending i= ts key employees running for the door, according to two executive recruiter= s.=20 While employees at Enron's underperforming units are shopping around for ne= w jobs, those working for its core wholesale energy trading and retail ener= gy units seem content, the recruiters told Dow Jones Newswires. "We've been getting resumes from their international group over the last ye= ar," said Bruce Peterson, managing director for Korn Ferry in Houston. "But= its been a very well-known fact that they're getting out of those business= es."=20 Another Houston recruiter, who didn't want to be identified, said he has go= tten "a flood" of resumes from employees at Enron's natural gas and power a= ssets in South America.=20 Employees at Enron's broadband unit are also sending out resumes, said the = recruiter. That business has brought the company losses of more than $100 m= illion this year despite hundreds of layoffs. Enron continues to cut costs = in its telecom business.=20 Neither recruiter has seen many resumes from Enron's big moneymakers - the = wholesale energy trading group and the retail energy services group.=20 Some of the lower-level employees of those units have sent out resumes but = Peterson said he hasn't seen higher-level executives in the job market. How= ever, he attached a caveat to that statement.=20 "Quite a few of the senior people at Enron have left over the last 6-12 mon= ths," he said.=20 When Enron's share price was flying high last year and early this year, som= e of Enron's top executives cashed out their stock options and left the com= pany.=20 Those executives included Cliff Baxter, former vice chairman and chief stra= tegy officer; Ken Rice, former head of Enron Capital and Trade as well as f= ormer chief executive of Enron Broadband Services; Kevin Hannon, former pre= sident of Enron Broadband Services; and Lou Pai, former chairman and chief = executive of Enron Energy Services.=20 The lure of cashing out lucrative stock options won't cost Enron any more e= mployees any time soon. The company's share price has fallen too far too qu= ickly, leaving the options underwater.=20 The company's shares traded as high as $80 early this year. By July the pri= ce had dropped to around $50, leaving employees with options that were virt= ually worthless. So Enron told employees it would issue new options in Augu= st.=20 But the company's share price continued to fall as more and more bad news c= ame out. The new options issued in August, when the share prices were aroun= d $40, are now underwater also.=20 Now that the options are out of the money, Enron employees are more vulnera= ble to the lure of other companies, Peterson said.=20 Enron could face another problem in keeping key people. Its employees work = under two-year contracts. If they leave Enron before their contracts expire= s, a noncompete clause could prevent them for working for a competitor.=20 Some of those contracts will expire at the end of the year. Without the inc= entive of lucrative stock options, Enron might have a difficult time gettin= g employees to agree to new contracts with a noncompete clause, Peterson sa= id.=20 An Enron spokeswoman said the company isn't planning to issue more new opti= ons to employees.=20 -By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@dowjone= s.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Houston, We Have A Problem: How Much Is Enron Worth? By Christina Cheddar Of DOW JONES NEWSWIRES 10/31/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- With billions of dollars shaved off of the market ca= pitalization of Enron Corp. (ENE) in the past two weeks, the stock is tradi= ng at about its book value, begging the question: so how much is it worth a= nyway?=20 The answer is far from easy. Ever since Enron metamorphosed from a stodgy gas pipeline company into what= was seen by many as a dynamic energy trading firm, the company has become = increasingly more difficult to understand.=20 Just a glance at the wide-range of Wall Street analysts who follow the comp= any illustrates the point. In the mix are analysts who track natural gas an= d the pipeline industry as well as those who follow electric utilities.=20 One enticing prospect is that the assets in its portfolio are valuable in a= nd of themselves and could be seen by some as worthwhile acquisition target= s.=20 By Enron's own definition, the company houses four main divisions: Enron Wh= olesale Services, Enron Energy Services, Enron Transportation Services, and= Enron Broadband Services.=20 Wholesale Services houses the company's energy marketing business and Enron= Online. This segment accounts for the bulk of Enron's profits, and has beco= me synonymous with what Enron means to most people today.=20 Not only does Enron trade gas, oil and coal, but it also trades commodities= such as pulp and paper, petrochemicals, lumber, plastics and even weather = risk.=20 Enron Energy Services is the company's retail arm. The company provides ele= ctricity, gas and commodity risk management services through this division.= =20 Enron Transportation Services operates four natural gas pipelines that span= about 25,000 miles and have a peak capacity of 9.8 billion cubic feet per = day. Through these pipelines the company says it transports about 15% of th= e natural gas the U.S. needs. The segment also includes Portland General, a= Oregon utility company Enron is selling to Northwest Natural Gas Co. (NWN)= for $1.9 billion in cash and stock.=20 In addition, the company provides bandwidth and network services through it= s Enron Broadband services division.=20 But Enron's reach is even wider than this list suggests. The company also h= as a number of other corporate investments, including its stake in the Azur= ix water business, Enron Renewable Energy Corp. as well as methanol and MTB= E plants.=20 Through Enron's unconsolidated affiliates, the company also has investments= in additional water assets, a power plant in India and a natural gas pipel= ine in Argentina among other things.=20 What makes any valuation of Enron difficult is what remains unknown about t= he company's financial structure.=20 Enron has yet to file a balance sheet for the third quarter, and doesn't ex= pect to do so until Nov. 15, when balance sheets must be filed under Securi= ties and Exchange Commission regulations.=20 Without the balance sheet, some of the details needed for calculating a com= pany's value are missing.=20 Also, much still remains unknown about the company's obligations to its off= -balance sheet financing vehicles.=20 Using what is known about Enron's finances, several analysts have arrived a= t their own conclusions about valuation.=20 Merrill Lynch & Co. analyst Donato Eassey said Wednesday he puts Enron's ne= t asset value at between $16 to $24 a share. The calculation assumes Enron = has 850 million diluted shares outstanding.=20 Eassey valued Enron's on-balance sheet assets at nearly $11 billion, and th= e off-balance sheet assets at $1.1 billion. He has valued the company's tra= ding business at between six-to-eight-times its 2001 earnings before intere= st, taxes, depreciation and amortization, or about $19 billion to $26.5 bil= lion, based on his EBITDA estimate of $3.3 billion for this year.=20 "Thus, our total asset value stands in the $32 (billion) to $38.6 billion a= rea," Eassey said.=20 The analyst then deducted $13.8 billion in total balance sheet debt, and es= timated off-balance sheet debt at about $3.4 billion. The estimates bring t= otal debt to $17.2 billion, including $1 billion in preferred stock, he sai= d.=20 Importantly, Eassey's estimate doesn't include any cash balances or the val= ue of its current trading position.=20 At the end of June, Enron had $847 million in cash and was in a net positiv= e trading position of $306 million, Eassey said.=20 Last Thursday, Dain Rauscher Wessels analyst Mark Easterbrook arrived at a = net asset valuation of between $27 to $35 a share.=20 Easterbrook's calculation assumes added writedowns and equity adjustments.= =20 The lower half of the range assumes Enron doesn't complete any asset sales,= and assumes equity funding dilutes the shares outstanding by 24%, the anal= yst said.=20 The higher end of the range assumes asset sales of $3.5 billion, debt reduc= tion of $1 billion from the Portland General sale and no equity financing, = he said.=20 The view doesn't take into consideration the short-term liquidity crunch on= going at the company, Easterbrook said. In addition, he added, the estimate= assumes all of Enron's partnerships and investments no longer have any res= idual value.=20 Early this year, John S. Herold came up with a "rough cut" valuation of Enr= on of "plus or minus something in the $30 range" using appraised net worth = methodology, said John Parry, an analyst at the firm. However, he said, the= firm never published the estimate because it felt it didn't have enough in= formation from Enron about the off-balance sheet financing vehicles to make= a complete assessment.=20 At the time, Enron's stock was trading in the $70's, Parry said. So, he cut= the stock's rating to sell.=20 "I never imaged it would fall this low," he said.=20 Enron shares closed Wednesday at $13.90, up $2.74, or 24.6%.=20 -By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar= @dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's stock jumps amid takeover speculation By JUAN. A. LOZANO Associated Press Writer 10/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - After plummeting to a nine-year low following recent economi= c losses and an investigation by federal securities regulators, shares of E= nron Corp. jumped nearly 25 percent Wednesday amid speculation the company = was ripe for takeover.=20 Shares of Enron, the nation's largest natural gas and power marketer, rose = $2.74 to close at $13.90 Wednesday on the New York Stock Exchange. Shares t= hough are still down 69 percent since the company reported third quarter ea= rnings just over two weeks ago. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said We= dnesday's surge was likely a reaction to a The Wall Street Journal report t= hat Enron's beaten-down stock price has stirred rumors of a possible takeov= er.=20 Others may be buying figuring the stock has hit bottom, she said.=20 On Tuesday, Enron's stock closed at $11.16, its lowest level since 1992.=20 Enron shares began their steady fall in the middle of October, when the com= pany reported a net loss of $638 million in the third quarter, taking a one= -time charge of $1.01 billion attributed to investment losses, troubled ass= ets and unit restructurings.=20 Some of these losses have been tied to partnerships managed by Enron's form= er chief financial officer, Andrew Fastow, who was ousted last week.=20 The potential conflict of interest has prompted an inquiry by the Securitie= s and Exchange Commission.=20 Earlier this week, Moody's Investors Service downgraded the company's long-= term debt and warned of possible further downgrades.=20 Potential buyers include General Electric's GE Capital unit, Warren Buffett= 's Berkshire Hathaway and Royal Dutch Shell, the Journal said.=20 Duane Grubert, an analyst with Sanford C. Bernstein and Co. in New York, sa= id Shell, which has a small presence in energy marketing, would be a good f= it.=20 "Shell tried to be in the merchant energy arena and didn't really succeed,"= he said. "To buy into an established franchise must be attractive to Shell= ."=20 Enron officials did not immediately return telephone calls from The Associa= ted Press on Wednesday.=20 While Enron's stock price has made it attractive, Coale said the energy mar= keter's problems present a substantial drawback.=20 "I would fault a company for acquiring Enron with all of this hanging over = it," she said. "There are too many uncertainties."=20 Grubert said he believes Enron has the ability "to weather the storm and re= store their enterprise on their own."=20 Since reporting its disappointing third quarter losses, Enron has been nego= tiating with banks to establish new credit lines. The company last week dec= ided to cash in about $3 billion in revolving credit it has with various ba= nks to shore up investor confidence.=20 ---=20 On the Net:=20 http://www.enron.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: Few signs of domino effect among Enron's peers. By Andrew Kelly 10/31/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 31 (Reuters) - U.S. energy traders such as Dynegy Inc. and Aqu= ila Inc. have taken a knock as a result of Enron Corp's recent woes, but an= alysts do not expect a broad loss of investor confidence in the sector to t= rigger massive losses in stock prices like Enron has suffered.=20 "The issues impacting Enron are pretty much specific to that company," said= Credit Lyonnais Securities analyst Gordon Howald. "I don't believe that a = lot of its peers have the same type of potential negative impact," he said. Enron's widespread use of complex off-balance-sheet financing deals and its= reluctance to disclose details about them are a key reason why investors h= ave dumped the company's stock, causing it to fall more than 60 percent in = the last two weeks.=20 And while other natural gas and electricity marketers use similar technique= s to avoid overloading their balance sheets with debt, nobody does so to th= e same extent as Enron, analysts said.=20 "Enron is a unique case in the magnitude of off-balance sheet transactions,= " said Prudential Securities analyst Carole Coale.=20 UNCOMFORTABLE WITH DISCLOSURE=20 Coale said she was not comfortable with the level of disclosure provided by= many of Enron's peers about such deals, but she said this was less of a pr= oblem at other companies because they have less exposure to the risky energ= y trading and marketing business which contributes about 80 percent of Enro= n's profits.=20 El Paso Corp., for example is channeling over $1 billion in off-balance-she= et financing into its Project Electron venture which was set up to acquire = and manage power plants.=20 Analysts say they are reasonably pleased with the information that El Paso = has provided to them about Electron.=20 El Paso's stock has fallen a relatively modest 5 percent over the last two = weeks and analysts attribute this in large part to the fact that marketing = and trading operations generate only about one quarter of the company's ear= nings.=20 Dynegy's stock is down some 17 percent over the last two weeks and analysts= said this was linked to Dynegy's assumption of a leadership role among U.S= . energy marketers in many investors' eyes as Enron began to fall out of fa= vor and as Dynegy attained a correspondingly high price-earnings ratio.=20 Asked about Dynegy's use of off-balance-sheet financing, spokesman John Sou= sa drew a contrast between his own company and Enron, saying Dynegy had no = financing that was backed by issuance of stock, nor any "related party tran= sactions".=20 FORMER HIGH-FLIERS SHUNNED=20 Analysts said that in the current uncertain investment climate, investors a= re shunning trading-oriented companies' whose stocks had previously command= ed high price-earnings multiples and seeking out more modestly valued compa= nies which own physical assets such as power plants and natural gas pipelin= es.=20 In terms of recent stock price performance this trend has punished a market= er-trader like Aquila, whose shares are down 27 percent over the last two w= eeks.=20 On the other hand it has been relatively kind to companies such as Williams= Cos. and Duke Energy Corp. , which until recently were treated with scorn = by Enron executives who aggressively propounded an "asset-light" philosophy= .=20 Williams' stock has fallen about 5 percent over the last fortnight while Du= ke's shares are down less than 1 percent and have outperformed the broader = U.S. stock market.=20 J.P. Morgan analyst Anatol Feygin said Enron had fallen victim to its uniqu= e taste for sophisticated financing techniques and its failure to explain t= hem when doubts started to surface.=20 "Enron took it to an extreme in terms of financial engineering, but it didn= 't disclose enough information about what is behind all of these structures= ," he said.=20 Credit Lyonnais Securities' Howald had a simpler explanation, saying that a= s the euphoria which surrounded Enron last year subsided, people began to s= ee Enron for what it was.=20 "Trading companies have always had a history of winning big and losing big,= " he said. "I think the days of the big valuations are over," he added. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Waste Management Will Start Pulp And Paper Trading Tomorrow 2001-10-31 16:52 (New York) Waste Management Will Start Pulp And Paper Trading Tomorrow Houston, Oct. 31 (Bloomberg) -- Waste Management Inc., North America's largest trash hauler, will start trading paper and pulp tomorrow to limit the effects of price fluctuations of recycled materials and offer a service its biggest rivals don't provide. In the past three years, Waste Management has reduced its exposure to price swings by placing 75 percent of its recycled- commodity sales under long-term, fixed-price contracts. Still, the company's revenue from recycling fell 38 percent to $154 million in the second quarter. Chief Executive Officer Maurice Myers is hoping the trading business will help stabilize recycling revenue even when prices for cardboard, newspaper and aluminum cans fall. Trading allows Waste Management to further limit its own exposure to prices, as well as offer contracts to customers who want to lock in prices. ``What Waste Management is doing is going to reduce the company's risk and their customer's risk,'' said Thomas Leritz, an analyst at Banc of America Capital Management, which owns more than 1 million shares of Waste Management. ``I think it's a smart move. It's a reflection of the new management team.'' Myers joined the company in November 1999 as it struggled to track costs from acquisitions. He has put new financial-systems software in place and made other efforts to cut costs. The company has also raised prices where it's the dominant hauler. Myers's efforts, along with the sale of overseas businesses, have helped the company regain regard among investors. The shares have risen 22 percent in the past year. Pulp and Paper Most of Waste Management's solid-waste customers produce or consume pulp and paper. Waste Management collects, processes and sells more than five million tons a year of paper, plastic, glass, aluminum and other metals. Recycled-cardboard prices fell 62 percent to $48 a ton in the second quarter from $125 a year earlier, and the price for recycled newsprint fell to $55 a ton from $90, Myers said in August. Prices were little changed from the second quarter to the third quarter, said Steve Ragiel, Waste Management's vice president of recycling. Waste Management, which will report third-quarter results next week, had expected to begin trading in the third quarter. Its plans were delayed because it took longer than expected to find people to run the operation, Raigel said. Jeff Harbert, formerly of Enron Corp., is heading the operation along with two other Enron traders. Enron, also based in Houston, has created the largest business of trading commodities including electricity, natural gas, pulp and paper. Risk Management Waste Management's initial focus in the trading business will be on managing its own price risk. It probably only will complete five to 10 trades in each of the first few months, Raigel said. The company hopes to set fixed prices for the commodities it picks up, then sell those commodities to a third company, such as a paper producer, at a higher set price. ``We'll get with a counter party such as a paper mill or a consumer-products company and cut a deal,'' Raigel said. ``We can find a paper mill that wants to lock in a fixed price on what they buy and what they sell. They get a minimum return on their investment and greater control on their raw material costs.'' The company hasn't said how much it expects to make from trading. Analysts aren't expecting the business to contribute significantly to Waste Management's earnings. ``They are looking at it as a good time to get in on trading but I don't see it as a major contributor to their business,'' said Stewart Scharf, an analyst with Standard & Poor's Equity Group. He rates Waste Management ``accumulate'' and doesn't own shares. Republic Services Group Inc., the No. 3 U.S. waste company, contracts with individual mills to supply recycled commodities at fixed prices, but hasn't started a trading operation, spokesman Will Flower said. Allied Waste Industries Inc., the second-largest trash hauler in North America, said it has no plans to get into trading. ``We'll leave trading to people like Enron,'' Allied Waste spokesman Michael Burnett said. --Mark Johnson in the Princeton newsroom (609) 750-4662 Enron ends 10-day skid with 25% jump=20 Lisa Sanders CBSMarketWatch.com October 31, 2001 HOUSTON (CBS.MW) -- Shares of Enron, which had lost about 66 percent of the= ir value over the past 10 sessions, spiked Wednesday after a report that pe= gged the beleaguered company as a takeover target. Enron added 25 percent, or $2.74, to close at $13.90. More than 43 million = shares changed hands, making the stock the most actively traded on the New = York Stock Exchange. A.G. Edwards' analyst Michael Heim warned Wednesday against buying Enron sh= ares. He noted that Enron's troubles could be hurting its trading operation= s, the company's strength. "People interested in betting on ENE should ask themselves this -- If a per= son offered to double your money when a coin lands heads and take away half= your money when it is tails, would you take the bet? What if the person fl= ipping the coin is a magician you don't trust?"=20 A Wall Street Journal report Wednesday speculated on Enron's potential as a= n acquisition for a more stable company. An Enron spokesman said the compan= y doesn't comment on such matters. Enron has been under pressure for more than two weeks, beginning when the e= nergy merchant reported a $1 billion charge in its third-quarter earnings. = A Securities and Exchange Commission probe into two of the company's limite= d partnerships and a rating downgrade by Moody's Investors Service haven't = helped. John Olson, an analyst at Sanders Morris Harris, said he thought an Enron t= akeover unlikely at this point. "However, if the stock were to keep coming down, and their financial diffic= ulties were extended, the odds would increase," he said. Olson pointed out that Enron's heavy losses over the last 10 sessions partl= y reflects the end of the tax year for mutual funds. The calendar year for = funds ends at the close of business Wednesday. "Mutual funds who own Enron stock have been trying to offset other gains by= selling off Enron," he said. "Mutual funds have to register all their gain= s or losses and offset them by selling or buying stock by the close today." Taking bets Art Smith, chairman and chief executive of the research firm John S. Herold= , said he'd be surprised if Enron was not entertaining offers. "It's one of= the ways that Enron gets the genie back in the bottle." On the other hand, Smith said, it would take a potential acquirer time to b= ecome comfortable with the valuation of the business.=20 "It's doubtful that a potential acquirer can resolve all the valuation issu= es quickly," Smith said. He said it's likely that any sort of purchase agre= ement would contain what he called a "look-back provision," which would pro= tect the acquirer from being strapped to a fixed value. Smith said he could see either General Electric's GE Capital or Royal Dutch= Shell making a bid. Both were mentioned in the Journal report. "GE Capital is big enough that if it didn't work out it won't cripple GE, a= nd they've been opportunistic on things like this," Smith said. "And Shell = always keeps us guessing." Olson also included AIG and Citigroup as potential acquirers. "Enron has certainly had some appeal to people that are used to an aggressi= ve trading culture," he said. Smith said that even without Enron, the energy marketing and trading busine= ss would continue to thrive.=20 "Even if Enron went away, it would not change what has developed into a hea= lthy market for commodity forward markets and hedging," he said. Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com. Enron's stock jumps amid takeover speculation By JUAN. A. LOZANO Associated Press Writer 10/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - After plummeting to a nine-year low following recent economi= c losses and an investigation by federal securities regulators, shares of E= nron Corp. jumped nearly 25 percent Wednesday amid speculation the company = was ripe for takeover.=20 Shares of Enron, the largest U.S. natural gas and power marketer, rose dlrs= 2.74 to close at dlrs 13.90 Wednesday on the New York Stock Exchange. Thou= gh still down 69 percent since the company reported third quarter earnings = just over two weeks ago. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said We= dnesday's surge was likely a reaction to a The Wall Street Journal report t= hat Enron's beaten-down stock price has stirred rumors of a possible takeov= er.=20 Others may be buying figuring the stock has hit bottom, she said.=20 On Tuesday, Enron's stock closed at dlrs 11.16, its lowest level since 1992= .=20 Enron shares began their steady fall in the middle of October, when the com= pany reported a net loss of dlrs 638 million in the third quarter, taking a= one-time charge of dlrs 1.01 billion attributed to investment losses, trou= bled assets and unit restructurings.=20 Some of these losses have been tied to partnerships managed by Enron's form= er chief financial officer, Andrew Fastow, who was ousted last week.=20 The potential conflict of interest has prompted an inquiry by the Securitie= s and Exchange Commission.=20 Earlier this week, Moody's Investors Service downgraded the company's long-= term debt and warned of possible further downgrades.=20 Potential buyers include General Electric's GE Capital unit, Warren Buffett= 's Berkshire Hathaway and Royal Dutch Shell, the Journal said.=20 Duane Grubert, an analyst with Sanford C. Bernstein and Co. in New York, sa= id Shell, which has a small presence in energy marketing, would be a good f= it.=20 "Shell tried to be in the merchant energy arena and didn't really succeed,"= he said. "To buy into an established franchise must be attractive to Shell= ."=20 While Enron's stock price has made it attractive, Coale said the energy mar= keter's problems present a substantial drawback.=20 "I would fault a company for acquiring Enron with all of this hanging over = it," she said. "There are too many uncertainties." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Class Action Lawsuit Commenced Against Enron Corp. By The Law Offices of Ma= rc S. Henzel 10/31/2001 PR Newswire (Copyright (c) 2001, PR Newswire) BALA CYNWYD, Oct. 31 /PRNewswire/ -- A class action lawsuit was filed in th= e United States District Court for the Southern District of Texas, on behal= f of purchasers of the common stock of Enron Corp. (NYSE: ENE) between Janu= ary 18, 2000 and October 17, 2001, inclusive. The action is pending against= defendants Enron, Kenneth Lay, Jeffrey K. Skilling and Andrew Fastow.=20 The Complaint alleges that defendants violated Sections 10(b) and 20(a) of = the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder,= by issuing a series of material misrepresentations to the market between J= anuary 18, 2000 and October 17, 2001, thereby artificially inflating the pr= ice of Enron common stock. Specifically, the complaint alleges that Enron i= ssued a series of statements concerning its business, financial results and= operations which failed to disclose (i) that the Company's Broadband Servi= ces Division was experiencing declining demand for bandwidth and the Compan= y's efforts to create a trading market for bandwidth were not meeting with = success as many of the market participants were not creditworthy; (ii) that= the Company's operating results were materially overstated as result of th= e Company failing to timely write-down the value of its investments with ce= rtain limited partnerships which were managed by the Company's chief financ= ial officer; and (iii) that Enron was failing to write-down impaired assets= on a timely basis in accordance with GAAP. On October 16, 2001, Enron surp= rised the market by announcing that the Company was taking non-recurring ch= arges of $1.01 billion after-tax, or ($1.11) loss per diluted share, in the= third quarter of 2001, the period ending September 30, 2001. Subsequently,= Enron revealed that a material portion of the charge related to the unwind= ing of investments with certain limited partnerships which were controlled = by Enron's chief financial officer and that the Company would be eliminatin= g more than $1 billion in shareholder equity as a result of its unwinding o= f the investments. As this news began to be assimilated by the market, the = price of Enron common stock dropped significantly. During the Class Period,= Enron insiders disposed of over $73 million of their personally held Enron= common stock to unsuspecting investors. Plaintiff is represented by The Law Offices of Marc S. Henzel. If you are a= member of the class described above, you have until December 21, 2001, to = participate in the case and ask the Court to appoint you as one of the lead= plaintiffs for the Class. In order to serve as lead plaintiff, however, yo= u must meet certain legal requirements. You do not need to seek appointment= as a lead plaintiff in order to share in any recovery.=20 If you have any questions concerning this case or your rights or interests = with respect to these matters, please contact: Marc S. Henzel, Esq. of The = Law Offices of Marc S. Henzel, 273 Montgomery Ave, Suite 202 Bala Cynwyd, P= A 19004-2808, by telephone at (888) 643-6735 or (610) 660-8000, by facsimil= e at (610) 660-8080, by e-mail at Mhenzel182@aol.com or visit the firm's we= bsite at http://members.aol.com/mhenzel182.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X40385151 /CONTACT: Marc S. Henzel, Esq. of The Law Offices of Marc S. Henzel, +1-888= -643-6735 or +1-610-660-8000, fax: +1-610-660-8080, or Mhenzel182@aol.com/ = 16:50 EST=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Some Enron Trading Customers Tighten Credit Reins, Cut Trades 2001-10-31 16:05 (New York) New York, Oct. 31 (Bloomberg) -- American Electric Power Co., Exelon Corp. and Northeast Utilities are among energy companies restricting business with Enron Corp. as the largest energy trader negotiates a credit line to keep access to cash. ``We are keeping a tight dollar limit on trades,'' said John Rowe, co-chief executive officer of Exelon, the largest U.S. nuclear power producer. ``We are keeping a close eye on our exposures.'' Enron has said it is seeking new sources of credit as the company tries to assure trading partners and rating agencies that it can meet day-to-day obligations and keep its investment-grade credit rating. Enron, which handles 25 percent of the energy trading in the U.S., relies on having investment-grade credit to borrow enough to settle its transactions daily. Enron Corp. shares, down 59 percent since Oct. 16, rose 25 percent today to $13.90 from a nine-year low amid speculation the company may be a takeover target. Still, Enron stock is down 83 percent this year. Moody's Investors Service last week lowered Enron's long-term debt to two notches above junk status and placed Enron's commercial paper on review for downgrade. ``We will be tracking very closely their wholesale volumes,'' said Stephen Moore, a vice president at Moody's. ``That will be the leading indicator of where the company is going.'' Credit People Energy trading accounted for about 98 percent of Enron's $773 million in income before interest and taxes last quarter. The company last week drew down a $3 billion credit line after surprising investors by writing off $1.2 billion of shareholder equity. The company also ousted its Chief Financial Officer Andrew Fastow after it reported that a partnership he set up lost $35 million for the company. The Securities and Exchange Commission has asked the company questions about partnerships like Fastow's. Enron spokeswoman Karen Denne said the company's trades have not declined in size while natural gas trading volume has dipped consistent with monthly pattern. Some energy executives said yesterday that companies were limiting Enron trading to reduce credit risks. ``Credit people are coming to their traders and saying, `Enron is on hold for any new positions, and at some point we may need you (to) trade out of your existing positions,''' said Charlie Sanchez, an energy markets manager at Houston-based Gelber & Associates Corp., an energy trading adviser. Watching Closely Minneapolis, Minnesota-based Xcel Energy Inc., an electricity and natural-gas seller, is limiting its business to same-day and next-day delivery, Chief Executive Officer Wayne Brunetti said at an energy conference in New Orleans. American Electric Power Chief Executive Linn Draper said at the same conference that his company is also making only short-term trades. ``We are watching very closely,'' Draper said. ``We are focusing our new deals with them in the short term, November, December. We think they'll make it, but it's a serious situation.'' Northeast Utilities, based in Berlin, Connecticut, will continue to trade with Enron as long as its debt ratings remain investment grade, said Chief Financial Officer John Forsgren, also at the conference. Northeast is New England's biggest utility owner. ``Three weeks ago, we started monitoring our position with Enron,'' said Forsgren. ``Right now, we have a net payable to them, so there's no exposure on our side, and we'll probably keep it that way.'' Overblown Many companies say that Enron remains the most economical and efficient place to trade electricity, and that the company's credit woes are overblown. ``We're still actively trading with them and we believe they will work their way out of this,'' said Mike Griswold, a trader with Hafslund Trading Co., a subsidiary of Norwegian energy company Hafslund ASA. ``They have the best liquidity and the best prices. They are the premier trading market.'' --David Ward and Bradley Keoun in San Francisco=20 USA: Enron rebounds, but investors seek more disclosure. By Carolyn Koo 10/31/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 31 (Reuters) - Shares of Enron Corp. snapped back from 10 str= aight days of losses on Wednesday after investors said the deep plunge had = made the stock attractive.=20 Shares of Houston-based Enron, which lost more than $17 billion in market c= apitalization during the rout, surged almost 27 percent in heavy trade, mak= ing the stock second-most active on the New York Stock Exchange and third-b= iggest gainer by percentage. Despite the surge, investors and analysts said they were still dissatisfied= with Enron's failure to disclose key information and said the rebound coul= d prove short-lived for the largest trader of natural gas and power in Nort= h America.=20 "At this level the stock is attracting money. However, the near term is not= going to be good," said Tim Ghriskey, president of money managers Ghriskey= Capital Partners LLC.=20 "We don't own any Enron. We have in the past and sold a while ago. We've be= en tempted a couple of times during the slide, but the information flow is = not that strong, and there is potential for more negative surprises."=20 Enron closed up $2.74, or 24.6 percent, to $13.90 on the NYSE. The stock su= rged to an intraday high of $14.17, recouping the past two days of losses, = but is far from $33.84, the closing price for Enron on Oct. 16, the last da= y before the 10-day tumble began.=20 Enron shares have been hammered over the past two weeks amid a series of un= welcome disclosures, including murky off-balance-sheet deals with partnersh= ips once run by Chief Financial Officer Andrew Fastow.=20 The disclosures forced Fastow's ouster, led to a Securities and Exchange Co= mmission inquiry into Enron and caused at least one credit rating agency to= cut Enron's senior-debt credit status.=20 The company said Fastow's removal was aimed at assuaging investor concerns = as the almost daily disclosures forced it to draw down about $3 billion fro= m existing credit lines.=20 TRYING TO QUANTIFY 'WORST-CASE SCENARIO'=20 But that's not enough, say analysts and investors.=20 "Enron needs to substantially improve the level of disclosures," said Nitin= Khandkar, a portfolio manager with Dubai-based Al Majid Investment Co., wh= ich owns Enron stock. "The accounting policies it follows should not be mer= ely legal but should also reflect the company's true profitability."=20 As an industry heavyweight, "investors expect Enron to come clean on the co= ntroversial issues," he said.=20 One issue Enron would do well to address is its partnerships and the liabil= ities they may have.=20 "People are still struggling with trying to quantify what the worst-case sc= enario could be," said Mike Heim, an analyst with A.G. Edwards & Sons, of t= he existing partnerships.=20 "Instead of dismissing the worst-case scenario, I think it would make sense= to mathematically show that 'here's what happens under such a scenario' an= d then let analysts make their own assessments."=20 Enron's refusal to make public its finances with greater transparency is a = hallmark of arrogance, noted one academic.=20 "The lack of transparency is an arrogance that says, 'I don't have to expla= in anything because if people don't want to buy my shares, they can just si= t and spin,'" said Paul Kedrosky, a professor at the University of British = Columbia who sits on the board of Exponentia, a company dedicated to improv= ing communications with shareholders.=20 "It's an arrogance that says, 'I do not have to disclose anything until I a= m forced to,'" Kedrosky said. "The crucial thing is to disclose early and d= isclose all." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Waiting for Balance Sheets Amid Enron's Debacle: David Wilson 2001-10-31 16:39 (New York) (Commentary. David Wilson is a columnist for Bloomberg News. The opinions expressed are his own.) Princeton, New Jersey, Oct. 31 (Bloomberg) -- International Business Machines Corp.'s press release about its third-quarter results included this statement, attributed to Louis Gerstner, chairman and chief executive officer: ``IBM's balance sheet remains among the strongest in the technology industry, or any industry.'' The largest maker of computers and provider of computer services wasn't the only company to cite its balance sheet, a statistical summary of what a company owned, what it owed, and what was left over for shareholders on a specific date. General Electric Co., the largest company by stock market value, and Citigroup Inc., the No. 1 financial-services company, made similar references in their third-quarter releases. None of the companies really showed people what they were telling them. IBM, General Electric and Citigroup are among 19 members of the Dow Jones Industrial Average whose most recent quarterly releases didn't include balance sheets. The evidence will come only when the companies submit their quarterly reports to the U.S. Securities and Exchange Commission. Balance sheets are required in the so-called 10-Q filings, along with the 10-K filings that cover the full year. Not Much Publicity By then, statistics about the companies' assets, liabilities and shareholders' equity, the accounting terms for what's owned, what's owed and what's left over, will be rather outdated. U.S. companies have 45 days from the end of a fiscal quarter to submit 10-Q reports, and 90 days from the end of a fiscal year for 10-K reports. These filings usually don't arrive until weeks after the publication of earnings releases. So it's easy to overlook the additional information they provide, especially when it doesn't receive the kind of publicity that the earnings release does. Yet the recent example of Enron Corp. -- another company that omits balance sheets from press releases -- provides evidence that investors who forgo the extra effort needed to find them do so at their own peril. Enron, the largest energy trader, reported $1.01 billion in ``non-recurring'' costs in the third quarter from an expansion into water, telecommunications and retail-energy sales. The expense contributed to a $618 million loss for the quarter. These numbers were part of the Houston-based company's income statement, a summary of sales, costs and expenses, and profits or losses during a specified time period. Income statements are the cornerstone of any company's earnings release. Billion-Dollar Numbers The release didn't even mention a larger figure that affected the balance sheet: a $1.2 billion drop in shareholders' equity during the quarter resulting from the company's repurchase of 55 million shares from two partnerships, LJM Cayman LP and LJM2 Co- Investment LP, that helped finance projects. Andrew Fastow, who ran both partnerships, was ousted from his job as chief financial officer last week. Chairman and CEO Kenneth Lay disclosed the repurchase in a subsequent conference call. Such a one-two punch dealt a blow to investors' fortunes. Since Oct. 17, the day after the earnings release, Enron's shares have fallen each day and have lost two-thirds of their value. The low of $10.90 yesterday was the lowest price since July 1992. Enron's third-quarter statement referred only to a loss on ``finance arrangements with a previously disclosed entity'' which contributed to $544 million of investment losses. The size of that item was later put at $35 million. The latter number amounts to just 3.5 percent of the overall figure for ``non-recurring'' costs, and less than 1 percent of the company's $47.6 billion in revenue for the quarter. Growing Debt Burden The $1.2 billion figure is considerably larger not only in dollars, but also in percentage terms. Enron had $11.74 billion of shareholders' equity as of June 30, according to the balance sheet in its second-quarter 10-Q filing. The reduction equaled more than 10 percent of that total. Among other things, the balance sheet also shows that the company relied more heavily on debt financing during this year's first half. Short-term debt, due in one year or less, doubled to $3.46 billion. Long-term debt, maturing in more than one year, rose 9.4 percent to $9.36 billion. There's even more to the story of Enron's indebtedness. The company guaranteed $3.3 billion in borrowing by Osprey Trust and Marlin Water Trust, which bought some of its power plants. Unless they pay off the debt by reselling the plants, the company may have to come up with the difference. Nevertheless, any summary of a company's financial position provides a more complete picture than the income statement alone. This also holds true for companies whose finances are in better shape -- IBM, General Electric and Citigroup, to name three. Knowing by Showing Other members of the Dow industrials that wait until their filings to provide balance sheets are American Express Co., AT&T Corp., Boeing Co., Caterpillar Inc., Coca-Cola Co., Walt Disney Co., DuPont Co., Eastman Kodak Co., Exxon Mobil Corp., General Motors Corp., Honeywell International Inc., Johnson & Johnson, McDonald's Corp., Merck & Co., Procter & Gamble Co. and SBC Communications Inc. Companies that include them in releases are Alcoa Inc., Hewlett-Packard Co., Home Depot Inc., Intel Corp., International Paper Co., Microsoft Corp., Minnesota Mining & Manufacturing Co., J.P. Morgan Chase & Co., Philip Morris Cos., United Technologies Corp. and Wal-Mart Stores Inc. Citigroup's third-quarter earnings release has this quote from Sandy Weill, chairman and CEO: ``We have the balance sheet strength to make timely acquisitions to expand our franchises.'' The New York-based company had more than $85 billion of ``total equity,'' Weill said in the statement. General Electric's release quoted Chairman and CEO Jeffrey Immelt as saying ``our strong balance sheet, which gives us the flexibility to pursue strategic opportunities,'' is one of the Fairfield, Connecticut-based company's ``fundamental strengths.'' Investors can only take these CEOs at their word for now. Their companies, and many others, are only telling rather than showing -- at least in their earnings releases. Enron Shares Rise, Rebounding From Nine-Year Low (Update3) 2001-10-31 16:20 (New York) Enron Shares Rise, Rebounding From Nine-Year Low (Update3) (Closes shares.) Houston, Oct. 31 (Bloomberg) -- Enron Corp. shares jumped 25 percent, one day after falling to their lowest level in more than nine years, amid speculation the company may be a takeover target. Shares of the top energy trader rose $2.74 to $13.90 in trading of 43.4 million shares, more than four times the three- month daily average of 10.4 million. The shares reached $14.20 earlier in the day. Shares of Houston-based Enron have fallen 83 percent this year. They have dropped 49 percent this month amid a U.S. Securities and Exchange Commission inquiry into partnerships headed by Andrew Fastow, Enron's former chief financial officer. Fastow was ousted last week in an attempt to restore confidence in the stock. ``There are rumors out there that they are a potential takeover target, but I think it's very unlikely that anyone will buy them out at this point,'' said Zach Wagner, an analyst at Edward Jones & Co. ``There are too many uncertainties.'' Enron is more likely to get a large cash infusion from an investor, Wagner said. Wagner has a ``reduce'' rating on Enron shares. He doesn't own the stock. The Wall Street Journal today said General Electric Co.'s GE Capital, Warren Buffett's Berkshire Hathaway Inc. and Royal Dutch Petroleum Co. are ``among the names bandied about'' as potential buyers for all or part of Enron. Merrill Lynch analyst Donato Eassey said in a report issued today that Enron has a net asset value of $16 to $24 a share. He based that on a total asset value of $32 billion to $38.6 billion and total obligations of $18.2 billion. Eassey has a ``near-term accumulate'' rating on Enron's shares. He said Enron should be considered as an investment for ``high-risk profile investors'' because of the uncertainty attached to the company. --Margot Habiby in the Dallas newsroom (214) 954-9452 =====================================

venturewire@venturewire.com

VentureWire, Thursday, September 7, 2000

====================================================== VENTUREWIRE --- Thursday, September 7, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Network Firm QoS Secures $100 Million in First Round o Report: Chase Raising $5 Billion For Private Equity Fund o Palm Forms Venture Unit and Earmarks $50 Million o Metawave Buys Smart Antenna Firm Adaptive for $107 Million o Sterling Venture Partners Secures $150 Million for New Fund o NBC VP Named Partner and Director of NeoCarta Ventures |||||||||||||||||||| Advertisement |||||||||||||||||||| AristaSoft is the only service provider focused exclusively on the high-tech equipment industry. The company provides integrated business process services--operations and finance, collaborative manufacturing commerce and customer service management--based on deep, industry-focused domain expertise and a portfolio of relevant enterprise-class applications delivered on a secure, scalable and reliable ASP infrastructure. Through AristaSoft's solution, emerging, hyper-growth high-tech equipment companies can grow their businesses faster. Find out more at www.aristasoft.com. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Broadband Firm Net to Net Secures $15 Million in Round One o Property Management Firm Realeum Has $15 Million Series A o Fabless Semiconductor Firm Secures $8.2 Million in Round One o Management App Firm Gets $5 Million of $8 Million Round One o Net Insurance Firm InsuranceNoodle Gets $10 Million Series A o Net Sports Technology Firm FitSense Gets Round One Funding o Wireless Firm Vettro Raises $10 Million in First Round o Wireless Technology Developer Has $1.5 Milllion First Round o Auction Site for Travel Booking Gets $2.5 Million Round One o B2B Security Firm NetCertainty Gets $3.8 Million Series A o CRM Firm PackagingSlip.com Closes Series A Round o Education Site iKnowthat.com Closes $2 Million Round One o Efoodmanager Gets $1.3 Million More in First Round Funding o Wirless Tech Firm Equinox Raises $4.4 Million in First Round o Chip Firm SigmaTel Secures $24 Million in Funding o Software Firm Sheer Networks Has $30 Million Second Round o E-Services Firm eHotHouse Launches, Gets Over $20 Million o Israeli Optical Firm Native Networks Gets $18 Million o Mercari Technologies Closes $20 Million in Series C o Applied Biosystems Invests $3 Million in Genomica o B2B Healthcare Data Provider Raises $725,000 Mezz Round o Harmonix Secures $3.5 Million Second Round from Softbank o Internet Indirect Invests $3 Million in Broadband Firm Kast o PC Maker Acer Invests in Electronics Marketplace e2open.com o TechSys Takes Minority Stake in Technology Keiretsu o VentureWorx Takes Stake in Search Engine SearchGenie.com o Wireless Data Software Firm Netverk Scores $9.5 Million New Products: o Giga Information's French Unit Goes Private with $4 Million o Software Testing and Monitoring Firm Empirix Launches o KnowToday Becomes Clerity Knowledge Exchanges New Deals: o Pop.com Confirms Deal with Ifilm Off, Small Staff Retained M&A: o Earful of Books Takes Majority Stake In Audiobookcafe.com o BuildNet Acquires Home Plan Resource Company HomeStyles o American Greetings Buys Information-by-e-mail Service Firm o Digital Scent Developer, DigiScents, Buys SenseIT o AmeriNet Group.com To Acquire WeCU.com for $1.5 Million New Directors: o Two Ericsson Execs Join Wireless Firm TrustLink's Board o INNX Picks Media Analyst Harold Vogel To Join Company Board o Venture Capital Institution MerchantBanc Adds Three to Board o Two Join Board of Equity Execution Services Firm NeoNet o ZuluSports.com Names Former Nike Division Head to Board o Telecom Entrepreneur Joins Clearwire Technologies Board New People: o Ex-Hamilton Management Partner Now CEO & President of DIVA o Peppers and Rogers Pick Former McKinsey Partner as Leader o BenefitPort Names Healtheon/WebMD Exec To CEO Post o Digital Content Firm WAM!NET Appoints President VC Fund News: o Italian VC MyQube Opens Silicon Valley Office VC Personnel: o AV Labs Names Former onQ Technology CEO as Venture Fellow o EnerTech Capital Partners Names Ex-Varidigm CEO as Partner |||||||||||||||||||| Advertisement |||||||||||||||||||| Spend an afternoon with VC Heidi Roizen. The Montclare Web Team invites you to join us to hear SOFTBANK VC Heidi Roizen talk about the 'new' New Economy at the Montclare Speaker Series, Sept. 13. http://www.montclare.com/speakerseries Proud to be a Web developer? Want a challenge? Montclare is looking for you! http://www.montclare.com/careers ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Network Firm QoS Secures $100 Million in First Round DUBLIN -- QoS Networks, which provides a network for content delivery in a native IP environment, said it raised $100 million in its first round of funding. Warburg Pincus led the round, which included GE Capital, Global Crossing, Lucent Technologies, Signal Lake Venture Fund, and Soros Private Equity. Warburg Pincus will have two seats on the company's board of directors. The company will use the funding for the further development of its network and for sales and marketing. QoS Networks has developed an Internet-enabled interface that enables users to change bandwidth and prioritization quickly through the desktop. http://www.qosnetworks.net/ _____________________________________________ o Report: Chase Raising $5 Billion For Private Equity Fund NEW YORK -- Chase Manhattan intends to raise up to $5 billion for a new private equity fund according to a report by the Wall Street Journal. The fund will invest in venture capital, buyouts, and other private equity deals in the U.S. and abroad. Earlier this year Chase raised a $1 billion fund focusing on equity investments in Asia. The new fund will seek capital from outside investors, according to the report, a departure from Chase Capital's usual practice of investing funds from its parent bank. http://www.chasecapital.com/ _____________________________________________ o Palm Forms Venture Unit and Earmarks $50 Million SANTA CLARA, Calif. -- Palm, a provider of handheld devices, said it formed Palm Ventures, which will make strategic investments in companies that support the Palm operating system and platform. Palm has earmarked $50 million for the venture. Robert Hayes has been named director of Palm Ventures, which intends to make early stage investments in companies that have completed at least one funding. Investments will range from $1 million to $5 million and will be made in a host of companies, including providers of wireless content and services, handheld ASPs, and makers of accessory devices. Companies funded by Palm Ventures will also have the opportunity to form other types of business relationships with Palm. http://www.palm.com/ _____________________________________________ o Metawave Buys Smart Antenna Firm Adaptive for $107 Million REDMOND, Wash. -- Metawave Communications, which develops antenna technology for wireless carriers, said it is acquiring Adaptive Telecom, which also develops antenna technology. Under the terms of the agreement, Adaptive Telecom shareholders will receive 5.5 million shares of Metawave common stock. On Wednesday, Metawave stock was down more than a dollar to $19.6 a share, putting the value of the acquisition at approximately $107.8 million. Adaptive Technology is backed by August Capital. http://www.metawave.com/ _____________________________________________ o Sterling Venture Partners Secures $150 Million for New Fund BALTIMORE -- Sterling Venture Partners, a venture capital affiliate of Sterling Capital, said it secured $150 million from investors for its first fund. The investors in the new fund include large U.S. public pension plans, Deutsche Bank, T. Rowe Price, and a number of chief executives from the mid-Atlantic and Midwestern U.S. The fund will make early stage investments of between $2 million and $10 million. The new fund has led a $10 million round for TidePoint and invested in Versient and Woodwind Communications. Sterling Venture Partners said it may look to raise another fund in 18 months. http://www.sterlingcap.com/ _____________________________________________ o NBC VP Named Partner and Director of NeoCarta Ventures NEW YORK -- NeoCarta Ventures said it named Peg Murphy, former NBC vice president of business development, as a partner and director of its New York office. The firm said that under her direction the office will concentrate its investments in new media, particularly in digital, broadband, and Internet infrastucture technologies and services. While at NBC Ms. Murphy was responsible for investing in Internet companies and managing its interactive TV group, investing in companies including Tivo, Net2Phone, Mail.com, Digital Island, Loudeye, Liveperson, i3 Mobile, and Wink Communications. http://www.neocarta.com/ ======= New Money ======= o Broadband Firm Net to Net Secures $15 Million in Round One PORTSMOUTH, N.H. -- Net to Net Technologies, a provider of simplified IP broadband data and voice communication technology, said it received $15 million in its first round of financing. Summit Partners was the sole investor for the round. The company will use the funding to promote its IP DSL product line and for continued expansion. http://www.nettonettech.com/ _____________________________________________ o Property Management Firm Realeum Has $15 Million Series A ALEXANDRIA, Va. -- AvalonBay Communities, United Domnion Realty Trust, and Post Properties, all publicly traded real estate firms, said they launched Realeum, an online property management service that raised $15 million in Series A funding. Realeum's investors include Carlyle Venture Partners, Cohen & Steers, through its Internet Realty Partners, Stichting Pensioenfonds, through its affiliate ABP-US Investments, and Venrock Associates. The company said it will use the funding for software engineering, platform deployment, development of customer care services, and new product development. The company had previously received $7 million in funding from its founding consortium for product design, architecture, software development, and testing. The company's initial product, Jvelon, is a Web-based leasing, property management, and asset optimization application that manages the relationship between landlord and tenant. Telephone 703-317-4736. _____________________________________________ o Fabless Semiconductor Firm Secures $8.2 Million in Round One AGOURA HILLS, Calif. -- Internet Machines, a fabless semiconductor company that develops software and services for data communications markets, said it secured $8.2 million in its first round of funding. Redpoint Ventures led the round, which included other institutional and individual investors. Redpoint Ventures founding partner John Walecka will join the company's board of directors. The company will use the funding for product development. http://www.internetmachines.com/ _____________________________________________ o Management App Firm Gets $5 Million of $8 Million Round One CAMBRIDGE, Mass. -- Bluesocket, which develops management software for Bluetooth-enabled networks, said it secured $5 million of its expected $8 million first round of funding from St. Paul Venture Capital and Osborn Capital. The round is still open and the company is speaking with several venture capital firms. Osborn Capital managing director Eric Janszen will join the company's board of directors. The company will use the funding for further product development, recruiting additional management, sales efforts for its new products, and forming partnerships. http://www.bluesocket.com/ _____________________________________________ o Net Insurance Firm InsuranceNoodle Gets $10 Million Series A CHICAGO -- InsuranceNoodle.com, an Internet-based insurance broker for small-business owners, said it closed $10 million in its first round of funding from sole investor Argonaut Private Equity Management. The financing will be used for national expansion. InsuranceNoodle.com offers comparative quotes and fulfillment from a group of insurers, including The Hartford, AIG, CNA, St. Paul, and Zurich U.S. http://www.insurancenoodle.com/ _____________________________________________ o Net Sports Technology Firm FitSense Gets Round One Funding WELLESLEY, Mass. -- FitSense Technology, a developer of internet-linked sports and fitness monitors, said it received an undisclosed amount of first-round funding from Motorola and 2M Technology Ventures. The financing will be used to launch and further develop the company's products and services. The company plans to launch its FitSense pace-distance monitor in November. http://www.fitsense.com/ _____________________________________________ o Wireless Firm Vettro Raises $10 Million in First Round NEW YORK -- Vettro, a provider of wireless services, said it has raised $10 million in its first round of funding led by GreyLock and Sigma Partners. New Things, a New York venture capital group, also participated in the round. The company also announced Bill Helman of Greylock and Bob Davoli of Sigma Partners have taken seats on Vettro's board of directors. Vettro was formerly called iQenergy. http://www.vettro.com/ _____________________________________________ o Wireless Technology Developer Has $1.5 Milllion First Round RESEARCH TRIANGLE PARK, N.C. -- Mi-Co, a developer of handwriting recognition and transmission technologies for wireless devices, said it raised $1.5 million in its initial round of funding. The round was funded by Renaissance Ventures, based in Richmond, Va., and individual investors. The company said it will use the funding for further product development and sales and marketing. http://www.mi-corporation.com/ _____________________________________________ o Auction Site for Travel Booking Gets $2.5 Million Round One BOCA RATON, Fla. -- Revelex.com, an online auction site for the travel community, said it received $2.5 million in its series A round of funding provided by undisclosed individuals and private partnerships. The funds will be used for technology development and marketing. The company's hotel booking engine will launch on September 20, with the car rentals, airlines, and event ticketing services going live by the end of the year. http://www.revelex.com/ _____________________________________________ o B2B Security Firm NetCertainty Gets $3.8 Million Series A ATLANTA -- Atlanta-based NetCertainty, which provides digital identity hosting services to individuals and organizations within the business-to-business Internet marketplace, said it closed its Series A round with a total of $3.8 million. Internet operating company itemus led the round with $3 million and individual investors provided the rest of the funding. NetCertainty is still beta testing its product, which is scheduled to launch September 20. The funding will go towards product deployment and marketing. http://www.netcertainty.com/ _____________________________________________ o CRM Firm PackagingSlip.com Closes Series A Round BETHSEDA, Md. -- PackagingSlip.com, which provides customer relationship management products and services for online and catalog merchants, said it received an undisclosed amount in its series A round of funding led by Genesis Investment Partners. Other investors remain undisclosed. The round will finance technology and infrastructure development for the company's public launch in mid-September. http://www.packagingslip.com/ _____________________________________________ o Education Site iKnowthat.com Closes $2 Million Round One PITTSBURGH -- iKnowthat.com, a children's educational site, said it has raised $2 million in its first round of funding from Draper Triangle Venture Funds and a group of individual investors based in Pittsburgh. The funding arrives in tandem with the launch of the web site. iKnowthat.com was created by a team of educators and animators led by Gary Kiliany, the co-founder and creator of DynaVox Systems. http://www.iknowthat.com/ _____________________________________________ o Efoodmanager Gets $1.3 Million More in First Round Funding NEW YORK -- Efoodmanager, a European business-to-business marketplace for the food industry, said it raised an additional $1.3 million in first-round funding from Technologie-Beteiligungs-Gesellschaft (tbg), a subsidiary of Deutsche Ausgleichsbank. The company said it will use the funding from the government-related investment firm to develop additional services. The company said it will further develop its logistics and insurance services with its business partners. Tbg will not take a seat on the company's board of directors. Tbg usually invests with a finance partner as lead investor; in this case Atlas Ventures led the first round of funding for efoodmanager with $3.6 million. http://www.efoodmanager.com/ _____________________________________________ o Wirless Tech Firm Equinox Raises $4.4 Million in First Round LEXINGTON, Mass. -- Equinox Solutions, which develops technology for wireless communications, said it raised $4.375 million in its first institutional round of funding from sole participant Meyer Duffy Ventures. Meyer Duffy co-founder Donald Duffy and partner John Mills will sit on the company's board of directors. The company will use the funding for further product development and expansion of its product suite. Equinox Solutions develops software products and services that enable users to access computing environments using wireless devices. http://www.equin.com/ _____________________________________________ o Chip Firm SigmaTel Secures $24 Million in Funding AUSTIN, Texas -- SigmaTel, an Austin-based provider of integrated circuits for digital consumer audio, broadband communications, and wireless infrared, said it secured $24 million in financing. Invesco Private Capital led the round with $10 million. Other investors in the round include Battery Ventures, TeleSoft Partners, and CTI Limited. http://www.sigmatel.com/ _____________________________________________ o Software Firm Sheer Networks Has $30 Million Second Round SUNNYVALE, Calif. -- Sheer Networks, a provider of service management software for public networks, said it received $30 million in a second round of venture capital financing from new investors JK&B Capital, Jerusalem Venture Partners, and Ray Lane, former Oracle President and COO. Previous investor Rein Capital also contributed to the round. The funds will be used for sales, marketing, and to launch its product. http://www.sheernetworks.com/ _____________________________________________ o E-Services Firm eHotHouse Launches, Gets Over $20 Million NEW YORK -- Change Technology Partners and Marc USA announced they have made a joint investment of over $20 million in cash and stock to launch eHotHouse, an interdisciplinary professional Internet services firm focusing on e-commerce strategy, application systems integration, and marketing services. Matthew Ryan, the founder of Ryan Drossman/Marc USA, a national advertising agency, will become the CEO of both Change Technology and eHotHouse. The company said it would announce several acquisitions within the month. EHotHouse board members include: William Avery, principal of FG II Ventures; Rick Kurnit, partner at Frankfurt, Kurnit & Seltz; Andrew Clark, founder of Clarknet and executive director of Verio; and Robert Nielsen, group president, Estee Lauder. Tony Bucci, the chairman and CEO of Marc USA, and Michael Gleason, the chairman of Change Technology, will also sit on the board. http://www.ehothouse.com/ _____________________________________________ o Israeli Optical Firm Native Networks Gets $18 Million PETAH TIKVA, Israel -- Native Networks, an Israel-based company that develops technology for optical access networks, said it completed a private placement of $18.2 million. Soros Private Equity Partners, Anschutz Investment, and Jerusalem Venture Partners were among the funds participating in the placement. The funding will go towards research and development and marketing in Europe and the United States. http://www.nativenetworks.com/ _____________________________________________ o Mercari Technologies Closes $20 Million in Series C WASHINGTON -- Mercari Technologies, a provider of merchandise and supply chain management technology, said it received $20 million in a Series C round of funding. The round was led by Baltimore-based ABS Ventures, the venture capital arm of DB Alex Brown, and North Bridge Venture Partners of Waltham, Mass. North Bridge Venture Partners, Southeast Interactive Technology Funds, and individual investors, including Inktomi president and CEO David Peterschmidt, also invested in the round. http://www.mercaritech.com/ _____________________________________________ o Applied Biosystems Invests $3 Million in Genomica FOSTER CITY, Calif. -- Applied Biosystems, a developer of instrument-based systems, reagents, software, and contract services for the life science and research industry said it has invested $3 million in Genomica, a genomics software company. Genomica will license its genetic-analysis object module to Applied Biosystems in a separate deal. The integration of the Genomica software with Applied Biosystems' products would enable the systems to store their genotyping results in a common Oracle database, the companies said. http://www.genomica.com/ _____________________________________________ o B2B Healthcare Data Provider Raises $725,000 Mezz Round LONDON -- IntegriSys, a provider of Internet and intranet-based decision support networks for physicians, raised $725,000 in a mezzanine round of funding from sole investor Billam. The company will use the funding for partnership agreements, customer acquisitions, and expanding its infrastructure. IntegriSys raised $1.5 million in its previous round of venture capital funding from MTI. IntegriSys trades under the name Platinum Health. http://www.platinumhealth.co.uk/ _____________________________________________ o Harmonix Secures $3.5 Million Second Round from Softbank NORTH ANDOVER, Mass. -- Harmonix, a manufacturer of wireless communication systems and components, said it raised its second round of outside funding from Softbank Networks, the Internet infrastructure unit of Softbank. Softbank will have representation on the company's board of directors. The company will use the funding for further product development and marketing. The company raised its first round of funding from Japanese company Omron and is majority-owned by its management. Harmonix manufactures antennas, oscillators, transmitters, receivers, frequency multipliers, detectors, isolators, and circulators. http://www.hxi.com/ _____________________________________________ o Internet Indirect Invests $3 Million in Broadband Firm Kast LONDON -- Internet Indirect, an early stage venture capital investor, said it invested $3 million in Kast Telecom Europe, a broadband services firm for small and medium-sized businesses. The investment was part of a $20 million round of funding. Kast Telecom will use the funding to continue the roll out of an intelligent data local exchange carrier network and to develop broadband voice, data, and application services for its customers. The company has also entered into a EUR 100 million ($88 million) debt facility agreement with J.P. Morgan. http://www.kast-telecom.fr/ _____________________________________________ o PC Maker Acer Invests in Electronics Marketplace e2open.com SAN JOSE, Calif. -- E2open.com, an Internet marketplace for the electronics industry, said PC manufacturer Acer has made an undisclosed investment in the company. The company said it has raised $200 million in venture capital from Crosspoint Venture Partners, Hitachi, IBM, LG Electronics, Lucent Technologies, Nortel Networks, Matsushita Electronic (Panasonic), Seagate Technology, Solectron and Toshiba. Acer CIO Frachard Lung will join former e2open CEO John Mumford, a founding partner of Crosspoint, and Mark Holman, the company president and CEO, on the board of directors. Also serving on the board are Steve Ward, general manager of industrial sector of IBM; Ho-Jin Hwang, vice president and chief procurement officer of LG Electronics; Jose Mejia, the vice president and chief procurement officer of Lucent Technologies; G. Andrea Botta, managing director of Morgan Stanley Dean Witter; Richard Ricks, CIO of Nortel Networks; Steve Luczo, the CEO of Seagate Technology; and Joichi Nishimura, the chairman, CEO and president of Solectron. Hitachi is also represented on the board. http://www.e2open.com/ _____________________________________________ o TechSys Takes Minority Stake in Technology Keiretsu LIVINGSTON, N.J. -- Publicly traded software and Internet services provider TechSys said it has taken a minority stake in Technology Keiretsu, a holding company that operates a network of technology companies. TechSys, the only institutional investor in the company, invested with an undisclosed amount of cash and shares of common stock. TechSys also has the right to purchase an additional interest in the company at a later date. Technology Keiretsu is still majority-owned by members of its management. Technology Keiretsu, which is also backed by outside individual investors, holds Allaint Technologies as its principal operating company. http://www.allianttech.com/ _____________________________________________ o VentureWorx Takes Stake in Search Engine SearchGenie.com EUGENE, Ore. -- Venture management consultants VentureWorx said they have taken an undisclosed equity stake in SearchGenie.com, an XML-based search engine with wireless capabilities. VentureWorx will assist SearchGenie.com with fund raising, developing business strategy, recruiting personnel, and launching a public relations campaign. SearchGenie.com's database may be accessed by standard HTML Web pages and allows companies to submit and customize information and images about their Web site or business. http://www.searchgenie.com/ _____________________________________________ o Wireless Data Software Firm Netverk Scores $9.5 Million LONDON -- Netverk, a provider of wireless data software, said it secured $9.5 million in a round of funding led by Citicorp Capital Asia Limited. WestLB Panmure, the investment banking arm of the WestLB Group, co-led the round. Other investors include A & A Actienbank and its subsidiary, the A & A Early Bird Fund. The company will use the funding for R&D, sales, and marketing. Netverk plans to expand its operations in Europe, Asia and North America. The first new offices will be in Denmark and the U.S. http://www.netverk.net/ ======= New Products ======= o Giga Information's French Unit Goes Private with $4 Million CAMBRIDGE, Mass. -- Publicly traded Giga Information, which provides research and consulting services for Internet businesses, said its French division received a $4 million investment to become a new private company, GigaGroup. BNP, Cime, ING, Natexis, Paribas, Pre IPO.net, Siparex, and Trinova invested in the company. Giga Information will own less than 20% of the new company. GigaGroup will provide IT and Internet business research, analysis and consulting services in Europe. The company is headquartered in Paris and plans to expand its offices throughout Europe. Bruno Tourme, who led Giga Information's operations in Europe, the Middle East, and Africa, is the chairman and CEO of GigaGroup. Giga Information's international vice president Jean-Michel Six is a member of the new company's board of directors. http://www.gigaweb.com/ _____________________________________________ o Software Testing and Monitoring Firm Empirix Launches WALTHAM, Mass. -- Empirix, a provider of testing and monitoring for the Internet and communications markets, announced it has launched. The company was created from technology network and software testing businesses of Teradyne- Hammer Technologies, RSW Software, and Software and Systems Test (SST). The company also said it has received significant funding from Matrix Partners. Jeff Hotchkiss, the former CFO of Teradyne, will be Empirix president and CEO, and Teradyne founder, Alex d'Arbeloff, will chair the Empirix board. http://www.empirix.com/ _____________________________________________ o KnowToday Becomes Clerity Knowledge Exchanges CINCINNATI -- KnowToday, a developer and marketer of technology that enables Internet portals to create private-labeled information exchanges on their own sites, announced it is changing its name to Clerity Knowledge Exchanges. The company also announced that its headquarters is now located here. Investors for Clerity Knowledge Exchanges include River Cities Capital and BlueStar Ventures. http://www.clerity.com/ ======= New Deals ======= o Pop.com Confirms Deal with Ifilm Off, Small Staff Retained LOS ANGELES -- Pop.com, the Internet entertainment site founded by Dreamworks SKG, Imagine Entertainment, and Vulcan Ventures, confirmed that acquisition talks with Ifilm.com, an online exchange for film fans, filmmakers, and industry professionals, ended without a deal. Pop.com, citing a downturn in the market, said it will layoff most of its employees, retaining a small staff. The company said it has not decided what it will do with the content it has already created and acquired. Pop.com, which was formed last fall, never launched its Web site. http://www.pop.com/ ======= M&A ======= o Earful of Books Takes Majority Stake In Audiobookcafe.com AUSTIN, Texas. -- Earful of Books, a national audiobooks chain, said it has purchased a 90% interest in Audiobookcafe.com, a six-month old audiobook-related content site. The terms of the investment were not disclosed. Paul Rush, president of Earful of Books, will serve on the board of Pearlman & Baine Media, the parent company of Audiobookcafe.com. In addition to the financial support from Earful of Books and Pearlman & Baine Media, its parent company, Audiobookcafe is backed by individual investors. http://www.audiobookcafe.com/ _____________________________________________ o BuildNet Acquires Home Plan Resource Company HomeStyles RESEARCH TRIANGLE PARK, N.C. -- BuildNet, which provides online business, technology, and project management systems for the home building industry, said it acquired HomeStyles, which provides pre-designed home plans for builders and consumers. BuildNet is backed by BancBoston Ventures, Barnard & Co., Encore Venture Partners, GE Appliances, GE Capital, Global Technology Investors Fund at Bessemer Trust, Halifax BuildNet Investors, John Hancock Global Technology Fund, J. & W. Seligman, Piedmont Venture Partners, SG Capital Partners, South East Interactive Technology Fund, and The CIT Group/Equity Investments. The company is in a quiet period prior to filing for an IPO. http://www.homestyles.com/ http://www.buildnet.com/ _____________________________________________ o American Greetings Buys Information-by-e-mail Service Firm CLEVELAND -- Personalized content delivery firm AmericanGreetings.com, a subsidiary of publicly traded American Greetings, said it has acquired eAgents, a firm that delivers consolidated information and entertainment from Web media brands in a single, daily e-mail. As part of the agreement, Charles Fink, the company's founder, president and CEO of eAgents.com, will become president of AmericanGreetings.com, reporting to Josef Mandelbaum, the CEO. Terms of the transaction were not disclosed. eAgents is backed by Draper Atlantic, Lazard Technology Partners, I-Hatch, and Shamrock Holdings. http://www.eagents.com/ http://www.americangreetings.com/ _____________________________________________ o Digital Scent Developer, DigiScents, Buys SenseIT OAKLAND, Calif. -- DigiScents, which is developing technology to enable companies to incorporate scent into Web sites, e-mail, online movies, music, games, and advertising, said it acquired SenseIT Technologies, a Delaware-based digital scent company. Terms of the acquisition were not disclosed. The combined entity, DigiScents, will retain headquarters in Oakland, Calif., with branch offices in New York City, and an R&D center in Israel. SenseIT Technologies was co-founded by company president Eli Fisch and two scientists from the Israeli Weizmann Institute of Science, Professors Doron Lancet and David Harel. DigiScents is backed by Pacific Century CyberWorks. http://www.digiscents.com/ _____________________________________________ o AmeriNet Group.com To Acquire WeCU.com for $1.5 Million BOCA RATON, Fla. -- Publicly-traded AmeriNet Group.com, said it signed a letter of intent to acquire WeCU.com, an international wireless television, communications and Internet services provider. All of the assets of WeCU.com. will be exchanged for approximately two million shares of Amerinet stock, valued at $1.5 million at the close of trading Wednesday. WeCU.com is backed by individual investors. http://www.wecu.com/ http://www.amerinetgroup.com/ ======= New Directors ======= o Two Ericsson Execs Join Wireless Firm TrustLink's Board STOCKHOLM -- TrustLink (UK), the holding company of wireless application developer TrustLink Group, said it appointed two representatives of communications supplier Ericsson to the company's board of directors. The appointments are a result of Ericsson's acquistion of a 25% stake in the company. Mr. Per Olof Sjoestedt, president of Ericsson Russia, and Mr. Staffan Pehrson, general manager for mobile Internet, will both assume seats on the company's board of directors. Located in Russia and Switzerland, the company is backed by Ericsson and individual investors. http://www.trustlink.com/ _____________________________________________ o INNX Picks Media Analyst Harold Vogel To Join Company Board SAN DIEGO -- INNX, a new media company specializing in targeted advertising services, said it has appointed Harold "Hal" Vogel to its board of directors. Mr. Vogel was first vice president and senior entertainment industry analyst at Merrill Lynch. He served on the New York State Governor's Advisory Board for Motion Pictures and Television, and is an adjunct professor of media economics at Columbia University's business school. Mr. Vogel is a venture capital investor in many early-stage Internet media companies. http://www.healthsurfing.com/ _____________________________________________ o Venture Capital Institution MerchantBanc Adds Three to Board MANCHESTER, N.H. -- MerchantBanc, a financial institution that provides services for private investors through an Internet-based network, said it named Jesse Devitte, William E. Wetzel Jr., and James C. Wood to its board of directors. Mr. Devitte is president of Vertical Market Ventures and Ivolution Strategies. He served in executive positions with Softdesk and Autodesk. William E. Wetzel Jr. is director emeritus of the Center for Venture Research at the Whittemore School of Business and Economics at the University of New Hampshire. He founded the Venture Capital Network in 1984. James C. Wood is president of Kana Communications. He founded and served as CEO of Silknet Software, which merged with Kana. MerchantBanc provides services that enable investors to identify worthy businesses and provides entrepreneurs with access to venture capital. http://www.merchantbanc.com/ _____________________________________________ o Two Join Board of Equity Execution Services Firm NeoNet STOCKHOLM -- NeoNet, which offers institutional investors and broker dealers anonymous electronic trading access to multiple securities markets, said it has appointed Thord Wilkne and Mats Sundstrom to its board of directors. Mr. Wilkne is chairman and co-founder of Swedish IT-supplier WM-data, a Nordic supplier of IT-related services, and Mr. Sundstrom is chairman of Swedish Enlight Interactive. NeoNet, which is planning to go public before the end of the year, is backed by ITP (Information Technology Partners). The company has also received funding from Hans Karlsson, the chairman of Swedish mobile technology firm HiBQ International. http://www.neonet.se/ _____________________________________________ o ZuluSports.com Names Former Nike Division Head to Board SAN FRANCISCO -- ZuluSports.com, an online resource for adventure and outdoor sports enthusiasts, said it has appointed Gordon McFadden, the former president of Nike's all-conditions gear division, to its board of directors. Prior to Nike, Mr. McFadden was president and CEO of Helly-Hansen, a manufacturer of outdoor clothing. ZuluSports.com is backed by Angel Investors, Fujigin Capital and Aslan Capital. http://www.zulusports.com/ _____________________________________________ o Telecom Entrepreneur Joins Clearwire Technologies Board DALLAS -- Clearwire Technologies, a provider of wireless local access solutions, said Jimmy Mansour is joining the company's board of directors. Mr. Mansour currently holds positions on several boards, including Netspeed, GroupTel, and Netpliance. Clearwire Technologies is backed by individual investors. http://www.clearwire.com/ ======= New People ======= o Ex-Hamilton Management Partner Now CEO & President of DIVA REDWOOD CITY, Calif. -- DIVA, a provider of interactive video-on-demand products and services, said it named Hendrik A. Hanselaar, formerly a general partner in Hamilton Management Partners, president and CEO. Mr. Hanselaar replaces David Zucker, who left the company to become CEO of one of Stamford, Conn.-based Walker Digital's operating units. Mr. Zucker will continue to serve as a director on DIVA's board and will work with Mr. Hanselaar over the next few months to help with the transfer of responsibilities. DIVA'S backers include publicly traded UK-based cable television provider NTL, Liberate Technologies, Open TV, and General Instrument. The company filed for an IPO last May. http://www.divatv.com/ _____________________________________________ o Peppers and Rogers Pick Former McKinsey Partner as Leader STAMFORD, Conn. -- Peppers and Rogers Group, a management consulting firm that also runs a venture capital group, 1 to 1 Ventures, said it named Steve Skinner as its new president and CEO. Mr. Skinner was most recently a partner with Atlanta-based McKinsey & Co., where he led the transportation unit of the firm's business accelerator. He also worked as a sales engineer and sales manager with Johnson Controls. Mr. Skinner succeeds company co-founder and former president and CEO Bob Dorf, who has become a managing director of company affiliate 1 to 1 Venture Partners, which the company launched last year. http://www.1to1.com/ _____________________________________________ o BenefitPort Names Healtheon/WebMD Exec To CEO Post GREENWICH, Conn. -- BenefitPort, a technology-based network for health insurance sales and employee benefits, said it has appointed Thomas P. Staudt as its CEO. Mr. Staudt was senior operating officer of Healtheon/WebMD. He has also served as chairman and CEO of Mede America. With his arrival, former CEO Andrew Sawyer will now serve as president of the Insurance division. BenefitPort has a commitment of $60 million in financial backing from the Trident Partnership, a private equity fund advised by Marsh & McLennan Capital and J.P. Morgan. http://www.benefitport.com/ _____________________________________________ o Digital Content Firm WAM!NET Appoints President EAGAN, Minn. -- WAM!NET, which provides digital content management services, said it has appointed William Sulivan as its new president. Mr. Sullivan joined WAM!NET in March as senior vice president. Prior to joining the company, he was CEO of PR21, a New York-based public relations firm. WAM!NET has received equity funding from MCI WorldCom, WindStar, Silicon Graphics, and Sumitomo. http://www.wamnet.com/ ======= VC Fund News ======= o Italian VC MyQube Opens Silicon Valley Office MILAN -- MyQube, a European early-stage venture capital firm, said it opened a new office in Silicon Valley. The new branch will concentrate on investments in California high technology companies and will draw its capital from the EUR 100 million ($88 million) EuroQube fund. Enzo Torresi, a MyQube advisor, will assume the position of managing director for the fund. Mr. Torresi was most recently a founding partner in EuroFund and previously co-founded ICAST. The firm also announced its first investment in natural language technical support software developer, noHold. The amount of capital invested was undisclosed. In addition to the new office in California and its headquarters here, the company operates from several locations in Europe including, Geneva, Munich, and London. http://www.myqube.com/ ======= VC Personnel ======= o AV Labs Names Former onQ Technology CEO as Venture Fellow AUSTIN, Texas -- AV Labs, an early stage venture fund focused on seed and first round investments, said it named Eric Loeffel as a Venture Fellow. Mr. Loeffel, who most recently served as president and CEO of onQ Technology, will provide operating executive experience to startup companies. The AV Labs portfolio includes Covasoft, InStreamTV, Terrace Mountain Systems, newgistics, onecard, and WebTaggers. http://www.avlabs.com/ _____________________________________________ o EnerTech Capital Partners Names Ex-Varidigm CEO as Partner WAYNE, Pa. -- Private equity firm EnerTech Capital Partners said it named Kenneth Kazmer a venture partner. Mr. Kazmer was recently president of DeltaDigm, a product development consulting firm. He also founded and served as director and CEO of Varidigm, a speed motor technology company. EnerTech manages $285 million and focuses on technology, service and infrastructure investment in the energy, utility, and communications markets. http://www.enertechcapital.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| Where's the money in free software? Is Linux, at last, about to become important to commercial users with IBM, Compaq, Hewlett-Packard, Sun Microsystems, and others teaming up to offer an open-software suite to compete with Windows? Or is there a lesson for us all in the disappointing stock market performance of the pure-play Linux companies? Join us for an open-software roundtable, featuring Miguel de Icaza the 27-year-old Mexican programmer who has devised alternatives to key Microsoft products. The Wall Street Journal Technology Summit Register at http://info.wsj.com/techsummit/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://www.venturewire.com/register/vw This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. _____________________________________________ TO SUBSCRIBE go to: http://www.venturewire.com/register/vw To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Thursday, September 7, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/1177. ===================================== ====================================================== VENTUREWIRE --- Thursday, September 7, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Network Firm QoS Secures $100 Million in First Round o Report: Chase Raising $5 Billion For Private Equity Fund o Palm Forms Venture Unit and Earmarks $50 Million o Metawave Buys Smart Antenna Firm Adaptive for $107 Million o Sterling Venture Partners Secures $150 Million for New Fund o NBC VP Named Partner and Director of NeoCarta Ventures |||||||||||||||||||| Advertisement |||||||||||||||||||| AristaSoft is the only service provider focused exclusively on the high-tech equipment industry. The company provides integrated business process services--operations and finance, collaborative manufacturing commerce and customer service management--based on deep, industry-focused domain expertise and a portfolio of relevant enterprise-class applications delivered on a secure, scalable and reliable ASP infrastructure. Through AristaSoft's solution, emerging, hyper-growth high-tech equipment companies can grow their businesses faster. Find out more at www.aristasoft.com. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Broadband Firm Net to Net Secures $15 Million in Round One o Property Management Firm Realeum Has $15 Million Series A o Fabless Semiconductor Firm Secures $8.2 Million in Round One o Management App Firm Gets $5 Million of $8 Million Round One o Net Insurance Firm InsuranceNoodle Gets $10 Million Series A o Net Sports Technology Firm FitSense Gets Round One Funding o Wireless Firm Vettro Raises $10 Million in First Round o Wireless Technology Developer Has $1.5 Milllion First Round o Auction Site for Travel Booking Gets $2.5 Million Round One o B2B Security Firm NetCertainty Gets $3.8 Million Series A o CRM Firm PackagingSlip.com Closes Series A Round o Education Site iKnowthat.com Closes $2 Million Round One o Efoodmanager Gets $1.3 Million More in First Round Funding o Wirless Tech Firm Equinox Raises $4.4 Million in First Round o Chip Firm SigmaTel Secures $24 Million in Funding o Software Firm Sheer Networks Has $30 Million Second Round o E-Services Firm eHotHouse Launches, Gets Over $20 Million o Israeli Optical Firm Native Networks Gets $18 Million o Mercari Technologies Closes $20 Million in Series C o Applied Biosystems Invests $3 Million in Genomica o B2B Healthcare Data Provider Raises $725,000 Mezz Round o Harmonix Secures $3.5 Million Second Round from Softbank o Internet Indirect Invests $3 Million in Broadband Firm Kast o PC Maker Acer Invests in Electronics Marketplace e2open.com o TechSys Takes Minority Stake in Technology Keiretsu o VentureWorx Takes Stake in Search Engine SearchGenie.com o Wireless Data Software Firm Netverk Scores $9.5 Million New Products: o Giga Information's French Unit Goes Private with $4 Million o Software Testing and Monitoring Firm Empirix Launches o KnowToday Becomes Clerity Knowledge Exchanges New Deals: o Pop.com Confirms Deal with Ifilm Off, Small Staff Retained M&A: o Earful of Books Takes Majority Stake In Audiobookcafe.com o BuildNet Acquires Home Plan Resource Company HomeStyles o American Greetings Buys Information-by-e-mail Service Firm o Digital Scent Developer, DigiScents, Buys SenseIT o AmeriNet Group.com To Acquire WeCU.com for $1.5 Million New Directors: o Two Ericsson Execs Join Wireless Firm TrustLink's Board o INNX Picks Media Analyst Harold Vogel To Join Company Board o Venture Capital Institution MerchantBanc Adds Three to Board o Two Join Board of Equity Execution Services Firm NeoNet o ZuluSports.com Names Former Nike Division Head to Board o Telecom Entrepreneur Joins Clearwire Technologies Board New People: o Ex-Hamilton Management Partner Now CEO & President of DIVA o Peppers and Rogers Pick Former McKinsey Partner as Leader o BenefitPort Names Healtheon/WebMD Exec To CEO Post o Digital Content Firm WAM!NET Appoints President VC Fund News: o Italian VC MyQube Opens Silicon Valley Office VC Personnel: o AV Labs Names Former onQ Technology CEO as Venture Fellow o EnerTech Capital Partners Names Ex-Varidigm CEO as Partner |||||||||||||||||||| Advertisement |||||||||||||||||||| Spend an afternoon with VC Heidi Roizen. The Montclare Web Team invites you to join us to hear SOFTBANK VC Heidi Roizen talk about the 'new' New Economy at the Montclare Speaker Series, Sept. 13. http://www.montclare.com/speakerseries Proud to be a Web developer? Want a challenge? Montclare is looking for you! http://www.montclare.com/careers ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Network Firm QoS Secures $100 Million in First Round DUBLIN -- QoS Networks, which provides a network for content delivery in a native IP environment, said it raised $100 million in its first round of funding. Warburg Pincus led the round, which included GE Capital, Global Crossing, Lucent Technologies, Signal Lake Venture Fund, and Soros Private Equity. Warburg Pincus will have two seats on the company's board of directors. The company will use the funding for the further development of its network and for sales and marketing. QoS Networks has developed an Internet-enabled interface that enables users to change bandwidth and prioritization quickly through the desktop. http://www.qosnetworks.net/ _____________________________________________ o Report: Chase Raising $5 Billion For Private Equity Fund NEW YORK -- Chase Manhattan intends to raise up to $5 billion for a new private equity fund according to a report by the Wall Street Journal. The fund will invest in venture capital, buyouts, and other private equity deals in the U.S. and abroad. Earlier this year Chase raised a $1 billion fund focusing on equity investments in Asia. The new fund will seek capital from outside investors, according to the report, a departure from Chase Capital's usual practice of investing funds from its parent bank. http://www.chasecapital.com/ _____________________________________________ o Palm Forms Venture Unit and Earmarks $50 Million SANTA CLARA, Calif. -- Palm, a provider of handheld devices, said it formed Palm Ventures, which will make strategic investments in companies that support the Palm operating system and platform. Palm has earmarked $50 million for the venture. Robert Hayes has been named director of Palm Ventures, which intends to make early stage investments in companies that have completed at least one funding. Investments will range from $1 million to $5 million and will be made in a host of companies, including providers of wireless content and services, handheld ASPs, and makers of accessory devices. Companies funded by Palm Ventures will also have the opportunity to form other types of business relationships with Palm. http://www.palm.com/ _____________________________________________ o Metawave Buys Smart Antenna Firm Adaptive for $107 Million REDMOND, Wash. -- Metawave Communications, which develops antenna technology for wireless carriers, said it is acquiring Adaptive Telecom, which also develops antenna technology. Under the terms of the agreement, Adaptive Telecom shareholders will receive 5.5 million shares of Metawave common stock. On Wednesday, Metawave stock was down more than a dollar to $19.6 a share, putting the value of the acquisition at approximately $107.8 million. Adaptive Technology is backed by August Capital. http://www.metawave.com/ _____________________________________________ o Sterling Venture Partners Secures $150 Million for New Fund BALTIMORE -- Sterling Venture Partners, a venture capital affiliate of Sterling Capital, said it secured $150 million from investors for its first fund. The investors in the new fund include large U.S. public pension plans, Deutsche Bank, T. Rowe Price, and a number of chief executives from the mid-Atlantic and Midwestern U.S. The fund will make early stage investments of between $2 million and $10 million. The new fund has led a $10 million round for TidePoint and invested in Versient and Woodwind Communications. Sterling Venture Partners said it may look to raise another fund in 18 months. http://www.sterlingcap.com/ _____________________________________________ o NBC VP Named Partner and Director of NeoCarta Ventures NEW YORK -- NeoCarta Ventures said it named Peg Murphy, former NBC vice president of business development, as a partner and director of its New York office. The firm said that under her direction the office will concentrate its investments in new media, particularly in digital, broadband, and Internet infrastucture technologies and services. While at NBC Ms. Murphy was responsible for investing in Internet companies and managing its interactive TV group, investing in companies including Tivo, Net2Phone, Mail.com, Digital Island, Loudeye, Liveperson, i3 Mobile, and Wink Communications. http://www.neocarta.com/ ======= New Money ======= o Broadband Firm Net to Net Secures $15 Million in Round One PORTSMOUTH, N.H. -- Net to Net Technologies, a provider of simplified IP broadband data and voice communication technology, said it received $15 million in its first round of financing. Summit Partners was the sole investor for the round. The company will use the funding to promote its IP DSL product line and for continued expansion. http://www.nettonettech.com/ _____________________________________________ o Property Management Firm Realeum Has $15 Million Series A ALEXANDRIA, Va. -- AvalonBay Communities, United Domnion Realty Trust, and Post Properties, all publicly traded real estate firms, said they launched Realeum, an online property management service that raised $15 million in Series A funding. Realeum's investors include Carlyle Venture Partners, Cohen & Steers, through its Internet Realty Partners, Stichting Pensioenfonds, through its affiliate ABP-US Investments, and Venrock Associates. The company said it will use the funding for software engineering, platform deployment, development of customer care services, and new product development. The company had previously received $7 million in funding from its founding consortium for product design, architecture, software development, and testing. The company's initial product, Jvelon, is a Web-based leasing, property management, and asset optimization application that manages the relationship between landlord and tenant. Telephone 703-317-4736. _____________________________________________ o Fabless Semiconductor Firm Secures $8.2 Million in Round One AGOURA HILLS, Calif. -- Internet Machines, a fabless semiconductor company that develops software and services for data communications markets, said it secured $8.2 million in its first round of funding. Redpoint Ventures led the round, which included other institutional and individual investors. Redpoint Ventures founding partner John Walecka will join the company's board of directors. The company will use the funding for product development. http://www.internetmachines.com/ _____________________________________________ o Management App Firm Gets $5 Million of $8 Million Round One CAMBRIDGE, Mass. -- Bluesocket, which develops management software for Bluetooth-enabled networks, said it secured $5 million of its expected $8 million first round of funding from St. Paul Venture Capital and Osborn Capital. The round is still open and the company is speaking with several venture capital firms. Osborn Capital managing director Eric Janszen will join the company's board of directors. The company will use the funding for further product development, recruiting additional management, sales efforts for its new products, and forming partnerships. http://www.bluesocket.com/ _____________________________________________ o Net Insurance Firm InsuranceNoodle Gets $10 Million Series A CHICAGO -- InsuranceNoodle.com, an Internet-based insurance broker for small-business owners, said it closed $10 million in its first round of funding from sole investor Argonaut Private Equity Management. The financing will be used for national expansion. InsuranceNoodle.com offers comparative quotes and fulfillment from a group of insurers, including The Hartford, AIG, CNA, St. Paul, and Zurich U.S. http://www.insurancenoodle.com/ _____________________________________________ o Net Sports Technology Firm FitSense Gets Round One Funding WELLESLEY, Mass. -- FitSense Technology, a developer of internet-linked sports and fitness monitors, said it received an undisclosed amount of first-round funding from Motorola and 2M Technology Ventures. The financing will be used to launch and further develop the company's products and services. The company plans to launch its FitSense pace-distance monitor in November. http://www.fitsense.com/ _____________________________________________ o Wireless Firm Vettro Raises $10 Million in First Round NEW YORK -- Vettro, a provider of wireless services, said it has raised $10 million in its first round of funding led by GreyLock and Sigma Partners. New Things, a New York venture capital group, also participated in the round. The company also announced Bill Helman of Greylock and Bob Davoli of Sigma Partners have taken seats on Vettro's board of directors. Vettro was formerly called iQenergy. http://www.vettro.com/ _____________________________________________ o Wireless Technology Developer Has $1.5 Milllion First Round RESEARCH TRIANGLE PARK, N.C. -- Mi-Co, a developer of handwriting recognition and transmission technologies for wireless devices, said it raised $1.5 million in its initial round of funding. The round was funded by Renaissance Ventures, based in Richmond, Va., and individual investors. The company said it will use the funding for further product development and sales and marketing. http://www.mi-corporation.com/ _____________________________________________ o Auction Site for Travel Booking Gets $2.5 Million Round One BOCA RATON, Fla. -- Revelex.com, an online auction site for the travel community, said it received $2.5 million in its series A round of funding provided by undisclosed individuals and private partnerships. The funds will be used for technology development and marketing. The company's hotel booking engine will launch on September 20, with the car rentals, airlines, and event ticketing services going live by the end of the year. http://www.revelex.com/ _____________________________________________ o B2B Security Firm NetCertainty Gets $3.8 Million Series A ATLANTA -- Atlanta-based NetCertainty, which provides digital identity hosting services to individuals and organizations within the business-to-business Internet marketplace, said it closed its Series A round with a total of $3.8 million. Internet operating company itemus led the round with $3 million and individual investors provided the rest of the funding. NetCertainty is still beta testing its product, which is scheduled to launch September 20. The funding will go towards product deployment and marketing. http://www.netcertainty.com/ _____________________________________________ o CRM Firm PackagingSlip.com Closes Series A Round BETHSEDA, Md. -- PackagingSlip.com, which provides customer relationship management products and services for online and catalog merchants, said it received an undisclosed amount in its series A round of funding led by Genesis Investment Partners. Other investors remain undisclosed. The round will finance technology and infrastructure development for the company's public launch in mid-September. http://www.packagingslip.com/ _____________________________________________ o Education Site iKnowthat.com Closes $2 Million Round One PITTSBURGH -- iKnowthat.com, a children's educational site, said it has raised $2 million in its first round of funding from Draper Triangle Venture Funds and a group of individual investors based in Pittsburgh. The funding arrives in tandem with the launch of the web site. iKnowthat.com was created by a team of educators and animators led by Gary Kiliany, the co-founder and creator of DynaVox Systems. http://www.iknowthat.com/ _____________________________________________ o Efoodmanager Gets $1.3 Million More in First Round Funding NEW YORK -- Efoodmanager, a European business-to-business marketplace for the food industry, said it raised an additional $1.3 million in first-round funding from Technologie-Beteiligungs-Gesellschaft (tbg), a subsidiary of Deutsche Ausgleichsbank. The company said it will use the funding from the government-related investment firm to develop additional services. The company said it will further develop its logistics and insurance services with its business partners. Tbg will not take a seat on the company's board of directors. Tbg usually invests with a finance partner as lead investor; in this case Atlas Ventures led the first round of funding for efoodmanager with $3.6 million. http://www.efoodmanager.com/ _____________________________________________ o Wirless Tech Firm Equinox Raises $4.4 Million in First Round LEXINGTON, Mass. -- Equinox Solutions, which develops technology for wireless communications, said it raised $4.375 million in its first institutional round of funding from sole participant Meyer Duffy Ventures. Meyer Duffy co-founder Donald Duffy and partner John Mills will sit on the company's board of directors. The company will use the funding for further product development and expansion of its product suite. Equinox Solutions develops software products and services that enable users to access computing environments using wireless devices. http://www.equin.com/ _____________________________________________ o Chip Firm SigmaTel Secures $24 Million in Funding AUSTIN, Texas -- SigmaTel, an Austin-based provider of integrated circuits for digital consumer audio, broadband communications, and wireless infrared, said it secured $24 million in financing. Invesco Private Capital led the round with $10 million. Other investors in the round include Battery Ventures, TeleSoft Partners, and CTI Limited. http://www.sigmatel.com/ _____________________________________________ o Software Firm Sheer Networks Has $30 Million Second Round SUNNYVALE, Calif. -- Sheer Networks, a provider of service management software for public networks, said it received $30 million in a second round of venture capital financing from new investors JK&B Capital, Jerusalem Venture Partners, and Ray Lane, former Oracle President and COO. Previous investor Rein Capital also contributed to the round. The funds will be used for sales, marketing, and to launch its product. http://www.sheernetworks.com/ _____________________________________________ o E-Services Firm eHotHouse Launches, Gets Over $20 Million NEW YORK -- Change Technology Partners and Marc USA announced they have made a joint investment of over $20 million in cash and stock to launch eHotHouse, an interdisciplinary professional Internet services firm focusing on e-commerce strategy, application systems integration, and marketing services. Matthew Ryan, the founder of Ryan Drossman/Marc USA, a national advertising agency, will become the CEO of both Change Technology and eHotHouse. The company said it would announce several acquisitions within the month. EHotHouse board members include: William Avery, principal of FG II Ventures; Rick Kurnit, partner at Frankfurt, Kurnit & Seltz; Andrew Clark, founder of Clarknet and executive director of Verio; and Robert Nielsen, group president, Estee Lauder. Tony Bucci, the chairman and CEO of Marc USA, and Michael Gleason, the chairman of Change Technology, will also sit on the board. http://www.ehothouse.com/ _____________________________________________ o Israeli Optical Firm Native Networks Gets $18 Million PETAH TIKVA, Israel -- Native Networks, an Israel-based company that develops technology for optical access networks, said it completed a private placement of $18.2 million. Soros Private Equity Partners, Anschutz Investment, and Jerusalem Venture Partners were among the funds participating in the placement. The funding will go towards research and development and marketing in Europe and the United States. http://www.nativenetworks.com/ _____________________________________________ o Mercari Technologies Closes $20 Million in Series C WASHINGTON -- Mercari Technologies, a provider of merchandise and supply chain management technology, said it received $20 million in a Series C round of funding. The round was led by Baltimore-based ABS Ventures, the venture capital arm of DB Alex Brown, and North Bridge Venture Partners of Waltham, Mass. North Bridge Venture Partners, Southeast Interactive Technology Funds, and individual investors, including Inktomi president and CEO David Peterschmidt, also invested in the round. http://www.mercaritech.com/ _____________________________________________ o Applied Biosystems Invests $3 Million in Genomica FOSTER CITY, Calif. -- Applied Biosystems, a developer of instrument-based systems, reagents, software, and contract services for the life science and research industry said it has invested $3 million in Genomica, a genomics software company. Genomica will license its genetic-analysis object module to Applied Biosystems in a separate deal. The integration of the Genomica software with Applied Biosystems' products would enable the systems to store their genotyping results in a common Oracle database, the companies said. http://www.genomica.com/ _____________________________________________ o B2B Healthcare Data Provider Raises $725,000 Mezz Round LONDON -- IntegriSys, a provider of Internet and intranet-based decision support networks for physicians, raised $725,000 in a mezzanine round of funding from sole investor Billam. The company will use the funding for partnership agreements, customer acquisitions, and expanding its infrastructure. IntegriSys raised $1.5 million in its previous round of venture capital funding from MTI. IntegriSys trades under the name Platinum Health. http://www.platinumhealth.co.uk/ _____________________________________________ o Harmonix Secures $3.5 Million Second Round from Softbank NORTH ANDOVER, Mass. -- Harmonix, a manufacturer of wireless communication systems and components, said it raised its second round of outside funding from Softbank Networks, the Internet infrastructure unit of Softbank. Softbank will have representation on the company's board of directors. The company will use the funding for further product development and marketing. The company raised its first round of funding from Japanese company Omron and is majority-owned by its management. Harmonix manufactures antennas, oscillators, transmitters, receivers, frequency multipliers, detectors, isolators, and circulators. http://www.hxi.com/ _____________________________________________ o Internet Indirect Invests $3 Million in Broadband Firm Kast LONDON -- Internet Indirect, an early stage venture capital investor, said it invested $3 million in Kast Telecom Europe, a broadband services firm for small and medium-sized businesses. The investment was part of a $20 million round of funding. Kast Telecom will use the funding to continue the roll out of an intelligent data local exchange carrier network and to develop broadband voice, data, and application services for its customers. The company has also entered into a EUR 100 million ($88 million) debt facility agreement with J.P. Morgan. http://www.kast-telecom.fr/ _____________________________________________ o PC Maker Acer Invests in Electronics Marketplace e2open.com SAN JOSE, Calif. -- E2open.com, an Internet marketplace for the electronics industry, said PC manufacturer Acer has made an undisclosed investment in the company. The company said it has raised $200 million in venture capital from Crosspoint Venture Partners, Hitachi, IBM, LG Electronics, Lucent Technologies, Nortel Networks, Matsushita Electronic (Panasonic), Seagate Technology, Solectron and Toshiba. Acer CIO Frachard Lung will join former e2open CEO John Mumford, a founding partner of Crosspoint, and Mark Holman, the company president and CEO, on the board of directors. Also serving on the board are Steve Ward, general manager of industrial sector of IBM; Ho-Jin Hwang, vice president and chief procurement officer of LG Electronics; Jose Mejia, the vice president and chief procurement officer of Lucent Technologies; G. Andrea Botta, managing director of Morgan Stanley Dean Witter; Richard Ricks, CIO of Nortel Networks; Steve Luczo, the CEO of Seagate Technology; and Joichi Nishimura, the chairman, CEO and president of Solectron. Hitachi is also represented on the board. http://www.e2open.com/ _____________________________________________ o TechSys Takes Minority Stake in Technology Keiretsu LIVINGSTON, N.J. -- Publicly traded software and Internet services provider TechSys said it has taken a minority stake in Technology Keiretsu, a holding company that operates a network of technology companies. TechSys, the only institutional investor in the company, invested with an undisclosed amount of cash and shares of common stock. TechSys also has the right to purchase an additional interest in the company at a later date. Technology Keiretsu is still majority-owned by members of its management. Technology Keiretsu, which is also backed by outside individual investors, holds Allaint Technologies as its principal operating company. http://www.allianttech.com/ _____________________________________________ o VentureWorx Takes Stake in Search Engine SearchGenie.com EUGENE, Ore. -- Venture management consultants VentureWorx said they have taken an undisclosed equity stake in SearchGenie.com, an XML-based search engine with wireless capabilities. VentureWorx will assist SearchGenie.com with fund raising, developing business strategy, recruiting personnel, and launching a public relations campaign. SearchGenie.com's database may be accessed by standard HTML Web pages and allows companies to submit and customize information and images about their Web site or business. http://www.searchgenie.com/ _____________________________________________ o Wireless Data Software Firm Netverk Scores $9.5 Million LONDON -- Netverk, a provider of wireless data software, said it secured $9.5 million in a round of funding led by Citicorp Capital Asia Limited. WestLB Panmure, the investment banking arm of the WestLB Group, co-led the round. Other investors include A & A Actienbank and its subsidiary, the A & A Early Bird Fund. The company will use the funding for R&D, sales, and marketing. Netverk plans to expand its operations in Europe, Asia and North America. The first new offices will be in Denmark and the U.S. http://www.netverk.net/ ======= New Products ======= o Giga Information's French Unit Goes Private with $4 Million CAMBRIDGE, Mass. -- Publicly traded Giga Information, which provides research and consulting services for Internet businesses, said its French division received a $4 million investment to become a new private company, GigaGroup. BNP, Cime, ING, Natexis, Paribas, Pre IPO.net, Siparex, and Trinova invested in the company. Giga Information will own less than 20% of the new company. GigaGroup will provide IT and Internet business research, analysis and consulting services in Europe. The company is headquartered in Paris and plans to expand its offices throughout Europe. Bruno Tourme, who led Giga Information's operations in Europe, the Middle East, and Africa, is the chairman and CEO of GigaGroup. Giga Information's international vice president Jean-Michel Six is a member of the new company's board of directors. http://www.gigaweb.com/ _____________________________________________ o Software Testing and Monitoring Firm Empirix Launches WALTHAM, Mass. -- Empirix, a provider of testing and monitoring for the Internet and communications markets, announced it has launched. The company was created from technology network and software testing businesses of Teradyne- Hammer Technologies, RSW Software, and Software and Systems Test (SST). The company also said it has received significant funding from Matrix Partners. Jeff Hotchkiss, the former CFO of Teradyne, will be Empirix president and CEO, and Teradyne founder, Alex d'Arbeloff, will chair the Empirix board. http://www.empirix.com/ _____________________________________________ o KnowToday Becomes Clerity Knowledge Exchanges CINCINNATI -- KnowToday, a developer and marketer of technology that enables Internet portals to create private-labeled information exchanges on their own sites, announced it is changing its name to Clerity Knowledge Exchanges. The company also announced that its headquarters is now located here. Investors for Clerity Knowledge Exchanges include River Cities Capital and BlueStar Ventures. http://www.clerity.com/ ======= New Deals ======= o Pop.com Confirms Deal with Ifilm Off, Small Staff Retained LOS ANGELES -- Pop.com, the Internet entertainment site founded by Dreamworks SKG, Imagine Entertainment, and Vulcan Ventures, confirmed that acquisition talks with Ifilm.com, an online exchange for film fans, filmmakers, and industry professionals, ended without a deal. Pop.com, citing a downturn in the market, said it will layoff most of its employees, retaining a small staff. The company said it has not decided what it will do with the content it has already created and acquired. Pop.com, which was formed last fall, never launched its Web site. http://www.pop.com/ ======= M&A ======= o Earful of Books Takes Majority Stake In Audiobookcafe.com AUSTIN, Texas. -- Earful of Books, a national audiobooks chain, said it has purchased a 90% interest in Audiobookcafe.com, a six-month old audiobook-related content site. The terms of the investment were not disclosed. Paul Rush, president of Earful of Books, will serve on the board of Pearlman & Baine Media, the parent company of Audiobookcafe.com. In addition to the financial support from Earful of Books and Pearlman & Baine Media, its parent company, Audiobookcafe is backed by individual investors. http://www.audiobookcafe.com/ _____________________________________________ o BuildNet Acquires Home Plan Resource Company HomeStyles RESEARCH TRIANGLE PARK, N.C. -- BuildNet, which provides online business, technology, and project management systems for the home building industry, said it acquired HomeStyles, which provides pre-designed home plans for builders and consumers. BuildNet is backed by BancBoston Ventures, Barnard & Co., Encore Venture Partners, GE Appliances, GE Capital, Global Technology Investors Fund at Bessemer Trust, Halifax BuildNet Investors, John Hancock Global Technology Fund, J. & W. Seligman, Piedmont Venture Partners, SG Capital Partners, South East Interactive Technology Fund, and The CIT Group/Equity Investments. The company is in a quiet period prior to filing for an IPO. http://www.homestyles.com/ http://www.buildnet.com/ _____________________________________________ o American Greetings Buys Information-by-e-mail Service Firm CLEVELAND -- Personalized content delivery firm AmericanGreetings.com, a subsidiary of publicly traded American Greetings, said it has acquired eAgents, a firm that delivers consolidated information and entertainment from Web media brands in a single, daily e-mail. As part of the agreement, Charles Fink, the company's founder, president and CEO of eAgents.com, will become president of AmericanGreetings.com, reporting to Josef Mandelbaum, the CEO. Terms of the transaction were not disclosed. eAgents is backed by Draper Atlantic, Lazard Technology Partners, I-Hatch, and Shamrock Holdings. http://www.eagents.com/ http://www.americangreetings.com/ _____________________________________________ o Digital Scent Developer, DigiScents, Buys SenseIT OAKLAND, Calif. -- DigiScents, which is developing technology to enable companies to incorporate scent into Web sites, e-mail, online movies, music, games, and advertising, said it acquired SenseIT Technologies, a Delaware-based digital scent company. Terms of the acquisition were not disclosed. The combined entity, DigiScents, will retain headquarters in Oakland, Calif., with branch offices in New York City, and an R&D center in Israel. SenseIT Technologies was co-founded by company president Eli Fisch and two scientists from the Israeli Weizmann Institute of Science, Professors Doron Lancet and David Harel. DigiScents is backed by Pacific Century CyberWorks. http://www.digiscents.com/ _____________________________________________ o AmeriNet Group.com To Acquire WeCU.com for $1.5 Million BOCA RATON, Fla. -- Publicly-traded AmeriNet Group.com, said it signed a letter of intent to acquire WeCU.com, an international wireless television, communications and Internet services provider. All of the assets of WeCU.com. will be exchanged for approximately two million shares of Amerinet stock, valued at $1.5 million at the close of trading Wednesday. WeCU.com is backed by individual investors. http://www.wecu.com/ http://www.amerinetgroup.com/ ======= New Directors ======= o Two Ericsson Execs Join Wireless Firm TrustLink's Board STOCKHOLM -- TrustLink (UK), the holding company of wireless application developer TrustLink Group, said it appointed two representatives of communications supplier Ericsson to the company's board of directors. The appointments are a result of Ericsson's acquistion of a 25% stake in the company. Mr. Per Olof Sjoestedt, president of Ericsson Russia, and Mr. Staffan Pehrson, general manager for mobile Internet, will both assume seats on the company's board of directors. Located in Russia and Switzerland, the company is backed by Ericsson and individual investors. http://www.trustlink.com/ _____________________________________________ o INNX Picks Media Analyst Harold Vogel To Join Company Board SAN DIEGO -- INNX, a new media company specializing in targeted advertising services, said it has appointed Harold "Hal" Vogel to its board of directors. Mr. Vogel was first vice president and senior entertainment industry analyst at Merrill Lynch. He served on the New York State Governor's Advisory Board for Motion Pictures and Television, and is an adjunct professor of media economics at Columbia University's business school. Mr. Vogel is a venture capital investor in many early-stage Internet media companies. http://www.healthsurfing.com/ _____________________________________________ o Venture Capital Institution MerchantBanc Adds Three to Board MANCHESTER, N.H. -- MerchantBanc, a financial institution that provides services for private investors through an Internet-based network, said it named Jesse Devitte, William E. Wetzel Jr., and James C. Wood to its board of directors. Mr. Devitte is president of Vertical Market Ventures and Ivolution Strategies. He served in executive positions with Softdesk and Autodesk. William E. Wetzel Jr. is director emeritus of the Center for Venture Research at the Whittemore School of Business and Economics at the University of New Hampshire. He founded the Venture Capital Network in 1984. James C. Wood is president of Kana Communications. He founded and served as CEO of Silknet Software, which merged with Kana. MerchantBanc provides services that enable investors to identify worthy businesses and provides entrepreneurs with access to venture capital. http://www.merchantbanc.com/ _____________________________________________ o Two Join Board of Equity Execution Services Firm NeoNet STOCKHOLM -- NeoNet, which offers institutional investors and broker dealers anonymous electronic trading access to multiple securities markets, said it has appointed Thord Wilkne and Mats Sundstrom to its board of directors. Mr. Wilkne is chairman and co-founder of Swedish IT-supplier WM-data, a Nordic supplier of IT-related services, and Mr. Sundstrom is chairman of Swedish Enlight Interactive. NeoNet, which is planning to go public before the end of the year, is backed by ITP (Information Technology Partners). The company has also received funding from Hans Karlsson, the chairman of Swedish mobile technology firm HiBQ International. http://www.neonet.se/ _____________________________________________ o ZuluSports.com Names Former Nike Division Head to Board SAN FRANCISCO -- ZuluSports.com, an online resource for adventure and outdoor sports enthusiasts, said it has appointed Gordon McFadden, the former president of Nike's all-conditions gear division, to its board of directors. Prior to Nike, Mr. McFadden was president and CEO of Helly-Hansen, a manufacturer of outdoor clothing. ZuluSports.com is backed by Angel Investors, Fujigin Capital and Aslan Capital. http://www.zulusports.com/ _____________________________________________ o Telecom Entrepreneur Joins Clearwire Technologies Board DALLAS -- Clearwire Technologies, a provider of wireless local access solutions, said Jimmy Mansour is joining the company's board of directors. Mr. Mansour currently holds positions on several boards, including Netspeed, GroupTel, and Netpliance. Clearwire Technologies is backed by individual investors. http://www.clearwire.com/ ======= New People ======= o Ex-Hamilton Management Partner Now CEO & President of DIVA REDWOOD CITY, Calif. -- DIVA, a provider of interactive video-on-demand products and services, said it named Hendrik A. Hanselaar, formerly a general partner in Hamilton Management Partners, president and CEO. Mr. Hanselaar replaces David Zucker, who left the company to become CEO of one of Stamford, Conn.-based Walker Digital's operating units. Mr. Zucker will continue to serve as a director on DIVA's board and will work with Mr. Hanselaar over the next few months to help with the transfer of responsibilities. DIVA'S backers include publicly traded UK-based cable television provider NTL, Liberate Technologies, Open TV, and General Instrument. The company filed for an IPO last May. http://www.divatv.com/ _____________________________________________ o Peppers and Rogers Pick Former McKinsey Partner as Leader STAMFORD, Conn. -- Peppers and Rogers Group, a management consulting firm that also runs a venture capital group, 1 to 1 Ventures, said it named Steve Skinner as its new president and CEO. Mr. Skinner was most recently a partner with Atlanta-based McKinsey & Co., where he led the transportation unit of the firm's business accelerator. He also worked as a sales engineer and sales manager with Johnson Controls. Mr. Skinner succeeds company co-founder and former president and CEO Bob Dorf, who has become a managing director of company affiliate 1 to 1 Venture Partners, which the company launched last year. http://www.1to1.com/ _____________________________________________ o BenefitPort Names Healtheon/WebMD Exec To CEO Post GREENWICH, Conn. -- BenefitPort, a technology-based network for health insurance sales and employee benefits, said it has appointed Thomas P. Staudt as its CEO. Mr. Staudt was senior operating officer of Healtheon/WebMD. He has also served as chairman and CEO of Mede America. With his arrival, former CEO Andrew Sawyer will now serve as president of the Insurance division. BenefitPort has a commitment of $60 million in financial backing from the Trident Partnership, a private equity fund advised by Marsh & McLennan Capital and J.P. Morgan. http://www.benefitport.com/ _____________________________________________ o Digital Content Firm WAM!NET Appoints President EAGAN, Minn. -- WAM!NET, which provides digital content management services, said it has appointed William Sulivan as its new president. Mr. Sullivan joined WAM!NET in March as senior vice president. Prior to joining the company, he was CEO of PR21, a New York-based public relations firm. WAM!NET has received equity funding from MCI WorldCom, WindStar, Silicon Graphics, and Sumitomo. http://www.wamnet.com/ ======= VC Fund News ======= o Italian VC MyQube Opens Silicon Valley Office MILAN -- MyQube, a European early-stage venture capital firm, said it opened a new office in Silicon Valley. The new branch will concentrate on investments in California high technology companies and will draw its capital from the EUR 100 million ($88 million) EuroQube fund. Enzo Torresi, a MyQube advisor, will assume the position of managing director for the fund. Mr. Torresi was most recently a founding partner in EuroFund and previously co-founded ICAST. The firm also announced its first investment in natural language technical support software developer, noHold. The amount of capital invested was undisclosed. In addition to the new office in California and its headquarters here, the company operates from several locations in Europe including, Geneva, Munich, and London. http://www.myqube.com/ ======= VC Personnel ======= o AV Labs Names Former onQ Technology CEO as Venture Fellow AUSTIN, Texas -- AV Labs, an early stage venture fund focused on seed and first round investments, said it named Eric Loeffel as a Venture Fellow. Mr. Loeffel, who most recently served as president and CEO of onQ Technology, will provide operating executive experience to startup companies. The AV Labs portfolio includes Covasoft, InStreamTV, Terrace Mountain Systems, newgistics, onecard, and WebTaggers. http://www.avlabs.com/ _____________________________________________ o EnerTech Capital Partners Names Ex-Varidigm CEO as Partner WAYNE, Pa. -- Private equity firm EnerTech Capital Partners said it named Kenneth Kazmer a venture partner. Mr. Kazmer was recently president of DeltaDigm, a product development consulting firm. He also founded and served as director and CEO of Varidigm, a speed motor technology company. EnerTech manages $285 million and focuses on technology, service and infrastructure investment in the energy, utility, and communications markets. http://www.enertechcapital.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| Where's the money in free software? Is Linux, at last, about to become important to commercial users with IBM, Compaq, Hewlett-Packard, Sun Microsystems, and others teaming up to offer an open-software suite to compete with Windows? Or is there a lesson for us all in the disappointing stock market performance of the pure-play Linux companies? Join us for an open-software roundtable, featuring Miguel de Icaza the 27-year-old Mexican programmer who has devised alternatives to key Microsoft products. The Wall Street Journal Technology Summit Register at http://info.wsj.com/techsummit/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://www.venturewire.com/register/vw This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. _____________________________________________ TO SUBSCRIBE go to: http://www.venturewire.com/register/vw To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

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VentureWire People, Thursday, October 18, 2001

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<a href="#vwIJOKPIKLII"><font face="verdana, arial, geneva, helvetica" size="2">BenefitPoint Promotes John Randazzo as New CEO</font></a><br> <a name="vwLHPLHKJLIIx"></a> &#8226; <a href="#vwLHPLHKJLII"><font face="verdana, arial, geneva, helvetica" size="2">Qusion Names Emcore CEO Richards to Board; Seeks Round B </font></a><br> <a name="vwLLKIMJKLIIx"></a> &#8226; <a href="#vwLLKIMJKLII"><font face="verdana, arial, geneva, helvetica" size="2">Covalent Materials Announces New President & CEO </font></a><br> <a name="vwNOQJNHLLIIx"></a> &#8226; <a href="#vwNOQJNHLLII"><font face="verdana, arial, geneva, helvetica" size="2">AppGate Appoints Alfred Moresi President and CEO</font></a><br> <a name="vwQLPNNQILIIx"></a> &#8226; <a href="#vwQLPNNQILII"><font face="verdana, arial, geneva, helvetica" size="2">WebPutty Promotes David Chamberlain to Pres & CEO</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>VC PERSONNEL</b></font><br> <a name="vwMJHJHIJLIIx"></a> &#8226; <a href="#vwMJHJHIJLII"><font face="verdana, arial, geneva, helvetica" size="2">MPM Capital Names Adds Two Partners and One EIR</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>BUSINESS DEVELOPMENT</b></font><br> <a name="vwHHINIIKLIIx"></a> &#8226; <a href="#vwHHINIIKLII"><font face="verdana, arial, geneva, helvetica" size="2">Genomics Firm DGT Names Kevin Skol VP Business Development</font></a><br> <a name="vwQLJKIQJLIIx"></a> &#8226; <a href="#vwQLJKIQJLII"><font face="verdana, arial, geneva, helvetica" size="2">Timothy Brophy Joins Qusion as VP of Product Development </font></a><br> <a name="vwMJNHKILLIIx"></a> &#8226; <a href="#vwMJNHKILLII"><font face="verdana, arial, geneva, helvetica" size="2">Bluesocket Names Carol Schmitt as VP, Business Dev.</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>OPERATIONS</b></font><br> <a name="vwQJKMQQKLIIx"></a> &#8226; <a href="#vwQJKMQQKLII"><font face="verdana, arial, geneva, helvetica" size="2">Seriqa Networks Names Ex-BT Executive Michael Keilty as COO</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>TECHNOLOGY</b></font><br> <a name="vwLNJQQPILIIx"></a> &#8226; <a href="#vwLNJQQPILII"><font face="verdana, arial, geneva, helvetica" size="2">Optic Laser Firm Fiberspace Names New VP of Engineering</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>VW PEOPLE CORRECTIONS</b></font><br> <a name="vwNINQNIJLIIx"></a> &#8226; <a href="#vwNINQNIJLII"><font face="verdana, arial, geneva, helvetica" size="2">Brience</font></a><br> <br> <font face='arial,helvetica' color="#006699" size="3"><b>TOP MANAGEMENT</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwIJOKPIKLII"><b><font face='arial,helvetica' size="2">BenefitPoint Promotes John Randazzo as New CEO</font></b></a></td><td align="right"><a href="#vwIJOKPIKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=IJOKPIKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">SAN FRANCISCO -- BenefitPoint, an employee benefits management service for the distribution of group insurance and financial products, said John Randazzo has been appointed president and CEO.<br><br>Mr. Randazzo replaces Mark Pulido, who will retire but remain as chairman. Mr. Randazzo was promoted from the position executive vice president; prior to BenefitPoint, he served as CEO at Women&#39;s Health Connecticut and Value Oncology Science, and held positions at Warburg & Pincus&#39;s private equity group.<br><br>BenefitPoint has raised $75 million in equity and $7 million in debt financing from Comdisco, First Union, Goldman Sachs Capital Partners, HarborVest Partners, Institutional Venture Partners, Marsh USA, and Sequoia Capital. </font><br> <a href="http://www.benefitpoint.com" target="_new"><font face='arial,helvetica' size='2'>http://www.benefitpoint.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwLHPLHKJLII"><b><font face='arial,helvetica' size="2">Qusion Names Emcore CEO Richards to Board; Seeks Round B </font></b></a></td><td align="right"><a href="#vwLHPLHKJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=LHPLHKJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">NORTH BRUNSWICK, N.J. -- Qusion, a maker of optical integrated circuits, said Reuben Richards, CEO of compound semiconductor product firm Emcore, will join its board of directors. The company also said it is seeking a second round of venture capital financing. <br><br>According to Qusion spokesperson, Nicholas Stuart Ludlum, the company hopes to close its Series B round by the end of the year with funds used to ramp up product development. He would not comment on the amount of money Qusion hopes to raise. <br><br>Mr. Ludlum said the firm has five people on its board at present and will add a couple more after the completion of the second round. <br><br>Qusion has received backing from Wasserstein Ventures, Vantage Point Venture Partners, and WR Hambrecht. </font><br> <a href="http://www.qusiontech.com" target="_new"><font face='arial,helvetica' size='2'>http://www.qusiontech.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwLLKIMJKLII"><b><font face='arial,helvetica' size="2">Covalent Materials Announces New President & CEO </font></b></a></td><td align="right"><a href="#vwLLKIMJKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=LLKIMJKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">EMERYVILLE, CALIF. -- Covalent Materials, a developer of nanotechnology components for electronics and energy storage applications, said it has appointed Charles Janac as president and CEO. <br><br>Mr. Janac replaces interim CEO Andrei Manoliu, who remains on the board.<br><br>Prior to Covalent Materials, Mr. Janac was entrepreneur-in-residence at Infinity Capital, general manager at Brooks Automation, and CEO of Smart Machines. <br><br>The company is backed by Alta Partners and individuals. </font><br> <a href="http://www.covalentmaterials.com" target="_new"><font face='arial,helvetica' size='2'>http://www.covalentmaterials.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwNOQJNHLLII"><b><font face='arial,helvetica' size="2">AppGate Appoints Alfred Moresi President and CEO</font></b></a></td><td align="right"><a href="#vwNOQJNHLLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=NOQJNHLLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">DURHAM, N.C. -- AppGate, which provides technology for virtual private networks, said it named Alfred Moresi as its president and CEO. <br><br>Mr. Moresi, who also becomes a director as a result of his appointment, previously served as chief operating officer at eNetSecure. At AppGate, where he will have offices in both its Gothenburg, Sweden and Raleigh, N.C. locations, he will lead the company in business development, engineering, sales and marketing, and research and development. <br><br>AppGate is funded by Industrifinans, Innovationskapital, Pythagoras, and T-Venture. </font><br> <a href="http://www.appgate.com" target="_new"><font face='arial,helvetica' size='2'>http://www.appgate.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwQLPNNQILII"><b><font face='arial,helvetica' size="2">WebPutty Promotes David Chamberlain to Pres & CEO</font></b></a></td><td align="right"><a href="#vwQLPNNQILIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=QLPNNQILII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">SAN JOSE, CALIF. -- WebPutty, a provider of server software, said it promoted David K. Chamberlain to president and CEO, and named James G. Beldock as chief technology officer as well as chairman.<br><br>Mr. Chamberlain, who previously served as executive vice president and general manager of field operations, will also join the company&#39;s board of directors. Prior to joining the company, Mr. Chamberlain worked at IBM where he developed the professional services organization in the West coast. Mr. Chamberlain replaces Mr. Beldock.<br><br>Mr. Beldock joined the company in 1999 as chairman of its technology advisory board and became president and CEO in 2000. Prior to joining the company, Mr. Beldock was entrepreneur in residence at SAC Captial. <br><br>WebPutty is backed by Bain Capital, S.A.C. Capital Partners, and Seneca Capital Management.</font><br> <a href="http://www.webputty.com" target="_new"><font face='arial,helvetica' size='2'>http://www.webputty.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>VC PERSONNEL</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwMJHJHIJLII"><b><font face='arial,helvetica' size="2">MPM Capital Names Adds Two Partners and One EIR</font></b></a></td><td align="right"><a href="#vwMJHJHIJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=MJHJHIJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">CAMBRIDGE, MASS. -- MPM Capital, a global asset management firm focused solely on healthcare investing, said it made several new additions to its investment team. <br><br>Carl Weissman will join MPM Capital&#39;s BioVentures as venture partner while Dr. Kazumi Shiosaki will join as entrepreneur in residence. Skip Klein has been named as a venture partner with both MPM BioVentures and MPM BioEquities, which invests primarily in public healthcare companies. Mr. Klein will focus on late stage private and public market venture capital opportunities. Prior to joining MPM, Mr. Klein was an investment analyst, portfolio manager, and founder of the T. Rowe Price Health Sciences Fund.<br><br>Mr. Wesimann previously served as the founding chief operating officer for Centagenetix, an MPM portfolio company, while Dr. Kazumi served as senior vice president of drug discovery at Millennium Pharmaceuticals and at Abbott Laboratories. </font><br> <a href="http://www.mpmcapital.com" target="_new"><font face='arial,helvetica' size='2'>http://www.mpmcapital.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>BUSINESS DEVELOPMENT</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwHHINIIKLII"><b><font face='arial,helvetica' size="2">Genomics Firm DGT Names Kevin Skol VP Business Development</font></b></a></td><td align="right"><a href="#vwHHINIIKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=HHINIIKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">LA JOLLA, CALIF. -- Digital Gene Technologies said it named Kevin T. Skol vice president of business development. Mr. Skol joins the company from Elan, a publicly held biopharmaceutical firm, where he served as associate director of the business development group. Digital Gene Technologies combines genomics technology with bioinformatics to identify genes expressed in any cell or tissue sample. The company received $22 million in third round funding from undisclosed investors in February 2000. </font><br> <a href="http://www.dgt.com" target="_new"><font face='arial,helvetica' size='2'>http://www.dgt.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwQLJKIQJLII"><b><font face='arial,helvetica' size="2">Timothy Brophy Joins Qusion as VP of Product Development </font></b></a></td><td align="right"><a href="#vwQLJKIQJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=QLJKIQJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">NORTH BRUNSWICK, N.J. -- Qusion Technologies, a developer of optical integrated circuits, said Timothy Brophy joined the firm as vice president of product development. Mr. Brophy comes to the firm from Motorola&#39;s Broadband Communications sector, where he served as director of advanced photonic technology. Qusion is backed by Wasserstein Ventures, Vantage Point Venture Partners, and WR Hambrecht. </font><br> <a href="http://www.qusiontech.com" target="_new"><font face='arial,helvetica' size='2'>http://www.qusiontech.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwMJNHKILLII"><b><font face='arial,helvetica' size="2">Bluesocket Names Carol Schmitt as VP, Business Dev.</font></b></a></td><td align="right"><a href="#vwMJNHKILLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=MJNHKILLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">BURLINGTON, MASS. -- Bluesocket, which develops security and management products for wireless local area networks, said it appointed Carol S. Schmitt as vice president of business development. Prior to joining the company, Ms. Schmitt was a business and market development consultant in Los Gatos, Calif. Bluesocket is backed by Osborn Capital and St. Paul Venture Capital. </font><br> <a href="http://www.bluesocket.com" target="_new"><font face='arial,helvetica' size='2'>http://www.bluesocket.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>OPERATIONS</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwQJKMQQKLII"><b><font face='arial,helvetica' size="2">Seriqa Networks Names Ex-BT Executive Michael Keilty as COO</font></b></a></td><td align="right"><a href="#vwQJKMQQKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=QJKMQQKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">TEL AVIV, ISRAEL -- Seriqa Networks, which develops integrated traffic engineering technologies for telecommunications service providers, said Michael F. Keilty has joined the company as chief operating officer. Prior to his appointment, Mr. Keilty served as managing director of British Telecom North America. Based out of Seriqa&#39;s New York office, he will be responsible for the company&#39;s U.S. operations and for worldwide sales and marketing. Seriqa, previously called E-ntouch Networks, is backed by Shalom Equity Fund. </font><br> <a href="http://www.seriqa.com" target="_new"><font face='arial,helvetica' size='2'>http://www.seriqa.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>TECHNOLOGY</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwLNJQQPILII"><b><font face='arial,helvetica' size="2">Optic Laser Firm Fiberspace Names New VP of Engineering</font></b></a></td><td align="right"><a href="#vwLNJQQPILIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=LNJQQPILII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">WOODLAND HILLS, CALIF. -- Fiberspace, a developer of laser products for fiber-optic communications systems and components, said it named Osama Bahgat as vice president of engineering. Before joining Fiberspace, Mr. Bahgat worked for CopperCom, where he led the firm&#39;s voice over broadband product development team. Fiberspace&#39;s investors include J.P. Morgan Chase Capital and Morgenthaler Ventures. </font><br> <a href="http://www.fiberspace.net" target="_new"><font face='arial,helvetica' size='2'>http://www.fiberspace.net</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>VW PEOPLE CORRECTIONS</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwNINQNIJLII"><b><font face='arial,helvetica' size="2">Brience</font></b></a></td><td align="right"><a href="#vwNINQNIJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=NINQNIJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">NEW YORK -- A story in Wednesday&#39;s edition incorrectly identified Jim Drumright&#39;s title at Brience as president and COO. Mr. Drumright serves solely as COO. Rod McGeary is president and CEO of Brience. </font><br><br></td></tr></table><br> <br><br> <table cellPadding=5 width="100%" border="0"><tr bgcolor="#FOE68C"><td align=left vAlign=top width="100%"><font color="#006699" face="verdana, arial, helvetica" size=2><b>EXECUTIVE SEARCHES</b></font><br><br><font color=black face="verdana, arial, helvetica" size=2><b><a name=clsfd1190>VP of Sales</a>--IT services--SF Bay Area</b><br><br> Lohika Systems, Inc., a recently-funded IT services start-up headquartered in Silicon Valley, is seeking a hands-on VP of Sales to build and manage its sales organization. This person should have a proven record of generating sales and exceeding sales targets, possess excellent networking ability, be able to prospect and manage clients throughout the sales cycle, be able to develop a focused sales strategy, and have experience recruiting and managing a sales team. <br> <br>Responsibilities: <br> <br>* Manage and execute the entire sales cycle from generating prospects and cold calling to closing the sale <br>* Sell strategically to key decision-makers (CFO, COO, CIO) and tactically at the operational level <br>* Cultivate and maintain strong client relationships <br>* Build and manage a sales team <br>* Develop a well-targeted sales strategy <br>* Work closely with our IT professionals to close the sale <br> <br> <br>Requirements: <br> <br>* Minimum of 5 years of sales management experience <br>* Proven record of consistently meeting and exceeding sales quota <br>* Previous history of selling high-tech products, IT consulting services, or software <br>* Have experience selling to key decision makers <br>* Excellent networking ability <br>* Bachelor's degree or equivalent <br>* Excellent oral and written communication and presentation skills coupled with strong negotiation skills <br><br><br>e-mail: <a HREF="mailto:sales@lohika.com">sales@lohika.com</a><br>company: Lohika Systems, Inc.<br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1191>VP of Telecommunications Sales</a>--Wireless and Voice Applications--Irvine, CA</b><br><br> AdaptiveInfo provides state-of-the-art software infrastructure for automatically personalizing wireless and voice applications. Our products enable high-quality mobile applications that overcome the constraints of mobile devices by learning each individual?s preferences. This is a growth opportunity in privately held company located in a research park on a University of California campus. <br>VP of TELECOMMUNICATIONS SALES <br>Duties and Responsibilities: <br>* Sell to top tier Telecommunications accounts with a high degree of independence. <br>* Sell at a strategic level, developing and implementing strategic business plans. <br>* Articulate strategy, products and services to customers and prospects. <br>* Identify market segments, create and execute sales strategy. <br>* Provide feedback on an ongoing basis with market trends and customer needs <br> <br>Required Qualifications: <br>* 4+ years selling high-end software or services to the telecommunications industry. <br>* A record of sustained sales success identifying and closing new customer accounts. <br>* Start-up experience is a plus. <br>* Ability to work with other executives in a collegial, team oriented environment. <br>* Excellent negotiating, speaking, writing and listening skills. <br>* BA degree in a business/technical <br><br><br>e-mail: <a HREF="mailto:jobs@adaptiveinfo.com">jobs@adaptiveinfo.com</a><br>company: AdaptiveInfo <br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1192>Managing Director</a>--VENTURE CAPITAL--Denver, CO</b><br><br> Denver-based investment management company seeks managing director to lead a venture capital firm focused on early stage Colorado investments. Candidate must have at least 5 years of direct investment experience, a demonstrable track record, and actively participate in capital raising efforts. The ideal candidate will manage the investment of $30 to $50 million in early stage opportunities in the region. Competitive compensation structure including a unique opportunity for ownership and a carried interest in the fund. <br> <br>Qualifications <br> <br>* A minimum of five years experience in early-stage investing focusing on the technology, telecommunications, or life science industries <br>* Proven history of venture investing with a definitive record of returns <br>* Experience fundraising from both institutional investors and high net worth individuals <br>* Expertise managing portfolio company investments <br>* Excellent communication and presentation skills <br>* Educational qualifications important <br><br><br>e-mail: <a HREF="mailto:sagecapital@yahoo.com ">sagecapital@yahoo.com </a><br>company: <br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1189>VP Sales - Risk Management</a>--Technology Services--New York, NY</b><br><br> Kiodex is a technology and services company founded in February 2000 by a group of former Wall Street and energy industry traders, developers, and strategists seeking to provide quality technology products to facilitate trading and risk management in the market at large. <br> <br>Kiodex is exclusively focused on the commodity markets and enabling our customers to successfully navigate those volatile markets using our cutting-edge technology. Our flagship product, the Kiodex Risk WorkbenchSM, is one of the first risk management systems in the world to be designed and built entirely for the Internet, using only the latest in web-based technology. We've also earned validation as the company entrusted to <br>power the New York Mercantile Exchange's online trading platform, enymexSM, with our order-matching engine, the Kiodex Trade EngineTM. <br> <br>Kiodex currently has nearly 100 employees. Our headquarters are in New York City. The backgrounds of our team, like the quality of our products, speak for themselves! Be part of our leading team! <br> <br>The VP of Sales will be responsible for building out the entire Kiodex sales effort and achieving Kiodex revenue objectives. <br> <br>Responsibilities include: <br>1-Institute and maintain a proven sales methodology for complex software sales with multiple buying influences. <br>2-Recruit a sales team and implement a sales management structure that ncludes regional offices. <br>3-Provide the sales force with the product vision and execution strategy to reach each of their goals. <br>4-Coordinate the sales process to ensure that the next sales milestones (per projections) are hit. <br>5-Provide vision and make commendations on the structure of the sales team - pre sales, implementation, and product specialists. <br>6-Design and implement sales campaigns in the lead up to new releases of the Workbench. <br>7-Develop specific recommendations for business development regarding 3rd Party alliances and distribution partnerships to efficiently reach the target market for each release of the Risk Workbench. <br>8-Assist in the creation of an international expansion strategy. <br> <br>Desired Skills: <br>1. Experience in financial markets. <br>2. Experience selling into the Finance/treasury departments of the Fortune 1000. <br><br>e-mail: <a HREF="mailto:Jobs@kiodex.com">Jobs@kiodex.com</a><br>company: Kiodex Inc.<br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1188>VP, Engineering/R&amp;D</a>--Optical Components--Ithaca, NY</b><br><br> BinOptics is a pioneer in next-generation optical devices based on leading-edge semiconductor innovations. The company?s proprietary technology places it in a unique position to address the challenges facing the rapidly growing optical components industry. Founded in 2000, BinOptics is privately held and funded by renowned Silicon Valley venture firm Draper Fisher Jurvetson and Stanford University. The company is headquartered in scenic Ithaca, New York. <br> <br>VP of Engineering/R&amp;D <br>Responsibilities: <br>*Oversee research & development, design, simulation, and process of next-generation optical components <br>*Direct and lead a team of motivated optical scientists and engineers <br>*Recruit and build a productive engineering team <br>*Establish and monitor budget of engineering department <br>*Coordinate and facilitate interactions with other departments <br>*Plan and manage the deployment of resources for multiple projects <br> <br>Requirements: <br>*In depth knowledge of the optical component field <br>*Proven skills as a motivator and team builder <br>*At least 15 years of relevant technical experience including VP or Senior Director level <br>*A successful track record of leadership in a start-up environment <br>*BS in Electrical Engineering or Material Science (MS or PhD preferred) <br> <br>BinOptics is an equal opportunity employer and offers a generous benefits package and competitive salaries. All of our employees participate in the company's stock option program.<br><br>e-mail: <a HREF="mailto:careers@binoptics.com">careers@binoptics.com</a><br>company: BinOptics<br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1193> GENERAL PARTNER</a>--TECHNOLOGY--SAN DIEGO</b><br><br> Make a lifestyle change. <br>A "green grass" opportunity in an emerging technology region underserved by locally based venture capitalists. Capitalize on plentiful investment opportunities emerging from research universities and facilities serving the life sciences and technology sectors, Department of Defense (DOD) technologies and research, and next generation early stage companies evolving from existing models of success in Southern California. New venture fund with no legacy issues seeking an experienced General Partner. <br> <br> <br>PROFESSIONAL QUALIFICATIONS: <br>* Demonstrated investment results with a venture capital firm. <br>* Strong communications or semiconductor background (10+ years of relevant operating experience) that started off their career in an engineering role and was able to successfully move into a more senior Business Management role. <br>* Extensive personal and professional networks within the high tech industry <br>* PhD in EE or CS, BS/MS strongly preferred <br> <br>PERSONAL QUALIFICATIONS: <br>* A keen sense of humor <br>* Highly competitive and driven to success <br>* Proactive vs. reactive <br>* Independent thinker yet a team player <br> <br>AN EQUAL OPPORTUNITY EMPLOYER <br><br><br>e-mail: <a HREF="mailto:box1193@venturewire.com">box1193@venturewire.com</a><br>company: n/a<br>[<a href="#top">top</a>]<br><br> </font></td></tr></table> <br><br> <font face="arial, geneva, helvetica" size="2" color="black"> To cancel, change, or update your subscription:<br> </font> <font face="arial, geneva, helvetica" size="2" color="gray"> <a href="http://people.venturewire.com/account.asp">http://people.venturewire.com/account.asp</a> </font> </td> </tr> </table> </html>

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Subject: VentureWire People, Thursday, October 18, 2001 Sender: people@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/deleted_items/2. ===================================== <!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <html><head> <style type="text/css"> A:link {text-decoration:none; color: black;} A:visited {text-decoration:none; color: black;} A:hover {text-decoration:none; color:#006699;} </style> <title>VentureWire People</title> <meta HTTP-EQUIV="Content-Type" CONTENT="text/html;charset=iso-8859-1"> <!-- If you are reading this, your e-mail client does not support HTML. Switch to the text version at: http://people.venturewire.com/account.asp If you think the error's on our side, let us know the particulars of your problem and which mail reader you use. venturewire@venturewire.com --> </head><body bgcolor="#ffffff" text="#000000"><a name="top"></a> <table border="0" width="100%"> <tr> <td rowspan="20" width="2%">&nbsp;</td> <td align=left> <a href="http://people.venturewire.com/"> <img SRC="http://venturewire.com/people/images/VWPeople_logo51.gif?s=91736" border=0 ALT="high-tech management news"></a> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<br><font face="Arial" size="1"> Published by <a HREF="http://www.technologicpartners.com">Technologic Partners</a></font> </td> <td align=left vAlign=top>&nbsp;</td> </tr> <tr> <td bgcolor="#CCCCCC"><font face="verdana, arial, helvetica" size="-1" color="#006699"><b>EXECUTIVE CHANGES FOR Thursday, October 18, 2001</b></font><br></td> <td rowspan="2" vAlign=top> <table cellPadding=5 width="100%" border="0"><tr bgcolor="#FOE68C"><td align=left vAlign=top><font color="006699" face="verdana, arial, helvetica" size=-1><b>EXECUTIVE SEARCHES</b></font><br><font color=black face="verdana, arial, helvetica" size=-2>&#8226; <a href="#clsfd1190">VP OF SALES-SF BAY AREA</a><br>&#8226; <a href="#clsfd1191">VP OF TELECOMMUNICATIONS SALES-IRVINE, CA</a><br>&#8226; <a href="#clsfd1192">MANAGING DIRECTOR-DENVER, CO</a><br>&#8226; <a href="#clsfd1189">VP SALES - RISK MANAGEMENT-NEW YORK, NY</a><br>&#8226; <a href="#clsfd1188">VP, ENGINEERING/R&amp;D-ITHACA, NY</a><br>&#8226; <a href="#clsfd1193"> GENERAL PARTNER-SAN DIEGO</a><br></font></td></tr></table><br> <center> <table width="100%" cellpadding=5 border="0" bgcolor='#F0E68C'> <tr><td><font face="verdana, arial, helvetica" size="-1" color="#006699">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>CEO HIRES</b></font><br><a href="http://people.venturewire.com/ceowatch.asp"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<img SRC="http://208.185.40.7/charts/images/ceohiresP.jpg" border=0 align=middle alt="ceo watch"></a></td></tr> <tr><td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td></tr> </table> </center><br> <table width="100%" cellpadding=5 border="0"> <tr><td> <font face="verdana, arial, helvetica" size="-1" color="#006699"><b> SERVICES</b></font><br> <font face="verdana, arial, helvetica" size="-2" color="#006699"> &#8226;&nbsp;<a href="http://alert.venturewire.com/index.asp">VentureWire index</a></font><br> <br> <font face="verdana, arial, helvetica" size="-1" color="#006699"><b> LINKS</b></font><br> <font face="verdana, arial, helvetica" size="-2" color="#006699"> &#8226;&nbsp;<a href="http://people.venturewire.com/adv.asp">sponsor VentureWire&nbsp;people</a><br> &#8226;&nbsp;<a href="http://people.venturewire.com/specs.asp">place a classified ad</a> <br> &#8226;&nbsp;<a HREF='http://venturewire.gazooba.com/cid3723/tellafriend.html'>refer VentureWire</a><br> <!--&#8226;&nbsp;<A HREF='http://venturewire.com/polling/survey1vwp.htm'>take our survey</A><BR>--> </font> <font face="verdana, arial, helvetica" size="-2" color=black> &#8226;&nbsp;send news, tips, releases to </font> <font face="verdana, arial, helvetica" size="-2" color="#006699"> <a href="mailto:vwpeople@venturewire.com">vwpeople@venturewire.com</a><br> <!--FAQ--> &#8226;&nbsp;<a href="http://people.venturewire.com/help.asp">FAQ</a> </font> <br><br> <!--ACCOUNT--> <font face="verdana, arial, helvetica" size="-1" color="#006699"><b> YOUR ACCOUNT</b></font> <br> <!--CHANGE eMail--> <font face="verdana, arial, helvetica" size="-2" color="black"> &#8226;&nbsp;<a href="http://people.venturewire.com/account.asp">change e-mail</a> <br> <!--CANCEL--> &#8226;&nbsp;<a HREF='http://people.venturewire.com/account.asp'>cancel VentureWire people</a> <br> <!--FEEDBACK--> &#8226;&nbsp;<a href="http://people.venturewire.com/account.asp">feedback</a> <br> <!--IDENTITY--> &#8226;&nbsp;this newsletter<br>&nbsp; mailed to you at:<br> jdasovic@ENRON.COM</font> <br><br> <!--SERVICES--> <font face="verdana, arial, helvetica" size="-1" color="#006699"><b> SERVICES </b></font><br> <!--INDEX--> <font face="verdana, arial, helvetica" size="-2" color="black"> &#8226;&nbsp;<a href="http://venturewire.com/index.asp">VentureWire index</a></font> <br><br> <!--TRAILING ADS--> <!--SERVICES--> <font face="verdana, arial, helvetica" size="-1" color="#006699"><b> UPCOMING EVENTS </b></font> <br><font face="verdana, arial, helvetica" size="-2" color="black"> &#8226;&nbsp;<a href="http://www.tpsite.com/tp/conf/default.html">Outlook Conferences</a></font><br> <font face="verdana, arial, helvetica" size="-2" color="black">Venture Capital community and industry executives come together!</font> </td></tr> </table> <center> <a HREF="http://www.pervasivecomputingoutlook.com"> <img SRC="http://venturewire.com/ads/120x60ads/pco120X60.gif" border="0" ALT="PERVASIVECOMPUTINGOUTLOOK"></a><br> <font face="verdana, arial, helvetica" size="-2" color="black">San Francisco Airport Marriott, Burlingame, CA<br>December 3 & 4, 2001</font> </center> <br> </td> </tr> <tr> <td> <br> <br><font face='arial,helvetica' color="#006699" size="2"><b>TOP MANAGEMENT</b></font><br> <a name="vwIJOKPIKLIIx"></a> &#8226; <a href="#vwIJOKPIKLII"><font face="verdana, arial, geneva, helvetica" size="2">BenefitPoint Promotes John Randazzo as New CEO</font></a><br> <a name="vwLHPLHKJLIIx"></a> &#8226; <a href="#vwLHPLHKJLII"><font face="verdana, arial, geneva, helvetica" size="2">Qusion Names Emcore CEO Richards to Board; Seeks Round B </font></a><br> <a name="vwLLKIMJKLIIx"></a> &#8226; <a href="#vwLLKIMJKLII"><font face="verdana, arial, geneva, helvetica" size="2">Covalent Materials Announces New President & CEO </font></a><br> <a name="vwNOQJNHLLIIx"></a> &#8226; <a href="#vwNOQJNHLLII"><font face="verdana, arial, geneva, helvetica" size="2">AppGate Appoints Alfred Moresi President and CEO</font></a><br> <a name="vwQLPNNQILIIx"></a> &#8226; <a href="#vwQLPNNQILII"><font face="verdana, arial, geneva, helvetica" size="2">WebPutty Promotes David Chamberlain to Pres & CEO</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>VC PERSONNEL</b></font><br> <a name="vwMJHJHIJLIIx"></a> &#8226; <a href="#vwMJHJHIJLII"><font face="verdana, arial, geneva, helvetica" size="2">MPM Capital Names Adds Two Partners and One EIR</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>BUSINESS DEVELOPMENT</b></font><br> <a name="vwHHINIIKLIIx"></a> &#8226; <a href="#vwHHINIIKLII"><font face="verdana, arial, geneva, helvetica" size="2">Genomics Firm DGT Names Kevin Skol VP Business Development</font></a><br> <a name="vwQLJKIQJLIIx"></a> &#8226; <a href="#vwQLJKIQJLII"><font face="verdana, arial, geneva, helvetica" size="2">Timothy Brophy Joins Qusion as VP of Product Development </font></a><br> <a name="vwMJNHKILLIIx"></a> &#8226; <a href="#vwMJNHKILLII"><font face="verdana, arial, geneva, helvetica" size="2">Bluesocket Names Carol Schmitt as VP, Business Dev.</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>OPERATIONS</b></font><br> <a name="vwQJKMQQKLIIx"></a> &#8226; <a href="#vwQJKMQQKLII"><font face="verdana, arial, geneva, helvetica" size="2">Seriqa Networks Names Ex-BT Executive Michael Keilty as COO</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>TECHNOLOGY</b></font><br> <a name="vwLNJQQPILIIx"></a> &#8226; <a href="#vwLNJQQPILII"><font face="verdana, arial, geneva, helvetica" size="2">Optic Laser Firm Fiberspace Names New VP of Engineering</font></a><br> <br><font face='arial,helvetica' color="#006699" size="2"><b>VW PEOPLE CORRECTIONS</b></font><br> <a name="vwNINQNIJLIIx"></a> &#8226; <a href="#vwNINQNIJLII"><font face="verdana, arial, geneva, helvetica" size="2">Brience</font></a><br> <br> <font face='arial,helvetica' color="#006699" size="3"><b>TOP MANAGEMENT</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwIJOKPIKLII"><b><font face='arial,helvetica' size="2">BenefitPoint Promotes John Randazzo as New CEO</font></b></a></td><td align="right"><a href="#vwIJOKPIKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=IJOKPIKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">SAN FRANCISCO -- BenefitPoint, an employee benefits management service for the distribution of group insurance and financial products, said John Randazzo has been appointed president and CEO.<br><br>Mr. Randazzo replaces Mark Pulido, who will retire but remain as chairman. Mr. Randazzo was promoted from the position executive vice president; prior to BenefitPoint, he served as CEO at Women&#39;s Health Connecticut and Value Oncology Science, and held positions at Warburg & Pincus&#39;s private equity group.<br><br>BenefitPoint has raised $75 million in equity and $7 million in debt financing from Comdisco, First Union, Goldman Sachs Capital Partners, HarborVest Partners, Institutional Venture Partners, Marsh USA, and Sequoia Capital. </font><br> <a href="http://www.benefitpoint.com" target="_new"><font face='arial,helvetica' size='2'>http://www.benefitpoint.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwLHPLHKJLII"><b><font face='arial,helvetica' size="2">Qusion Names Emcore CEO Richards to Board; Seeks Round B </font></b></a></td><td align="right"><a href="#vwLHPLHKJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=LHPLHKJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">NORTH BRUNSWICK, N.J. -- Qusion, a maker of optical integrated circuits, said Reuben Richards, CEO of compound semiconductor product firm Emcore, will join its board of directors. The company also said it is seeking a second round of venture capital financing. <br><br>According to Qusion spokesperson, Nicholas Stuart Ludlum, the company hopes to close its Series B round by the end of the year with funds used to ramp up product development. He would not comment on the amount of money Qusion hopes to raise. <br><br>Mr. Ludlum said the firm has five people on its board at present and will add a couple more after the completion of the second round. <br><br>Qusion has received backing from Wasserstein Ventures, Vantage Point Venture Partners, and WR Hambrecht. </font><br> <a href="http://www.qusiontech.com" target="_new"><font face='arial,helvetica' size='2'>http://www.qusiontech.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwLLKIMJKLII"><b><font face='arial,helvetica' size="2">Covalent Materials Announces New President & CEO </font></b></a></td><td align="right"><a href="#vwLLKIMJKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=LLKIMJKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">EMERYVILLE, CALIF. -- Covalent Materials, a developer of nanotechnology components for electronics and energy storage applications, said it has appointed Charles Janac as president and CEO. <br><br>Mr. Janac replaces interim CEO Andrei Manoliu, who remains on the board.<br><br>Prior to Covalent Materials, Mr. Janac was entrepreneur-in-residence at Infinity Capital, general manager at Brooks Automation, and CEO of Smart Machines. <br><br>The company is backed by Alta Partners and individuals. </font><br> <a href="http://www.covalentmaterials.com" target="_new"><font face='arial,helvetica' size='2'>http://www.covalentmaterials.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwNOQJNHLLII"><b><font face='arial,helvetica' size="2">AppGate Appoints Alfred Moresi President and CEO</font></b></a></td><td align="right"><a href="#vwNOQJNHLLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=NOQJNHLLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">DURHAM, N.C. -- AppGate, which provides technology for virtual private networks, said it named Alfred Moresi as its president and CEO. <br><br>Mr. Moresi, who also becomes a director as a result of his appointment, previously served as chief operating officer at eNetSecure. At AppGate, where he will have offices in both its Gothenburg, Sweden and Raleigh, N.C. locations, he will lead the company in business development, engineering, sales and marketing, and research and development. <br><br>AppGate is funded by Industrifinans, Innovationskapital, Pythagoras, and T-Venture. </font><br> <a href="http://www.appgate.com" target="_new"><font face='arial,helvetica' size='2'>http://www.appgate.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwQLPNNQILII"><b><font face='arial,helvetica' size="2">WebPutty Promotes David Chamberlain to Pres & CEO</font></b></a></td><td align="right"><a href="#vwQLPNNQILIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=QLPNNQILII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">SAN JOSE, CALIF. -- WebPutty, a provider of server software, said it promoted David K. Chamberlain to president and CEO, and named James G. Beldock as chief technology officer as well as chairman.<br><br>Mr. Chamberlain, who previously served as executive vice president and general manager of field operations, will also join the company&#39;s board of directors. Prior to joining the company, Mr. Chamberlain worked at IBM where he developed the professional services organization in the West coast. Mr. Chamberlain replaces Mr. Beldock.<br><br>Mr. Beldock joined the company in 1999 as chairman of its technology advisory board and became president and CEO in 2000. Prior to joining the company, Mr. Beldock was entrepreneur in residence at SAC Captial. <br><br>WebPutty is backed by Bain Capital, S.A.C. Capital Partners, and Seneca Capital Management.</font><br> <a href="http://www.webputty.com" target="_new"><font face='arial,helvetica' size='2'>http://www.webputty.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>VC PERSONNEL</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwMJHJHIJLII"><b><font face='arial,helvetica' size="2">MPM Capital Names Adds Two Partners and One EIR</font></b></a></td><td align="right"><a href="#vwMJHJHIJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=MJHJHIJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">CAMBRIDGE, MASS. -- MPM Capital, a global asset management firm focused solely on healthcare investing, said it made several new additions to its investment team. <br><br>Carl Weissman will join MPM Capital&#39;s BioVentures as venture partner while Dr. Kazumi Shiosaki will join as entrepreneur in residence. Skip Klein has been named as a venture partner with both MPM BioVentures and MPM BioEquities, which invests primarily in public healthcare companies. Mr. Klein will focus on late stage private and public market venture capital opportunities. Prior to joining MPM, Mr. Klein was an investment analyst, portfolio manager, and founder of the T. Rowe Price Health Sciences Fund.<br><br>Mr. Wesimann previously served as the founding chief operating officer for Centagenetix, an MPM portfolio company, while Dr. Kazumi served as senior vice president of drug discovery at Millennium Pharmaceuticals and at Abbott Laboratories. </font><br> <a href="http://www.mpmcapital.com" target="_new"><font face='arial,helvetica' size='2'>http://www.mpmcapital.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>BUSINESS DEVELOPMENT</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwHHINIIKLII"><b><font face='arial,helvetica' size="2">Genomics Firm DGT Names Kevin Skol VP Business Development</font></b></a></td><td align="right"><a href="#vwHHINIIKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=HHINIIKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">LA JOLLA, CALIF. -- Digital Gene Technologies said it named Kevin T. Skol vice president of business development. Mr. Skol joins the company from Elan, a publicly held biopharmaceutical firm, where he served as associate director of the business development group. Digital Gene Technologies combines genomics technology with bioinformatics to identify genes expressed in any cell or tissue sample. The company received $22 million in third round funding from undisclosed investors in February 2000. </font><br> <a href="http://www.dgt.com" target="_new"><font face='arial,helvetica' size='2'>http://www.dgt.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwQLJKIQJLII"><b><font face='arial,helvetica' size="2">Timothy Brophy Joins Qusion as VP of Product Development </font></b></a></td><td align="right"><a href="#vwQLJKIQJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=QLJKIQJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">NORTH BRUNSWICK, N.J. -- Qusion Technologies, a developer of optical integrated circuits, said Timothy Brophy joined the firm as vice president of product development. Mr. Brophy comes to the firm from Motorola&#39;s Broadband Communications sector, where he served as director of advanced photonic technology. Qusion is backed by Wasserstein Ventures, Vantage Point Venture Partners, and WR Hambrecht. </font><br> <a href="http://www.qusiontech.com" target="_new"><font face='arial,helvetica' size='2'>http://www.qusiontech.com</font></a> </td></tr></table><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwMJNHKILLII"><b><font face='arial,helvetica' size="2">Bluesocket Names Carol Schmitt as VP, Business Dev.</font></b></a></td><td align="right"><a href="#vwMJNHKILLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=MJNHKILLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">BURLINGTON, MASS. -- Bluesocket, which develops security and management products for wireless local area networks, said it appointed Carol S. Schmitt as vice president of business development. Prior to joining the company, Ms. Schmitt was a business and market development consultant in Los Gatos, Calif. Bluesocket is backed by Osborn Capital and St. Paul Venture Capital. </font><br> <a href="http://www.bluesocket.com" target="_new"><font face='arial,helvetica' size='2'>http://www.bluesocket.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>OPERATIONS</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwQJKMQQKLII"><b><font face='arial,helvetica' size="2">Seriqa Networks Names Ex-BT Executive Michael Keilty as COO</font></b></a></td><td align="right"><a href="#vwQJKMQQKLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=QJKMQQKLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">TEL AVIV, ISRAEL -- Seriqa Networks, which develops integrated traffic engineering technologies for telecommunications service providers, said Michael F. Keilty has joined the company as chief operating officer. Prior to his appointment, Mr. Keilty served as managing director of British Telecom North America. Based out of Seriqa&#39;s New York office, he will be responsible for the company&#39;s U.S. operations and for worldwide sales and marketing. Seriqa, previously called E-ntouch Networks, is backed by Shalom Equity Fund. </font><br> <a href="http://www.seriqa.com" target="_new"><font face='arial,helvetica' size='2'>http://www.seriqa.com</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>TECHNOLOGY</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwLNJQQPILII"><b><font face='arial,helvetica' size="2">Optic Laser Firm Fiberspace Names New VP of Engineering</font></b></a></td><td align="right"><a href="#vwLNJQQPILIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=LNJQQPILII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">WOODLAND HILLS, CALIF. -- Fiberspace, a developer of laser products for fiber-optic communications systems and components, said it named Osama Bahgat as vice president of engineering. Before joining Fiberspace, Mr. Bahgat worked for CopperCom, where he led the firm&#39;s voice over broadband product development team. Fiberspace&#39;s investors include J.P. Morgan Chase Capital and Morgenthaler Ventures. </font><br> <a href="http://www.fiberspace.net" target="_new"><font face='arial,helvetica' size='2'>http://www.fiberspace.net</font></a> </td></tr></table><br> <font face='arial,helvetica' color="#006699" size="3"><b>VW PEOPLE CORRECTIONS</b></font><br><br> <table border="0" width="100%" cellspacing=0 cellpadding=0><tr><td>&#8226; <a name="vwNINQNIJLII"><b><font face='arial,helvetica' size="2">Brience</font></b></a></td><td align="right"><a href="#vwNINQNIJLIIx"><img src="http://venturewire.com/images/arrow.gif" border="0" height="11" width="11" alt="top"></a> &nbsp;&nbsp;<a href="http://people.venturewire.com/o_mailer.asp?sid=NINQNIJLII" target=NEW><img src="http://venturewire.com/images/mail2.gif" border="0" height="10" width="15" alt="mail"></a>&nbsp;</td></tr> <tr><td colspan=2><font face="verdana, arial, geneva, helvetica" size="2">NEW YORK -- A story in Wednesday&#39;s edition incorrectly identified Jim Drumright&#39;s title at Brience as president and COO. Mr. Drumright serves solely as COO. Rod McGeary is president and CEO of Brience. </font><br><br></td></tr></table><br> <br><br> <table cellPadding=5 width="100%" border="0"><tr bgcolor="#FOE68C"><td align=left vAlign=top width="100%"><font color="#006699" face="verdana, arial, helvetica" size=2><b>EXECUTIVE SEARCHES</b></font><br><br><font color=black face="verdana, arial, helvetica" size=2><b><a name=clsfd1190>VP of Sales</a>--IT services--SF Bay Area</b><br><br> Lohika Systems, Inc., a recently-funded IT services start-up headquartered in Silicon Valley, is seeking a hands-on VP of Sales to build and manage its sales organization. This person should have a proven record of generating sales and exceeding sales targets, possess excellent networking ability, be able to prospect and manage clients throughout the sales cycle, be able to develop a focused sales strategy, and have experience recruiting and managing a sales team. <br> <br>Responsibilities: <br> <br>* Manage and execute the entire sales cycle from generating prospects and cold calling to closing the sale <br>* Sell strategically to key decision-makers (CFO, COO, CIO) and tactically at the operational level <br>* Cultivate and maintain strong client relationships <br>* Build and manage a sales team <br>* Develop a well-targeted sales strategy <br>* Work closely with our IT professionals to close the sale <br> <br> <br>Requirements: <br> <br>* Minimum of 5 years of sales management experience <br>* Proven record of consistently meeting and exceeding sales quota <br>* Previous history of selling high-tech products, IT consulting services, or software <br>* Have experience selling to key decision makers <br>* Excellent networking ability <br>* Bachelor's degree or equivalent <br>* Excellent oral and written communication and presentation skills coupled with strong negotiation skills <br><br><br>e-mail: <a HREF="mailto:sales@lohika.com">sales@lohika.com</a><br>company: Lohika Systems, Inc.<br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1191>VP of Telecommunications Sales</a>--Wireless and Voice Applications--Irvine, CA</b><br><br> AdaptiveInfo provides state-of-the-art software infrastructure for automatically personalizing wireless and voice applications. Our products enable high-quality mobile applications that overcome the constraints of mobile devices by learning each individual?s preferences. This is a growth opportunity in privately held company located in a research park on a University of California campus. <br>VP of TELECOMMUNICATIONS SALES <br>Duties and Responsibilities: <br>* Sell to top tier Telecommunications accounts with a high degree of independence. <br>* Sell at a strategic level, developing and implementing strategic business plans. <br>* Articulate strategy, products and services to customers and prospects. <br>* Identify market segments, create and execute sales strategy. <br>* Provide feedback on an ongoing basis with market trends and customer needs <br> <br>Required Qualifications: <br>* 4+ years selling high-end software or services to the telecommunications industry. <br>* A record of sustained sales success identifying and closing new customer accounts. <br>* Start-up experience is a plus. <br>* Ability to work with other executives in a collegial, team oriented environment. <br>* Excellent negotiating, speaking, writing and listening skills. <br>* BA degree in a business/technical <br><br><br>e-mail: <a HREF="mailto:jobs@adaptiveinfo.com">jobs@adaptiveinfo.com</a><br>company: AdaptiveInfo <br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1192>Managing Director</a>--VENTURE CAPITAL--Denver, CO</b><br><br> Denver-based investment management company seeks managing director to lead a venture capital firm focused on early stage Colorado investments. Candidate must have at least 5 years of direct investment experience, a demonstrable track record, and actively participate in capital raising efforts. The ideal candidate will manage the investment of $30 to $50 million in early stage opportunities in the region. Competitive compensation structure including a unique opportunity for ownership and a carried interest in the fund. <br> <br>Qualifications <br> <br>* A minimum of five years experience in early-stage investing focusing on the technology, telecommunications, or life science industries <br>* Proven history of venture investing with a definitive record of returns <br>* Experience fundraising from both institutional investors and high net worth individuals <br>* Expertise managing portfolio company investments <br>* Excellent communication and presentation skills <br>* Educational qualifications important <br><br><br>e-mail: <a HREF="mailto:sagecapital@yahoo.com ">sagecapital@yahoo.com </a><br>company: <br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1189>VP Sales - Risk Management</a>--Technology Services--New York, NY</b><br><br> Kiodex is a technology and services company founded in February 2000 by a group of former Wall Street and energy industry traders, developers, and strategists seeking to provide quality technology products to facilitate trading and risk management in the market at large. <br> <br>Kiodex is exclusively focused on the commodity markets and enabling our customers to successfully navigate those volatile markets using our cutting-edge technology. Our flagship product, the Kiodex Risk WorkbenchSM, is one of the first risk management systems in the world to be designed and built entirely for the Internet, using only the latest in web-based technology. We've also earned validation as the company entrusted to <br>power the New York Mercantile Exchange's online trading platform, enymexSM, with our order-matching engine, the Kiodex Trade EngineTM. <br> <br>Kiodex currently has nearly 100 employees. Our headquarters are in New York City. The backgrounds of our team, like the quality of our products, speak for themselves! Be part of our leading team! <br> <br>The VP of Sales will be responsible for building out the entire Kiodex sales effort and achieving Kiodex revenue objectives. <br> <br>Responsibilities include: <br>1-Institute and maintain a proven sales methodology for complex software sales with multiple buying influences. <br>2-Recruit a sales team and implement a sales management structure that ncludes regional offices. <br>3-Provide the sales force with the product vision and execution strategy to reach each of their goals. <br>4-Coordinate the sales process to ensure that the next sales milestones (per projections) are hit. <br>5-Provide vision and make commendations on the structure of the sales team - pre sales, implementation, and product specialists. <br>6-Design and implement sales campaigns in the lead up to new releases of the Workbench. <br>7-Develop specific recommendations for business development regarding 3rd Party alliances and distribution partnerships to efficiently reach the target market for each release of the Risk Workbench. <br>8-Assist in the creation of an international expansion strategy. <br> <br>Desired Skills: <br>1. Experience in financial markets. <br>2. Experience selling into the Finance/treasury departments of the Fortune 1000. <br><br>e-mail: <a HREF="mailto:Jobs@kiodex.com">Jobs@kiodex.com</a><br>company: Kiodex Inc.<br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1188>VP, Engineering/R&amp;D</a>--Optical Components--Ithaca, NY</b><br><br> BinOptics is a pioneer in next-generation optical devices based on leading-edge semiconductor innovations. The company?s proprietary technology places it in a unique position to address the challenges facing the rapidly growing optical components industry. Founded in 2000, BinOptics is privately held and funded by renowned Silicon Valley venture firm Draper Fisher Jurvetson and Stanford University. The company is headquartered in scenic Ithaca, New York. <br> <br>VP of Engineering/R&amp;D <br>Responsibilities: <br>*Oversee research & development, design, simulation, and process of next-generation optical components <br>*Direct and lead a team of motivated optical scientists and engineers <br>*Recruit and build a productive engineering team <br>*Establish and monitor budget of engineering department <br>*Coordinate and facilitate interactions with other departments <br>*Plan and manage the deployment of resources for multiple projects <br> <br>Requirements: <br>*In depth knowledge of the optical component field <br>*Proven skills as a motivator and team builder <br>*At least 15 years of relevant technical experience including VP or Senior Director level <br>*A successful track record of leadership in a start-up environment <br>*BS in Electrical Engineering or Material Science (MS or PhD preferred) <br> <br>BinOptics is an equal opportunity employer and offers a generous benefits package and competitive salaries. All of our employees participate in the company's stock option program.<br><br>e-mail: <a HREF="mailto:careers@binoptics.com">careers@binoptics.com</a><br>company: BinOptics<br>[<a href="#top">top</a>]<br><br> <b><a name=clsfd1193> GENERAL PARTNER</a>--TECHNOLOGY--SAN DIEGO</b><br><br> Make a lifestyle change. <br>A "green grass" opportunity in an emerging technology region underserved by locally based venture capitalists. Capitalize on plentiful investment opportunities emerging from research universities and facilities serving the life sciences and technology sectors, Department of Defense (DOD) technologies and research, and next generation early stage companies evolving from existing models of success in Southern California. New venture fund with no legacy issues seeking an experienced General Partner. <br> <br> <br>PROFESSIONAL QUALIFICATIONS: <br>* Demonstrated investment results with a venture capital firm. <br>* Strong communications or semiconductor background (10+ years of relevant operating experience) that started off their career in an engineering role and was able to successfully move into a more senior Business Management role. <br>* Extensive personal and professional networks within the high tech industry <br>* PhD in EE or CS, BS/MS strongly preferred <br> <br>PERSONAL QUALIFICATIONS: <br>* A keen sense of humor <br>* Highly competitive and driven to success <br>* Proactive vs. reactive <br>* Independent thinker yet a team player <br> <br>AN EQUAL OPPORTUNITY EMPLOYER <br><br><br>e-mail: <a HREF="mailto:box1193@venturewire.com">box1193@venturewire.com</a><br>company: n/a<br>[<a href="#top">top</a>]<br><br> </font></td></tr></table> <br><br> <font face="arial, geneva, helvetica" size="2" color="black"> To cancel, change, or update your subscription:<br> </font> <font face="arial, geneva, helvetica" size="2" color="gray"> <a href="http://people.venturewire.com/account.asp">http://people.venturewire.com/account.asp</a> </font> </td> </tr> </table> </html> =====================================

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VentureWire, Thursday, November 9, 2000

====================================================== VENTUREWIRE --- Thursday, November 9, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Doll Capital Management Launches $450 Million Fund o Internet Router Firm Pluris Raises $100 Million Round o Shell Oil Launches Venture Unit, Partnerships With TCV, H&Q o Pacesetter to Raise $150 Million Fund for Minority-Led Firms |||||||||||||||||||| Advertisement |||||||||||||||||||| GroundZero4 at the Bonaventure Hotel, Los Angeles, Dec. 4-7, will set the stage for the next generation of B2B e-commerce. GZ4 will bring together e-commerce executives, Net markets, bricks-and-mortar companies, and coalition marketplaces. 80 speakers from companies including: Morgan Stanley, RightFreight, & Cargill; and coalitions, e2open & Omnexus. Attend daily sessions & evening events and visit exhibiting B2B companies to capitalize on valuable networking and deal-making opportunities...where dot com meets dot corp. Register today at http://www.nmm.com/groundzero4?id=techwire ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o M&A Service Provider USBX Lands $10 Million in Seed Funding o Apps Firm Wireless Services Corp. Secures Series A Funding o Intellectual Property Firm Iddex Has $2.8 Million Round One o Virtual CEO, Performance Management Firm, Gets Series A o Web Marketplace Provider Vertac Raises $500,000 First Round o Web Site Evaluator Troba Raises $5.5 Million in Round One o Customer Care Firm vCustomer Raises $11 Million Second Round o Kagoor Networks Closes Round Two with $18 Million o Medical Software Firm Cbyon Has $11.5 Million in Round Two o Online Sports Firm Active.com Has $21 Million Second Round o Investing Site SaveDaily Closes Series B with $1.5 Million o Wireless Firm Vocera Raises $7.1 Million in Second Round o E-Business Provider eAssist Secures $27 Million in Series C Bad News: o Recently Funded B2B Market EqualFooting Cuts Staff by 15% o Streaming Media Firm Files for Chapter 11 Before Merger New Deals: o Sephora.com Buys Name and URL of Defunct Beauty Site Eve.com o ING Barings Takes Equity Stake in OffRoad Capital M&A: o New Edge Networks Acquires West-Net in Stock and Cash Deal New Directors: o B2B Firm Day Interactive Appoints Former AOL Exec to Board o ServiceMagic.com Names Qwest Dex CEO to Board o Tech Holding Firm Fenix Taps Ex-TCI Vice President for Board o Ubiquio Names CEO of Interelate to Board of Directors New People: o Former Scientific-Atlanta VP, Named President & CEO of Iolon o Data Distilleries Names Former Andersen Partner as CEO o 3Di Names Ex-Lockhead Martin Executive as President and COO o Consulting Firm Quidnunc Taps Former Consult Exec as CEO o Intellectual Property Firm uVentures Adds to Board VC Fund News: o Hicks Muse Guarantees 20% Fund Return, Backs Away from VC o e-ffinity Properties Formed to Fund Real Estate Tech Firms o Netherlands VC Firm NeSBIC Starts Support Program o Spectrum Equity Expands London Office, Fund Ready to Go o Woodside Fund Forms Strategic Partnership with Acuitive VC Personnel: o BancBoston Capital Names Two to European Investment Group o Kick-Start Ventures Names Two New Partners in London |||||||||||||||||||| Advertisement |||||||||||||||||||| COMMERCE UNPLUGGED A new breed of smart phones and connected PDAs are enabling us to shop, even long after we've dropped. But the mobile shopper is a new breed of consumer, and the mobile value chain presents a host of new issues. Mobile Services, one of five expert panels at Technology Outlook 2000, will examine the promises and pitfalls of m-commerce, wireless advertising, and the role of location-based services. Come hear from: Mark F. Bregman, CEO, AirMedia Bernard Desarnauts, CEO, ViaFone Paul Palmieri, VP & GM, Wireless Services, Advertising.com Only at Technology Outlook 2000: The Future of Pervasive Computing December 4 and 5, San Francisco A VentureWire investment conference. http://technologicpartners.com/tp/conf/to2000/?vw=20001109 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Doll Capital Management Launches $450 Million Fund MENLO PARK, Calif. -- Doll Capital Management said it launched DCM III, a $450 million fund that will focus on early stage Internet and telecommunications companies. The company said it estimates that it will invest in approximately 40 companies with an average investment of $3 million to $7 million. General managing partners Dixon Doll and David Chao will oversee the fund. The company's capital under management now reaches to more than $1 billion. http://www.dollcap.com/ _____________________________________________ o Internet Router Firm Pluris Raises $100 Million Round CUPERTINO, Calif. -- Pluris, which develops scalable routers for the Internet, said it raised $100 million in its latest round of funding. The round was led by Sands Brothers & Co. and included new investors ABN AMRO, Alliance Capital, Bank of America Securities, Credit Suisse First Boston, Dain Rauscher Wessels, Carlo de Benedetti, Stephen Garofalo, PB Ventures, PCG Ventures, Rana Investment, Samsung, Special OpportunitiesGrou, and Vulcan Ventures. Previous investors Lightspeed Venture Parters, ComVentures, Cescendo Ventures, Bay Partners, Chase Capital Partners, Worldview Technology Partners, Deutsche Bank, global Crossing Ventures, RWI Group, and Brad Peery Capital also participated in the round. The company said it will use the funding to continue to develop its technology and sales and marketing structures internationally. http://www.pluris.com/ _____________________________________________ o Shell Oil Launches Venture Unit, Partnerships With TCV, H&Q PALO ALTO, Calif. -- The Royal Dutch/Shell Group of Companies said it launched Shell Internet Ventures to invest in development stage Internet and communications companies. The venture unit will invest independently as well as in partnership with Palo Alto-based Technology Crossover Ventures (TCV) in North America and H&Q Asia Pacific in Asia. TCV and Shell will make co-investments in companies outside of Shell; TCV will also selectively invest in Internet-related companies originating within Shell. http://www.shell.com/internetventures/ http://www.tcv.com/ _____________________________________________ o Pacesetter to Raise $150 Million Fund for Minority-Led Firms RICHARDSON, Texas -- Pacesetter Growth Fund, which makes investments in firms owned or managed by minorities in the southern U.S., said it intends to raise a new fund for $150 million in the first quarter of next year. Pacesetter said the fund will provide capital at various stages in Internet infrastructure, telecom, wireless, and broadband companies, in addition to broadcast media and food processing firms. The fund will focus on companies based in Texas, Oklahoma, Arkansas, Arizona, New Mexico, Colorado, and California, but consider investments elsewhere. Pacesetter makes typical investments of between $500,000 and $5 million. The firm's previous fund closed at $46.5 million and is nearly fully committed. http://www.mvhc.com/ ======= New Money ======= o M&A Service Provider USBX Lands $10 Million in Seed Funding SANTA MONICA, Calif. -- USBX, (U.S. Business Exchange), a provider of merger and acquisition services for buyers and sellers of small to medium-sized businesses, said it raised more than $10 million in its initial seed financing and Series A round completed in September. Carlyle Venture Partners led the round. Other participating investors included eCompanies Evercore Venture Partners (EEVP II), eCompanies Venture Group (EVG), Jolson Merchant Partners, and Sunflower Capital. USBX announced the launch of its business and Web site in October. The site offers M&A information, tools, and services. http://www.usbx.com/ _____________________________________________ o Apps Firm Wireless Services Corp. Secures Series A Funding BELLEVUE, Wash. -- Wireless Services Corp., a service provider for mobile Internet applications, said it secured an undisclosed amount in its Series A round of funding from Madrona Venture Group, SeaPoint Ventures, and Northwest Venture Associates. The company said it will use the funds to accelerate development of its universal mobile applications platform and to support the expansion of engineering and corporate operations, including additions to its management team. Tom Huseby, managing partner of SeaPoint Ventures, has been appointed chairman of the board. Tom Alberg, managing director of Madrona Venture Group, and Keith Grinstein, vice chairman of Nextel International, have also been added to the board. Chris Brookfield, managing director of Northwest Venture Associates, has joined the board as an observer. http://www.wirelesscorp.com/ _____________________________________________ o Intellectual Property Firm Iddex Has $2.8 Million Round One NEW YORK -- Iddex, an intellectual property management applications firm, announced it has raised $2.8 million in its first round of financing with $1.25 million from Millennium3Capital, $1 million from Adler & Co., and the rest of the funding from Pappajohn Investments and CEO Dennis Dugan. Iddex said that there will be no changes to the board of directors and that it will use the funds to beta test and launch its product. http://www.iddex.com/ _____________________________________________ o Virtual CEO, Performance Management Firm, Gets Series A SAN JUAN CAPISTRANO, Calif. -- Virtual CEO, which provides performance management and assessment technologies, said it raised $2 million in its Series A round. Investors in the round included Odyssey Strategic Partners, GenStar, and private investors. The company said it will use the funding to hire additional staff and develop new products and technology. http://www.virtualceo.com/ _____________________________________________ o Web Marketplace Provider Vertac Raises $500,000 First Round BOSTON -- Vertac, which creates and manages Internet marketplaces for online businesses, said it has raised $500,000 in its first round of financing from IdeaWorks. David Brenner of IdeaWorks will join Vertac's board as its fourth member. Vertac said it plans to use the funds to develop its marketplace model, to increase sales, and to expand staff. The company received $300,000 in seed investment from James Investments last year. http://www.vertac.com/ _____________________________________________ o Web Site Evaluator Troba Raises $5.5 Million in Round One SAN FRANCISCO -- Troba, which provides businesses with technology that evaluates the effectiveness of their Web sites, said it raised $5.5 million in its first round. CMEA Ventures participated in this round along with other undisclosed individual investors. The company will use the funds to launch its product e-MBO, which develops, measures, and tracks customer satisfaction, and to expand its business development and sales activity. http://www.troba.com/ _____________________________________________ o Customer Care Firm vCustomer Raises $11 Million Second Round BELLEVUE, Wash. -- vCustomer, a customer support applications and outsourcing firm, raised $11 million in its second round of funding with $10 million from Warburg Pincus. The remainder came from undisclosed investors. Maya Chroengel, a vice president at Warburg Pincus, will join vCustomer's board as its second member. vCustomer said it will use the funds to open new offices and for sales and marketing. http://www.vcustomer.com/ _____________________________________________ o Kagoor Networks Closes Round Two with $18 Million SAN MATEO, Calif. -- Kagoor Networks, a developer of voice over IP technologies, said it closed its second round of funding with close to $18 million. VantagePoint Venture Partners, ComVentures, an undisclosed corporate investor, and individual investors including Ed Kozel, former Cisco Systems chief technology officer, and Raj Singh, founder of Sierra Networks, participated in the round. Kagoor has offices in Herzeliya, Israel and San Mateo, Calif. http://www.kagoor.com/ _____________________________________________ o Medical Software Firm Cbyon Has $11.5 Million in Round Two PALO ALTO, Calif -- Cbyon, a privately held medical technology company developing and marketing surgical navigation and visualization software for minimally invasive surgery, said it has raised $11.5 million in a second round of funding provided by Tredegar Investments and Mitsui Private Equity. The round also included previous investors Alloy Ventures, Asset Management, Bedrock Capital, Charter Ventures, and Nikko Synergy Ventures. Edward F. Brennan, the vice president of Tredegar, will take a seat on Cbyon's board of directors. http://www.cbyon.com/ _____________________________________________ o Online Sports Firm Active.com Has $21 Million Second Round LA JOLLA, Calif. -- Active.com, which provides online sports registry services, said it raised $21 million in its second round of funding. Deutsche Bank affiliate ABS Ventures led the round, which includes new investors Hambrecht Capital, PowerBar founders Brian and Jennifer Maxwell, and previous investors Austin Ventures, Enterprise Partners, Kettle Partners, and Ticketmaster-Online CitySearch. The company will use the funding to further develop its online registration services. Last month, Active.com merged with recreational management software developer Sierra Digital. The company, formerly ActiveUSA.com, also merged with RaceGate.com last year. Active.com is also backed by KB Partners, New World Ventures, and Tour de France cycling champion Lance Armstrong. The latest round brings the company's total funding to approximately $52 million. http://www.active.com/ _____________________________________________ o Investing Site SaveDaily Closes Series B with $1.5 Million IRVINE, Calif. -- SaveDaily, which runs an online investing service, said it has closed its Series B round of financing at $1.5 million with $1 million from the venture firm H. S. Dent Foundation and the rest from undisclosed investors. Harry S. Dent, Jr., president of the H. S. Dent Foundation, invested in SaveDaily's Series A round in April of this year and will join SaveDaily's board as its fourth member. SaveDaily said it will use the funds to increase marketing. http://www.savedaily.com/ _____________________________________________ o Wireless Firm Vocera Raises $7.1 Million in Second Round CUPERTINO, Calif. -- Vocera, a Bluetooth wireless communications applications firm, said it has raised $7.1 million in its second round of funding from lead investor Vanguard Venture Partners, previous investor RRE Ventures, and IDEO. Don Wood of Vanguard will join Vocera's board as its third member. Vocera said it will use the funds for product development and to expand staff and management. http://www.vocera.com/ _____________________________________________ o E-Business Provider eAssist Secures $27 Million in Series C SAN DIEGO -- eAssist Global Solutions, which provides electronic businesses with integrated customer relationship management software applications, said it has secured $27 million in its Series C round of funding. The investors included GRP II, CIBC Capital Partners, Trinity Ventures, Vantage Point Venture Partners, and Infinity Capital. eAssist, which has raised $67 million to date, said it will use the funds to build additional internal infrastructure and for European expansion. Steven Dietz, a partner at GRP, will take a seat on eAssist's board of directors. The company was formerly known as eAssist.com. http://www.eassist.com/ ======= Bad News ======= o Recently Funded B2B Market EqualFooting Cuts Staff by 15% DULLES, Va. -- EqualFooting.com, a business-to-business online marketplace that provides purchasing, financing, and shipping services to businesses in the manufacturing and construction industries, said it laid off 35 workers, approximately 15% of its employees. The company said the layoffs were a result of a company restructuring due to market conditions and greater demand from larger companies. EqualFooting.com originally focused mostly on serving small and medium sized companies. The company said its laid-off employees were given severance pay and continued health insurance coverage and stock options. EqualFooting.com raised a $60 million second round of funding earlier this year, bringing its total funding raised to approximately $70 million. The company is backed by Capital Investors, Draper Richards, FBR Technology Venture Partners, NationsRent, New Enterprise Assiciates, Nextel Communications, Safeguard Scientifics, Thomas Publishing, Textron, Women's Growth Capital Fund, Yahoo!, and former Federal Communications Commission chairman Reed Hundt. http://www.equalfooting.com/ _____________________________________________ o Streaming Media Firm Files for Chapter 11 Before Merger PORTLAND, Maine -- Streaming media firm BroadcastAmerica.com said it would file for Chapter 11 bankruptcy as part of its intention to reorganize and merge with SurferNetwork.com, a Mt. Olive, N.J.-based provider of Internet marketing and streaming radio services. A timeline for the deal as well as financial details are uncertain, but the companies said they expect the deal to be completed in six months. The combined company will be called BroadcastAmerica and headquartered here. Current SurferNetwork chairman and CEO Gordon J. Bridge will become the chairman and CEO of the new company. Current directors from both companies will be named as directors of the new BroadcastAmerica, as will BroadcastAmerica.com founders. SurferNetwork is backed by individual investors and incubator Geode Electronics. BroadcastAmerica.com is funded by individuals. http://www.broadcastamerica.com/ http://www.surfernetwork.com/ ======= New Deals ======= o Sephora.com Buys Name and URL of Defunct Beauty Site Eve.com SAN FRANCISCO -- Sephora.com, an online beauty retailer, said it acquired the name and Web address of failed beauty site Eve.com, as well as the rights to send two e-mails to Eve.com's customers. Eve, an online upscale beauty products retailer, closed its operations and laid off most of its employees late last month. Sephora.com is the online branch of Sephora, a fragrance and cosmetics superstore and subsidiary of LVMH Moet Hennesy Louis Vitton. The terms of the deal were not disclosed. Eve.com was backed by idealab!, Weiss, Peck & Greer Venture Partners, Charter Venture Capital, Crosslink Capital, and Menlo Ventures. http://www.sephora.com/ _____________________________________________ o ING Barings Takes Equity Stake in OffRoad Capital SAN FRANCISCO -- OffRoad Capital, an online marketplace for private companies, said it formed a strategic alliance with ING Barings under which ING intends to take an undisclosed equity stake in the company in exchange for access to OffRoad's technology platform. The alliance is designed to expand the deal flow for both companies. Richard Burrell, ING Baring's head of Internet business, will take a seat on the company's board as an observer. OffRoad currently holds partnerships with Charles Schwab, Robertson Stephens, and the Mayfield Fund. http://www.offroadcapital.com/ ======= M&A ======= o New Edge Networks Acquires West-Net in Stock and Cash Deal VANCOUVER, Wash -- New Edge Networks, a wholesale broadband DSL provider in small, midsize and semi-rural markets, said it acquired West-Net, a privately owned data communications network service provider, in a stock and cash deal. Financial terms of the deal were not disclosed. Keith Rinne, president and founder of West-Net, also based in Vancouver, Washington, will become president of the newly created WAN services group for New Edge Networks. New Edge Networks investors include Goldman Sachs partnership GS Capital Partners III, Accel Partners, Crosspoint Venture Partners, Greylock, Intel, Meritech Capital Partners, Comdisco Ventures, Morgan Stanley Dean Witter, and the company's management. http://www.newedgenetworks.com/ http://www.wni.net/ ======= New Directors ======= o B2B Firm Day Interactive Appoints Former AOL Exec to Board LOS ANGELES -- Day Interactive, a publicly traded Swiss firm that creates and manages business-to-business Web sites and Internet marketplaces, said it has appointed Mark Walsh, former senior vice president and corporate officer at America Online and founder and director of America Online's business-to-business division, AOL Enterprise, as the sixth member of its board. Mark Walsh is currently chairman and chief strategy officer at VerticalNet, a network of Web sites for the business-to-business community, and also serves on several corporate, non-profit, and advisory boards including the President's Advisory Group of the U. S. Chamber of Commerce, the Software and Information Industry Association, and the Standard for Internet Commerce group. Day Interactive said it has received institutional funding from undisclosed companies in the U.S., England, Switzerland, and other European countries. http://www.daynetwork.com/ _____________________________________________ o ServiceMagic.com Names Qwest Dex CEO to Board GOLDEN, Colo. -- ServiceMagic.com, an online marketplace that connects consumers with local home service professionals, said it named Jim Smith to its board of directors. Mr. Smith is president and CEO of Qwest Dex, a print and online directory publishing and Internet advertising division of Qwest Communications. Mr. Smith currently serves on the boards of directors for Critical Path, PointServe, University of Washington e-Business Advisory Board, the Yellow Pages Publishers Association, the Children's Hospital, and the Public Education Network. ServiceMagic's investors include CertainTeed, Maytag, US WEST, Softbank Venture Capital, Sequel Venture Partners, and Tango. http://www.servicemagic.com/ _____________________________________________ o Tech Holding Firm Fenix Taps Ex-TCI Vice President for Board DALLAS -- Fenix Enterprises, a technology holding company, said it has appointed Larry. E. Romrell, the former vice president of Tele-Communications (TCI), to its board of directors. Mr. Romrell also served as senior vice president of TCI Ventures Group. Mr. Romrell will join recent appointees Fred Vierra, former CEO of Tele-Communications International (TCI) and Terence V. Milholland, CTO of Electronic Data Systems (EDS), on Fenix's board. Fenix, which is backed Union Pacific, said it is actively seeking venture capital. http://www.fenixenterprises.com/ _____________________________________________ o Ubiquio Names CEO of Interelate to Board of Directors MINNEAPOLIS -- Ubiquio, a handheld service provider that manages mobile devices for business customers, said it named Wade Myers to its board of directors. Mr. Myers is chairman and CEO of Interelate, a customer intelligence application service provider. Ubiquio is funded by Andcor Companies, Backfin Capital, Start Up Fund I, Capitalyst Group, Intranet Solutions, Risdall Linnihan Advertising, and individual investors. http://www.ubiquio.com/ ======= New People ======= o Former Scientific-Atlanta VP, Named President & CEO of Iolon SAN JOSE, Calif. -- Iolon, which designs and develops tunable optical devices, said it named John H. Clark as president, CEO, and chairman of the board. Mr. Clark, who previously worked as an assistant professor of chemistry at the University of California at Berkeley and helped found Amoco Laser, most recently served as vice president and general manager of the opto-electronics unit at Scientific-Atlanta. Iolon is backed by investors including Kleiner Perkins Caufield & Byers, Seagate Technology, and Optical Capital Group. http://www.iolon.com/ _____________________________________________ o Data Distilleries Names Former Andersen Partner as CEO AMSTERDAM -- Data Distilleries, a European provider of analytical customer relations management (CRM) services, said it appointed Robert Baldock, former global managing partner with Andersen Consulting, as its new chief executive officer. Mr. Bladock most recently spent six months investing in Internet finance start-ups. Marcel Holsheimer, company founder, will become Data Distilleries president. Data Distilleries products enable businesses to predict customer behavior and use those predictions in real-time personalized recommendations through various channels. The company's investors include Capital Z Financial Services Fund II, efinanceworks, and Glide IT Fund. Data Distilleries was founded in 1995 as a spin-off of the Dutch National Research Center for Mathematics and Computer Science. http://www.datadistilleries.com/ _____________________________________________ o 3Di Names Ex-Lockhead Martin Executive as President and COO EASTON, Md. -- 3Di, which collects spatial data and provides companies with spatial data technology, software, and applications, said it has appointed Kevin J. Reardon, a former U. S. Navy nuclear submarine captain who also held executive positions at Lockhead Martin and Northrop Grumman managing spatial data for the U. S. military, as president and COO. 3Di said it received funding from Koch Ventures in 1998. http://www.3Di.com/ _____________________________________________ o Consulting Firm Quidnunc Taps Former Consult Exec as CEO NEW YORK -- Quidnunc, an Internet business consulting firm, announced it has appointed Bob Burke, former president of consulting firm ePresence Solutions, as the company's CEO. Co-founder Laurence Holt will remain chairman of the board. Quidnunc received $15 million in its first round of financing from Goldman Sachs Private Equity Partners and Weston Presidio Capital in October of last year. http://www.quidnunc.com/ _____________________________________________ o Intellectual Property Firm uVentures Adds to Board NEW YORK -- uVentures, an online intellectual property management and technology licensing marketplace, said it has appointed Thomas Gardner, the president, chief executive officer and director of Datamonitor, to its board of directors. Mr. Gardner was previously chairman and chief executive officer of Base Ten Systems. uVentures is backed by individual investors. http://www.uventures.com/ ======= VC Fund News ======= o Hicks Muse Guarantees 20% Fund Return, Backs Away from VC DALLAS -- Buyout and investment firm Hicks Muse Tate & Furst said it will guarantee a minimum of a 20% internal rate of return for investors on $200 million that has been invested in early-stage Internet-related companies. The $200 million, called HTMF Holdings, is part of Hicks' Fund V, which it expects to close with several billion dollars. Hicks Muse has made investments from loans and is now raising funds to cover the loans. The move to guarantee returns comes after several of its Internet investments have performed poorly. Hicks Muse partners will personally guarantee the investment return from profits of previous funds. The firm also said it would no longer be making venture capital investments in new companies and would focus on companies in the consumer branded, manufacturing, and media sectors. The firm has not ruled out making additional investments in venture-backed companies it already has in its portfolio. Hicks Muse cited market difficulty and investor reluctance as factors in its change of investment strategy. The company's venture capital portfolio includes Latin American travel site Despegar.com, Web-based community developer Ramius, online sports content provider Sports.com, data and dedicated Internet service provider Teligent, and ISP Vectrix. In September, CMGI called off plans to establish an international venture fund with Hicks Muse Tate & Furst and PCCW. Telephone 214-740-7300. _____________________________________________ o e-ffinity Properties Formed to Fund Real Estate Tech Firms NEW YORK -- Brookfield Properties, Chase Capital Partners, CIBC Capital Partners, and Trilon Capital Partners said they formed a real estate technology partnership called e-ffinity properties to provide venture capital to emerging technology companies for new telecommunication and technology-based products and services for real estate companies and their tenants. The companies have committed an initial $60 million to e-ffinity. http://www.e-ffinityproperties.com/ _____________________________________________ o Netherlands VC Firm NeSBIC Starts Support Program UTRECHT, The Netherlands -- NeSBIC CTe Fund, a venture capital fund in the Netherlands, said it started a support program called Value-Added Services Program (VASP) for its 31 portfolio companies. VASP will provide services in finance, human capital, law, business development, and operations. Portfolio companies also will have access to the CTe extranet, an online communication platform where the companies can exchange information, experience, and business opportunities, and look up information such as advice on recruiting new employees. The NeSBIC CTe fund currently has $310 under management. http://www.nesbic.com/ _____________________________________________ o Spectrum Equity Expands London Office, Fund Ready to Go LONDON -- Spectrum Equity Investors, a communications venture capital firm, said it added Michael Kennealy to its London office. Mr. Kennealy was a general partner in the Boston, Mass. office and will relocate to London as general partner. Mr. Kennealy joins Shawn Colo, who opened the London office in December 1999. The company also said it is ready to invest $500 million of its $1.75 billion Fund IV. Fund IV will invest in all stages of communications and infrastructure companies, particularly in the U.K. and Western Europe. http://www.spectrumequity.com/ _____________________________________________ o Woodside Fund Forms Strategic Partnership with Acuitive WOODSIDE, Calif. -- Early stage venture capital firm Woodside Fund formed a partnership with Acuitive, a consulting firm that provides strategic management and technical services for early stage telecommunications and networking ventures. Acuitive will be making its expertise and contacts available to Woodside and will also be joining Woodside's technical advisory board. Woodside Fund IV closed in April 2000 and invests between $5 million and $10 million in early stage IP infrastructure and e-commerce infrastructure companies located in Northern California and the West Coast. http://www.woodsidefund.com/ ======= VC Personnel ======= o BancBoston Capital Names Two to European Investment Group LONDON -- BancBoston Capital, the private equity investment arm of FleetBoston Financial, said it appointed Bernard De Backer and Scott Penwell to its European Technology and Communications Group. Mr. De Backer, who performed four years of research in electromagnetics, will develop European investment opportunities in broadband communications. Mr. Penwell, formerly employed with Robertson Stephens working on corporate finance and merger and acquisition, will focus on investments in software and information technology services. Telephone +44-207-600-2288. _____________________________________________ o Kick-Start Ventures Names Two New Partners in London LONDON -- European venture catalyst Kick-Start Ventures said it named two new partners to its London office. Alexandra Clarke, former partner at Deutsche Bank-affiliated incubator Armada Partners, will join the firm as its new finance partner. Erik Vasquez, former business development manager for Kana Communications, will assist in new venture development at the firm. Kick-Start Ventures has a European network offices in London, Paris, Munich, Frankfurt, and Amsterdam. http://www.kickstartventures.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| DODADS, GADGETS, AND GIZMOS, OH MY! Our pockets are overflowing with mobile phones, PDAs, and two-way pagers, and more products -- from Web pads to picture frames -- come with Internet connections. Consumer Devices, one of five expert panels at Technology Outlook 2000, will sort through the clutter to determine which devices have the best chances of finding mass-market audiences: Safi Qureshy, Chairman, AudioRamp Daniel H. Rimer, Partner, The Barksdale Group Kent Savage, President & CEO, Netpliance Michael Slater, President, PhotoTablet Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=200011092 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. This copy of VentureWire and the information within it, however, may not be reproduced, saved, or otherwise copied into a database without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Thursday, November 9, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/3261. ===================================== ====================================================== VENTUREWIRE --- Thursday, November 9, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Doll Capital Management Launches $450 Million Fund o Internet Router Firm Pluris Raises $100 Million Round o Shell Oil Launches Venture Unit, Partnerships With TCV, H&Q o Pacesetter to Raise $150 Million Fund for Minority-Led Firms |||||||||||||||||||| Advertisement |||||||||||||||||||| GroundZero4 at the Bonaventure Hotel, Los Angeles, Dec. 4-7, will set the stage for the next generation of B2B e-commerce. GZ4 will bring together e-commerce executives, Net markets, bricks-and-mortar companies, and coalition marketplaces. 80 speakers from companies including: Morgan Stanley, RightFreight, & Cargill; and coalitions, e2open & Omnexus. Attend daily sessions & evening events and visit exhibiting B2B companies to capitalize on valuable networking and deal-making opportunities...where dot com meets dot corp. Register today at http://www.nmm.com/groundzero4?id=techwire ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o M&A Service Provider USBX Lands $10 Million in Seed Funding o Apps Firm Wireless Services Corp. Secures Series A Funding o Intellectual Property Firm Iddex Has $2.8 Million Round One o Virtual CEO, Performance Management Firm, Gets Series A o Web Marketplace Provider Vertac Raises $500,000 First Round o Web Site Evaluator Troba Raises $5.5 Million in Round One o Customer Care Firm vCustomer Raises $11 Million Second Round o Kagoor Networks Closes Round Two with $18 Million o Medical Software Firm Cbyon Has $11.5 Million in Round Two o Online Sports Firm Active.com Has $21 Million Second Round o Investing Site SaveDaily Closes Series B with $1.5 Million o Wireless Firm Vocera Raises $7.1 Million in Second Round o E-Business Provider eAssist Secures $27 Million in Series C Bad News: o Recently Funded B2B Market EqualFooting Cuts Staff by 15% o Streaming Media Firm Files for Chapter 11 Before Merger New Deals: o Sephora.com Buys Name and URL of Defunct Beauty Site Eve.com o ING Barings Takes Equity Stake in OffRoad Capital M&A: o New Edge Networks Acquires West-Net in Stock and Cash Deal New Directors: o B2B Firm Day Interactive Appoints Former AOL Exec to Board o ServiceMagic.com Names Qwest Dex CEO to Board o Tech Holding Firm Fenix Taps Ex-TCI Vice President for Board o Ubiquio Names CEO of Interelate to Board of Directors New People: o Former Scientific-Atlanta VP, Named President & CEO of Iolon o Data Distilleries Names Former Andersen Partner as CEO o 3Di Names Ex-Lockhead Martin Executive as President and COO o Consulting Firm Quidnunc Taps Former Consult Exec as CEO o Intellectual Property Firm uVentures Adds to Board VC Fund News: o Hicks Muse Guarantees 20% Fund Return, Backs Away from VC o e-ffinity Properties Formed to Fund Real Estate Tech Firms o Netherlands VC Firm NeSBIC Starts Support Program o Spectrum Equity Expands London Office, Fund Ready to Go o Woodside Fund Forms Strategic Partnership with Acuitive VC Personnel: o BancBoston Capital Names Two to European Investment Group o Kick-Start Ventures Names Two New Partners in London |||||||||||||||||||| Advertisement |||||||||||||||||||| COMMERCE UNPLUGGED A new breed of smart phones and connected PDAs are enabling us to shop, even long after we've dropped. But the mobile shopper is a new breed of consumer, and the mobile value chain presents a host of new issues. Mobile Services, one of five expert panels at Technology Outlook 2000, will examine the promises and pitfalls of m-commerce, wireless advertising, and the role of location-based services. Come hear from: Mark F. Bregman, CEO, AirMedia Bernard Desarnauts, CEO, ViaFone Paul Palmieri, VP & GM, Wireless Services, Advertising.com Only at Technology Outlook 2000: The Future of Pervasive Computing December 4 and 5, San Francisco A VentureWire investment conference. http://technologicpartners.com/tp/conf/to2000/?vw=20001109 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Doll Capital Management Launches $450 Million Fund MENLO PARK, Calif. -- Doll Capital Management said it launched DCM III, a $450 million fund that will focus on early stage Internet and telecommunications companies. The company said it estimates that it will invest in approximately 40 companies with an average investment of $3 million to $7 million. General managing partners Dixon Doll and David Chao will oversee the fund. The company's capital under management now reaches to more than $1 billion. http://www.dollcap.com/ _____________________________________________ o Internet Router Firm Pluris Raises $100 Million Round CUPERTINO, Calif. -- Pluris, which develops scalable routers for the Internet, said it raised $100 million in its latest round of funding. The round was led by Sands Brothers & Co. and included new investors ABN AMRO, Alliance Capital, Bank of America Securities, Credit Suisse First Boston, Dain Rauscher Wessels, Carlo de Benedetti, Stephen Garofalo, PB Ventures, PCG Ventures, Rana Investment, Samsung, Special OpportunitiesGrou, and Vulcan Ventures. Previous investors Lightspeed Venture Parters, ComVentures, Cescendo Ventures, Bay Partners, Chase Capital Partners, Worldview Technology Partners, Deutsche Bank, global Crossing Ventures, RWI Group, and Brad Peery Capital also participated in the round. The company said it will use the funding to continue to develop its technology and sales and marketing structures internationally. http://www.pluris.com/ _____________________________________________ o Shell Oil Launches Venture Unit, Partnerships With TCV, H&Q PALO ALTO, Calif. -- The Royal Dutch/Shell Group of Companies said it launched Shell Internet Ventures to invest in development stage Internet and communications companies. The venture unit will invest independently as well as in partnership with Palo Alto-based Technology Crossover Ventures (TCV) in North America and H&Q Asia Pacific in Asia. TCV and Shell will make co-investments in companies outside of Shell; TCV will also selectively invest in Internet-related companies originating within Shell. http://www.shell.com/internetventures/ http://www.tcv.com/ _____________________________________________ o Pacesetter to Raise $150 Million Fund for Minority-Led Firms RICHARDSON, Texas -- Pacesetter Growth Fund, which makes investments in firms owned or managed by minorities in the southern U.S., said it intends to raise a new fund for $150 million in the first quarter of next year. Pacesetter said the fund will provide capital at various stages in Internet infrastructure, telecom, wireless, and broadband companies, in addition to broadcast media and food processing firms. The fund will focus on companies based in Texas, Oklahoma, Arkansas, Arizona, New Mexico, Colorado, and California, but consider investments elsewhere. Pacesetter makes typical investments of between $500,000 and $5 million. The firm's previous fund closed at $46.5 million and is nearly fully committed. http://www.mvhc.com/ ======= New Money ======= o M&A Service Provider USBX Lands $10 Million in Seed Funding SANTA MONICA, Calif. -- USBX, (U.S. Business Exchange), a provider of merger and acquisition services for buyers and sellers of small to medium-sized businesses, said it raised more than $10 million in its initial seed financing and Series A round completed in September. Carlyle Venture Partners led the round. Other participating investors included eCompanies Evercore Venture Partners (EEVP II), eCompanies Venture Group (EVG), Jolson Merchant Partners, and Sunflower Capital. USBX announced the launch of its business and Web site in October. The site offers M&A information, tools, and services. http://www.usbx.com/ _____________________________________________ o Apps Firm Wireless Services Corp. Secures Series A Funding BELLEVUE, Wash. -- Wireless Services Corp., a service provider for mobile Internet applications, said it secured an undisclosed amount in its Series A round of funding from Madrona Venture Group, SeaPoint Ventures, and Northwest Venture Associates. The company said it will use the funds to accelerate development of its universal mobile applications platform and to support the expansion of engineering and corporate operations, including additions to its management team. Tom Huseby, managing partner of SeaPoint Ventures, has been appointed chairman of the board. Tom Alberg, managing director of Madrona Venture Group, and Keith Grinstein, vice chairman of Nextel International, have also been added to the board. Chris Brookfield, managing director of Northwest Venture Associates, has joined the board as an observer. http://www.wirelesscorp.com/ _____________________________________________ o Intellectual Property Firm Iddex Has $2.8 Million Round One NEW YORK -- Iddex, an intellectual property management applications firm, announced it has raised $2.8 million in its first round of financing with $1.25 million from Millennium3Capital, $1 million from Adler & Co., and the rest of the funding from Pappajohn Investments and CEO Dennis Dugan. Iddex said that there will be no changes to the board of directors and that it will use the funds to beta test and launch its product. http://www.iddex.com/ _____________________________________________ o Virtual CEO, Performance Management Firm, Gets Series A SAN JUAN CAPISTRANO, Calif. -- Virtual CEO, which provides performance management and assessment technologies, said it raised $2 million in its Series A round. Investors in the round included Odyssey Strategic Partners, GenStar, and private investors. The company said it will use the funding to hire additional staff and develop new products and technology. http://www.virtualceo.com/ _____________________________________________ o Web Marketplace Provider Vertac Raises $500,000 First Round BOSTON -- Vertac, which creates and manages Internet marketplaces for online businesses, said it has raised $500,000 in its first round of financing from IdeaWorks. David Brenner of IdeaWorks will join Vertac's board as its fourth member. Vertac said it plans to use the funds to develop its marketplace model, to increase sales, and to expand staff. The company received $300,000 in seed investment from James Investments last year. http://www.vertac.com/ _____________________________________________ o Web Site Evaluator Troba Raises $5.5 Million in Round One SAN FRANCISCO -- Troba, which provides businesses with technology that evaluates the effectiveness of their Web sites, said it raised $5.5 million in its first round. CMEA Ventures participated in this round along with other undisclosed individual investors. The company will use the funds to launch its product e-MBO, which develops, measures, and tracks customer satisfaction, and to expand its business development and sales activity. http://www.troba.com/ _____________________________________________ o Customer Care Firm vCustomer Raises $11 Million Second Round BELLEVUE, Wash. -- vCustomer, a customer support applications and outsourcing firm, raised $11 million in its second round of funding with $10 million from Warburg Pincus. The remainder came from undisclosed investors. Maya Chroengel, a vice president at Warburg Pincus, will join vCustomer's board as its second member. vCustomer said it will use the funds to open new offices and for sales and marketing. http://www.vcustomer.com/ _____________________________________________ o Kagoor Networks Closes Round Two with $18 Million SAN MATEO, Calif. -- Kagoor Networks, a developer of voice over IP technologies, said it closed its second round of funding with close to $18 million. VantagePoint Venture Partners, ComVentures, an undisclosed corporate investor, and individual investors including Ed Kozel, former Cisco Systems chief technology officer, and Raj Singh, founder of Sierra Networks, participated in the round. Kagoor has offices in Herzeliya, Israel and San Mateo, Calif. http://www.kagoor.com/ _____________________________________________ o Medical Software Firm Cbyon Has $11.5 Million in Round Two PALO ALTO, Calif -- Cbyon, a privately held medical technology company developing and marketing surgical navigation and visualization software for minimally invasive surgery, said it has raised $11.5 million in a second round of funding provided by Tredegar Investments and Mitsui Private Equity. The round also included previous investors Alloy Ventures, Asset Management, Bedrock Capital, Charter Ventures, and Nikko Synergy Ventures. Edward F. Brennan, the vice president of Tredegar, will take a seat on Cbyon's board of directors. http://www.cbyon.com/ _____________________________________________ o Online Sports Firm Active.com Has $21 Million Second Round LA JOLLA, Calif. -- Active.com, which provides online sports registry services, said it raised $21 million in its second round of funding. Deutsche Bank affiliate ABS Ventures led the round, which includes new investors Hambrecht Capital, PowerBar founders Brian and Jennifer Maxwell, and previous investors Austin Ventures, Enterprise Partners, Kettle Partners, and Ticketmaster-Online CitySearch. The company will use the funding to further develop its online registration services. Last month, Active.com merged with recreational management software developer Sierra Digital. The company, formerly ActiveUSA.com, also merged with RaceGate.com last year. Active.com is also backed by KB Partners, New World Ventures, and Tour de France cycling champion Lance Armstrong. The latest round brings the company's total funding to approximately $52 million. http://www.active.com/ _____________________________________________ o Investing Site SaveDaily Closes Series B with $1.5 Million IRVINE, Calif. -- SaveDaily, which runs an online investing service, said it has closed its Series B round of financing at $1.5 million with $1 million from the venture firm H. S. Dent Foundation and the rest from undisclosed investors. Harry S. Dent, Jr., president of the H. S. Dent Foundation, invested in SaveDaily's Series A round in April of this year and will join SaveDaily's board as its fourth member. SaveDaily said it will use the funds to increase marketing. http://www.savedaily.com/ _____________________________________________ o Wireless Firm Vocera Raises $7.1 Million in Second Round CUPERTINO, Calif. -- Vocera, a Bluetooth wireless communications applications firm, said it has raised $7.1 million in its second round of funding from lead investor Vanguard Venture Partners, previous investor RRE Ventures, and IDEO. Don Wood of Vanguard will join Vocera's board as its third member. Vocera said it will use the funds for product development and to expand staff and management. http://www.vocera.com/ _____________________________________________ o E-Business Provider eAssist Secures $27 Million in Series C SAN DIEGO -- eAssist Global Solutions, which provides electronic businesses with integrated customer relationship management software applications, said it has secured $27 million in its Series C round of funding. The investors included GRP II, CIBC Capital Partners, Trinity Ventures, Vantage Point Venture Partners, and Infinity Capital. eAssist, which has raised $67 million to date, said it will use the funds to build additional internal infrastructure and for European expansion. Steven Dietz, a partner at GRP, will take a seat on eAssist's board of directors. The company was formerly known as eAssist.com. http://www.eassist.com/ ======= Bad News ======= o Recently Funded B2B Market EqualFooting Cuts Staff by 15% DULLES, Va. -- EqualFooting.com, a business-to-business online marketplace that provides purchasing, financing, and shipping services to businesses in the manufacturing and construction industries, said it laid off 35 workers, approximately 15% of its employees. The company said the layoffs were a result of a company restructuring due to market conditions and greater demand from larger companies. EqualFooting.com originally focused mostly on serving small and medium sized companies. The company said its laid-off employees were given severance pay and continued health insurance coverage and stock options. EqualFooting.com raised a $60 million second round of funding earlier this year, bringing its total funding raised to approximately $70 million. The company is backed by Capital Investors, Draper Richards, FBR Technology Venture Partners, NationsRent, New Enterprise Assiciates, Nextel Communications, Safeguard Scientifics, Thomas Publishing, Textron, Women's Growth Capital Fund, Yahoo!, and former Federal Communications Commission chairman Reed Hundt. http://www.equalfooting.com/ _____________________________________________ o Streaming Media Firm Files for Chapter 11 Before Merger PORTLAND, Maine -- Streaming media firm BroadcastAmerica.com said it would file for Chapter 11 bankruptcy as part of its intention to reorganize and merge with SurferNetwork.com, a Mt. Olive, N.J.-based provider of Internet marketing and streaming radio services. A timeline for the deal as well as financial details are uncertain, but the companies said they expect the deal to be completed in six months. The combined company will be called BroadcastAmerica and headquartered here. Current SurferNetwork chairman and CEO Gordon J. Bridge will become the chairman and CEO of the new company. Current directors from both companies will be named as directors of the new BroadcastAmerica, as will BroadcastAmerica.com founders. SurferNetwork is backed by individual investors and incubator Geode Electronics. BroadcastAmerica.com is funded by individuals. http://www.broadcastamerica.com/ http://www.surfernetwork.com/ ======= New Deals ======= o Sephora.com Buys Name and URL of Defunct Beauty Site Eve.com SAN FRANCISCO -- Sephora.com, an online beauty retailer, said it acquired the name and Web address of failed beauty site Eve.com, as well as the rights to send two e-mails to Eve.com's customers. Eve, an online upscale beauty products retailer, closed its operations and laid off most of its employees late last month. Sephora.com is the online branch of Sephora, a fragrance and cosmetics superstore and subsidiary of LVMH Moet Hennesy Louis Vitton. The terms of the deal were not disclosed. Eve.com was backed by idealab!, Weiss, Peck & Greer Venture Partners, Charter Venture Capital, Crosslink Capital, and Menlo Ventures. http://www.sephora.com/ _____________________________________________ o ING Barings Takes Equity Stake in OffRoad Capital SAN FRANCISCO -- OffRoad Capital, an online marketplace for private companies, said it formed a strategic alliance with ING Barings under which ING intends to take an undisclosed equity stake in the company in exchange for access to OffRoad's technology platform. The alliance is designed to expand the deal flow for both companies. Richard Burrell, ING Baring's head of Internet business, will take a seat on the company's board as an observer. OffRoad currently holds partnerships with Charles Schwab, Robertson Stephens, and the Mayfield Fund. http://www.offroadcapital.com/ ======= M&A ======= o New Edge Networks Acquires West-Net in Stock and Cash Deal VANCOUVER, Wash -- New Edge Networks, a wholesale broadband DSL provider in small, midsize and semi-rural markets, said it acquired West-Net, a privately owned data communications network service provider, in a stock and cash deal. Financial terms of the deal were not disclosed. Keith Rinne, president and founder of West-Net, also based in Vancouver, Washington, will become president of the newly created WAN services group for New Edge Networks. New Edge Networks investors include Goldman Sachs partnership GS Capital Partners III, Accel Partners, Crosspoint Venture Partners, Greylock, Intel, Meritech Capital Partners, Comdisco Ventures, Morgan Stanley Dean Witter, and the company's management. http://www.newedgenetworks.com/ http://www.wni.net/ ======= New Directors ======= o B2B Firm Day Interactive Appoints Former AOL Exec to Board LOS ANGELES -- Day Interactive, a publicly traded Swiss firm that creates and manages business-to-business Web sites and Internet marketplaces, said it has appointed Mark Walsh, former senior vice president and corporate officer at America Online and founder and director of America Online's business-to-business division, AOL Enterprise, as the sixth member of its board. Mark Walsh is currently chairman and chief strategy officer at VerticalNet, a network of Web sites for the business-to-business community, and also serves on several corporate, non-profit, and advisory boards including the President's Advisory Group of the U. S. Chamber of Commerce, the Software and Information Industry Association, and the Standard for Internet Commerce group. Day Interactive said it has received institutional funding from undisclosed companies in the U.S., England, Switzerland, and other European countries. http://www.daynetwork.com/ _____________________________________________ o ServiceMagic.com Names Qwest Dex CEO to Board GOLDEN, Colo. -- ServiceMagic.com, an online marketplace that connects consumers with local home service professionals, said it named Jim Smith to its board of directors. Mr. Smith is president and CEO of Qwest Dex, a print and online directory publishing and Internet advertising division of Qwest Communications. Mr. Smith currently serves on the boards of directors for Critical Path, PointServe, University of Washington e-Business Advisory Board, the Yellow Pages Publishers Association, the Children's Hospital, and the Public Education Network. ServiceMagic's investors include CertainTeed, Maytag, US WEST, Softbank Venture Capital, Sequel Venture Partners, and Tango. http://www.servicemagic.com/ _____________________________________________ o Tech Holding Firm Fenix Taps Ex-TCI Vice President for Board DALLAS -- Fenix Enterprises, a technology holding company, said it has appointed Larry. E. Romrell, the former vice president of Tele-Communications (TCI), to its board of directors. Mr. Romrell also served as senior vice president of TCI Ventures Group. Mr. Romrell will join recent appointees Fred Vierra, former CEO of Tele-Communications International (TCI) and Terence V. Milholland, CTO of Electronic Data Systems (EDS), on Fenix's board. Fenix, which is backed Union Pacific, said it is actively seeking venture capital. http://www.fenixenterprises.com/ _____________________________________________ o Ubiquio Names CEO of Interelate to Board of Directors MINNEAPOLIS -- Ubiquio, a handheld service provider that manages mobile devices for business customers, said it named Wade Myers to its board of directors. Mr. Myers is chairman and CEO of Interelate, a customer intelligence application service provider. Ubiquio is funded by Andcor Companies, Backfin Capital, Start Up Fund I, Capitalyst Group, Intranet Solutions, Risdall Linnihan Advertising, and individual investors. http://www.ubiquio.com/ ======= New People ======= o Former Scientific-Atlanta VP, Named President & CEO of Iolon SAN JOSE, Calif. -- Iolon, which designs and develops tunable optical devices, said it named John H. Clark as president, CEO, and chairman of the board. Mr. Clark, who previously worked as an assistant professor of chemistry at the University of California at Berkeley and helped found Amoco Laser, most recently served as vice president and general manager of the opto-electronics unit at Scientific-Atlanta. Iolon is backed by investors including Kleiner Perkins Caufield & Byers, Seagate Technology, and Optical Capital Group. http://www.iolon.com/ _____________________________________________ o Data Distilleries Names Former Andersen Partner as CEO AMSTERDAM -- Data Distilleries, a European provider of analytical customer relations management (CRM) services, said it appointed Robert Baldock, former global managing partner with Andersen Consulting, as its new chief executive officer. Mr. Bladock most recently spent six months investing in Internet finance start-ups. Marcel Holsheimer, company founder, will become Data Distilleries president. Data Distilleries products enable businesses to predict customer behavior and use those predictions in real-time personalized recommendations through various channels. The company's investors include Capital Z Financial Services Fund II, efinanceworks, and Glide IT Fund. Data Distilleries was founded in 1995 as a spin-off of the Dutch National Research Center for Mathematics and Computer Science. http://www.datadistilleries.com/ _____________________________________________ o 3Di Names Ex-Lockhead Martin Executive as President and COO EASTON, Md. -- 3Di, which collects spatial data and provides companies with spatial data technology, software, and applications, said it has appointed Kevin J. Reardon, a former U. S. Navy nuclear submarine captain who also held executive positions at Lockhead Martin and Northrop Grumman managing spatial data for the U. S. military, as president and COO. 3Di said it received funding from Koch Ventures in 1998. http://www.3Di.com/ _____________________________________________ o Consulting Firm Quidnunc Taps Former Consult Exec as CEO NEW YORK -- Quidnunc, an Internet business consulting firm, announced it has appointed Bob Burke, former president of consulting firm ePresence Solutions, as the company's CEO. Co-founder Laurence Holt will remain chairman of the board. Quidnunc received $15 million in its first round of financing from Goldman Sachs Private Equity Partners and Weston Presidio Capital in October of last year. http://www.quidnunc.com/ _____________________________________________ o Intellectual Property Firm uVentures Adds to Board NEW YORK -- uVentures, an online intellectual property management and technology licensing marketplace, said it has appointed Thomas Gardner, the president, chief executive officer and director of Datamonitor, to its board of directors. Mr. Gardner was previously chairman and chief executive officer of Base Ten Systems. uVentures is backed by individual investors. http://www.uventures.com/ ======= VC Fund News ======= o Hicks Muse Guarantees 20% Fund Return, Backs Away from VC DALLAS -- Buyout and investment firm Hicks Muse Tate & Furst said it will guarantee a minimum of a 20% internal rate of return for investors on $200 million that has been invested in early-stage Internet-related companies. The $200 million, called HTMF Holdings, is part of Hicks' Fund V, which it expects to close with several billion dollars. Hicks Muse has made investments from loans and is now raising funds to cover the loans. The move to guarantee returns comes after several of its Internet investments have performed poorly. Hicks Muse partners will personally guarantee the investment return from profits of previous funds. The firm also said it would no longer be making venture capital investments in new companies and would focus on companies in the consumer branded, manufacturing, and media sectors. The firm has not ruled out making additional investments in venture-backed companies it already has in its portfolio. Hicks Muse cited market difficulty and investor reluctance as factors in its change of investment strategy. The company's venture capital portfolio includes Latin American travel site Despegar.com, Web-based community developer Ramius, online sports content provider Sports.com, data and dedicated Internet service provider Teligent, and ISP Vectrix. In September, CMGI called off plans to establish an international venture fund with Hicks Muse Tate & Furst and PCCW. Telephone 214-740-7300. _____________________________________________ o e-ffinity Properties Formed to Fund Real Estate Tech Firms NEW YORK -- Brookfield Properties, Chase Capital Partners, CIBC Capital Partners, and Trilon Capital Partners said they formed a real estate technology partnership called e-ffinity properties to provide venture capital to emerging technology companies for new telecommunication and technology-based products and services for real estate companies and their tenants. The companies have committed an initial $60 million to e-ffinity. http://www.e-ffinityproperties.com/ _____________________________________________ o Netherlands VC Firm NeSBIC Starts Support Program UTRECHT, The Netherlands -- NeSBIC CTe Fund, a venture capital fund in the Netherlands, said it started a support program called Value-Added Services Program (VASP) for its 31 portfolio companies. VASP will provide services in finance, human capital, law, business development, and operations. Portfolio companies also will have access to the CTe extranet, an online communication platform where the companies can exchange information, experience, and business opportunities, and look up information such as advice on recruiting new employees. The NeSBIC CTe fund currently has $310 under management. http://www.nesbic.com/ _____________________________________________ o Spectrum Equity Expands London Office, Fund Ready to Go LONDON -- Spectrum Equity Investors, a communications venture capital firm, said it added Michael Kennealy to its London office. Mr. Kennealy was a general partner in the Boston, Mass. office and will relocate to London as general partner. Mr. Kennealy joins Shawn Colo, who opened the London office in December 1999. The company also said it is ready to invest $500 million of its $1.75 billion Fund IV. Fund IV will invest in all stages of communications and infrastructure companies, particularly in the U.K. and Western Europe. http://www.spectrumequity.com/ _____________________________________________ o Woodside Fund Forms Strategic Partnership with Acuitive WOODSIDE, Calif. -- Early stage venture capital firm Woodside Fund formed a partnership with Acuitive, a consulting firm that provides strategic management and technical services for early stage telecommunications and networking ventures. Acuitive will be making its expertise and contacts available to Woodside and will also be joining Woodside's technical advisory board. Woodside Fund IV closed in April 2000 and invests between $5 million and $10 million in early stage IP infrastructure and e-commerce infrastructure companies located in Northern California and the West Coast. http://www.woodsidefund.com/ ======= VC Personnel ======= o BancBoston Capital Names Two to European Investment Group LONDON -- BancBoston Capital, the private equity investment arm of FleetBoston Financial, said it appointed Bernard De Backer and Scott Penwell to its European Technology and Communications Group. Mr. De Backer, who performed four years of research in electromagnetics, will develop European investment opportunities in broadband communications. Mr. Penwell, formerly employed with Robertson Stephens working on corporate finance and merger and acquisition, will focus on investments in software and information technology services. Telephone +44-207-600-2288. _____________________________________________ o Kick-Start Ventures Names Two New Partners in London LONDON -- European venture catalyst Kick-Start Ventures said it named two new partners to its London office. Alexandra Clarke, former partner at Deutsche Bank-affiliated incubator Armada Partners, will join the firm as its new finance partner. Erik Vasquez, former business development manager for Kana Communications, will assist in new venture development at the firm. Kick-Start Ventures has a European network offices in London, Paris, Munich, Frankfurt, and Amsterdam. http://www.kickstartventures.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| DODADS, GADGETS, AND GIZMOS, OH MY! Our pockets are overflowing with mobile phones, PDAs, and two-way pagers, and more products -- from Web pads to picture frames -- come with Internet connections. Consumer Devices, one of five expert panels at Technology Outlook 2000, will sort through the clutter to determine which devices have the best chances of finding mass-market audiences: Safi Qureshy, Chairman, AudioRamp Daniel H. Rimer, Partner, The Barksdale Group Kent Savage, President & CEO, Netpliance Michael Slater, President, PhotoTablet Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=200011092 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. This copy of VentureWire and the information within it, however, may not be reproduced, saved, or otherwise copied into a database without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

miyung.buster@enron.com

Energy Issues

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=20 chaos (Commentary) Individual.com (PRnewswire), Tues, 5/10: Calpine's Los Medanos Energy Cente= r=20 Adds Needed Generation to California Second New Major Base Load Generator for=20 California=20 NY Times, Tues, 5/10: California and Generators Still Split After 2-Week Ta= lks Wash. Post, Tues, 5/10: Energy Refund Talks Fail In Calif.; Federal Agency'= s=20 Judge To Propose Settlement WSJ, Tues, 5/10: California and Energy Companies Miss Deadline ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------- No deal in energy refund talks=20 By David Whitney Bee Washington Bureau (Published July 10, 2001)=20 WASHINGTON -- Negotiations to settle a tangle of issues arising out of=20 California's electricity debacle sputtered to an end Monday with the sides= =20 light-years apart on refunds for overpriced wholesale power sales.=20 The impasse raises the specter of years of litigation, with a regulatory=20 judge proposing a formula that could limit refunds to about $1 billion whil= e=20 California is seeking at least $8.9 billion and perhaps much more.=20 Federal Energy Regulatory Commission administrative judge Curtis Wagner sai= d=20 that within a week he'll urge the five FERC commissioners to begin=20 fact-finding hearings on how much is truly owed, following guidelines he=20 outlined sketchily Monday.=20 Among them would be limiting the time when refunds are allowed -- something= =20 that could reduce state claims by about one-third -- and changing the way= =20 power plant costs are calculated to a formula more favored by generators.= =20 Gov. Gray Davis said he was heartened by the judge's belief that California= =20 is due some amount of refund money, rejecting the generators' arguments for= =20 no refunds.=20 With the 15-day negotiation session nearly moribund, generators and power= =20 traders had offered up $716 million in proposed refunds in the final days.= =20 But Wagner indicated that that would have to be offset by money the state= =20 still owes power companies, meaning no cash would actually change hands.=20 The judge held out the possibility that at least two parties, including San= =20 Jose-based Calpine Corp., could reach separate agreements with the state.= =20 "From what I know, it looks like we can reach an agreement," Calpine=20 spokesman Bill Highlander confirmed Monday. But he said he could not disclo= se=20 any details under Wagner's gag order on participants in the negotiations.= =20 Enron Corp., one of the nation's highest-profile power traders, said=20 California officials killed the talks by never budging from their claims th= at=20 the state's consumers deserved at least $8.9 billion in refunds for=20 overcharges.=20 "These talks never had a chance," said Enron spokesman Mark Palmer. "Their= =20 political skins are worth more than $716 million that the taxpayers of=20 California could have used. It was about creating and maintaining a tool fo= r=20 a witch hunt."=20 Of the $716 million compromise offer, $510 million was put on the table by= =20 what Wagner called the "Big Five" generators -- Reliant, Duke, Mirant,=20 Williams and Dynegy -- some of whom are under state investigation. Another= =20 $125 million was offered by BC Hydro, British Colombia's government utility= ,=20 which is not under FERC jurisdiction, and $16.5 million was offered by six= =20 California municipal utilities.=20 The Sacramento Municipal Utility District, the state's second-largest=20 municipal utility, also declined to comment on the talks or any settlement= =20 amount it may have offered, but said it would outline its position in writi= ng=20 Thursday, the judge's deadline for comments on his proposal.=20 Consumer advocates and some industry officials said the judge's brief publi= c=20 remarks make it difficult to predict exactly what the impacts could be on t= he=20 state's troubled electric scene.=20 "If the judge is saying that the refund is topped at a billion that's=20 outrageous," said Nettie Hoge, head of The Utility Reform Network. "If=20 they're going to start doing some fact finding, hallelujah."=20 Hoge said the talks had been unrealistic from the start, because there was = no=20 effort by FERC to determine how high the overcharges had actually been and= =20 then work toward a compromise from there.=20 The state used a formula calculated by its nonprofit grid operator, the=20 Independent System Operator, which was attacked by marketers as wildly high= =20 even while the state called it conservatively low.=20 Joel Newton, representing all five of the big generators, said Monday that= =20 the ISO has consistently based its demand on "sketchy and incomplete" data.= =20 The face-off between Davis and power merchants began last fall, as wholesal= e=20 electricity costs were soaring and California utilities warned that they=20 could be driven into bankruptcy.=20 The governor said generators and traders took advantage of the state's powe= r=20 shortage to manipulate markets and gouge consumers. Generators said they=20 followed all laws and were only deriving fair profits in a scarcity=20 situation.=20 FERC, which entered the picture because by law it has to ensure that=20 electricity rates are "just and reasonable," has made repeated, unsuccessfu= l=20 efforts to craft a solution that could appease both sides.=20 State Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said Monday that t= he=20 failure of the settlement talks to agree on a refund figure "comes as no=20 surprise."=20 Negotiators representing generators "refused to even acknowledge the=20 inescapable fact that they have profited enormously by exploiting a=20 dysfunctional market -- at California's expense," he said.=20 Davis, who had accused the generators of failing to negotiate in good faith= =20 with state representatives, said that although FERC commissioners have been= =20 slow to respond to his requests for refunds and for price caps on wholesale= =20 electricity, they "now have the opportunity to redeem themselves."=20 He suggested the commissioners can opt to award California more than is=20 recommended by the judge.=20 Wagner, after mediating talks that continued throughout the weekend, seemed= =20 resigned to the fact that trying to bring more than 50 government, utility= =20 and power generating entities together proved to be an exercise in futility= .=20 Michael Kahn, head of the California delegation and consultant to the=20 California ISO, nonetheless came away thinking the state had fared pretty= =20 well.=20 "We came here wanting $8.9 billion," Kahn said. "In all candor, we didn't= =20 receive any meaningful settlement offers and so the negotiations were not a= s=20 helpful as we had hoped they would be. But our positions were vindicated"= =20 because refunds were offered.=20 Meanwhile, Pacific Gas and Electric Co. and Southern California Edison=20 sounded the call for more talks.=20 "We're willing to talk to anyone, anytime about a settlement," said Steve= =20 Pickett, general counsel of Southern California Edison. PG&E said in a=20 prepared statement that the sessions "provide a solid basis for further=20 negotiations."=20 How much money the state might eventually receive remains the big question= =20 mark. Wagner said settlement offers of $716 million suggest that eventual= =20 refunds will amount to "hundreds of millions of dollars, maybe a billion."= =20 But he also stressed that he would recommend no specific figure to FERC=20 commissioners and does not know how big refunds might eventually be.=20 Other recommendations Wagner said he would make to the commission were a=20 mixed bag for the state.=20 The judge said he would recommend refunds no further back than Oct. 2, 2000= ,=20 an action that Kahn said would immediately slice $3 billion off the state's= =20 refund analysis that stretched back to May 2000.=20 But Kahn said that was no defeat for the state, which would turn to the=20 courts to recover that and any other sums excluded from a final refund orde= r.=20 "We still have a viable litigation claim for the remainder," Kahn said.=20 Brent Bailey, vice president and general counsel of Duke Energy of North=20 America, said he felt the formula laid out by Wagner would generate a refun= d=20 order in the range of $1 billion to $1.5 billion.=20 "It's a reasonable amount in the context of these settlement talks," Bailey= =20 said.=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com.=20 Staff writers Emily Bazar and Dale Kasler contributed to this report. Third power plant opens: But the Los Medanos facility isn't pouring out=20 electricity yet.=20 By Carrie Peyton Bee Staff Writer (Published July 10, 2001)=20 The flood of new electricity being welcomed by Gov. Gray Davis was only a= =20 trickle at the latest power plant that the governor opened on Monday,=20 according to sources close to California's energy crisis.=20 Heralded by Davis as part of a "powerful one-two-three punch" that will bri= ng=20 California closer to energy independence, the Los Medanos Energy Center in= =20 Pittsburg spit out no more than 20 megawatts on its opening day, they said.= =20 That is less than 5 percent of the plant's 555-megawatt operating capacity.= =20 Los Medanos could generate a couple of hundred megawatts later this week bu= t=20 is not expected to reach its full output for two to three weeks, according = to=20 knowledgable sources.=20 Representatives for Calpine and the governor's office, when pressed for=20 details, acknowledged that the plant was not running at full tilt but said= =20 they did not know how much electricity was actually produced Monday.=20 Calpine, which will bill someone for whatever electricity it sells from Los= =20 Medanos, is keeping track of the production but the figure wasn't immediate= ly=20 available for the media, spokeswoman Katherine Potter said.=20 "Even if it was two megawatts, that's two more megawatts that we didn't hav= e=20 yesterday," said Davis spokesman Steve Maviglio.=20 He said the opening was "largely ceremonial," timed for the convenience of= =20 the governor and Calpine's top executive.=20 But consumer advocate Harvey Rosenfield called the media event "a deception= ."=20 It was the third highly publicized power plant launch the governor has=20 attended in the past two weeks.=20 "It's the governor trying to convince people he's hard at work solving the= =20 problem when it's all for show," Rosenfield said. "He's governing by sound= =20 bite. He's certainly getting his money's worth from the consultants he=20 hired."=20 Davis political adviser Garry South said last week that the governor's new= =20 radio ad campaign will highlight the efforts to produce more power in=20 California.=20 "Generation comes up in our polls as being the No. 1 thing people want us t= o=20 do -- build more power plants," South said then. "People want the sense tha= t=20 progress is being made -- that this is not spiraling out of control."=20 The other two plants that Davis kicked off -- Sunrise in Kern County and=20 Sutter near Yuba City -- have since been running at maximum capacity.=20 Calpine anticipates pumping the full 550 megawatts out of Los Medanos withi= n=20 a week to 10 days, company officials said.=20 "In the first month of these new plants, there are always stops and starts,= "=20 said Calpine spokesman Bill Highlander. "Sometimes we shut down altogether.= "=20 Including the three just-opened facilities, new or expanded power plants ar= e=20 expected to add 1,500 megawatts to the state's struggling electric grid by= =20 the end of July, and 870 megawatts of that is already in place, according t= o=20 the state Independent System Operator.=20 Another 1,000 megawatts is anticipated for the end of August and 1,100 more= =20 for the end of September, under a rough timetable that is likely to see som= e=20 plants zip ahead of schedule and others fall behind.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com. State reveals high-priced power deals=20 By Dale Kasler and Chris Bowman Bee Staff Writers (Published July 10, 2001)=20 The state Monday released details of its adventures in buying electricity o= n=20 the spot market, revealing a chaotic world in which prices fluctuate wildly= =20 within minutes.=20 The Department of Water Resources, which has been criticized for keeping it= s=20 power-purchasing practices a secret, released 1,770 pages of invoices and= =20 trade confirmations that provided the most detailed look yet of its purchas= es=20 since it jumped into the energy-buying business Jan. 17. The information wa= s=20 released a week after state Controller Kathleen Connell put out details of= =20 the state's long-term power contracts over the objections of Gov. Gray Davi= s,=20 her political nemesis.=20 The state has committed about $8.1 billion to buying power on behalf of=20 California's crippled utilities, straining the budget surplus and raising= =20 questions from lawmakers and others about Davis' policies for resolving the= =20 state's energy crisis. In turn, state officials have accused many suppliers= =20 of gouging California to the tune of several billion dollars.=20 When it came to the spot market, the water department was at the mercy of a= =20 business run amok. The state paid upward of $300 a megawatt-hour for days i= n=20 January and February -- months when electricity normally should be a lot=20 cheaper. Water officials said prices have dropped to the $100 range largely= =20 because they've signed a slew of long-term contracts, reducing their=20 dependence on spot sales.=20 "Our exposure earlier this year to the spot market was at the maximum," sai= d=20 Oscar Hidalgo, spokesman for the water department.=20 The information released Monday covered the first three months of the year= =20 and didn't include the highest price the water department has paid for=20 electricity: $1,900 a megawatt-hour in May to Reliant Energy Inc., a Texas= =20 generator that owns several plants in the state. Duke Energy Corp. of North= =20 Carolina charged even more for power in January, $3,880 a megawatt hour, bu= t=20 that sale was made to the Independent System Operator, which runs the state= 's=20 transmission grid.=20 The documents show that while the state's stricken utilities no longer buy= =20 power for themselves, their sister companies have sold expensive power.=20 Through May 31, the state paid a trading arm of Sempra Energy, the parent o= f=20 San Diego Gas & Electric, some $429 million for power. It paid PG&E Energy= =20 Trading, an unregulated sister company of Pacific Gas and Electric Co., abo= ut=20 $23.7 million.=20 Among others, the Los Angeles Department of Water and Power was paid $331= =20 million through May 31; Canadian utility BC Hydro was paid $1.05 billion;= =20 Atlanta's Mirant Corp. $1.24 billion; the federal government's Bonne=0F'vil= le=20 Power Administration $167 million; and the Sacramento Municipal Utility=20 District $80.7 million.=20 Generally, the more desperate the state was for power, the higher the price= s.=20 For instance, Oklahoma-based generator Williams Cos. commanded $565 a=20 megawatt-hour March 20, when blackouts struck more than 1 million=20 Californians.=20 Location also was critical. On March 8 the state paid the PG&E trading unit= =20 $250 but only $180 to Arizona-based Pinnacle West Capital Corp. The=20 difference was that PG&E's power was delivered to energy-starved Northern= =20 California, while Pinnacle's was sent to Southern California where energy= =20 wasn't so scarce.=20 Split-second timing was also crucial. At 9:09 a.m. Feb. 14, the state paid= =20 $400 to Mirant for power to be delivered the next day. By 10 a.m. it was=20 paying Mieco Inc., a Long Beach trading firm, $475 for the same product.=20 "That's the spot market -- it's the most volatile market in the world, and = it=20 changes on a second-by-second basis," said Enron Corp. spokesman Mark Palme= r.=20 For all the criticism leveled at Duke, Reliant and other big corporations,= =20 government-owned entities were among the most aggressive at charging high= =20 prices.=20 BC Hydro, the electric utility owned by the Canadian province of British=20 Columbia, submitted bills for up to $1,000 a megawatt-hour. The city of=20 Glendale charged $375 a megawatt-hour for power in January, while SMUD=20 charged $309 a megawatt-hour in March. The city of Eugene, Ore., averaged= =20 $450 a megawatt-hour in February.=20 "We play by the rules of the electricity trade marketplace," said BC Hydro= =20 spokesman Wayne Cousins. "Our traders worked very hard to find additional= =20 sources of electricity to keep the lights on in California. Had we not come= =20 through and stepped forward with these supplies, the consequences to=20 California customers would have been severe."=20 The state also said it has spent $14.4 million on administrative costs in= =20 buying power.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m. Government finds ways to conserve: The Santa Rita Jail goes solar as agenci= es=20 get creative to cut costs. By Cheryl Miller Bee Correspondent (Published July 10, 2001)=20 To Matt Muniz, the solar panels sprouting on the rooftop of the Santa Rita= =20 Jail in Dublin aren't just energy-makers; they're money in the bank.=20 When all 4,000 panels are completely installed this month, the 500-kilowatt= =20 photovoltaic system -- the largest rooftop project ever constructed in the= =20 United States -- will cut the jail's demand on the electric grid by up to 2= 0=20 percent, according to Muniz, Alameda County's energy program manager.=20 That sun power, combined with conservation projects already completed at th= e=20 jail, will slash about $300,000 a year from the facility's energy bill. Mun= iz=20 is already scouting other county rooftops for solar potential.=20 "With the cost of electricity going up, you can start looking at it as a=20 business decision, just investing your money," said Muniz. "There's virtual= ly=20 no maintenance on this equipment. It just sits on your roof and converts=20 right into electricity that you're using as soon as you generate it. I thin= k=20 (solar) is the wave of the future, even though it's been around 30 or 40=20 years."=20 The Santa Rita Jail project is among the largest, and perhaps most=20 conspicuous, examples of steps government agencies are taking to cut=20 electricity use in response to skyrocketing power bills and Gov. Gray Davis= '=20 call for public entities to conserve.=20 Among the examples:=20 San Francisco leaders are pondering a bond measure to finance solar-powered= =20 rooftop projects around the city.=20 The Tulare County town of Lindsay will open City Hall two hours earlier -- = at=20 6 a.m.-- and close at 4:30 p.m. Monday through Thursday this summer so=20 offices can stay dark all day Friday and during peak-use afternoon hours.= =20 Sacramento County has instituted a casual dress policy so employees can=20 better withstand office temperatures that climb as high as 78 degrees.=20 Workers have also set sprinklers to run at night so that electric water pum= ps=20 operate during low demand.=20 "When you start to see the bills going up and you start to hear concerns fr= om=20 some citizens, that obviously raises the threshold of wanting to help out,"= =20 said Jolena Voorhis, an energy analyst at the California State Association = of=20 Counties. "Certainly (counties) stepped up to the plate when they were aske= d=20 to increase conservation efforts. They've done about as much as humanly=20 possible."=20 Kings County leaders thought they made a great deal in 1992 when they signe= d=20 up for Southern California Edison's interruptible load program, which=20 promises customers lower rates in exchange for agreeing to shut down=20 electrical services in times of shortage.=20 Then California's power crisis hit full-force this year. Since January,=20 Edison has called on the Central Valley county to cut electricity at its=20 Hanford government center 16 times -- for up to six hours each cycle.=20 At times that meant no lights to greet the public, no computers to process= =20 food stamp requests and during the Valley's foggy winter days, no heat to= =20 warm many of the 1,200 employees.=20 "We had one week in January when we were virtually shut down," said Chief= =20 Administrative Officer Larry Spikes. "We just decided we couldn't function= =20 that way."=20 So Kings County supervisors bought a $550,000 diesel-powered generator to= =20 match those already at the jail and juvenile center. They also decided to= =20 open and close administrative offices one hour earlier this summer so=20 buildings can power down before high demand hits the grid around 4 p.m.=20 The new hours, dimmed hallways and moments of darkness that occur when the= =20 generators kick on have become a routine part of doing government business= =20 these days, Spikes said.=20 So far, most counties have been able to absorb higher energy costs without= =20 cutting into programs because of relatively healthy budgets in recent years= ,=20 Voorhis said.=20 Public agencies' power troubles have proved a boon to some businesses.=20 Revenues at PowerLight, the Berkeley company that installed the Santa Rita= =20 Jail photovoltaic system, have tripled since last year.=20 "The last six months have been particularly intense," said Janice Lin,=20 director of business development for PowerLight. "In some ways the energy= =20 crisis in California has been a call to action."=20 The Sacramento Municipal Utility District, which already boasts the largest= =20 photovoltaic program in the country, has a 2,000-customer waiting list for= =20 solar projects and plans to bring sun power to the state Capitol, said Don= =20 Osborn, SMUD's solar program manager.=20 Back in Dublin, the 3,600 inmates at the Santa Rita Jail still receive thre= e=20 meals, air conditioning and hot showers -- powered now, in part, by the=20 plentiful sun in this relatively fog-free part of the East Bay.=20 The $4 million project, financed entirely with state and utility subsidies,= =20 should generate enough savings to pay for itself within the decade, Muniz= =20 said.=20 "It's a good investment for the money we're putting up front," he said. Energy talks reach no settlement; state threatens suit=20 By Mark Sherman ASSOCIATED PRESS=20 July 10, 2001=20 WASHINGTON =01) With talks between the state and power generators stalled,= =20 California may go to court to help win the $8.9 billion state officials=20 believe it was overcharged for electricity.=20 "I think we have demonstrated very clearly both to the FERC and to the judg= e=20 that the state is owed $8.9 billion and will settle for nothing less," said= =20 Roger Salazar, a spokesman for Gov. Gray Davis.=20 With negotiations at an impasse, the administrative law judge for the Feder= al=20 Energy Regulatory Commission said California is probably owed no more than = $1=20 billion in refunds. "The numbers were too far apart," said Curtis Wagner, the FERC chief=20 administrative law judge.=20 California, Wagner said, may receive nothing at all, because generators may= =20 be owed more than they have to return for any overcharges.=20 He placed the refunds owed the state at between $716 million and $1 billion= .=20 Power providers had offered $716 million as part of an overall settlement,= =20 while California state officials sought $8.9 billion, Wagner said.=20 He said California officials had not made the case for $8.9 billion in=20 refunds.=20 Salazar, however, said the state would go to court and may ask for $20=20 billion.=20 Separately, Wagner split off claims of overcharges from the Pacific=20 Northwest, saying he has not had time to consider those allegations under t= he=20 short timetable ordered by FERC last month.=20 Wagner served as a mediator during the 15 days of negotiations and will=20 recommend a settlement to FERC by next Monday. The commission ordered the= =20 talks last month in an effort to resolve differences between producers and= =20 the state over the breakdown of California's deregulated electricity market= .=20 Consumer advocates assailed the judge's recommendation and urged the state = to=20 continue its attempt to get refunds from what they say are profiteering pow= er=20 companies.=20 "It's like catching a bank robber, but instead of making him give back all = of=20 it, you only make him give back 5 percent of what he stole," said Douglas= =20 Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and=20 Consumer Rights.=20 Power generators, however, were generally pleased with Wagner's comments.= =20 Brent Bailey, general counsel for Duke Energy, said even if the formula=20 Wagner recommends produces $1.5 billion in refunds, "that's a reasonable=20 amount in the context of these settlement talks."=20 California officials, negotiating on behalf of utilities, the Public=20 Utilities Commission and state power buyers, accused the producers of=20 manipulating supply to unfairly drive up prices.=20 The producers have acknowledged prices are high, but blame jumps in the pri= ce=20 of natural gas, which fuels many power plants, and the workings of the free= =20 market.=20 The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated the state could spend = as=20 much as $50 billion this year.=20 The producers reiterated Monday that California's numbers are grossly=20 inflated. Attorneys for the five major generators =01) Duke Energy, Dynegy,= =20 Mirant, Reliant Energy and the Williams Cos. =01) said in a statement that = they=20 have made a "very substantial global settlement offer."=20 Reliant would agree to no more than $50 million in refunds as part of an=20 overall settlement that also would have to include protection from addition= al=20 legal claims, said John H. Stout, a company senior vice president.=20 But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified."=20 Refunds in jeopardy as talks fail=20 Judge sees possibility of offsets equal to the billions sought by state By Toby Eckert=20 COPLEY NEWS SERVICE=20 July 10, 2001=20 WASHINGTON -- Settlement talks between California and power providers accus= ed=20 of electricity price gouging collapsed yesterday, and the judge who will no= w=20 hand the case over to federal regulators set a course far from favorable to= =20 the state's demand for $8.9 billion in refunds.=20 "There are refunds due that total hundreds of millions of dollars and maybe= a=20 billion dollars," Curtis L. Wagner Jr., chief administrative law judge for= =20 the Federal Energy Regulatory Commission, said in previewing the=20 recommendations he will make to the commission.=20 But Wagner, who mediated the talks, also suggested that power sellers are= =20 still owed sums for electricity "that probably are higher than any=20 overcharges" for which they may have to pay refunds.=20 That opened the possibility that California could see no cash refunds, only= a=20 reduction in the billions of dollars the power generators and marketers cla= im=20 they are owed by state entities and utilities.=20 Wagner said he would recommend that FERC hold a "fast-track hearing" to try= =20 to untangle the complex financial claims and counterclaims arising from=20 California's power crisis.=20 Wagner also outlined a method that he said FERC should use for calculating= =20 refunds.=20 While his proposed formula includes part of one method the state used, it= =20 contains several elements for calculating electricity costs that were favor= ed=20 by power sellers, who maintain that California's numbers are wildly=20 exaggerated.=20 "I would suspect that would result in a number much below $8.9 billion," sa= id=20 Joe Ronan, vice president of Calpine, a San Jose-based electricity generato= r.=20 "I think (Wagner's method) reflects more accurately what actually happened"= =20 in the state's dysfunctional power market.=20 But Michael Kahn, the state's lead negotiator, said Wagner "vindicated"=20 California's core arguments.=20 "The hundreds of people who came here on the other side had argued to the= =20 mediator that there should not be any refunds, and that position was loudly= =20 rejected," said Kahn, chairman of the organization that manages most of=20 California's power grid.=20 "We think the numbers, even using the judge's formula, are going to be in t= he=20 multiple billions. Whatever amount of money .?.?. is awarded to us, we will= =20 have viable claims in state court and other jurisdictions for the remainder= .=20 So what we have here is a situation where California will get its $8.9=20 billion."=20 Power sellers acknowledged that the threat of litigation remains worrisome = to=20 them. They sought an end to investigations of their conduct, and immunity= =20 from legal action as part of their bargaining position.=20 During two weeks of negotiations ordered by FERC, the two sides came nowher= e=20 near bridging their differences. Wagner said a number of power sellers had= =20 put forward offers that totaled $716.1 million.=20 "That's a long way from splitting the difference," he said. "In 15 days, yo= u=20 can't work miracles."=20 Yesterday -- the deadline for completing the talks -- the ill will between= =20 the two sides broke into the open as Wagner allowed reporters into the=20 previously closed hearings.=20 Each side essentially accused the other of bargaining in bad faith and=20 failing to put forward realistic proposals.=20 John H. Stout, a senior vice president at Reliant Energy Wholesale Group,= =20 said the state used "biased calculations" to arrive at its $8.9 billion=20 refund demand. He also said that Reliant offered to knock $50 million off t= he=20 $300 million it claims it is still owed for power sold into the state.=20 Kahn shot back that Reliant made the offer confidentially to Wagner and nev= er=20 approached the state.=20 Figures scrutinized "This is the first time we've heard any of this information. And to give th= e=20 impression that somehow there's been cooperation or forthcomingness, I thin= k=20 is misleading," Kahn said.=20 The state's refund calculations were scrutinized repeatedly during the talk= s.=20 The $8.9 billion figure emerged from a study by the California power grid= =20 operator of charges for electricity between May 2000 and May 2001, a period= =20 when wholesale power prices soared.=20 Kahn said the figure was essentially duplicated when the state went back an= d=20 calculated what power costs would have been if a pricing method instituted = by=20 FERC last month had been in effect for the entire yearlong period.=20 FERC ordered the pricing method in a bid to tame wholesale prices in the=20 West.=20 In a partial win for the state, Wagner said he would recommend that FERC us= e=20 the order retroactively as a basis for calculating refunds, an approach=20 resisted by the power sellers.=20 But he said that FERC should only scrutinize charges going back to October= =20 2000, and should make several key changes in how power-generating costs are= =20 calculated.=20 For instance, he said, FERC should determine the actual amount of gas heat = it=20 takes to generate a megawatt of electricity and use spot market prices in= =20 Northern and Southern California to determine the cost of gas, rather than = a=20 statewide average cost, computed monthly.=20 Fewer overcharges? Those and other parts of the complex formula Wagner will recommend could=20 increase the benchmark cost of producing power and drive down the amount of= =20 overcharges.=20 Kahn said that applying FERC's pricing method only back to October would pu= t=20 about $3 billion of the state's refund claim off-limits.=20 Brent Bailey, vice president and general counsel for Duke Energy North=20 America, said, "We think (Wagner's) modifications are certainly a vast=20 improvement over FERC's June 19 order and also certainly over (the state's)= =20 model."=20 America.=20 In Sacramento, Gov. Gray Davis issued a statement characterizing the=20 electricity suppliers as pirates who refused to negotiate in good faith.=20 "While in the past the FERC has shown little, if any, interest in consumers= ,=20 they now have the opportunity to redeem themselves by returning the $8.9=20 billion California has demonstrated it is owed," Davis said.=20 Despite the harsh rhetoric, both sides indicated that they would continue= =20 trying to reach one-on-one settlements.=20 Ronan of Calpine said the generator was close to making a deal with the=20 state. Bailey said that while Duke would continue to push for a "global=20 settlement" between all the parties, "We've had serious settlement talks wi= th=20 the state over the last few days and hope to continue."=20 State's massive outlays detailed=20 Energy bill exceeded $100 million on 3 days By Jennifer Coleman=20 ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO -- On three days in May, California's daily power spending toppe= d=20 $100 million, according to a report released yesterday by state power=20 traders.=20 The California Department of Water Resources report, which addressed spot= =20 market electricity purchases since January, was released along with 1,770= =20 pages of documents that specifically detailed the first three months of=20 last-minute power purchases.=20 Such power buys on the spot market typically get the most expensive=20 electricity available.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas and Electric Co.,= =20 San Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 The day before, the state spent $100 million.=20 But since May, spot market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation which lowered=20 demand and because of increased scrutiny by lawmakers and investigators int= o=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 "It's unfortunate that it looks like we'll never get out from under these= =20 contracts," Fisfis said.=20 Davis has already released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations, including The Associated Press and The Copley Press, which= =20 publishes The San Diego Union-Tribune.=20 Davis released copies of those contracts, but wanted to delay the release o= f=20 the spot market buys and short-term contracts. Releasing those details too= =20 soon after the purchases would reveal the state's buying strategy and could= =20 cause generators to raise their already sky-high prices, Davis said.=20 The number of spot market buys will lessen, the Davis administration says, = as=20 more long-term contracts are signed, reducing the state's exposure to the= =20 high-priced purchases.=20 The governor's office will release future short-term contracts and spot=20 market buys will be released on a quarterly basis, with a 90-day lag time.= =20 Second quarter information will be released in October and third quarter=20 documents will be available in January.=20 Davis maintains the delay is needed to protect its ability to negotiate=20 further spot-market power buys.=20 According to the water department, Canadian Powerex, the marketing arm of B= C=20 Hydro, has been paid $1.05 billion for spot market purchases as of May 31.= =20 But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as o= f=20 the end of May.=20 The newly released short-term contracts also show what the state had to pay= =20 when it needed power the most.=20 On March 19 and 20, when rolling blackouts hit California again, the state= =20 was forced into paying above-average prices in its largest short-term=20 contracts.=20 For example, Mirant sold the state 650 megawatts an hour at off-peak usage= =20 times on March 20 for $345 a megawatt hour, more than $70 above the average= =20 price of $272.96.=20 The day before, Mirant charged $343 a megawatt hour at off-peak in northern= =20 California when the average cost was $254.52.=20 Also on March 19, Mirant charged the state about $96 above the average pric= e=20 for power in Northern California on a sale of 6,400 megawatt hours during= =20 off-peak times.=20 Other top-selling generators, as of May 31:=20 ?Sempra Cos., $429 million.=20 ?Los Angeles Department of Water and Power, $331 million.=20 ?Dynegy, $296 million.=20 ?TransAlta Energy, $202 million.=20 ?Bonneville Power, $168 million.=20 ?Duke Energy, $164 million.=20 State releases early spot market energy purchases=20 By Jennifer Coleman ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO =01) On three days in May, California's daily power allowance to= pped=20 $100 million, according to a report released Monday by state power traders.= =20 However, the source of those high prices was from not solely from Texas, ho= me=20 to many of the power marketers and wholesalers Gov. Gray Davis has blamed f= or=20 much of California's power woes.=20 Public and private power companies such as Canada's B.C. Hydro, the Los=20 Angeles Department of Water and Power and Sacramento's public utility also= =20 were high on the list.=20 The California Department of Water Resources released the report, along wit= h=20 1,770 pages of documents that also detailed the last-minute power purchases= =20 the state made on the spot market in the first three months of the year.=20 Last-minute power buys on the spot market typically get the most expensive= =20 electricity available.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas & Electric Co., S= an=20 Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 The day before, the state spent $100 million.=20 But since May, spot market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation which lowered=20 demand and because of increased scrutiny by lawmakers and investigators int= o=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 "It's unfortunate that it looks like we'll never get out from under these= =20 contracts," Fisfis said.=20 Davis has already released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations, including The Associated Press, who said keeping the contrac= ts=20 veiled violated the state's open records law.=20 Davis released copies of those contracts, but wanted to delay the release o= f=20 the spot market buys and short-term contracts. Releasing those details too= =20 soon after the purchases would reveal the state's buying strategy and could= =20 cause generators to raise their already sky-high prices, Davis said.=20 The number of spot market buys will lessen, the Davis administration says, = as=20 more long-term contracts are signed, reducing the state's exposure to the= =20 high-priced purchases.=20 The governor's office will release future short-term contracts and spot=20 market buys will be released on a quarterly basis, with a 90-day lag time.= =20 Second quarter information will be released in October and third quarter=20 documents will be available in January.=20 Davis maintains DWR needs the delay to protect its ability to negotiate=20 further spot-market power buys.=20 According to the DWR, Canadian Powerex, the marketing arm of BC Hydro, has= =20 been paid $1.05 billion for spot market purchases as of May 31.=20 But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as o= f=20 the end of May.=20 The newly released short-term contracts also show what the state had to pay= =20 when it needed power the most.=20 On March 19 and 20, when rolling blackouts hit California again, the state= =20 was forced into paying above-average prices in its largest short-term=20 contracts.=20 For example, Mirant sold the state 650 megawatts an hour at off-peak usage= =20 times on March 20 for $345 a megawatt hour, more than $70 above the average= =20 price of $272.96. The day before, Mirant charged $343 a megawatt hour at=20 off-peak in northern California when the average cost was $254.52.=20 Also on March 19, Mirant charged the state about $96 above the average pric= e=20 for power in Northern California on a sale of 6,400 megawatt hours during= =20 off-peak times.=20 Other top selling generators, as of May 31:=20 =01) Sempra Companies, $429 million.=20 =01) Los Angeles Department of Water and Power, $331 million.=20 =01) Dynegy, $296 million.=20 =01) TransAlta Energy, $202 million.=20 =01) Bonneville Power, $168 million.=20 =01) Duke Energy, $164 million.=20 FERC Judge Says State Owed No More Than $1 Billion From Associated Press July 9 2001 WASHINGTON -- California is owed no more than "a billion dollars" from powe= r=20 wholesalers, a federal regulatory judge said today at the end of 15 days of= =20 settlement talks in the state's electricity crisis. Curtis Wagner, the Federal Energy Regulatory Commission's chief=20 administrative law judge, said that at the same time the power suppliers=20 probably are owed more than that. The net effect of his preliminary recommendation is that California probabl= y=20 will receive no refunds from wholesalers. Wagner said power generators had offered $761 million in refunds. The state= =20 has asked for $8.9 billion since May 2000. Wagner said he will not recommen= d=20 refunds for power sales that occurred before Oct. 2. It was not immediately clear what impact the judge's preliminary=20 recommendation would have on efforts to settle the dispute. Both sides said before the judge's announcement that they expected a=20 protracted legal battle in the event the talks did not produce a settlement= . Michael Kahn, Gov. Gray Davis's representative in the talks, has said the= =20 state would seek more than twice the claimed overcharges if the dispute mov= ed=20 from mediated talks to a courtroom. The producers reiterated today that California's numbers are grossly=20 inflated. Attorneys for the five major generators-- Duke Energy, Dynegy,=20 Mirant, Reliant Energy and the Williams Cos.-- said in a statement that the= y=20 have made a "very substantial global settlement offer." John H. Stout, a senior vice president for Reliant Energy, said his company= =20 would agree to no more than $50 million in refunds, as part of an overall= =20 settlement that also would have to include protection from additional legal= =20 claims. But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified." FERC ordered the talks last month in an effort to resolve differences betwe= en=20 producers and the state over the breakdown of California's deregulated=20 electricity market. The state has accused the producers of manipulating supply to unfairly driv= e=20 up prices. The producers have acknowledged that prices are high, but blame= =20 jumps in the price of natural gas, which fuels many power plants, and the= =20 workings of the free market. The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated that the state could= =20 spend as much as $50 billion this year. ---- On the Net: Federal Energy Regulatory Commission: http://www.ferc.fed.us/=20 Copyright 2001, Los Angeles Times=20 Electricity Cost Data Spread the Blame Power: Many suppliers charged more than the firms that Davis has pilloried,= =20 records show. RICH CONNELL and ROBERT J. LOPEZ and DOUG SMITHS TIMES STAFF WRITER July 10 2001 SACRAMENTO -- California's energy meltdown involves a far more diverse grou= p=20 of wholesale electricity merchants than suggested by Gov. Gray Davis, who h= as=20 aggressively blamed a handful of Texas companies, state records show. During the first three months of this year--one of the worst stretches of= =20 power shortages during the crisis--an assortment of public and private=20 entities charged the state prices averaging well above some of those paid t= o=20 Texas firms, according to documents released to The Times on Monday by the= =20 Department of Water Resources, which now buys power for California. Among those setting and collecting some of the highest average prices per= =20 megawatt-hour were a Canadian public utility, a subsidiary of San Diego Gas= &=20 Electric's parent company, and the Los Angeles Department of Water and Powe= r,=20 the report shows. Their average prices ranged from $498 a megawatt-hour=20 charged by Powerex, the trading arm of British Columbia's BC Hydro, to $292= =20 an hour by the DWP. In fact, some of the biggest private power companies=20 singled out for criticism by Davis and other state officials--Dynegy Inc.,= =20 Duke Energy and Mirant--charged less than the average prices the state paid= =20 for the period. Those companies' average prices ranged from $146 to $240 pe= r=20 megawatt-hour, according to an analysis of the documents. The figures cover the various types of spot and longer-term power purchased= =20 by the state during three months that included rolling blackouts and more= =20 than a month of razor-thin reserves, leading to continuous power emergencie= s. Davis spokesman Steve Maviglio said the governor has directed his sharpest= =20 barbs at private out-of-state generators because, in general, they have=20 reaped the highest profits over the longest period. "You have to look at the whole picture," Maviglio said. "The governor was expressing his displeasure with the arrogance of the=20 generators who wear cowboy hats," he said. "Their profits were 100% to 400%= =20 above last year. . . . Just because there are other entities who are chargi= ng=20 us more [per megawatt-hour] doesn't change the fact that we are getting=20 ripped off by companies from Houston, Tulsa, Atlanta or Charlotte." The report by the Department of Water Resources was provided to The Times o= n=20 the same day the state released 1,700 pages of documents on California's=20 electricity purchases on the volatile spot market for the year's first=20 quarter. The records detail how the state spent nearly $8 billion buying power in th= e=20 first five months of the year, and underscore the complexity of the state's= =20 energy problem. They also show that patterns of high prices are not limited= =20 to a few generators. Oscar Hidalgo, a spokesman for the water resources agency, said that the=20 reports together show that prices were extremely volatile early in the year= .=20 "All the prices were high," he said, noting the downward trend in costs sin= ce=20 his agency began buying power in mid-January. The average price per megawatt-hour for all state purchases went from $316 = in=20 January to $243 in May. Spot prices fell from an average of $321 per hour t= o=20 $271, the reports show. In the first quarter of the year, some public entities' prices far exceeded= =20 those of the biggest private companies. For example, Houston-based Enron, o= ne=20 of the nation's biggest power traders, charged an average of $181 per=20 megawatt-hour. And Atlanta-based Mirant, which sold the most to the state, = a=20 total of $706 million, charged an average of $225 per megawatt-hour. By contrast, a Calgary, Canada, firm, TransAlta Energy, averaged $335 a=20 megawatt-hour, and the Sacramento Municipal Utility District had average=20 charges of $330 per megawatt-hour. A spokesman for Enron, Mark Palmer, said recently that the "vilification of= =20 Enron was based on politics, not facts." Spokesmen for BC Hydro could not b= e=20 reached late Monday to comment on its huge sales to the state. In the past,= =20 the utility has defended its pricing practices, saying it has offered=20 last-minute hydroelectric power that helped keep California's lights on. A spokeswoman for Sempra, the parent company of San Diego Gas & Electric,= =20 said late Monday the company was unable to comment because it had yet to se= e=20 the figures released by the state. Officials at DWP, who could not be reach= ed=20 Monday evening, have defended their pricing, saying the costs of producing= =20 the power needed by the state were extremely high. More Power Bought Than Projected Hidalgo, of the Department of Water Resources, said his agency's efforts,= =20 coupled with conservation by business and consumers and falling natural gas= =20 prices, have begun to tame the state's market. Still, the state had to purchase $321 million in power in April and May,=20 about 10% more than Davis' analysts had projected. Hidlago said that was because of hot weather in May and other supply proble= ms=20 in April. He said reports will show that power purchases fell short of stat= e=20 projections in June and early July. The reports also will show that prices paid by the state were down in June= =20 and July, partly because spot prices have fallen sharply, often to well und= er=20 $100 a megawatt-hour. A summary Department of Water Resources report released Monday credited=20 Davis' program of nurturing new power generation and establishing long-term= =20 power contracts with with "moving the California electric energy industry= =20 closer to normalcy."=20 Copyright 2001, Los Angeles Times=20 Duke Energy Asked to Allow Release of Data Power: Senator says the generator is refusing to make public some informati= on=20 crucial to the price-gouging probe. Firm says it's complying. CARL INGRAM TIMES STAFF WRITER July 10 2001 SACRAMENTO -- The chairman of a Senate committee probing suspected price=20 gouging during the California energy crisis charged Monday that Duke Energy= =20 is refusing to allow him to make public information key to his investigatio= n. Sen. Joe Dunn (D-Santa Ana) said Duke has made the price bidding informatio= n=20 from its Chula Vista plant available to committee members and staffers. But= =20 under a federal confidentiality rule, the data cannot be made public withou= t=20 Duke's consent. The documents concern the Chula Vista plant, which former employees have=20 alleged was ramped up and down to drive up power prices during three days i= n=20 January. However, state records show that the agency overseeing the=20 electricity grid ordered those gyrations to keep the power flowing througho= ut=20 the state. Dunn said Duke's refusal thwarts the committee's investigation a= nd=20 efforts to enact possible remedial legislation because the confidential=20 information cannot be shared with others in the Legislature or the public. Dunn said Duke cited a rule of the Federal Energy Regulatory Commission tha= t=20 gives the company the authority to decide which records it makes public and= =20 which stay secret. "The only one who can release the data is Duke. We agreed to be bound by wh= at=20 is provided in the FERC tariff, nothing more or less," he said. Former Employees Tell of Maneuvers Dunn noted that the committee is considering trying to obtain the informati= on=20 elsewhere and "release it over Duke's objections." Three former workers at the Duke plant near Chula Vista testified last mont= h=20 under oath that the plant, among other things, was ramped up and down in wh= at=20 seemed to be an effort to maximize revenue during the Jan. 16-18 emergency. But Duke countered immediately that it had merely obeyed orders of the=20 California Independent System Operator, which keeps the state's electricity= =20 grid in balance. Duke later provided Cal-ISO documents backing up its=20 explanation. Duke executives insisted that the former employees failed to provide a full= =20 picture of the plant's operation during the three days. But Dunn, chairman of the select Senate committee on alleged price gouging,= =20 said Monday that by refusing to authorize release of all the subpoenaed dat= a,=20 Duke was guilty of the same tactics. "Duke is trying to draw the impression that it has [provided] the full=20 picture. But they are fully aware that we cannot draw any final conclusions= =20 until all that data has been released. That hasn't occurred," Dunn said. To make a determination whether the Chula Vista power was withheld to drive= =20 up prices, Dunn said, the committee must publicly examine "the bids Duke=20 submitted from which the ISO issued orders to the plant." They include the= =20 expensive hour-ahead and day-ahead markets, he said. Duke, a North Carolina-based wholesaler that operates several plants in=20 California, noted that it considers the information proprietary and=20 off-limits to legislators not on the committee. Duke spokesman Tom Williams insisted that the generator is attempting to=20 comply with the committee's demands. But he was unable to say whether Duke= =20 would agree to make the bidding documents public along with other records t= he=20 committee plans to turn over. "We are complying now," Williams said. "There is some suggestion that we ar= e=20 leaving stuff out when we have not had a chance to testify. . . . I don't= =20 know what we are ultimately going to do." The committee had threatened to cite eight wholesale generators unless they= =20 provide pricing and bidding documents by Wednesday. Six, including Duke, ha= ve=20 said they would comply to avoid a contempt citation. Two, Enron and Mirant,= =20 were cited. Dunn said the committee on Wednesday likely will give companies that are=20 trying to comply an extra week to do so, but others probably will be formal= ly=20 charged with contempt in a report to the full Senate. The upper house is th= e=20 final arbiter of such issues. Although there is scant precedent for levying penalties against those cited= =20 for contempt, Dunn said he favors imposing severe fines. In 1929, the most= =20 recent case, a cement company executive was sent to jail.=20 Copyright 2001, Los Angeles Times=20 NEWS ANALYSIS Concern Over Price of Long-Term Power Pacts Grows Embedded costs may yield more rate hikes, critics say, and the $43-billion= =20 total could complicate plans to rescue Edison. DAN MORAIN TIMES STAFF WRITER July 9 2001 SACRAMENTO -- Even as the summer progresses without blackouts, and Gov. Gra= y=20 Davis prepares for yet another news conference today to symbolically switch= =20 on a new power plant, the work in the Capitol has shifted to the seemingly= =20 more daunting task of balancing the books. It's a task with potentially far more long-lasting implications for state= =20 coffers, for businesses' bottom lines and for consumers' wallets. In particular, long-term power contracts trumpeted by the governor's office= =20 as helping to bring stability to California's out-of-control electricity=20 market are having the opposite effect politically. A growing concern about= =20 the $43-billion price tag of the contracts is complicating one of Davis' mo= st=20 ambitious energy initiatives: a proposed financial rescue of Southern=20 California Edison, which already faces an uncertain fate in the Legislature= .=20 Questions about the contracts come as California readies a complex=20 $13.4-billion bond sale to reimburse the state's general fund for other pow= er=20 purchases. Critics worry that costs embedded in the contracts, on top of the billions= =20 needed to pay for the Edison rescue, could lead to additional electricity= =20 rate hikes for consumers. Key lawmakers, consumer advocates and business=20 lobbyists are urging that at least some of the pacts be renegotiated. Citing a recent plunge in wholesale energy costs, these critics say the sta= te=20 should work to shorten the duration of the contracts and lower some of the= =20 prices. They argue that the state entered into the deals under duress after= =20 California's utilities neared insolvency and the state Department of Water= =20 Resources took over the purchasing of electricity for more than 25 million= =20 residents. "They are vulnerable," Senate Energy Committee Chairwoman Debra Bowen=20 (D-Marina del Rey) said of deals the state struck with independent power=20 companies when prices were at record highs. Bowen lauds Davis administration negotiators for signing "the best deals th= ey=20 could." But she said that in the crisis atmosphere in which the negotiation= s=20 took place, "the state had two cards and the generators had 50." Contracts Open to Challenges The contracts could be challenged in court or, more immediately, before the= =20 Federal Energy Regulatory Commission in Washington. There, an administrativ= e=20 law judge could direct that the pacts be reworked as part of a settlement o= f=20 allegations by Davis that generators overcharged the state for electricity = by=20 $8.9 billion. "We ought not to say, 'Fine, the contracts were the best we could do,' "=20 Bowen said. For his part, Davis says he is willing to accept partial payment of the $8.= 9=20 billion in the form of contracts with terms more favorable to the state. He= =20 attributes the recent sharp drop in wholesale electricity prices to=20 conservation, the administration's effort to increase power supply and--a= =20 major factor--the long-term contracts, which slashed the state's reliance o= n=20 the volatile daily, or spot, market. "You can see the value of these long-term contracts . . . dramatically=20 shrinking our overall price, which is what matters to Californians," Davis= =20 said, pointing out that the average cost of power plunged 30% from May to= =20 June. Davis energy advisor S. David Freeman, who helped negotiate the contracts,= =20 said they may end up costing less than $43 billion, given the recent declin= e=20 in prices for natural gas, the main fuel for California's=20 electricity-generating plants. Freeman also compared critics to someone who calls the fire department to= =20 douse a blaze. "After the fire is out," he said, "you complain about the=20 water damage." The contracts have other defenders, among them UC Berkeley economics=20 professor Severin Borenstein, who says the deals helped to tame the volatil= e=20 spot market by reducing generators' incentive to drive up prices, while=20 reducing the state's exposure to wild swings in price. "The point of signing long-term contracts is not to get a great price; it's= =20 to reduce risk," Borenstein said. Still, experts have been picking through the pacts ever since a Superior=20 Court judge in San Diego, ruling in a California Public Records Act lawsuit= =20 by news organizations and Republican lawmakers, ordered last month that Dav= is=20 unseal the contracts. An analysis done for the Assembly by three experts--one each representing= =20 Southern California Edison; the Utility Reform Network, a consumer group; a= nd=20 large electricity consumers--concluded that the about $43-billion price tag= =20 announced by the administration may not account for all the costs. When oth= er=20 expenses are factored in--ranging from environmental equipment upgrades to= =20 any new energy-related taxes--the contracts could cost an additional 10% to= =20 20%. "Once the contracts were made public," Senate Republican leader Jim Brulte = of=20 Rancho Cucamonga said, "just about anyone who can read began calling for=20 those contracts to be renegotiated." As buyers' remorse spreads through the Capitol, the contracts increasingly= =20 are seen as a hurdle--or a bargaining chip--as Davis and lawmakers confront= =20 fast-approaching deadlines in their effort to prevent the energy crisis fro= m=20 morphing into a broader financial crisis. A bill pushed by Davis to avert bankruptcy for the financially hobbled=20 Southern California Edison must be approved by Aug. 15. The deadline could = be=20 tighter, because the Legislature is scheduled to adjourn for a monthlong=20 break July 20. Davis' rescue plan, along with legislative alternatives, languishes in the= =20 Legislature. The plan, which has little apparent support, would require the= =20 state to buy Edison's system of transmission lines for $2.76 billion and=20 permit the utility to charge ratepayers for the rest of its back debt of $3= .5=20 billion. Some lobbyists and lawmakers believe that the electricity rate hike approve= d=20 in March by the California Public Utilities Commission--at 3 cents a=20 kilowatt-hour the largest in state history--may not be enough. The revenue= =20 generated under the new rate structure must cover the costs of the long-ter= m=20 power contracts and repay the planned $13.4 billion in bonds, which would b= e=20 the largest municipal deal ever. Whether there would be sufficient money left to pay for the Edison rescue= =20 remains to be seen. But some experts say the utility may need to seek a=20 separate rate hike to cover its costs. As written, the contracts have few escape clauses; Davis cannot simply walk= =20 away from them if he concludes that prices are too high. Still, criticism= =20 persists and crosses political lines. Harry Snyder, longtime Sacramento lobbyist for Consumers Union, and Jack=20 Stewart, president of the California Manufacturers and Technology Assn.,=20 rarely find themselves on the same side of a debate. But in separate=20 interviews, they sounded similar themes. "If there is a way to buy our way out of these contracts, even if we have t= o=20 pay damages, we'd be better off in the long run," Snyder said. Stewart, like other business leaders, does not advocate abrogating the=20 contracts. But like many familiar with the terms, he hopes that some deals= =20 can be renegotiated. "They are problematic," he said. In a move that critics fear could lock in high electricity prices for the= =20 next decade, the Davis administration is pushing the PUC to agree within a= =20 month to limit its authority to question costs incurred by the Department o= f=20 Water Resources as it goes about procuring power. State Treasurer Phil Angelides said the PUC must act so he can complete the= =20 $13.4-billion bond sale. A binding agreement is necessary so that Wall Stre= et=20 investors can be assured that they will be repaid. "The state will be out of cash by the end of the year without the bond sale= ,"=20 he said. "We will move toward fiscal insolvency." The so-called rate agreement, a draft of which was obtained by The Times,= =20 would bind customers of the three big regulated utilities to pay more than= =20 just the principal and interest on the $13.4 billion in bonds. Consumers=20 would have to pay for consultants, lawyers, to pay taxes, fees and other=20 as-yet-undefined charges that may be incurred by the Department of Water=20 Resources. Additionally, the PUC would be obligated to approve payments for programs b= y=20 which the state would pay large and small customers to cut electricity use,= =20 although the Legislature has not approved the programs and their details=20 remain to be worked out. The Department of Water Resources estimates the co= st=20 to be $800 million, spread over this year and next. "It is loaded up," Senate President Pro Tem John Burton (D-San Francisco)= =20 said of the proposed rate deal, adding that it would require the commission= =20 to "raise rates to cover whatever the Department of Water Resources decides= =20 to do." "That is giving a blank check to some bureaucratic office," he said. 'Dictatorial Power' Warning Stewart of the manufacturers group also is alarmed by the plan, saying it= =20 would provide the water agency with "dictatorial power." "As skeptical as we are of the PUC process, at least there is a process,"= =20 Stewart said, referring to the commission's procedures to set electricity= =20 rates. "There is no process for DWR. DWR just tells the PUC, 'This is what = we=20 need,' and the PUC must approve it." Others say the rate agreement is a standard piece of work, given the=20 extraordinary step the Legislature took in January when it authorized the= =20 Department of Water Resources to buy power for utilities that had fallen so= =20 deeply into debt that they could no longer carry out their obligation to=20 consumers. In essence, Davis energy advisor Freeman said, lawmakers in January created= =20 "the equivalent of a public power purchasing agency" beyond the jurisdictio= n=20 of the PUC. "There is no public power agency in California that is reviewed by the PUC,= "=20 said Freeman, former head of the Los Angeles Department of Water and Power. * Times staff writer Nancy Rivera Brooks in Los Angeles contributed to this= =20 story.=20 Copyright 2001, Los Angeles Times=20 State's refund demand rejected=20 Judge ends rebate talks, rebukes $9 billion claim=20 Zachary Coile, Christian Berthelsen, Chronicle Staff Writers Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/07/10/MN117914= .DTL=20 Washington -- An administrative law judge, delivering a powerful message to= =20 Gov. Gray Davis and California energy officials, cast aside the state's cla= im=20 that it is owed $8.9 billion in electricity overcharges by generators and= =20 called for further hearings to determine "hard numbers."=20 The judge, ending talks designed to settle the dispute between California a= nd=20 power sellers, said the state and its cash-strapped utilities may owe more = in=20 unpaid electricity bills than they are owed for overcharges by the=20 generators.=20 The comments by Federal Energy Regulatory Commission chief administrative l= aw=20 Judge Curtis L. Wagner, although a strong endorsement of the generators'=20 position, seemed to indicate that neither side wanted to settle the issue= =20 before it reached the five-member regulatory commission.=20 "There are refunds due (to California) that total hundreds of millions of= =20 dollars and maybe a billion dollars," Wagner said yesterday.=20 "At the same time, there are sums due to sellers from the California=20 Independent System Operator and the investor-owned utilities in the state o= f=20 California that probably are higher than any overcharges that (the state) m= ay=20 come up with."=20 Now, it will be up to the federal regulators to settle the case. But the=20 recommendations by Wagner, who mediated the talks, carry significant weight= =20 with the commission and cast doubt on the state's chances of collecting the= =20 full $8.9 billion it claims to be owed.=20 The judge said he will recommend that the commission order new hearings to= =20 calculate what the state and the power sellers are each owed. The hearings= =20 would be overseen by an administrative law judge and would last 45 to 60=20 days, Wagner said.=20 CLOSING SESSION Wagner made his comments in the closing session of the 15-day talks, which= =20 were ordered last month by the regulatory commission to try to defuse the= =20 dispute between power wholesalers and California officials before it reache= d=20 the courts.=20 The judge's message was a sharp rebuke to the unyielding stand by Californi= a=20 leaders -- especially Davis, who last week said he wouldn't take a dime les= s=20 than $8.9 billion for California's consumers.=20 The governor issued a statement shortly after the close of talks insisting= =20 that California had won its basic case that the state is owed refunds.=20 "I am pleased that Judge Wagner accepted our methodology for calculating=20 refunds and rejected the generators' position that no refunds are due," Dav= is=20 said.=20 The governor's chief representative at the talks, Michael Kahn, called the= =20 judge's statement a "ringing endorsement" of the state's call for refunds.= =20 Kahn said the judge's order would improve the state's legal position if it= =20 files suit against power sellers.=20 GENERATORS FAVORED But much of the judge's order seemed to favor the generators.=20 For example, state officials have made the case they should be refunded $8.= 9=20 billion for alleged overcharges from May 2000 to May 2001 -- even though th= e=20 regulatory commission has said only that the period starting Oct. 2, 2000= =20 could be considered.=20 The judge said yesterday that he would stick with the October date, meaning= =20 that more than a third of the state's claim -- at least $3 billion -- would= =20 not be refunded by the commission.=20 Brent Bailey, vice president and general counsel of Duke Energy North=20 America, said that under Wagner's guidelines, the state may be eligible for= =20 $1 billion to $1.5 billion.=20 "Certainly to the extent that it helped refute what California has been=20 saying, it's a victory," Bailey said of the judge's statement.=20 But Davis said the nation's big power sellers never came to the table with = a=20 serious offer.=20 "Not surprisingly, the energy pirates that bilked ratepayers out of billion= s=20 of dollars stonewalled and refused to negotiate in good faith," Davis said.= =20 $716 MILLION OFFER=20 Wagner disclosed yesterday that the generators had made an offer to=20 California: $716 million in refunds.=20 The judge said the figure included about $510 million from the so-called Bi= g=20 Five generators, as well as $125 million from BC Hydro's Powerex, $49.6=20 million by a group of 15 electricity marketers, $16.5 million by six=20 California municipal utilities and $25 million offered by other out-of-stat= e=20 power sellers.=20 California officials say it was not a legitimate offer because it included = no=20 cash. It was simply an agreement by the companies to wipe some of the state= 's=20 debt off the books.=20 Throughout the talks, generators complained that the California team was=20 trying to shield some California companies and government power providers= =20 from having to pay any refunds, and trying to disproportionately extract su= ms=20 from out-of-state power companies.=20 FAVORITISM CHARGED According to documents and interviews, the state attempted to remove Pacifi= c=20 Gas and Electric Co., Southern California Edison, San Diego Gas & Electric.= ,=20 the Los Angeles Department of Water and Power and other government power=20 suppliers from the group from which it was asking for refunds, even though= =20 they were paid the same high rates for power as everyone else.=20 Representatives for the power sellers said they believe that Davis made a= =20 political decision to demagogue the companies while refusing to compromise = on=20 the state's claims. They say the governor calculated that his reputation=20 would be enhanced by continuing to attack the generators.=20 "The California delegation did not come into these talks with any willingne= ss=20 to compromise," said Mark Stultz, vice president of the Electric Power Supp= ly=20 Association, a Washington, D.C., trade group. "They went in with a dollar= =20 figure and never budged on that figure. If you're looking for a settlement,= =20 you have to be willing to compromise."=20 Up next 1. The Federal Energy Regulatory Commission will consider, probably= =20 on July 25,=20 new hearings on how much, if anything, California was overcharged. 2. If=20 ordered by the commission, an administrative law judge will take testimony = on=20 how much the state says it was overcharged and how much generators say they= =20 are owed. 3. Regulators will rule based on the judge's recommendation. If t= he=20 parties disagree, they can go to court.=20 E-mail the writers at zcoile@sfchronicle.com. and cberthelsen@sfchronicle.c= om ., Zachary Coile reported from Washington, D.C., and Christian Berthelsen i= n=20 San Francisco.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Davis opens another new power plant=20 Pittsburg facility will generate 555 megawatts=20 Bernadette Tansey, Chronicle Staff Writer Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/07/10/MN175828= .DTL=20 Pittsburg -- Workers were still scraping wet concrete on support columns as= =20 Gov. Gray Davis celebrated the startup of a new power plant in Pittsburg=20 yesterday -- the latest in a string of openings Davis hopes will help=20 California "build its way" out of the energy crisis. The state rushed to=20 throw as many megawatts on line as it could when it looked like the summer= =20 would feature regular blackouts, and yesterday the governor said it was=20 paying off.=20 "This is the third plant I've helped open in the last 13 days," Davis said,= =20 pumping his fist as the Calpine Corp. plant belched an impressive burst of= =20 steam. "In the past 13 days, we've put more power on the grid than Californ= ia=20 did throughout the 1990s."=20 The 555-megawatt Los Medanos Energy Center and the Sutter Energy Center tha= t=20 Calpine opened in Yuba City last week bring a total of 1,115 megawatts=20 online. Last month, Davis threw the switch on a Bakersfield plant that open= ed=20 more than a month ahead of schedule.=20 Davis used yesterday's event to blast out-of-state generators that he=20 maintains have gouged the state for electricity. Yet he lauded San Jose-bas= ed=20 Calpine as a sort of energy favorite son.=20 "They were the first to enter long-term contracts with us," the governor=20 said. Calpine is among the big energy firms being pressed by the state to= =20 issue refunds for what the governor insists were overcharges, but unlike th= e=20 others, Davis said, Calpine is giving ground in negotiations.=20 "They likely will be the first to enter into settlements with us," he said.= =20 Although the Los Medanos plant is one of a generation of efficient new gas-= =20 fired plants that will be as much as 40 percent cheaper to run than their= =20 forebears, the state will be paying well above current market rates for the= =20 first three months of its contract with Calpine.=20 Calpine President Peter Cartwright insisted, however, that the company is n= ot=20 making excess profits off the deal. To ensure that Calpine could provide th= e=20 electricity even if plant construction wasn't finished by its mid-July targ= et=20 date, the company bought the needed power from other energy traders at $232= a=20 megawatt hour when market rates were higher, he said.=20 In addition to the 300 megawatts it has pledged to the state, Calpine will= =20 supply electricity to the Sacramento Municipal Utility District and other= =20 power agencies.=20 In the long term, Calpine will be selling power to California at $59 a=20 megawatt hour, Cartwright said.=20 A spokesman for the state Department of Water Resources, which started buyi= ng=20 power in January after state utilities buckled under high prices, said=20 Calpine's rate is well below the $70 a megawatt hour the state is aiming fo= r=20 as an average price for the long-term contracts.=20 Cartwright said that with its recently opened plants, along with an 875-=20 megawatt facility it plans to open in Pittsburg next May, the company is=20 doing its share to ease the state's supply crunch.=20 "Ours are the lowest contracts in the state," he said. "If these plants=20 weren't online, we'd be having blackouts."=20 A spokeswoman from the state agency that manages the power grid said=20 California is skating so close to blackouts that "every megawatt counts."= =20 "It's definitely making a difference and it will continue to do so over the= =20 summer," said Lorie O'Donley, a spokeswoman for the Independent System=20 Operator.=20 E-mail Bernadette Tansey at btansey@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 11=20 California rejects B.C. Hydro $125 million settlement=20 Tuesday, July 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/s= tate0 321EDT0105.DTL=20 (07-10) 00:21 PDT VANCOUVER, British Columbia (AP) --=20 California has rejected an offer by B.C. Hydro's power trading subsidiary t= o=20 refund $125 million to settle the state's allegations that it was overcharg= ed=20 by the Canadian power company.=20 The dispute will now be resolved by U.S. judicial and regulatory authoritie= s.=20 The offer from Hydro's Powerex subsidiary came during 15 days of settlement= =20 talks between power generators and distributors, California and other weste= rn=20 states.=20 The talks, initiated by the Federal Energy Regulatory Commission, which=20 regulates cross-border power sales in the United States, concluded Monday= =20 evening without resolution.=20 Hydro spokeswoman Elisha Odowichuk said that under the offer, the Crown=20 corporation would have been subtracted $125 million from the $290 million= =20 California still owes British Columbia for power sales.=20 The $125 million was Powerex's first offer and it did not change through th= e=20 negotiations, she said. The company put conditions on that refund figure, b= ut=20 Odowichuk would not say what those conditions were.=20 California has charged that Powerex gouged it by more than $430 million.=20 Odowichuk said Hydro had to join the settlement talks to preserve its=20 otherwise lucrative power trading relationship with California.=20 Electricity imports and exports statistics compiled by Canada's National=20 Energy Board show Powerex exported more than $900 million worth of energy= =20 from January to April.=20 The average cost of that power was $661.56 a megawatt hour.=20 Prices have dropped to around $140 a megawatt hour since the regulatory=20 commission instituted price caps on June 19.=20 ,2001 Associated Press ?=20 Davis' criticism of Texas misdirected, report finds=20 Lynda Gledhill, Mark Martin, Chronicle Staff Writers Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /10/M N48875.DTL=20 Sacramento -- Texas-based electricity generators have received the brunt of= =20 criticism from Gov. Gray Davis for gouging California during the power=20 crisis, but financial information released yesterday shows the lion's share= =20 of the money went elsewhere.=20 Companies with headquarters in Texas garnered less than 10 percent of=20 California's multibillion-dollar energy purchases, while public and private= =20 energy companies from Canada to Georgia to California got the rest.=20 The $424 million that went to Texas companies may still be more than the=20 state should have been charged, and administration officials are attempting= =20 to get refunds from a host of companies, both in and out of Texas.=20 Earlier this year, Davis lambasted the Bush administration for not acting= =20 against power firms in his home state. "What's going on here, pure and=20 simple, is unconscionable price-gouging by the big energy producers -- most= =20 of them, incidentally, located in Texas," he said in May.=20 Yesterday, a spokesman for the governor broadened the verbal assault, sayin= g=20 the Texas firms are representative of the many other out-of-state generator= s=20 who have also gouged California.=20 "Anywhere they wear cowboy hats, they probably have handkerchiefs across=20 their face because they are robbing us blind," said Steve Maviglio, Davis'= =20 spokesman.=20 The latest financial information is contained in a report by the state=20 Department of Water Resources detailing $7.2 billion in power purchases fro= m=20 Jan. 17 through the end of May.=20 About $5.2 billion of that was spent on the spot market where power buys ar= e=20 made a day, hour or even a few minutes before the electricity is actually= =20 used.=20 Because the spot purchases are made with little notice, they are the most= =20 expensive kind of power on the market. The state was forced to step in and= =20 buy the power when the credit ratings of California's major utilities dropp= ed=20 as the energy crisis worsened. The crisis was caused by a series of events= =20 that forced the utilities to pay more for electricity than they could recov= er=20 from customers.=20 The numbers released yesterday show that Texas companies weren't alone in= =20 receiving a share of the energy crisis pie. Some $1.2 billion went to Miran= t,=20 an Atlanta-based company. Mirant has refused to turn over documents=20 subpoenaed by the state Legislature as part of its investigation into alleg= ed=20 market manipulation. Mirant could face contempt proceedings.=20 Municipal generators have also fared well during the energy crisis. Powerex= ,=20 a wholly owned power marketing subsidiary of Vancouver-based BC Hydro,=20 received $1 billion from the state for spot market electricity.=20 The Los Angeles Department of Water and Power, which Davis said charged=20 higher average spot market prices than some generators, received $331=20 million.=20 E-mail Lynda Gledhill at lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 9=20 Developments in California's energy crisis=20 The Associated Press Tuesday, July 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/s= tate1 041EDT0134.DTL=20 (07-10) 07:41 PDT (AP) --=20 Developments in California's energy crisis:=20 TUESDAY=3D * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 MONDAY=3D * A Federal Energy Regulatory Commission administrative law judge says that= =20 California is entitled to no more than $1 billion in refunds for excessive= =20 energy costs. Gov. Gray Davis had been seeking $8.9 billion for overcharges= .=20 * The Department of Water and Power releases 1,770 pages of documents=20 detailing the state's spot market power purchases in the first quarter of t= he=20 year. DWR also releases a report showing that the state's daily power buys= =20 topped $100 million on three days in May.=20 The DWR report says the energy companies that were paid the most by the sta= te=20 for last-minute power were: Mirant Corp., which was paid $1.24 billion as o= f=20 the end of May; Canada-based Powerex, $1.05 billion; and Sempra Companies,= =20 $429 million.=20 * Davis ceremonially switches on the largest licensed power plant to come= =20 online this year, Calpine's 559-megawatt Los Medanos Energy Center in=20 Pittsburg.=20 * No power alerts as electricity reserves stay above 7 percent.=20 * Shares of Edison International closed at $14, up 69 cents. PG&E Corp. ros= e=20 65 cents to close at $14.10. Sempra Energy, the parent company of San Diego= =20 Gas & Electric Co., closed at $27.52, down 21 cents.=20 WHAT'S NEXT=3D * U.S. Bankruptcy Judge Dennis Montali decides Tuesday whether millions of= =20 Pacific Gas and Electric Co. ratepayers can form their own creditors'=20 committee to represent them in the utility's bankruptcy proceeding.=20 * The Senate committee investigating possible price manipulation in=20 California's energy market meets Wednesday. The committee will vote on=20 contempt citations against generators Mirant and Enron, which failed to=20 comply with subpoenas for documents. The committee will meet again July 18 = to=20 consider compliance by six other suppliers that have until Tuesday to turn= =20 over documents.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Southern California Edison and Pacific Gas and Electric say they've lost=20 nearly $14 billion since June 2000 to high wholesale prices the state's=20 electricity deregulation law bars them from passing on to consumers. PG&E,= =20 saying it hasn't received the help it needs from regulators or state=20 lawmakers, filed for federal bankruptcy protection April 6. Electricity and= =20 natural gas suppliers, scared off by the companies' poor credit ratings, ar= e=20 refusing to sell to them, leading the state in January to start buying powe= r=20 for the utilities' nearly 9 million residential and business customers. The= =20 state is also buying power for a third investor-owned utility, San Diego Ga= s=20 & Electric, which is in better financial shape than much larger Edison and= =20 PG&E but is also struggling with high wholesale power costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 Track the state's blackout warnings on the Web at=20 www.caiso.com/SystemStatus.html.=20 ,2001 Associated Press ?=20 Energy talks reach no settlement; state threatens suit=20 MARK SHERMAN, Associated Press Writer Tuesday, July 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/s= tate0 400EDT7473.DTL=20 (07-10) 01:00 PDT WASHINGTON (AP) --=20 With talks between the state and power generators stalled, California may g= o=20 to court to help win the $8.9 billion state officials believe it was=20 overcharged for electricity.=20 "I think we have demonstrated very clearly both to the FERC and to the judg= e=20 that the state is owed $8.9 billion and will settle for nothing less," said= =20 Roger Salazar, a spokesman for Gov. Gray Davis.=20 With negotiations at an impasse, the administrative law judge for the Feder= al=20 Energy Regulatory Commission said California is probably owed no more than = $1=20 billion in refunds.=20 "The numbers were too far apart," said Curtis Wagner, the FERC chief=20 administrative law judge.=20 California, Wagner said, may receive nothing at all, because generators may= =20 be owed more than they have to return for any overcharges.=20 He placed the refunds owed the state at between $716 million and $1 billion= .=20 Power providers had offered $716 million as part of an overall settlement,= =20 while California state officials sought $8.9 billion, Wagner said.=20 He said California officials had not made the case for $8.9 billion in=20 refunds.=20 Salazar, however, said the state would go to court and may ask for $20=20 billion.=20 Separately, Wagner split off claims of overcharges from the Pacific=20 Northwest, saying he has not had time to consider those allegations under t= he=20 short timetable ordered by FERC last month.=20 Wagner served as a mediator during the 15 days of negotiations and will=20 recommend a settlement to FERC by next Monday. The commission ordered the= =20 talks last month in an effort to resolve differences between producers and= =20 the state over the breakdown of California's deregulated electricity market= .=20 Consumer advocates assailed the judge's recommendation and urged the state = to=20 continue its attempt to get refunds from what they say are profiteering pow= er=20 companies.=20 "It's like catching a bank robber, but instead of making him give back all = of=20 it, you only make him give back 5 percent of what he stole," said Douglas= =20 Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and=20 Consumer Rights.=20 Power generators, however, were generally pleased with Wagner's comments.= =20 Brent Bailey, general counsel for Duke Energy, said even if the formula=20 Wagner recommends produces $1.5 billion in refunds, "that's a reasonable=20 amount in the context of these settlement talks."=20 California officials, negotiating on behalf of utilities, the Public=20 Utilities Commission and state power buyers, accused the producers of=20 manipulating supply to unfairly drive up prices.=20 The producers have acknowledged prices are high, but blame jumps in the pri= ce=20 of natural gas, which fuels many power plants, and the workings of the free= =20 market.=20 The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated the state could spend = as=20 much as $50 billion this year.=20 The producers reiterated Monday that California's numbers are grossly=20 inflated. Attorneys for the five major generators -- Duke Energy, Dynegy,= =20 Mirant, Reliant Energy and the Williams Cos. -- said in a statement that th= ey=20 have made a "very substantial global settlement offer."=20 Reliant would agree to no more than $50 million in refunds as part of an=20 overall settlement that also would have to include protection from addition= al=20 legal claims, said John H. Stout, a company senior vice president.=20 But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified."=20 Toxic fumes not linked to blackouts=20 Backup power OK in facilities, report says=20 Jason B. Johnson, Chronicle Staff Writer Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /10/M NC115768.DTL=20 Despite a power-related mishap that released toxic fumes from an industrial= =20 plant in May, rolling blackouts are not expected to cause dangerous release= s=20 in Contra Costa, a county study concludes.=20 The county Health Department report found that 52 industrial facilities hav= e=20 adequate backup power plans.=20 The report to be presented to the Board of Supervisors today was prompted b= y=20 a freak traffic accident that knocked out power at Richmond's General=20 Chemical Corp. plant. When the plant powered back up, a cloud of sulfur=20 trioxide and sulfur dioxide was released.=20 Contra Costa hazardous materials director Lew Pascalli said that there is= =20 always a possibility that a plant's hydraulic or mechanical systems could= =20 fail but that those chances are slight given the growing number of power=20 plants coming online and the state's successful conservation effort.=20 He also said industry has done a good job preparing for outages.=20 "The industry is doing a good-faith effort in this particular instance to= =20 make sure that nothing happens," Pascalli said.=20 County officials relied on industry records in determining the adequacy of= =20 the different plans, such as having multiple electrical leads feeding a=20 source regulating hazardous materials.=20 Denny Larson, spokesman for the group Communities for a Better Environment,= =20 said the report relied too heavily on industry self-reporting.=20 "Unfortunately, the conclusions of the report can't be backed up by the=20 facts," Larson said. "Oil and chemical plants in Contra Costa have repeated= ly=20 had toxic releases due to power failures over the years."=20 The 52 facilities include chemical plants, oil refineries and small shops= =20 that produce limited amounts of hazardous materials.=20 For many of these businesses, the loss of power would shut down their=20 operations and make it impossible for substances to be released.=20 Larger facilities, like oil refineries, have either their own backup=20 generators or contracts with cogeneration plants that could supply all or= =20 most of their power independent of the electricity power grid, according to= =20 the report.=20 Plans are also in place to conduct partial shutdowns at plants running on= =20 reserve power during a blackout.=20 General Chemical said all electrical feeds to the chamber processing=20 chemicals are automatically pulled in the event of loss of power. A backup= =20 generator will automatically come online to keep operations stable.=20 Dow Chemical has a contract with a Calpine power plant to supply it with=20 electricity. Battery backup and diesel emergency engines are also at the si= te=20 to ensure enough power to run lights, alarms, controls and emergency shutdo= wn=20 equipment.=20 e-mail Jason B. Johnson at jbjohnson@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 11=20 Power suppliers, state fail to agree on refund total=20 Posted at 10:41 p.m. PDT Monday, July 9, 2001=20 BY JIM PUZZANGHERA=20 Mercury News Washington Bureau=20 WASHINGTON -- California officials and power suppliers failed to agree on= =20 refunds for electricity overcharges as 15 days of contentious negotiations= =20 ended Monday, leaving the matter in the hands of a federal judge who said t= he=20 state is owed much less than the $8.9 billion it demands.=20 The judge overseeing the talks for the Federal Energy Regulatory Commission= =20 put the refunds at between several hundred million dollars and a billion=20 dollars. His estimate is closer to the $716.1 million offer made by power= =20 suppliers during negotiations. The offer was rejected by California=20 officials.=20 But it was unclear Monday which side in the bitter refund battle would=20 prevail, and California officials indicated the dispute is probably headed = to=20 court. At stake is how much the state's electricity consumers will ultimate= ly=20 have to pay for costs that skyrocketed as California's deregulation system= =20 collapsed.=20 Curtis Wagner, the commission's chief administrative law judge, will=20 recommend a formula for the commission to use to calculate a refund dating= =20 back to October. That formula -- a complex methodology that involves factor= s=20 such as daily natural gas prices -- includes many of the provisions the=20 energy suppliers had advocated during the talks.=20 Michael Kahn, who headed the California negotiating team, said the state=20 would contest some aspects of the formula. But even without changes, Kahn= =20 said he was confident the formula will result in more refunds than Wagner= =20 estimated.=20 ``We think the numbers even using the judge's formula are going to be in th= e=20 multiple billions,'' said Kahn, chairman of the state Independent System=20 Operator, which runs the electricity grid. ``California will get its $8.9= =20 billion dollars. If we don't get all of it from the commission .?.?. we'll= =20 still get the remainder of the money'' through the courts.=20 Amount in dispute=20 Power industry representatives appeared pleased with the judge's plan.=20 ``We haven't gone and run the full numbers but it's going to be nowhere nea= r=20 the $8.9 billion,''' said Brent Bailey, vice president and general counsel= =20 for Duke Energy North America. ``But let's face it, that's a pie-in-the-sky= =20 number that nobody in there believed in their right mind was a legitimate= =20 number.''=20 Wagner acknowledged he had not calculated any figures using his formula,=20 saying he arrived at his dollar estimate based on the offers made by the=20 suppliers.=20 The energy commission ordered the private settlement conference last month= =20 when it enacted new price controls to try to rein in soaring electricity=20 prices in California and throughout the West. Commissioners hoped that unde= r=20 pressure of a deadline and their looming intervention the state and the pow= er=20 suppliers could resolve the refund issue and stave off future litigation.= =20 But the suppliers and state officials never came close to a deal,=20 participants said.=20 ``The numbers were too far apart. You saw $8.9 billion on one end and you s= aw=20 $716 million on the other end, and that's a long way to splitting the=20 difference,'' Wagner said. ``I think a lot of the parties genuinely wanted = to=20 settle. Others didn't.''=20 Wagner now has until Monday to make his recommendation to the five-member= =20 commission, which will make the final ruling on refunds. To date, the=20 commission has ordered $125 million in refunds for periods since last Oct. = 2.=20 Wagner said Monday that he will ask that a special hearing be set up in the= =20 next 60 days to get the detailed information from the state and power=20 suppliers needed to determine a refund total using his formula.=20 The state may not end up with any cash, as any refund total could be applie= d=20 to the several billion dollars California and its utilities still owe many = of=20 the power suppliers.=20 Reflecting the tone of the negotiations, California Gov. Gray Davis on Mond= ay=20 blamed power suppliers for the failure of the talks and challenged the=20 commission to resolve the situation.=20 ``Not surprisingly, the energy pirates that bilked ratepayers out of billio= ns=20 of dollars stonewalled and refused to negotiate in good faith with our team= =20 in Washington, D.C.,'' Davis said. ``While in the past the FERC has shown= =20 little, if any, interest in consumers, they now have the opportunity to=20 redeem themselves by returning the $8.9 billion California has demonstrated= =20 it is owed.''=20 Davis may go to court=20 At the opening of a new power plant in Contra Costa County on Monday, Davis= =20 told reporters that he's prepared to take the power generators to court if= =20 FERC doesn't order the full refund. Davis also said the ISO's estimate of= =20 $8.9 billion doesn't represent all the overcharges. He said other estimates= =20 put the figure as high as $20 billion, although he did not elaborate about= =20 how those figures were calculated.=20 John H. Stout, senior vice president for Reliant Energy Wholesale Group, sa= id=20 the state used faulty methodology to arrive at the $8.9 billion figure.=20 California officials and several suppliers said they would continue to=20 negotiate separately, and an official with San Jose-based Calpine said his= =20 company is close to a settlement with the state.=20 Power suppliers urged Wagner not to calculate refunds by applying the energ= y=20 commissions' June price-limits plan retroactively. But that's what Wagner= =20 said he will do. It was a victory for California officials, who had pushed= =20 for it. Wagner, however, also made some changes to the price-limit plan tha= t=20 power suppliers had wanted. He applied it only back to Oct. 2, 2000. State= =20 officials wanted it to cover up to May 2000.=20 $3 billion difference=20 The state's $8.9 billion figure comes from May 2000 through May 2001.=20 Factoring refunds beginning with Oct. 2, 2000, eliminates about $3 billion = in=20 overcharges the state says occurred in the earlier period.=20 Among the changes to the commission's formula that Wagner made was to revis= e=20 the way the prevailing electricity price limit is calculated. Wagner wants= =20 the price limit determined for each hour of each day. The commission's=20 formula sets a price limit during Stage One power emergencies that remains = in=20 effect until the next emergency.=20 But in a sign of just how complex the issue is, Stanford University economi= st=20 Frank Wolak said he believes the standards described by the judge will=20 produce a much higher figure than $1 billion.=20 ``That's the methodology the state used,'' said Wolak, who advises the=20 California ISO on market issues. ``By using the marginal unit for each hour= ,=20 you'll get refund numbers on the order of what the state estimated.''=20 Mercury News Staff Writers Brandon Bailey and Dana Hull contributed to this= =20 report.=20 Contact Jim Puzzanghera at jpuzzanghera@krwashington.com or (202) 383-6043.= =20 Power purchase bills exceed $7.5 billion=20 Published Tuesday, July 10, 2001, in the San Jose Mercury News=20 BY MARK GLADSTONE, NOAM LEVEY AND DION NISSENBAUM=20 Mercury News Sacramento Bureau=20 SACRAMENTO -- Six months after jumping into the electricity business, the= =20 Davis administration on Monday provided the first detailed glimpse of=20 California's daily power purchases, showing more than $5 billion in payment= s,=20 much of it to government-owned utilities and private companies that state= =20 officials have branded as price gougers.=20 The state spent an additional $2.5 billion on a variety of contracts and=20 other electricity services designed to stabilize the volatile energy market= s,=20 according to documents that the state agreed to release last week amid a=20 legal dispute over public access to the data.=20 In roughly the first five months of the year, the state shelled out $1.2=20 billion to Atlanta-based Mirant, the most any company was paid for=20 electricity, followed by $1 billion to Powerex, the marketing arm of BC Hyd= ro=20 in British Columbia. It also paid $331 million to the Los Angeles Departmen= t=20 of Water and Power.=20 The documents raise questions about some of the common assumptions that hav= e=20 arisen around the electricity crisis. For instance, almost 40 percent of th= e=20 state's purchases have come from government-run power generators in=20 California and elsewhere, but not Texas; some of the biggest suppliers are= =20 from the Northwest.=20 Gov. Gray Davis, who has ambitions to run for the White House, has put much= =20 of the blame for the soaring costs of power on energy companies based in=20 President Bush's home state.=20 The figures are tucked inside 1,770 of pages of invoices that Davis has=20 resisted divulging, saying disclosure would encourage suppliers to charge= =20 more. The state, which last month released information on its long-term=20 electricity contracts worth $43 billion, agreed Thursday to release the fir= st=20 quarter details.=20 Short on explanation=20 The figures were disclosed late Monday by the California Department of Wate= r=20 Resources, which buys power for the state's financially strapped major=20 utilities, and seem to buttress the administration's contention that the=20 price of power is gradually dropping but offer little or no explanation for= =20 what prompted the decrease.=20 In January, for instance, the average price for power on the spot market wa= s=20 $321 a megawatt hour. It peaked in April at $332 and dropped to $271 in May= .=20 One megawatt powers about 750 homes.=20 Davis spokesman Steve Maviglio said the price data supports the governor's= =20 assertions that California has been gouged. ``The bad guys are clearly the= =20 out-of-state generators,'' Maviglio said. ``There has been a significant=20 shift of money out of California.''=20 But the documents fail to shed much light on whether, as the administration= =20 contends, the price drop was due to long-term power contracts negotiated by= =20 the state earlier this year. Critics contend that the Davis administration= =20 panicked and rushed into deals that commit the state to pay high prices for= =20 many years.=20 Used for support=20 Republican officials used the price information to bolster their attacks=20 against Davis, a Democrat, for signing long-term contracts with power=20 generators even as the price of power on the spot market was coming down,= =20 partly because of the declining price of natural gas used to fuel many=20 plants.=20 ``It's more clear than ever that the long-term contracts are a bad deal,''= =20 said Assemblyman Tony Strickland, R-Camarillo. ``The governor's really hurt= =20 the ratepayers for the next five or 10 years.''=20 The newly released bills highlight the volatility of California's energy=20 market, where the price per megawatt hour ranged from $70 to $1,000. On any= =20 given day, the records show, the prices from seller to seller varied widely= ,=20 with some of the highest prices being charged by public utilities and=20 companies outside Texas.=20 On one day in February, for example, San Diego-based Sempra Energy was=20 charging $165 per megawatt hour, the Eugene Water and Electric Board was=20 charging nearly $500 and Duke Energy, a North Carolina company, was chargin= g=20 up to $575.=20 The state's daily spending peaked May 10 at $102.4 million for all power,= =20 including the spot market and contracted power.=20 The state began buying power in mid-January on behalf of the state's major= =20 utilities, which were unable to borrow money to buy power after amassing=20 enormous debts for electricity.=20 San Jose-based Calpine Corp., which is building several new power plants=20 around California including one in South San Jose, did only $29 million wor= th=20 of business with the state in the first five months of the year, according = to=20 the figures.=20 The state began buying power in mid-January when Pacific Gas & Electric Co.= =20 and Southern California Edison Co. were on the ropes financially. PG&E late= r=20 went into bankruptcy.=20 On Monday, state lawmakers took another shot at trying to cobble together a= =20 plan to rescue financially ailing Edison.=20 While most concede that a rescue plan Davis worked out with Edison will not= =20 win the necessary support in the Legislature, lawmakers have created severa= l=20 working groups to come up with alternatives.=20 Compromise plan=20 On Monday, state Sen. Byron Sher, D-Redwood City, unveiled the latest=20 compromise proposal that seeks to protect average ratepayers and small=20 businesses from further rate increases and forces everyone else to help=20 finance the Edison bailout.=20 The ``shared pain'' proposal would force power producers, owed about $1=20 billion, to take a 30 percent ``haircut'' and agree to forgive about $300= =20 million in Edison debts. Edison would be asked to swallow $1.2 billion --= =20 about a third of its debt. And big users would be asked to pay off the=20 remaining $2 billion in debts, possibly by paying higher prices for power.= =20 In exchange, large companies would be given the opportunity to buy power on= =20 the open market, a system that would allow many of them to sign cheap energ= y=20 deals.=20 Sher presented the proposal to Senate Democrats Monday afternoon, but it=20 remains unclear how much support the framework will receive in the=20 Legislature.=20 Contact Mark Gladstone at mgladstone@sjmercury.com or (916) 325-4314.=20 ? Refund outlook dims=20 Talks break down; judge says state is owed much less than its $8.9 billion= =20 demand -- and unpaid bills may offset gains.=20 July 10, 2001=20 By DENA BUNIS and JOHN HOWARD The Orange County Register=20 WASHINGTON The nation's chief energy judge said Monday that California is= =20 owed maybe $1 billion in refunds from power generators, a fraction of the= =20 $8.9 billion demanded by Gov. Gray Davis.=20 And even at that, said Judge Curtis Wagner, the electricity sellers are owe= d=20 so much more in unpaid power bills that in the end California might not see= =20 one red cent.=20 Wagner announced his recommendation to the Federal Energy Regulatory=20 Commission after two weeks of fruitless negotiations between all the partie= s=20 to California's electricity crisis. With no settlement, the matter is now i= n=20 the commissioners' hands.=20 Power generators, Wagner said, had offered a combined $716 million in=20 refunds, an offer the state rejected. "I don't think it's 8.9 (billion=20 dollars)," he said afterwards, "because I haven't been shown that it was."= =20 For California consumers, every dollar the state can extract in refunds is = a=20 dollar less that ratepayers have to shell out for state-purchased power. An= d=20 the more money the state gets back, the better the chances of warding off= =20 future rate increases.=20 "California will get its $8.9 billion," insisted Michael Kahn, head of the= =20 state's delegation and the California Independent System Operator. Kahn=20 brushed off Wagner's comments, finding victory in the judge's assertion tha= t=20 the state is owed some refunds, a concept the generators have been unwillin= g=20 to embrace up to now, he said.=20 Since the talks began, some generators have made refund offers -- last week= =20 Duke Energy offered $20 million and on Monday, Reliant officials revealed= =20 their refund offer was $50 million, provided all other actions against the= =20 company were dropped.=20 But the net result of the 15- day closed-door sessions is that California i= s=20 no closer to getting repaid for what it claims was price gouging by power= =20 companies going back to May 2000 than it was the day the talks began.=20 And it means the state is in for possibly more hearings before the FERC. If= =20 unsuccessful there, the whole issue could wind up in court for years.=20 "You can take a horse to water but cannot make him drink," Wagner said duri= ng=20 an afternoon public session where he made his preliminary recommendation. H= e=20 has seven days to put his ideas in writing. At several points during the=20 often-tense talks, Wagner expressed frustration to the negotiators and trie= d=20 to get them to agree, even to the point of holding an unprecedented Sunday= =20 session.=20 "The numbers were too far apart," Wagner said.=20 While Kahn insisted the state had made progress, on hearing of the judge's= =20 comments, state Sen. John Burton, D-Francisco, called them "barely better= =20 than a jab in the eye with a sharp stick." Burton agreed with Kahn that the= =20 state has to do all it can to get more than that.=20 And Davis backed up his team.=20 "Our delegation made a clear and compelling factual argument that there wer= e=20 overcharges made because the market was broken," Davis said. "Remarkably, t= he=20 energy generators and suppliers refused to recognize their responsibility t= o=20 the people of California and own up to their profiteering."=20 Power generators seemed satisfied with the judge's views, even though John= =20 Stout, vice president of Reliant Energy, said his company's "fundamental=20 position has been and remains that no refunds are justified."=20 Brent Bailey, general counsel for Duke Energy, called the judge's=20 recommendation, "a fair one."=20 Republican lawmakers in Sacramento were quick to say it was Davis' failed= =20 energy policies that brought California to this point. They also distanced= =20 themselves from the state's refund request.=20 "I don't believe there really exists a true justification for that number,"= =20 said Assemblyman John Campbell, R-Irvine. "I've never considered that=20 anything more than a wild number to throw out there."=20 The two sides are so far apart in their estimates of overcharges because th= ey=20 are using different assumptions about how to compute the complex pricing=20 structure. And Wagner was more persuaded with the majority of the generator= s'=20 methods.=20 To start with, the state is asking for $8.9 billion, but about $3 billion o= f=20 those alleged overcharges happened between May and October 2000, a period= =20 FERC is not looking at. FERC issued two refund orders in March, finding tha= t=20 power companies had $124 million in overcharges during power alerts. But th= e=20 state is challenging that finding, saying there were overcharges beyond tho= se=20 limited times. And the state is also asking FERC to reconsider allowing=20 refunds for May to October 2000.=20 How energy panel affects California=20 Six months ago, few people had heard of FERC. Now the Federal Energy=20 Regulatory Commission, the agency charged with making sure that the nation'= s=20 power markets are running smoothly and that wholesale prices are "just and= =20 reasonable," rolls off the tongue.=20 The five commissioners who make up FERC - all of whom were members of their= =20 home state's Public Utilities Commissions - ordered the settlement talks th= at=20 concluded Monday. They had hoped all the parties involved in California's= =20 electricity crisis could reach an agreement on proposed refunds, long-term= =20 power contracts and other issues that have divided the parties for months.= =20 FERC's chief judge, Curtis Wagner, was asked to mediate the talks.=20 WHAT WAS AT STAKE?=20 For the state: $8.9 billion that Gov. Gray Davis said was the amount power= =20 companies overcharged California in the past year. Wagner's finding? There= =20 should be refunds. But more like $1 billion.=20 For the generators: More than $5 billion that they say they are owed for=20 unpaid power bills. Wagner's finding? Generators are owed more money than t= he=20 refunds they owe California. He did not specify by how much.=20 For California consumers: A stable electricity market. Until the refund iss= ue=20 is settled and power prices are stabilized long term, what the future holds= =20 for rate increase remains uncertain. Wagner's finding? No settlement.=20 Consumers still in limbo.=20 HOW DID WE GET HERE?=20 In spring 2000, wholesale power prices began to soar. The state began=20 appealing to FERC to cap wholesale prices. In the meantime the utilities we= re=20 running out of money. Generators weren't paid for all the electricity they= =20 sold. Rolling blackouts began.=20 Starting in January, the state began buying the power, replacing the=20 near-bankrupt utilities. Politicians from Sacramento to Washington increase= d=20 the pressure on FERC to cap rates. More than $27 billion was spent to buy= =20 power for California last year, compared with $7 billion the year before. T= he=20 price tag could reach $50 billion this year.=20 On June 19, FERC imposed the kind of soft price caps experts say could=20 moderate wholesale rates. Wholesale prices have come down, but the caps hav= e=20 caused confusion among generators, leading some to hold some power off the= =20 market.=20 WHAT'S NEXT?=20 The FERC commissioners will receive Wagner's report within a week. In it, h= e=20 will suggest they hold a fast-track formal hearing that would last no more= =20 than 60 days.=20 If they agree, after that hearing the commission would rule on refunds and= =20 other California market issues.=20 If either the state or the other parties to this dispute disagree, they can= =20 contest FERC's decision in court. Such legal proceedings could last many=20 years. State reveals details of power purchases=20 Report shows last-minute energy buys in first three months of 2001.=20 July 10, 2001=20 By JENNIFER COLEMAN The Associated Press=20 SACRAMENTO On three days in May, California's daily power allowance topped= =20 $100 million, according to a report released by state power traders.=20 The California Department of Water Resources released the report Monday,=20 along with 1,770 pages of documents that also detailed the last- minute pow= er=20 purchases the state made on the spot market in the first three months of th= e=20 year.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas & Electric Co., S= an=20 Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 But since May, spot-market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation that lowered dema= nd=20 and because of increased scrutiny by lawmakers and investigators into=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot-market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot-market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 Davis already has released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations.=20 But Davis wanted to delay the release of the spot-market buys and short-ter= m=20 contracts until now to keep the state's buying strategy secret.According to= =20 the state, Atlanta-based Mirant Corp. got $1.24 billion as of May 31 for=20 spot-market purchases.=20 Canadian Powerex, the marketing arm of BC Hydro, has been paid $1.05 billio= n.=20 The newly released short-term contracts also show that on March 19-20, when= =20 the state had rolling blackouts, the state paid above-average prices in its= =20 largest short-term contracts.=20 For example, Mirant sold the state 650 megawatt-hours at off-peak usage tim= es=20 on March 20 for $345 a megawatt-hour, more than $70 above the average price= =20 of $272.96.=20 Tuesday, July 10, 2001=20 Ghost of Bob Citron roaming halls of capitol=20 Gray Davis is following footsteps of former O.C. treasurer into fiscal chao= s JOHN M.W. MOORLACH=20 Mr. Moorlach is the Orange County treasurer-tax collector.=20 A recent L.A. Times poll found that Californians still remain unconvinced= =20 that our state suffers from a shortage of energy. Perhaps the state's=20 subsidizing of the actual costs for electricity these past five months has= =20 caused us to believe that everything is fine. It is not.=20 The state has been spending an average of $57 million, a medium-sized city'= s=20 annual budget, per day for electricity. Now California is headed toward the= =20 same financial catastrophe that was imposed on its shareholder-owned=20 utilities, finding one of them in Chapter 11 bankruptcy and another on the= =20 precipice. At this pace, it will not be long before the state will be stari= ng=20 a Chapter 9 bankruptcy filing in the face.=20 That's why I'm gnawed by this "d,j. vu" sensation. The similarities and=20 parallels between California of 2001 and Orange County of 1994 are=20 frightening. Here's a refresher. In 1994 the county, through former Treasur= er=20 Robert Citron, was borrowing at variable rates and investing at fixed rates= .=20 The "experts" and the "politicos" were comfortable with the investment=20 scheme.=20 No wonder the electorate was convinced that there were no investing=20 improprieties. Even while their former treasurer was very secretive about h= ow=20 he was investing and what his "exit strategy" would be. Guess what? The=20 unexpected happened. Short-term borrowing rates doubled. The cost of=20 borrowing suddenly exceeded the revenues being generated.=20 It caused the investment pool to implode and Orange County taxpayers realiz= ed=20 a $1.64 billion loss. In spite of pleas to avoid or minimize this train wre= ck=20 the county's leadership, he ignored it. The rest is history. In a=20 half-pregnant deregulation scheme, the state capped the retail price that t= he=20 utilities can charge. It also eliminated the availability to acquire=20 electricity through the use of long-term contracts.=20 Guess what? The unexpected happened. The wholesale price for electricity=20 spiked dramatically above the inflexible retail price cap. It depleted the= =20 available funds for the utilities, and then some, and they are imploding. I= n=20 spite of pleas from the utilities imploring Gov. Gray Davis to avoid or=20 minimize this train wreck, he ignored them. The rest is also history.=20 It gets worse. Davis doesn't allow for the immediate raising of retail rate= s=20 and decides to have the state secretly purchase electricity. Guess what? Th= e=20 expected happened. He depleted our budget surplus! Our reserves! Nearly $9= =20 billion - and counting! He's a Citron, only quintupled!=20 And in the light of day, the secret purchases were not attractively priced= =20 and only compound this financial nightmare. Gov. Davis has done what no=20 Libertarian or Republican could ever dream of doing in such a short time. H= e=20 has returned the budget surplus created by taxpayers to the residents of=20 California by subsidizing their electricity bills.=20 Bravo! It may not be the most equitable way of refunding taxes, but has=20 anyone ever thought up a more efficient method? But, that's not all. He wan= ts=20 it back! Davis now wants to borrow some $13 billion to replace the spent=20 reserves and purchase even more electricity at rates in excess of the retai= l=20 prices! When does this train wreck in slow motion stop?=20 And how do we pay off these bonds? Davis did not want to raise rates last= =20 summer or this past winter. But now he will to pay off this historically=20 largest municipal bond offering with a significant utility rate increase. T= he=20 ratepayers will be reminded for 10 years after Davis is gone about his=20 expensive brilliance. And this elected official wants to purchase the power= =20 grids and bureaucratically manage the utilities? I say "no."=20 If we don't show some leadership in Sacramento soon, potential bond buyers= =20 will also say "no," unless they receive an attractive interest rate. Just a= sk=20 Edison International about attractive interest rates. It just subscribed $8= 00=20 million in bonds paying 14 percent. Tragically, Gov. Davis walked into his= =20 position with an existing budget surplus and now has no tangible legacy to= =20 show for it. No reserves. No improved highways. No new schools. No=20 infrastructure improvements. Only interest payments.=20 Wasn't that Citron's legacy? If amortized over 10 years at 6 percent, the= =20 citizens of California will pay an additional $4.4 billion in interest cost= s.=20 Over 15 years it's $6.7 billion. And therein lies the true legacy of Davis,= =20 squandering the entire budget surplus that he inherited on interest resulti= ng=20 from his indecisiveness and lack of leadership!=20 It is so tragic that the perpetrator of this colossal mess is still in deni= al=20 and continues to play the "blame game." Orange County played the "blame=20 game," too. But it had obvious perpetrators and succeeded in a court of law= =20 in securing a significant amount in retribution payments. I'm not so sure= =20 California will have a similar result.=20 Calpine's Los Medanos Energy Center Adds Needed Generation to California=20 Second New Major Base Load Generator for California=20 July 10, 2001=20 Second New Major Base Load Generator for California=20 SAN JOSE, Calif., July 9 /PRNewswire/ -- San Jose, Calif.-based Calpine=20 Corporation (NYSE: CPN) announced today that its 555-megawatt Los Medanos= =20 Energy Center in Pittsburg, Calif. is providing needed electricity to=20 California's strained power grid. Los Medanos is the second major=20 combined-cycle facility to be licensed and built in California in over a=20 decade. Fueled by natural gas, the facility is designed to add up to=20 555-megawatts of clean, reliable electricity to California on a 24 hours a= =20 day, seven days a week availability. As a cogeneration facility, the projec= t=20 also delivers electricity and steam to USS POSCO for use in industrial=20 processing.=20 Governor Gray Davis and Calpine CEO Peter Cartwright will hold a press=20 conference Monday afternoon to commission the Los Medanos Energy Center and= =20 to recognize the support of the local community, the construction and trade= s=20 people, and numerous organizations that helped develop the facility.=20 Cartwright said, "We are committed to creating innovative energy solutions= =20 for California's growing power market. Los Medanos exemplifies excellence i= n=20 power generation-ratepayers and the environment benefit as Calpine brings t= o=20 California new energy resources like Los Medanos."=20 Los Medanos is the second of eleven announced modern, fuel-efficient energy= =20 centers Calpine is building in the State as part of a $6 billion energy=20 initiative. Three additional facilities are under construction, including a= n=20 880-megawatt facility in Pittsburg at Dow Chemical's facility. By year-end= =20 2005, Calpine expects to be generating 12,000 megawatts of clean, affordabl= e=20 electricity to help repower California.=20 Calpine broke ground on the Los Medanos Energy Center in September 1999. Mo= re=20 than 600 construction and trade personnel worked on the project over a=20 20-month period. During the past several months, the project scheduled two= =20 ten-hour shifts, seven days a week to get the plant operating as soon as=20 possible in light of the energy crisis. And over the past several weeks,=20 technical teams worked round the clock to complete the facility. The total= =20 cost of construction is estimated to be approximately $350 million.=20 The Los Medanos Energy Center is located in Pittsburg, Calif., in Contra=20 Costa County adjacent to the USS POSCO plant and is operated by a 22-member= =20 staff of highly trained personnel.=20 As with all of Calpine's modern base load facilities, Los Medanos uses=20 combined-cycle design with natural gas-fired turbines in combination with a= =20 steam turbine to achieve maximum fuel efficiency. Advanced emissions contro= l=20 technology enables Calpine to reduce certain emissions by more than 90=20 percent.=20 Based in San Jose, Calif., Calpine Corporation is dedicated to providing=20 customers with reliable and competitively priced electricity. Calpine is=20 focused on clean, efficient, natural gas-fired generation and is the world'= s=20 largest producer of renewable geothermal energy. Calpine has launched the= =20 largest power development program in North America. To date, the company ha= s=20 approximately 34,000 megawatts of base load capacity and 7,200 megawatts of= =20 peaking capacity in operation, under construction, pending acquisitions and= =20 in announced development in 29 states, the United Kingdom and Canada. The= =20 company was founded in 1984 and is publicly traded on the New York Stock=20 Exchange under the symbol CPN. For more information about Calpine, visit it= s=20 Website at www.calpine.com.=20 This news release discusses certain matters that may be considered=20 "forward-looking" statements within the meaning of Section 27A of the=20 Securities Act of 1933, as amended, and Section 21E of the Securities=20 Exchange Act of 1934, as amended, including statements regarding the intent= ,=20 belief or current expectations of Calpine Corporation ("the Company") and i= ts=20 management. Prospective investors are cautioned that any such forward-looki= ng=20 statements are not guarantees of future performance and involve a number of= =20 risks and uncertainties that could materially affect actual results such as= ,=20 but not limited to, (i) changes in government regulations, including pendin= g=20 changes in California, and anticipated deregulation of the electric energy= =20 industry, (ii) commercial operations of new plants that may be delayed or= =20 prevented because of various development and construction risks, such as a= =20 failure to obtain financing and the necessary permits to operate or the=20 failure of third-party contractors to perform their contractual obligations= ,=20 (iii) cost estimates are preliminary and actual cost may be higher than=20 estimated, (iv) the assurance that the Company will develop additional=20 plants, (v) a competitor's development of a lower-cost generating gas-fired= =20 power plant, and (vi) the risks associated with marketing and selling power= =20 from power plants in the newly competitive energy market. Prospective=20 investors are also cautioned that the California energy environment remains= =20 uncertain. The Company's management is working closely with a number of=20 parties to resolve the current uncertainty, while protecting the Company's= =20 interests. Management believes that a final resolution will not have a=20 material adverse impact on the Company. Prospective investors are also=20 referred to the other risks identified from time to time in the Company's= =20 reports and registration statements filed with the Securities and Exchange= =20 Commission.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X52413521=20 SOURCE Calpine Corporation=20 CONTACT: media, Katherine Potter, 408-995-5115, ext. 1168, or investors, Ri= ck=20 Barraza, 408-995-5115, ext. 1125, both of Calpine Corporation=20 Web site: http://www.calpine.com (CPN)=20 National Desk; Section A=20 California and Generators Still Split After 2-Week Talks By JOSEPH KAHN ?=20 07/10/2001=20 The New York Times=20 Page 14, Column 1=20 c. 2001 New York Times Company=20 WASHINGTON, July 9 -- A federal mediator ended two weeks of negotiations=20 about California 's demands for electricity refunds today, with the state a= nd=20 power suppliers seemingly no closer to a settlement than when the talks=20 began.=20 The failure of the negotiations shifts the burden of resolving the yearlong= =20 dispute to the Federal Energy Regulatory Commission, to which the mediator= =20 may recommend a pricing formula that would mean refunds of about $1 billion= .=20 California , which wants $8.9 billion, vowed today that it would seek that= =20 much and more, through the courts if necessary.=20 Although electricity prices in the West have eased in recent weeks, the pow= er=20 crisis that has afflicted California and other Western states seems unlikel= y=20 to be resolved unless rival parties can agree on how much electricity shoul= d=20 have cost during the last 13 months.=20 The power market has been mired in an accounting gridlock. The state claims= =20 that generating companies began grossly overcharging for electricity -- wit= h=20 prices soaring by a factor of 10 or 20 over year-before levels -- beginning= =20 in late spring last year. Generators say they are prepared to pay some=20 refunds, but argue that California 's estimates of overcharges are radicall= y=20 inflated.=20 The mediator in the settlement talks was Curtis L. Wagner Jr., an=20 administrative law judge for the federal agency, who said today that the=20 negotiations had failed to reach the comprehensive voluntary settlement he= =20 had sought.=20 Mr. Wagner said he would recommend to the agency's commissioners that they= =20 convene a 60-day evidentiary hearing that would impose an administrative=20 solution. He also said he would suggest a method for determining fair price= s=20 for electricity .=20 Under federal law, the energy commission has the obligation to ensure ''jus= t=20 and reasonable'' electricity rates. Though the commission declared last yea= r=20 that California 's electricity market had broken down, it only recently beg= an=20 imposing price controls on the market and has yet to address accusations of= =20 past overcharges systematically.=20 While the scope of any refunds remains uncertain, Mr. Wagner's remarks=20 appeared more favorable for generators than for Western states, which have= =20 collectively pressed for as much as $15 billion in refunds.=20 Mr. Wagner said that to determine how much California should have paid for= =20 power since last September, when the commission began monitoring California= =20 energy prices, he would suggest that the agency retroactively apply a price= =20 control formula it adopted in June. He also indicated that he supported a w= ay=20 of calculating the costs of power generation that is closer to the method= =20 favored by power companies than to the one put forward by California=20 officials. The judge suggested that the formula he is recommending could=20 require generators to pay back hundreds of millions or ''maybe a billion''= =20 dollars.=20 California officials gave a positive cast to the judge's statements, callin= g=20 them a step forward because he formally acknowledged that companies would= =20 have to pay some refunds. They also noted that whatever the level of=20 federally mandated refunds, they would have the option of seeking more in= =20 court.=20 ''We are still going to get the $8.9 billion,'' said Michael Kahn, who=20 represented Gov. Gray Davis of California in the talks. ''If we don't get i= t=20 all from the commission, we will get the remainder in the courts.''=20 Governor Davis himself said today that if the agency did not provide refund= s=20 in the amount the state claims it is owed, it would sue generators for $18= =20 billion to $20 billion. ''We are in a war with generators, mostly out of=20 state, that are trying to bleed us dry,'' Mr. Davis said, speaking at the= =20 ceremonial opening of a power plant in Northern California .=20 Representatives of several generating companies said that during the=20 settlement talks, they collectively offered to refund California about $500= =20 million. They estimated that the calculation method suggested by the judge= =20 would result in refunds of no more than $1.5 billion -- far closer to their= =20 offer than to California 's demand.=20 Still, several executives said they now hoped to reach individual settlemen= ts=20 with the state that would end the threat of prolonged litigation and allow= =20 them to collect several billion dollars they say they are owed by the state= =20 and its leading, financially pressed utilities, which ran up huge debts to= =20 suppliers in the last year.=20 ''We remain very interested in reaching a global settlement with the state= =20 that will put this problem behind us once and for all,'' said Brent Bailey,= =20 vice president and general counsel of Duke Energy.=20 Financial=20 Energy Refund Talks Fail In Calif.; Federal Agency's Judge To Propose=20 Settlement Peter Behr ?=20 07/10/2001=20 The Washington Post=20 FINAL=20 Page E01=20 Copyright 2001, The Washington Post Co. All Rights Reserved=20 California consumers were overcharged by as much as $1 billion by electrici= ty=20 suppliers since October, a federal administrative judge said yesterday afte= r=20 state officials and power suppliers failed to reach an agreement on the=20 disputed charges.=20 Gov. Gray Davis (D) and California power officials wanted $8.9 billion in= =20 refunds dating back to May 2000, when the state's energy crisis began.=20 A group of generating companies headed by units of Duke Energy Corp., Relia= nt=20 Energy Inc. and Williams Cos. offered refunds of $716.1 million in the past= =20 week, going back to October. The companies said refunds should be offset by= =20 the larger amounts they are owed for unpaid power deliveries to the state.= =20 "The numbers were too far apart," Curtis L. Wagner Jr., chief judge of the= =20 Federal Energy Regulatory Commission, told reporters after two weeks of=20 closed negotiations ended yesterday. Wagner acknowledged that his refund=20 number was imprecise and said further hearings before FERC are needed to pi= n=20 down the figure.=20 Calpine Corp. of San Jose and possibly one other supplier are expected to= =20 reach individual settlements with the state, the judge said.=20 "A lot of the parties genuinely wanted to settle and others didn't," Wagner= =20 told reporters. "There's an old southern saying," said the 72-year-old=20 Tennessean. "You can take a horse to water, but you can't make it drink."= =20 He declined to say which side balked, but previously he had blasted=20 California officials for not modifying their initial demands.=20 Wagner said he will send his own refund formula to FERC's five commissioner= s=20 within a week. His formula essentially will reflect what he thinks reasonab= le=20 electricity prices would have been in the state at various times since=20 October, considering fuel costs and other factors. Charges over those level= s=20 would be subject to refund, if FERC agrees.=20 The judge's recommendation is likely to carry considerable weight with FERC= 's=20 commissioners, according to energy analysts. Earlier this year, FERC=20 tentatively ordered $125 million in refunds for the first three months of= =20 this year, an amount that Davis called far too low.=20 Facing increasing political pressure from Congress, FERC -- with two new=20 members appointed by President Bush -- has taken a harder line on Californi= a=20 's power prices. Last month, the commissioners imposed price restraints on= =20 wholesale power transactions in California and 10 other western states.=20 Wagner patterned his formula after FERC's ruling last month.=20 The nation's wealthiest state has been battered by an extraordinary surge i= n=20 electricity and gas prices that have pushed its electricity costs up from $= 7=20 billion in 1999 to an estimated $27 billion last year. Power prices did not= =20 retreat from record levels until last month.=20 Davis's top aides quickly claimed vindication yesterday.=20 "We think the numbers, even using the judge's formula, are going to be in t= he=20 multiple billions," said Michael Kahn, chairman of the California Independe= nt=20 System Operator, the state's power grid manager.=20 Kahn noted that the state refused to drop a growing list of legal claims=20 against the principal energy suppliers, most of them headquartered outside= =20 the state. The companies had insisted on being released from the state's=20 legal claims as part of any settlement, according to sources close to the= =20 negotiations.=20 "We will have a viable claim in state court and other jurisdictions for the= =20 remainder," Kahn said. " California will get its $8.9 billion."=20 But the state's own expert witness, economist Eric Hildebrandt, chief marke= t=20 monitor for the California grid, testified before Wagner that the=20 out-of-state generators and other nonpublic power suppliers would owe about= =20 $3.7 billion using FERC's pricing formula of last month -- less than half t= he=20 $8.9 billion goal.=20 Duke Energy is "very pleased'' by Wagner's action, said Brent Bailey, vice= =20 president and general counsel of the Charlotte-based company. The generator= s,=20 however, repeated their claims that Davis is trying to make them scapegoats= =20 for the state's failed electricity deregulation plan.=20 The major generators, in a statement yesterday, said they had delivered onl= y=20 20 million megawatt hours out of the 145 million the state power grid used= =20 from October 2000 to last May. (A megawatt supplies enough power for about= =20 750 homes.)=20 California utilities and municipal power companies also reaped large profit= s,=20 the generators said.=20 "The refunds sought by California would send a profoundly counterproductive= =20 message to suppliers: when prices are low and surpluses exist, you face a= =20 steep downside; when scarcity develops and prices rise we will take away al= l=20 upside [profit]. No one will invest [in California power facilities] in tha= t=20 climate," the generators' statement said. "The power supply shortage thus= =20 will continue without relief."=20 http://www.washingtonpost.com=20 Contact: http://www.washingtonpost.com=20 Economy=20 California and Energy Companies Miss Deadline By Richard B. Schmitt ?=20 07/10/2001=20 The Wall Street Journal=20 Page A2=20 (Copyright (c) 2001, Dow Jones & Company, Inc.)=20 WASHINGTON -- State officials and power-company executives failed to meet a= =20 federal deadline for settling $8.9 billion of disputed California electrici= ty=20 charges, as a federal mediator overseeing the talks suggested the state's= =20 demand was excessive.=20 Cautioning that he hadn't done formal calculations, Curtis L. Wagner Jr., t= he=20 chief administrative law judge of the Federal Energy Regulatory Commission,= =20 put the level of potential refunds at "hundreds of millions of dollars, may= be=20 a billion dollars." He also said any sums due the state could well be offse= t=20 by monies its insolvent utilities owe in unpaid power bills.=20 Mr. Wagner said he would recommend to the commission that any refunds be=20 calculated only from October -- the state had been seeking rebates calculat= ed=20 from May 2000 -- in line with an earlier FERC jurisdictional ruling. That= =20 decision alone would shave $3 billion from the $8.9 billion claim.=20 Mr. Wagner, who is expected to issue formal findings in the next few days,= =20 said he would recommend that the FERC hold an evidentiary hearing to assess= =20 the correct method for figuring refunds.=20 The collapse of the talks doesn't preclude individual deals later between= =20 energy companies and the state, which has accused them of overcharging for= =20 power during the past two years. Yesterday, some industry lawyers indicated= a=20 willingness to keep bargaining, and Mr. Wagner said two "partial" settlemen= ts=20 were in the works.=20 Yet, absent any such solution, the overcharge issue -- a flash point in the= =20 California power crisis -- is apt to be resolved in protracted legal and=20 regulatory proceedings, which could drag on for months or even years.=20 The negotiations began June 25, with a deadline set for midnight last night= .=20 But late yesterday, participants indicated they were billions of dollars=20 apart, with basic differences over everything from the disputed charges to= =20 doubts about whether the FERC, which ordered the talks, could enforce a dea= l=20 because of the industry's questions about the reach of the agency's=20 authority.=20 "We haven't reached a settlement. We really haven't come close," said John= =20 Stout a senior vice president of Reliant Energy Inc.'s wholesale-power grou= p.=20 Reliant had offered to pay California about $50 million to extricate itself= =20 from the fight. That is more than a third of the Houston company's operatin= g=20 profit during the relevant period, he said, although far shy of the more th= an=20 $375 million California sought from Reliant.=20 Mr. Wagner said the industry offered a total of $716 million to settle the= =20 matter.=20 The refund issue is fast becoming a test of the agency's authority and=20 credibility. The FERC, a onetime regulatory backwater, has come under inten= se=20 scrutiny of late for its largely hands-off monitoring of deregulated=20 California markets. The commission has ordered some companies to pay refund= s,=20 but they have been relatively small -- such as a $124 million rebate coveri= ng=20 wholesale electricity bills in California in January and February.=20 California Gov. Gray Davis has said he hopes two new FERC members will take= a=20 much more aggressive tack. The agency is expected to act quickly on the=20 judge's call for a hearing and other findings.=20 Yesterday, Michael Kahn, a San Francisco lawyer representing Gov. Davis at= =20 the settlement, declared he was "gratified" by Mr. Wagner's findings, sayin= g=20 they validated the state's claims to some refunds, a concept the industry h= ad=20 rejected at the talks' outset. "We've had a ringing endorsement of the idea= =20 of refunds and we'll get back lots of money," he said, adding that what the= =20 state doesn't recoup via the FERC it will pursue in court.=20 But power generators, who derided the state's request for a huge refund as= =20 "ludicrous" and "unsound," felt vindicated by yesterday's proceedings. "The= =20 state came away with far less than its expectations," said Robert Loeffler,= =20 an attorney for a unit of AES Corp. of Arlington, Va. "The common expectati= on=20 now is that any refunds will be way below this $9 billion."

dasovich-j/all_documents/28504.

dasovich-j

Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com', 'angela.wilson@enron.com'] File: dasovich-j/all_documents/28504. ===================================== 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=20 chaos (Commentary) Individual.com (PRnewswire), Tues, 5/10: Calpine's Los Medanos Energy Cente= r=20 Adds Needed Generation to California Second New Major Base Load Generator for=20 California=20 NY Times, Tues, 5/10: California and Generators Still Split After 2-Week Ta= lks Wash. Post, Tues, 5/10: Energy Refund Talks Fail In Calif.; Federal Agency'= s=20 Judge To Propose Settlement WSJ, Tues, 5/10: California and Energy Companies Miss Deadline ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------- No deal in energy refund talks=20 By David Whitney Bee Washington Bureau (Published July 10, 2001)=20 WASHINGTON -- Negotiations to settle a tangle of issues arising out of=20 California's electricity debacle sputtered to an end Monday with the sides= =20 light-years apart on refunds for overpriced wholesale power sales.=20 The impasse raises the specter of years of litigation, with a regulatory=20 judge proposing a formula that could limit refunds to about $1 billion whil= e=20 California is seeking at least $8.9 billion and perhaps much more.=20 Federal Energy Regulatory Commission administrative judge Curtis Wagner sai= d=20 that within a week he'll urge the five FERC commissioners to begin=20 fact-finding hearings on how much is truly owed, following guidelines he=20 outlined sketchily Monday.=20 Among them would be limiting the time when refunds are allowed -- something= =20 that could reduce state claims by about one-third -- and changing the way= =20 power plant costs are calculated to a formula more favored by generators.= =20 Gov. Gray Davis said he was heartened by the judge's belief that California= =20 is due some amount of refund money, rejecting the generators' arguments for= =20 no refunds.=20 With the 15-day negotiation session nearly moribund, generators and power= =20 traders had offered up $716 million in proposed refunds in the final days.= =20 But Wagner indicated that that would have to be offset by money the state= =20 still owes power companies, meaning no cash would actually change hands.=20 The judge held out the possibility that at least two parties, including San= =20 Jose-based Calpine Corp., could reach separate agreements with the state.= =20 "From what I know, it looks like we can reach an agreement," Calpine=20 spokesman Bill Highlander confirmed Monday. But he said he could not disclo= se=20 any details under Wagner's gag order on participants in the negotiations.= =20 Enron Corp., one of the nation's highest-profile power traders, said=20 California officials killed the talks by never budging from their claims th= at=20 the state's consumers deserved at least $8.9 billion in refunds for=20 overcharges.=20 "These talks never had a chance," said Enron spokesman Mark Palmer. "Their= =20 political skins are worth more than $716 million that the taxpayers of=20 California could have used. It was about creating and maintaining a tool fo= r=20 a witch hunt."=20 Of the $716 million compromise offer, $510 million was put on the table by= =20 what Wagner called the "Big Five" generators -- Reliant, Duke, Mirant,=20 Williams and Dynegy -- some of whom are under state investigation. Another= =20 $125 million was offered by BC Hydro, British Colombia's government utility= ,=20 which is not under FERC jurisdiction, and $16.5 million was offered by six= =20 California municipal utilities.=20 The Sacramento Municipal Utility District, the state's second-largest=20 municipal utility, also declined to comment on the talks or any settlement= =20 amount it may have offered, but said it would outline its position in writi= ng=20 Thursday, the judge's deadline for comments on his proposal.=20 Consumer advocates and some industry officials said the judge's brief publi= c=20 remarks make it difficult to predict exactly what the impacts could be on t= he=20 state's troubled electric scene.=20 "If the judge is saying that the refund is topped at a billion that's=20 outrageous," said Nettie Hoge, head of The Utility Reform Network. "If=20 they're going to start doing some fact finding, hallelujah."=20 Hoge said the talks had been unrealistic from the start, because there was = no=20 effort by FERC to determine how high the overcharges had actually been and= =20 then work toward a compromise from there.=20 The state used a formula calculated by its nonprofit grid operator, the=20 Independent System Operator, which was attacked by marketers as wildly high= =20 even while the state called it conservatively low.=20 Joel Newton, representing all five of the big generators, said Monday that= =20 the ISO has consistently based its demand on "sketchy and incomplete" data.= =20 The face-off between Davis and power merchants began last fall, as wholesal= e=20 electricity costs were soaring and California utilities warned that they=20 could be driven into bankruptcy.=20 The governor said generators and traders took advantage of the state's powe= r=20 shortage to manipulate markets and gouge consumers. Generators said they=20 followed all laws and were only deriving fair profits in a scarcity=20 situation.=20 FERC, which entered the picture because by law it has to ensure that=20 electricity rates are "just and reasonable," has made repeated, unsuccessfu= l=20 efforts to craft a solution that could appease both sides.=20 State Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said Monday that t= he=20 failure of the settlement talks to agree on a refund figure "comes as no=20 surprise."=20 Negotiators representing generators "refused to even acknowledge the=20 inescapable fact that they have profited enormously by exploiting a=20 dysfunctional market -- at California's expense," he said.=20 Davis, who had accused the generators of failing to negotiate in good faith= =20 with state representatives, said that although FERC commissioners have been= =20 slow to respond to his requests for refunds and for price caps on wholesale= =20 electricity, they "now have the opportunity to redeem themselves."=20 He suggested the commissioners can opt to award California more than is=20 recommended by the judge.=20 Wagner, after mediating talks that continued throughout the weekend, seemed= =20 resigned to the fact that trying to bring more than 50 government, utility= =20 and power generating entities together proved to be an exercise in futility= .=20 Michael Kahn, head of the California delegation and consultant to the=20 California ISO, nonetheless came away thinking the state had fared pretty= =20 well.=20 "We came here wanting $8.9 billion," Kahn said. "In all candor, we didn't= =20 receive any meaningful settlement offers and so the negotiations were not a= s=20 helpful as we had hoped they would be. But our positions were vindicated"= =20 because refunds were offered.=20 Meanwhile, Pacific Gas and Electric Co. and Southern California Edison=20 sounded the call for more talks.=20 "We're willing to talk to anyone, anytime about a settlement," said Steve= =20 Pickett, general counsel of Southern California Edison. PG&E said in a=20 prepared statement that the sessions "provide a solid basis for further=20 negotiations."=20 How much money the state might eventually receive remains the big question= =20 mark. Wagner said settlement offers of $716 million suggest that eventual= =20 refunds will amount to "hundreds of millions of dollars, maybe a billion."= =20 But he also stressed that he would recommend no specific figure to FERC=20 commissioners and does not know how big refunds might eventually be.=20 Other recommendations Wagner said he would make to the commission were a=20 mixed bag for the state.=20 The judge said he would recommend refunds no further back than Oct. 2, 2000= ,=20 an action that Kahn said would immediately slice $3 billion off the state's= =20 refund analysis that stretched back to May 2000.=20 But Kahn said that was no defeat for the state, which would turn to the=20 courts to recover that and any other sums excluded from a final refund orde= r.=20 "We still have a viable litigation claim for the remainder," Kahn said.=20 Brent Bailey, vice president and general counsel of Duke Energy of North=20 America, said he felt the formula laid out by Wagner would generate a refun= d=20 order in the range of $1 billion to $1.5 billion.=20 "It's a reasonable amount in the context of these settlement talks," Bailey= =20 said.=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com.=20 Staff writers Emily Bazar and Dale Kasler contributed to this report. Third power plant opens: But the Los Medanos facility isn't pouring out=20 electricity yet.=20 By Carrie Peyton Bee Staff Writer (Published July 10, 2001)=20 The flood of new electricity being welcomed by Gov. Gray Davis was only a= =20 trickle at the latest power plant that the governor opened on Monday,=20 according to sources close to California's energy crisis.=20 Heralded by Davis as part of a "powerful one-two-three punch" that will bri= ng=20 California closer to energy independence, the Los Medanos Energy Center in= =20 Pittsburg spit out no more than 20 megawatts on its opening day, they said.= =20 That is less than 5 percent of the plant's 555-megawatt operating capacity.= =20 Los Medanos could generate a couple of hundred megawatts later this week bu= t=20 is not expected to reach its full output for two to three weeks, according = to=20 knowledgable sources.=20 Representatives for Calpine and the governor's office, when pressed for=20 details, acknowledged that the plant was not running at full tilt but said= =20 they did not know how much electricity was actually produced Monday.=20 Calpine, which will bill someone for whatever electricity it sells from Los= =20 Medanos, is keeping track of the production but the figure wasn't immediate= ly=20 available for the media, spokeswoman Katherine Potter said.=20 "Even if it was two megawatts, that's two more megawatts that we didn't hav= e=20 yesterday," said Davis spokesman Steve Maviglio.=20 He said the opening was "largely ceremonial," timed for the convenience of= =20 the governor and Calpine's top executive.=20 But consumer advocate Harvey Rosenfield called the media event "a deception= ."=20 It was the third highly publicized power plant launch the governor has=20 attended in the past two weeks.=20 "It's the governor trying to convince people he's hard at work solving the= =20 problem when it's all for show," Rosenfield said. "He's governing by sound= =20 bite. He's certainly getting his money's worth from the consultants he=20 hired."=20 Davis political adviser Garry South said last week that the governor's new= =20 radio ad campaign will highlight the efforts to produce more power in=20 California.=20 "Generation comes up in our polls as being the No. 1 thing people want us t= o=20 do -- build more power plants," South said then. "People want the sense tha= t=20 progress is being made -- that this is not spiraling out of control."=20 The other two plants that Davis kicked off -- Sunrise in Kern County and=20 Sutter near Yuba City -- have since been running at maximum capacity.=20 Calpine anticipates pumping the full 550 megawatts out of Los Medanos withi= n=20 a week to 10 days, company officials said.=20 "In the first month of these new plants, there are always stops and starts,= "=20 said Calpine spokesman Bill Highlander. "Sometimes we shut down altogether.= "=20 Including the three just-opened facilities, new or expanded power plants ar= e=20 expected to add 1,500 megawatts to the state's struggling electric grid by= =20 the end of July, and 870 megawatts of that is already in place, according t= o=20 the state Independent System Operator.=20 Another 1,000 megawatts is anticipated for the end of August and 1,100 more= =20 for the end of September, under a rough timetable that is likely to see som= e=20 plants zip ahead of schedule and others fall behind.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com. State reveals high-priced power deals=20 By Dale Kasler and Chris Bowman Bee Staff Writers (Published July 10, 2001)=20 The state Monday released details of its adventures in buying electricity o= n=20 the spot market, revealing a chaotic world in which prices fluctuate wildly= =20 within minutes.=20 The Department of Water Resources, which has been criticized for keeping it= s=20 power-purchasing practices a secret, released 1,770 pages of invoices and= =20 trade confirmations that provided the most detailed look yet of its purchas= es=20 since it jumped into the energy-buying business Jan. 17. The information wa= s=20 released a week after state Controller Kathleen Connell put out details of= =20 the state's long-term power contracts over the objections of Gov. Gray Davi= s,=20 her political nemesis.=20 The state has committed about $8.1 billion to buying power on behalf of=20 California's crippled utilities, straining the budget surplus and raising= =20 questions from lawmakers and others about Davis' policies for resolving the= =20 state's energy crisis. In turn, state officials have accused many suppliers= =20 of gouging California to the tune of several billion dollars.=20 When it came to the spot market, the water department was at the mercy of a= =20 business run amok. The state paid upward of $300 a megawatt-hour for days i= n=20 January and February -- months when electricity normally should be a lot=20 cheaper. Water officials said prices have dropped to the $100 range largely= =20 because they've signed a slew of long-term contracts, reducing their=20 dependence on spot sales.=20 "Our exposure earlier this year to the spot market was at the maximum," sai= d=20 Oscar Hidalgo, spokesman for the water department.=20 The information released Monday covered the first three months of the year= =20 and didn't include the highest price the water department has paid for=20 electricity: $1,900 a megawatt-hour in May to Reliant Energy Inc., a Texas= =20 generator that owns several plants in the state. Duke Energy Corp. of North= =20 Carolina charged even more for power in January, $3,880 a megawatt hour, bu= t=20 that sale was made to the Independent System Operator, which runs the state= 's=20 transmission grid.=20 The documents show that while the state's stricken utilities no longer buy= =20 power for themselves, their sister companies have sold expensive power.=20 Through May 31, the state paid a trading arm of Sempra Energy, the parent o= f=20 San Diego Gas & Electric, some $429 million for power. It paid PG&E Energy= =20 Trading, an unregulated sister company of Pacific Gas and Electric Co., abo= ut=20 $23.7 million.=20 Among others, the Los Angeles Department of Water and Power was paid $331= =20 million through May 31; Canadian utility BC Hydro was paid $1.05 billion;= =20 Atlanta's Mirant Corp. $1.24 billion; the federal government's Bonne=0F'vil= le=20 Power Administration $167 million; and the Sacramento Municipal Utility=20 District $80.7 million.=20 Generally, the more desperate the state was for power, the higher the price= s.=20 For instance, Oklahoma-based generator Williams Cos. commanded $565 a=20 megawatt-hour March 20, when blackouts struck more than 1 million=20 Californians.=20 Location also was critical. On March 8 the state paid the PG&E trading unit= =20 $250 but only $180 to Arizona-based Pinnacle West Capital Corp. The=20 difference was that PG&E's power was delivered to energy-starved Northern= =20 California, while Pinnacle's was sent to Southern California where energy= =20 wasn't so scarce.=20 Split-second timing was also crucial. At 9:09 a.m. Feb. 14, the state paid= =20 $400 to Mirant for power to be delivered the next day. By 10 a.m. it was=20 paying Mieco Inc., a Long Beach trading firm, $475 for the same product.=20 "That's the spot market -- it's the most volatile market in the world, and = it=20 changes on a second-by-second basis," said Enron Corp. spokesman Mark Palme= r.=20 For all the criticism leveled at Duke, Reliant and other big corporations,= =20 government-owned entities were among the most aggressive at charging high= =20 prices.=20 BC Hydro, the electric utility owned by the Canadian province of British=20 Columbia, submitted bills for up to $1,000 a megawatt-hour. The city of=20 Glendale charged $375 a megawatt-hour for power in January, while SMUD=20 charged $309 a megawatt-hour in March. The city of Eugene, Ore., averaged= =20 $450 a megawatt-hour in February.=20 "We play by the rules of the electricity trade marketplace," said BC Hydro= =20 spokesman Wayne Cousins. "Our traders worked very hard to find additional= =20 sources of electricity to keep the lights on in California. Had we not come= =20 through and stepped forward with these supplies, the consequences to=20 California customers would have been severe."=20 The state also said it has spent $14.4 million on administrative costs in= =20 buying power.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m. Government finds ways to conserve: The Santa Rita Jail goes solar as agenci= es=20 get creative to cut costs. By Cheryl Miller Bee Correspondent (Published July 10, 2001)=20 To Matt Muniz, the solar panels sprouting on the rooftop of the Santa Rita= =20 Jail in Dublin aren't just energy-makers; they're money in the bank.=20 When all 4,000 panels are completely installed this month, the 500-kilowatt= =20 photovoltaic system -- the largest rooftop project ever constructed in the= =20 United States -- will cut the jail's demand on the electric grid by up to 2= 0=20 percent, according to Muniz, Alameda County's energy program manager.=20 That sun power, combined with conservation projects already completed at th= e=20 jail, will slash about $300,000 a year from the facility's energy bill. Mun= iz=20 is already scouting other county rooftops for solar potential.=20 "With the cost of electricity going up, you can start looking at it as a=20 business decision, just investing your money," said Muniz. "There's virtual= ly=20 no maintenance on this equipment. It just sits on your roof and converts=20 right into electricity that you're using as soon as you generate it. I thin= k=20 (solar) is the wave of the future, even though it's been around 30 or 40=20 years."=20 The Santa Rita Jail project is among the largest, and perhaps most=20 conspicuous, examples of steps government agencies are taking to cut=20 electricity use in response to skyrocketing power bills and Gov. Gray Davis= '=20 call for public entities to conserve.=20 Among the examples:=20 San Francisco leaders are pondering a bond measure to finance solar-powered= =20 rooftop projects around the city.=20 The Tulare County town of Lindsay will open City Hall two hours earlier -- = at=20 6 a.m.-- and close at 4:30 p.m. Monday through Thursday this summer so=20 offices can stay dark all day Friday and during peak-use afternoon hours.= =20 Sacramento County has instituted a casual dress policy so employees can=20 better withstand office temperatures that climb as high as 78 degrees.=20 Workers have also set sprinklers to run at night so that electric water pum= ps=20 operate during low demand.=20 "When you start to see the bills going up and you start to hear concerns fr= om=20 some citizens, that obviously raises the threshold of wanting to help out,"= =20 said Jolena Voorhis, an energy analyst at the California State Association = of=20 Counties. "Certainly (counties) stepped up to the plate when they were aske= d=20 to increase conservation efforts. They've done about as much as humanly=20 possible."=20 Kings County leaders thought they made a great deal in 1992 when they signe= d=20 up for Southern California Edison's interruptible load program, which=20 promises customers lower rates in exchange for agreeing to shut down=20 electrical services in times of shortage.=20 Then California's power crisis hit full-force this year. Since January,=20 Edison has called on the Central Valley county to cut electricity at its=20 Hanford government center 16 times -- for up to six hours each cycle.=20 At times that meant no lights to greet the public, no computers to process= =20 food stamp requests and during the Valley's foggy winter days, no heat to= =20 warm many of the 1,200 employees.=20 "We had one week in January when we were virtually shut down," said Chief= =20 Administrative Officer Larry Spikes. "We just decided we couldn't function= =20 that way."=20 So Kings County supervisors bought a $550,000 diesel-powered generator to= =20 match those already at the jail and juvenile center. They also decided to= =20 open and close administrative offices one hour earlier this summer so=20 buildings can power down before high demand hits the grid around 4 p.m.=20 The new hours, dimmed hallways and moments of darkness that occur when the= =20 generators kick on have become a routine part of doing government business= =20 these days, Spikes said.=20 So far, most counties have been able to absorb higher energy costs without= =20 cutting into programs because of relatively healthy budgets in recent years= ,=20 Voorhis said.=20 Public agencies' power troubles have proved a boon to some businesses.=20 Revenues at PowerLight, the Berkeley company that installed the Santa Rita= =20 Jail photovoltaic system, have tripled since last year.=20 "The last six months have been particularly intense," said Janice Lin,=20 director of business development for PowerLight. "In some ways the energy= =20 crisis in California has been a call to action."=20 The Sacramento Municipal Utility District, which already boasts the largest= =20 photovoltaic program in the country, has a 2,000-customer waiting list for= =20 solar projects and plans to bring sun power to the state Capitol, said Don= =20 Osborn, SMUD's solar program manager.=20 Back in Dublin, the 3,600 inmates at the Santa Rita Jail still receive thre= e=20 meals, air conditioning and hot showers -- powered now, in part, by the=20 plentiful sun in this relatively fog-free part of the East Bay.=20 The $4 million project, financed entirely with state and utility subsidies,= =20 should generate enough savings to pay for itself within the decade, Muniz= =20 said.=20 "It's a good investment for the money we're putting up front," he said. Energy talks reach no settlement; state threatens suit=20 By Mark Sherman ASSOCIATED PRESS=20 July 10, 2001=20 WASHINGTON =01) With talks between the state and power generators stalled,= =20 California may go to court to help win the $8.9 billion state officials=20 believe it was overcharged for electricity.=20 "I think we have demonstrated very clearly both to the FERC and to the judg= e=20 that the state is owed $8.9 billion and will settle for nothing less," said= =20 Roger Salazar, a spokesman for Gov. Gray Davis.=20 With negotiations at an impasse, the administrative law judge for the Feder= al=20 Energy Regulatory Commission said California is probably owed no more than = $1=20 billion in refunds. "The numbers were too far apart," said Curtis Wagner, the FERC chief=20 administrative law judge.=20 California, Wagner said, may receive nothing at all, because generators may= =20 be owed more than they have to return for any overcharges.=20 He placed the refunds owed the state at between $716 million and $1 billion= .=20 Power providers had offered $716 million as part of an overall settlement,= =20 while California state officials sought $8.9 billion, Wagner said.=20 He said California officials had not made the case for $8.9 billion in=20 refunds.=20 Salazar, however, said the state would go to court and may ask for $20=20 billion.=20 Separately, Wagner split off claims of overcharges from the Pacific=20 Northwest, saying he has not had time to consider those allegations under t= he=20 short timetable ordered by FERC last month.=20 Wagner served as a mediator during the 15 days of negotiations and will=20 recommend a settlement to FERC by next Monday. The commission ordered the= =20 talks last month in an effort to resolve differences between producers and= =20 the state over the breakdown of California's deregulated electricity market= .=20 Consumer advocates assailed the judge's recommendation and urged the state = to=20 continue its attempt to get refunds from what they say are profiteering pow= er=20 companies.=20 "It's like catching a bank robber, but instead of making him give back all = of=20 it, you only make him give back 5 percent of what he stole," said Douglas= =20 Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and=20 Consumer Rights.=20 Power generators, however, were generally pleased with Wagner's comments.= =20 Brent Bailey, general counsel for Duke Energy, said even if the formula=20 Wagner recommends produces $1.5 billion in refunds, "that's a reasonable=20 amount in the context of these settlement talks."=20 California officials, negotiating on behalf of utilities, the Public=20 Utilities Commission and state power buyers, accused the producers of=20 manipulating supply to unfairly drive up prices.=20 The producers have acknowledged prices are high, but blame jumps in the pri= ce=20 of natural gas, which fuels many power plants, and the workings of the free= =20 market.=20 The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated the state could spend = as=20 much as $50 billion this year.=20 The producers reiterated Monday that California's numbers are grossly=20 inflated. Attorneys for the five major generators =01) Duke Energy, Dynegy,= =20 Mirant, Reliant Energy and the Williams Cos. =01) said in a statement that = they=20 have made a "very substantial global settlement offer."=20 Reliant would agree to no more than $50 million in refunds as part of an=20 overall settlement that also would have to include protection from addition= al=20 legal claims, said John H. Stout, a company senior vice president.=20 But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified."=20 Refunds in jeopardy as talks fail=20 Judge sees possibility of offsets equal to the billions sought by state By Toby Eckert=20 COPLEY NEWS SERVICE=20 July 10, 2001=20 WASHINGTON -- Settlement talks between California and power providers accus= ed=20 of electricity price gouging collapsed yesterday, and the judge who will no= w=20 hand the case over to federal regulators set a course far from favorable to= =20 the state's demand for $8.9 billion in refunds.=20 "There are refunds due that total hundreds of millions of dollars and maybe= a=20 billion dollars," Curtis L. Wagner Jr., chief administrative law judge for= =20 the Federal Energy Regulatory Commission, said in previewing the=20 recommendations he will make to the commission.=20 But Wagner, who mediated the talks, also suggested that power sellers are= =20 still owed sums for electricity "that probably are higher than any=20 overcharges" for which they may have to pay refunds.=20 That opened the possibility that California could see no cash refunds, only= a=20 reduction in the billions of dollars the power generators and marketers cla= im=20 they are owed by state entities and utilities.=20 Wagner said he would recommend that FERC hold a "fast-track hearing" to try= =20 to untangle the complex financial claims and counterclaims arising from=20 California's power crisis.=20 Wagner also outlined a method that he said FERC should use for calculating= =20 refunds.=20 While his proposed formula includes part of one method the state used, it= =20 contains several elements for calculating electricity costs that were favor= ed=20 by power sellers, who maintain that California's numbers are wildly=20 exaggerated.=20 "I would suspect that would result in a number much below $8.9 billion," sa= id=20 Joe Ronan, vice president of Calpine, a San Jose-based electricity generato= r.=20 "I think (Wagner's method) reflects more accurately what actually happened"= =20 in the state's dysfunctional power market.=20 But Michael Kahn, the state's lead negotiator, said Wagner "vindicated"=20 California's core arguments.=20 "The hundreds of people who came here on the other side had argued to the= =20 mediator that there should not be any refunds, and that position was loudly= =20 rejected," said Kahn, chairman of the organization that manages most of=20 California's power grid.=20 "We think the numbers, even using the judge's formula, are going to be in t= he=20 multiple billions. Whatever amount of money .?.?. is awarded to us, we will= =20 have viable claims in state court and other jurisdictions for the remainder= .=20 So what we have here is a situation where California will get its $8.9=20 billion."=20 Power sellers acknowledged that the threat of litigation remains worrisome = to=20 them. They sought an end to investigations of their conduct, and immunity= =20 from legal action as part of their bargaining position.=20 During two weeks of negotiations ordered by FERC, the two sides came nowher= e=20 near bridging their differences. Wagner said a number of power sellers had= =20 put forward offers that totaled $716.1 million.=20 "That's a long way from splitting the difference," he said. "In 15 days, yo= u=20 can't work miracles."=20 Yesterday -- the deadline for completing the talks -- the ill will between= =20 the two sides broke into the open as Wagner allowed reporters into the=20 previously closed hearings.=20 Each side essentially accused the other of bargaining in bad faith and=20 failing to put forward realistic proposals.=20 John H. Stout, a senior vice president at Reliant Energy Wholesale Group,= =20 said the state used "biased calculations" to arrive at its $8.9 billion=20 refund demand. He also said that Reliant offered to knock $50 million off t= he=20 $300 million it claims it is still owed for power sold into the state.=20 Kahn shot back that Reliant made the offer confidentially to Wagner and nev= er=20 approached the state.=20 Figures scrutinized "This is the first time we've heard any of this information. And to give th= e=20 impression that somehow there's been cooperation or forthcomingness, I thin= k=20 is misleading," Kahn said.=20 The state's refund calculations were scrutinized repeatedly during the talk= s.=20 The $8.9 billion figure emerged from a study by the California power grid= =20 operator of charges for electricity between May 2000 and May 2001, a period= =20 when wholesale power prices soared.=20 Kahn said the figure was essentially duplicated when the state went back an= d=20 calculated what power costs would have been if a pricing method instituted = by=20 FERC last month had been in effect for the entire yearlong period.=20 FERC ordered the pricing method in a bid to tame wholesale prices in the=20 West.=20 In a partial win for the state, Wagner said he would recommend that FERC us= e=20 the order retroactively as a basis for calculating refunds, an approach=20 resisted by the power sellers.=20 But he said that FERC should only scrutinize charges going back to October= =20 2000, and should make several key changes in how power-generating costs are= =20 calculated.=20 For instance, he said, FERC should determine the actual amount of gas heat = it=20 takes to generate a megawatt of electricity and use spot market prices in= =20 Northern and Southern California to determine the cost of gas, rather than = a=20 statewide average cost, computed monthly.=20 Fewer overcharges? Those and other parts of the complex formula Wagner will recommend could=20 increase the benchmark cost of producing power and drive down the amount of= =20 overcharges.=20 Kahn said that applying FERC's pricing method only back to October would pu= t=20 about $3 billion of the state's refund claim off-limits.=20 Brent Bailey, vice president and general counsel for Duke Energy North=20 America, said, "We think (Wagner's) modifications are certainly a vast=20 improvement over FERC's June 19 order and also certainly over (the state's)= =20 model."=20 America.=20 In Sacramento, Gov. Gray Davis issued a statement characterizing the=20 electricity suppliers as pirates who refused to negotiate in good faith.=20 "While in the past the FERC has shown little, if any, interest in consumers= ,=20 they now have the opportunity to redeem themselves by returning the $8.9=20 billion California has demonstrated it is owed," Davis said.=20 Despite the harsh rhetoric, both sides indicated that they would continue= =20 trying to reach one-on-one settlements.=20 Ronan of Calpine said the generator was close to making a deal with the=20 state. Bailey said that while Duke would continue to push for a "global=20 settlement" between all the parties, "We've had serious settlement talks wi= th=20 the state over the last few days and hope to continue."=20 State's massive outlays detailed=20 Energy bill exceeded $100 million on 3 days By Jennifer Coleman=20 ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO -- On three days in May, California's daily power spending toppe= d=20 $100 million, according to a report released yesterday by state power=20 traders.=20 The California Department of Water Resources report, which addressed spot= =20 market electricity purchases since January, was released along with 1,770= =20 pages of documents that specifically detailed the first three months of=20 last-minute power purchases.=20 Such power buys on the spot market typically get the most expensive=20 electricity available.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas and Electric Co.,= =20 San Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 The day before, the state spent $100 million.=20 But since May, spot market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation which lowered=20 demand and because of increased scrutiny by lawmakers and investigators int= o=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 "It's unfortunate that it looks like we'll never get out from under these= =20 contracts," Fisfis said.=20 Davis has already released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations, including The Associated Press and The Copley Press, which= =20 publishes The San Diego Union-Tribune.=20 Davis released copies of those contracts, but wanted to delay the release o= f=20 the spot market buys and short-term contracts. Releasing those details too= =20 soon after the purchases would reveal the state's buying strategy and could= =20 cause generators to raise their already sky-high prices, Davis said.=20 The number of spot market buys will lessen, the Davis administration says, = as=20 more long-term contracts are signed, reducing the state's exposure to the= =20 high-priced purchases.=20 The governor's office will release future short-term contracts and spot=20 market buys will be released on a quarterly basis, with a 90-day lag time.= =20 Second quarter information will be released in October and third quarter=20 documents will be available in January.=20 Davis maintains the delay is needed to protect its ability to negotiate=20 further spot-market power buys.=20 According to the water department, Canadian Powerex, the marketing arm of B= C=20 Hydro, has been paid $1.05 billion for spot market purchases as of May 31.= =20 But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as o= f=20 the end of May.=20 The newly released short-term contracts also show what the state had to pay= =20 when it needed power the most.=20 On March 19 and 20, when rolling blackouts hit California again, the state= =20 was forced into paying above-average prices in its largest short-term=20 contracts.=20 For example, Mirant sold the state 650 megawatts an hour at off-peak usage= =20 times on March 20 for $345 a megawatt hour, more than $70 above the average= =20 price of $272.96.=20 The day before, Mirant charged $343 a megawatt hour at off-peak in northern= =20 California when the average cost was $254.52.=20 Also on March 19, Mirant charged the state about $96 above the average pric= e=20 for power in Northern California on a sale of 6,400 megawatt hours during= =20 off-peak times.=20 Other top-selling generators, as of May 31:=20 ?Sempra Cos., $429 million.=20 ?Los Angeles Department of Water and Power, $331 million.=20 ?Dynegy, $296 million.=20 ?TransAlta Energy, $202 million.=20 ?Bonneville Power, $168 million.=20 ?Duke Energy, $164 million.=20 State releases early spot market energy purchases=20 By Jennifer Coleman ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO =01) On three days in May, California's daily power allowance to= pped=20 $100 million, according to a report released Monday by state power traders.= =20 However, the source of those high prices was from not solely from Texas, ho= me=20 to many of the power marketers and wholesalers Gov. Gray Davis has blamed f= or=20 much of California's power woes.=20 Public and private power companies such as Canada's B.C. Hydro, the Los=20 Angeles Department of Water and Power and Sacramento's public utility also= =20 were high on the list.=20 The California Department of Water Resources released the report, along wit= h=20 1,770 pages of documents that also detailed the last-minute power purchases= =20 the state made on the spot market in the first three months of the year.=20 Last-minute power buys on the spot market typically get the most expensive= =20 electricity available.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas & Electric Co., S= an=20 Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 The day before, the state spent $100 million.=20 But since May, spot market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation which lowered=20 demand and because of increased scrutiny by lawmakers and investigators int= o=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 "It's unfortunate that it looks like we'll never get out from under these= =20 contracts," Fisfis said.=20 Davis has already released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations, including The Associated Press, who said keeping the contrac= ts=20 veiled violated the state's open records law.=20 Davis released copies of those contracts, but wanted to delay the release o= f=20 the spot market buys and short-term contracts. Releasing those details too= =20 soon after the purchases would reveal the state's buying strategy and could= =20 cause generators to raise their already sky-high prices, Davis said.=20 The number of spot market buys will lessen, the Davis administration says, = as=20 more long-term contracts are signed, reducing the state's exposure to the= =20 high-priced purchases.=20 The governor's office will release future short-term contracts and spot=20 market buys will be released on a quarterly basis, with a 90-day lag time.= =20 Second quarter information will be released in October and third quarter=20 documents will be available in January.=20 Davis maintains DWR needs the delay to protect its ability to negotiate=20 further spot-market power buys.=20 According to the DWR, Canadian Powerex, the marketing arm of BC Hydro, has= =20 been paid $1.05 billion for spot market purchases as of May 31.=20 But Atlanta-based Mirant Corp. topped that list, getting $1.24 billion as o= f=20 the end of May.=20 The newly released short-term contracts also show what the state had to pay= =20 when it needed power the most.=20 On March 19 and 20, when rolling blackouts hit California again, the state= =20 was forced into paying above-average prices in its largest short-term=20 contracts.=20 For example, Mirant sold the state 650 megawatts an hour at off-peak usage= =20 times on March 20 for $345 a megawatt hour, more than $70 above the average= =20 price of $272.96. The day before, Mirant charged $343 a megawatt hour at=20 off-peak in northern California when the average cost was $254.52.=20 Also on March 19, Mirant charged the state about $96 above the average pric= e=20 for power in Northern California on a sale of 6,400 megawatt hours during= =20 off-peak times.=20 Other top selling generators, as of May 31:=20 =01) Sempra Companies, $429 million.=20 =01) Los Angeles Department of Water and Power, $331 million.=20 =01) Dynegy, $296 million.=20 =01) TransAlta Energy, $202 million.=20 =01) Bonneville Power, $168 million.=20 =01) Duke Energy, $164 million.=20 FERC Judge Says State Owed No More Than $1 Billion From Associated Press July 9 2001 WASHINGTON -- California is owed no more than "a billion dollars" from powe= r=20 wholesalers, a federal regulatory judge said today at the end of 15 days of= =20 settlement talks in the state's electricity crisis. Curtis Wagner, the Federal Energy Regulatory Commission's chief=20 administrative law judge, said that at the same time the power suppliers=20 probably are owed more than that. The net effect of his preliminary recommendation is that California probabl= y=20 will receive no refunds from wholesalers. Wagner said power generators had offered $761 million in refunds. The state= =20 has asked for $8.9 billion since May 2000. Wagner said he will not recommen= d=20 refunds for power sales that occurred before Oct. 2. It was not immediately clear what impact the judge's preliminary=20 recommendation would have on efforts to settle the dispute. Both sides said before the judge's announcement that they expected a=20 protracted legal battle in the event the talks did not produce a settlement= . Michael Kahn, Gov. Gray Davis's representative in the talks, has said the= =20 state would seek more than twice the claimed overcharges if the dispute mov= ed=20 from mediated talks to a courtroom. The producers reiterated today that California's numbers are grossly=20 inflated. Attorneys for the five major generators-- Duke Energy, Dynegy,=20 Mirant, Reliant Energy and the Williams Cos.-- said in a statement that the= y=20 have made a "very substantial global settlement offer." John H. Stout, a senior vice president for Reliant Energy, said his company= =20 would agree to no more than $50 million in refunds, as part of an overall= =20 settlement that also would have to include protection from additional legal= =20 claims. But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified." FERC ordered the talks last month in an effort to resolve differences betwe= en=20 producers and the state over the breakdown of California's deregulated=20 electricity market. The state has accused the producers of manipulating supply to unfairly driv= e=20 up prices. The producers have acknowledged that prices are high, but blame= =20 jumps in the price of natural gas, which fuels many power plants, and the= =20 workings of the free market. The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated that the state could= =20 spend as much as $50 billion this year. ---- On the Net: Federal Energy Regulatory Commission: http://www.ferc.fed.us/=20 Copyright 2001, Los Angeles Times=20 Electricity Cost Data Spread the Blame Power: Many suppliers charged more than the firms that Davis has pilloried,= =20 records show. RICH CONNELL and ROBERT J. LOPEZ and DOUG SMITHS TIMES STAFF WRITER July 10 2001 SACRAMENTO -- California's energy meltdown involves a far more diverse grou= p=20 of wholesale electricity merchants than suggested by Gov. Gray Davis, who h= as=20 aggressively blamed a handful of Texas companies, state records show. During the first three months of this year--one of the worst stretches of= =20 power shortages during the crisis--an assortment of public and private=20 entities charged the state prices averaging well above some of those paid t= o=20 Texas firms, according to documents released to The Times on Monday by the= =20 Department of Water Resources, which now buys power for California. Among those setting and collecting some of the highest average prices per= =20 megawatt-hour were a Canadian public utility, a subsidiary of San Diego Gas= &=20 Electric's parent company, and the Los Angeles Department of Water and Powe= r,=20 the report shows. Their average prices ranged from $498 a megawatt-hour=20 charged by Powerex, the trading arm of British Columbia's BC Hydro, to $292= =20 an hour by the DWP. In fact, some of the biggest private power companies=20 singled out for criticism by Davis and other state officials--Dynegy Inc.,= =20 Duke Energy and Mirant--charged less than the average prices the state paid= =20 for the period. Those companies' average prices ranged from $146 to $240 pe= r=20 megawatt-hour, according to an analysis of the documents. The figures cover the various types of spot and longer-term power purchased= =20 by the state during three months that included rolling blackouts and more= =20 than a month of razor-thin reserves, leading to continuous power emergencie= s. Davis spokesman Steve Maviglio said the governor has directed his sharpest= =20 barbs at private out-of-state generators because, in general, they have=20 reaped the highest profits over the longest period. "You have to look at the whole picture," Maviglio said. "The governor was expressing his displeasure with the arrogance of the=20 generators who wear cowboy hats," he said. "Their profits were 100% to 400%= =20 above last year. . . . Just because there are other entities who are chargi= ng=20 us more [per megawatt-hour] doesn't change the fact that we are getting=20 ripped off by companies from Houston, Tulsa, Atlanta or Charlotte." The report by the Department of Water Resources was provided to The Times o= n=20 the same day the state released 1,700 pages of documents on California's=20 electricity purchases on the volatile spot market for the year's first=20 quarter. The records detail how the state spent nearly $8 billion buying power in th= e=20 first five months of the year, and underscore the complexity of the state's= =20 energy problem. They also show that patterns of high prices are not limited= =20 to a few generators. Oscar Hidalgo, a spokesman for the water resources agency, said that the=20 reports together show that prices were extremely volatile early in the year= .=20 "All the prices were high," he said, noting the downward trend in costs sin= ce=20 his agency began buying power in mid-January. The average price per megawatt-hour for all state purchases went from $316 = in=20 January to $243 in May. Spot prices fell from an average of $321 per hour t= o=20 $271, the reports show. In the first quarter of the year, some public entities' prices far exceeded= =20 those of the biggest private companies. For example, Houston-based Enron, o= ne=20 of the nation's biggest power traders, charged an average of $181 per=20 megawatt-hour. And Atlanta-based Mirant, which sold the most to the state, = a=20 total of $706 million, charged an average of $225 per megawatt-hour. By contrast, a Calgary, Canada, firm, TransAlta Energy, averaged $335 a=20 megawatt-hour, and the Sacramento Municipal Utility District had average=20 charges of $330 per megawatt-hour. A spokesman for Enron, Mark Palmer, said recently that the "vilification of= =20 Enron was based on politics, not facts." Spokesmen for BC Hydro could not b= e=20 reached late Monday to comment on its huge sales to the state. In the past,= =20 the utility has defended its pricing practices, saying it has offered=20 last-minute hydroelectric power that helped keep California's lights on. A spokeswoman for Sempra, the parent company of San Diego Gas & Electric,= =20 said late Monday the company was unable to comment because it had yet to se= e=20 the figures released by the state. Officials at DWP, who could not be reach= ed=20 Monday evening, have defended their pricing, saying the costs of producing= =20 the power needed by the state were extremely high. More Power Bought Than Projected Hidalgo, of the Department of Water Resources, said his agency's efforts,= =20 coupled with conservation by business and consumers and falling natural gas= =20 prices, have begun to tame the state's market. Still, the state had to purchase $321 million in power in April and May,=20 about 10% more than Davis' analysts had projected. Hidlago said that was because of hot weather in May and other supply proble= ms=20 in April. He said reports will show that power purchases fell short of stat= e=20 projections in June and early July. The reports also will show that prices paid by the state were down in June= =20 and July, partly because spot prices have fallen sharply, often to well und= er=20 $100 a megawatt-hour. A summary Department of Water Resources report released Monday credited=20 Davis' program of nurturing new power generation and establishing long-term= =20 power contracts with with "moving the California electric energy industry= =20 closer to normalcy."=20 Copyright 2001, Los Angeles Times=20 Duke Energy Asked to Allow Release of Data Power: Senator says the generator is refusing to make public some informati= on=20 crucial to the price-gouging probe. Firm says it's complying. CARL INGRAM TIMES STAFF WRITER July 10 2001 SACRAMENTO -- The chairman of a Senate committee probing suspected price=20 gouging during the California energy crisis charged Monday that Duke Energy= =20 is refusing to allow him to make public information key to his investigatio= n. Sen. Joe Dunn (D-Santa Ana) said Duke has made the price bidding informatio= n=20 from its Chula Vista plant available to committee members and staffers. But= =20 under a federal confidentiality rule, the data cannot be made public withou= t=20 Duke's consent. The documents concern the Chula Vista plant, which former employees have=20 alleged was ramped up and down to drive up power prices during three days i= n=20 January. However, state records show that the agency overseeing the=20 electricity grid ordered those gyrations to keep the power flowing througho= ut=20 the state. Dunn said Duke's refusal thwarts the committee's investigation a= nd=20 efforts to enact possible remedial legislation because the confidential=20 information cannot be shared with others in the Legislature or the public. Dunn said Duke cited a rule of the Federal Energy Regulatory Commission tha= t=20 gives the company the authority to decide which records it makes public and= =20 which stay secret. "The only one who can release the data is Duke. We agreed to be bound by wh= at=20 is provided in the FERC tariff, nothing more or less," he said. Former Employees Tell of Maneuvers Dunn noted that the committee is considering trying to obtain the informati= on=20 elsewhere and "release it over Duke's objections." Three former workers at the Duke plant near Chula Vista testified last mont= h=20 under oath that the plant, among other things, was ramped up and down in wh= at=20 seemed to be an effort to maximize revenue during the Jan. 16-18 emergency. But Duke countered immediately that it had merely obeyed orders of the=20 California Independent System Operator, which keeps the state's electricity= =20 grid in balance. Duke later provided Cal-ISO documents backing up its=20 explanation. Duke executives insisted that the former employees failed to provide a full= =20 picture of the plant's operation during the three days. But Dunn, chairman of the select Senate committee on alleged price gouging,= =20 said Monday that by refusing to authorize release of all the subpoenaed dat= a,=20 Duke was guilty of the same tactics. "Duke is trying to draw the impression that it has [provided] the full=20 picture. But they are fully aware that we cannot draw any final conclusions= =20 until all that data has been released. That hasn't occurred," Dunn said. To make a determination whether the Chula Vista power was withheld to drive= =20 up prices, Dunn said, the committee must publicly examine "the bids Duke=20 submitted from which the ISO issued orders to the plant." They include the= =20 expensive hour-ahead and day-ahead markets, he said. Duke, a North Carolina-based wholesaler that operates several plants in=20 California, noted that it considers the information proprietary and=20 off-limits to legislators not on the committee. Duke spokesman Tom Williams insisted that the generator is attempting to=20 comply with the committee's demands. But he was unable to say whether Duke= =20 would agree to make the bidding documents public along with other records t= he=20 committee plans to turn over. "We are complying now," Williams said. "There is some suggestion that we ar= e=20 leaving stuff out when we have not had a chance to testify. . . . I don't= =20 know what we are ultimately going to do." The committee had threatened to cite eight wholesale generators unless they= =20 provide pricing and bidding documents by Wednesday. Six, including Duke, ha= ve=20 said they would comply to avoid a contempt citation. Two, Enron and Mirant,= =20 were cited. Dunn said the committee on Wednesday likely will give companies that are=20 trying to comply an extra week to do so, but others probably will be formal= ly=20 charged with contempt in a report to the full Senate. The upper house is th= e=20 final arbiter of such issues. Although there is scant precedent for levying penalties against those cited= =20 for contempt, Dunn said he favors imposing severe fines. In 1929, the most= =20 recent case, a cement company executive was sent to jail.=20 Copyright 2001, Los Angeles Times=20 NEWS ANALYSIS Concern Over Price of Long-Term Power Pacts Grows Embedded costs may yield more rate hikes, critics say, and the $43-billion= =20 total could complicate plans to rescue Edison. DAN MORAIN TIMES STAFF WRITER July 9 2001 SACRAMENTO -- Even as the summer progresses without blackouts, and Gov. Gra= y=20 Davis prepares for yet another news conference today to symbolically switch= =20 on a new power plant, the work in the Capitol has shifted to the seemingly= =20 more daunting task of balancing the books. It's a task with potentially far more long-lasting implications for state= =20 coffers, for businesses' bottom lines and for consumers' wallets. In particular, long-term power contracts trumpeted by the governor's office= =20 as helping to bring stability to California's out-of-control electricity=20 market are having the opposite effect politically. A growing concern about= =20 the $43-billion price tag of the contracts is complicating one of Davis' mo= st=20 ambitious energy initiatives: a proposed financial rescue of Southern=20 California Edison, which already faces an uncertain fate in the Legislature= .=20 Questions about the contracts come as California readies a complex=20 $13.4-billion bond sale to reimburse the state's general fund for other pow= er=20 purchases. Critics worry that costs embedded in the contracts, on top of the billions= =20 needed to pay for the Edison rescue, could lead to additional electricity= =20 rate hikes for consumers. Key lawmakers, consumer advocates and business=20 lobbyists are urging that at least some of the pacts be renegotiated. Citing a recent plunge in wholesale energy costs, these critics say the sta= te=20 should work to shorten the duration of the contracts and lower some of the= =20 prices. They argue that the state entered into the deals under duress after= =20 California's utilities neared insolvency and the state Department of Water= =20 Resources took over the purchasing of electricity for more than 25 million= =20 residents. "They are vulnerable," Senate Energy Committee Chairwoman Debra Bowen=20 (D-Marina del Rey) said of deals the state struck with independent power=20 companies when prices were at record highs. Bowen lauds Davis administration negotiators for signing "the best deals th= ey=20 could." But she said that in the crisis atmosphere in which the negotiation= s=20 took place, "the state had two cards and the generators had 50." Contracts Open to Challenges The contracts could be challenged in court or, more immediately, before the= =20 Federal Energy Regulatory Commission in Washington. There, an administrativ= e=20 law judge could direct that the pacts be reworked as part of a settlement o= f=20 allegations by Davis that generators overcharged the state for electricity = by=20 $8.9 billion. "We ought not to say, 'Fine, the contracts were the best we could do,' "=20 Bowen said. For his part, Davis says he is willing to accept partial payment of the $8.= 9=20 billion in the form of contracts with terms more favorable to the state. He= =20 attributes the recent sharp drop in wholesale electricity prices to=20 conservation, the administration's effort to increase power supply and--a= =20 major factor--the long-term contracts, which slashed the state's reliance o= n=20 the volatile daily, or spot, market. "You can see the value of these long-term contracts . . . dramatically=20 shrinking our overall price, which is what matters to Californians," Davis= =20 said, pointing out that the average cost of power plunged 30% from May to= =20 June. Davis energy advisor S. David Freeman, who helped negotiate the contracts,= =20 said they may end up costing less than $43 billion, given the recent declin= e=20 in prices for natural gas, the main fuel for California's=20 electricity-generating plants. Freeman also compared critics to someone who calls the fire department to= =20 douse a blaze. "After the fire is out," he said, "you complain about the=20 water damage." The contracts have other defenders, among them UC Berkeley economics=20 professor Severin Borenstein, who says the deals helped to tame the volatil= e=20 spot market by reducing generators' incentive to drive up prices, while=20 reducing the state's exposure to wild swings in price. "The point of signing long-term contracts is not to get a great price; it's= =20 to reduce risk," Borenstein said. Still, experts have been picking through the pacts ever since a Superior=20 Court judge in San Diego, ruling in a California Public Records Act lawsuit= =20 by news organizations and Republican lawmakers, ordered last month that Dav= is=20 unseal the contracts. An analysis done for the Assembly by three experts--one each representing= =20 Southern California Edison; the Utility Reform Network, a consumer group; a= nd=20 large electricity consumers--concluded that the about $43-billion price tag= =20 announced by the administration may not account for all the costs. When oth= er=20 expenses are factored in--ranging from environmental equipment upgrades to= =20 any new energy-related taxes--the contracts could cost an additional 10% to= =20 20%. "Once the contracts were made public," Senate Republican leader Jim Brulte = of=20 Rancho Cucamonga said, "just about anyone who can read began calling for=20 those contracts to be renegotiated." As buyers' remorse spreads through the Capitol, the contracts increasingly= =20 are seen as a hurdle--or a bargaining chip--as Davis and lawmakers confront= =20 fast-approaching deadlines in their effort to prevent the energy crisis fro= m=20 morphing into a broader financial crisis. A bill pushed by Davis to avert bankruptcy for the financially hobbled=20 Southern California Edison must be approved by Aug. 15. The deadline could = be=20 tighter, because the Legislature is scheduled to adjourn for a monthlong=20 break July 20. Davis' rescue plan, along with legislative alternatives, languishes in the= =20 Legislature. The plan, which has little apparent support, would require the= =20 state to buy Edison's system of transmission lines for $2.76 billion and=20 permit the utility to charge ratepayers for the rest of its back debt of $3= .5=20 billion. Some lobbyists and lawmakers believe that the electricity rate hike approve= d=20 in March by the California Public Utilities Commission--at 3 cents a=20 kilowatt-hour the largest in state history--may not be enough. The revenue= =20 generated under the new rate structure must cover the costs of the long-ter= m=20 power contracts and repay the planned $13.4 billion in bonds, which would b= e=20 the largest municipal deal ever. Whether there would be sufficient money left to pay for the Edison rescue= =20 remains to be seen. But some experts say the utility may need to seek a=20 separate rate hike to cover its costs. As written, the contracts have few escape clauses; Davis cannot simply walk= =20 away from them if he concludes that prices are too high. Still, criticism= =20 persists and crosses political lines. Harry Snyder, longtime Sacramento lobbyist for Consumers Union, and Jack=20 Stewart, president of the California Manufacturers and Technology Assn.,=20 rarely find themselves on the same side of a debate. But in separate=20 interviews, they sounded similar themes. "If there is a way to buy our way out of these contracts, even if we have t= o=20 pay damages, we'd be better off in the long run," Snyder said. Stewart, like other business leaders, does not advocate abrogating the=20 contracts. But like many familiar with the terms, he hopes that some deals= =20 can be renegotiated. "They are problematic," he said. In a move that critics fear could lock in high electricity prices for the= =20 next decade, the Davis administration is pushing the PUC to agree within a= =20 month to limit its authority to question costs incurred by the Department o= f=20 Water Resources as it goes about procuring power. State Treasurer Phil Angelides said the PUC must act so he can complete the= =20 $13.4-billion bond sale. A binding agreement is necessary so that Wall Stre= et=20 investors can be assured that they will be repaid. "The state will be out of cash by the end of the year without the bond sale= ,"=20 he said. "We will move toward fiscal insolvency." The so-called rate agreement, a draft of which was obtained by The Times,= =20 would bind customers of the three big regulated utilities to pay more than= =20 just the principal and interest on the $13.4 billion in bonds. Consumers=20 would have to pay for consultants, lawyers, to pay taxes, fees and other=20 as-yet-undefined charges that may be incurred by the Department of Water=20 Resources. Additionally, the PUC would be obligated to approve payments for programs b= y=20 which the state would pay large and small customers to cut electricity use,= =20 although the Legislature has not approved the programs and their details=20 remain to be worked out. The Department of Water Resources estimates the co= st=20 to be $800 million, spread over this year and next. "It is loaded up," Senate President Pro Tem John Burton (D-San Francisco)= =20 said of the proposed rate deal, adding that it would require the commission= =20 to "raise rates to cover whatever the Department of Water Resources decides= =20 to do." "That is giving a blank check to some bureaucratic office," he said. 'Dictatorial Power' Warning Stewart of the manufacturers group also is alarmed by the plan, saying it= =20 would provide the water agency with "dictatorial power." "As skeptical as we are of the PUC process, at least there is a process,"= =20 Stewart said, referring to the commission's procedures to set electricity= =20 rates. "There is no process for DWR. DWR just tells the PUC, 'This is what = we=20 need,' and the PUC must approve it." Others say the rate agreement is a standard piece of work, given the=20 extraordinary step the Legislature took in January when it authorized the= =20 Department of Water Resources to buy power for utilities that had fallen so= =20 deeply into debt that they could no longer carry out their obligation to=20 consumers. In essence, Davis energy advisor Freeman said, lawmakers in January created= =20 "the equivalent of a public power purchasing agency" beyond the jurisdictio= n=20 of the PUC. "There is no public power agency in California that is reviewed by the PUC,= "=20 said Freeman, former head of the Los Angeles Department of Water and Power. * Times staff writer Nancy Rivera Brooks in Los Angeles contributed to this= =20 story.=20 Copyright 2001, Los Angeles Times=20 State's refund demand rejected=20 Judge ends rebate talks, rebukes $9 billion claim=20 Zachary Coile, Christian Berthelsen, Chronicle Staff Writers Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/07/10/MN117914= .DTL=20 Washington -- An administrative law judge, delivering a powerful message to= =20 Gov. Gray Davis and California energy officials, cast aside the state's cla= im=20 that it is owed $8.9 billion in electricity overcharges by generators and= =20 called for further hearings to determine "hard numbers."=20 The judge, ending talks designed to settle the dispute between California a= nd=20 power sellers, said the state and its cash-strapped utilities may owe more = in=20 unpaid electricity bills than they are owed for overcharges by the=20 generators.=20 The comments by Federal Energy Regulatory Commission chief administrative l= aw=20 Judge Curtis L. Wagner, although a strong endorsement of the generators'=20 position, seemed to indicate that neither side wanted to settle the issue= =20 before it reached the five-member regulatory commission.=20 "There are refunds due (to California) that total hundreds of millions of= =20 dollars and maybe a billion dollars," Wagner said yesterday.=20 "At the same time, there are sums due to sellers from the California=20 Independent System Operator and the investor-owned utilities in the state o= f=20 California that probably are higher than any overcharges that (the state) m= ay=20 come up with."=20 Now, it will be up to the federal regulators to settle the case. But the=20 recommendations by Wagner, who mediated the talks, carry significant weight= =20 with the commission and cast doubt on the state's chances of collecting the= =20 full $8.9 billion it claims to be owed.=20 The judge said he will recommend that the commission order new hearings to= =20 calculate what the state and the power sellers are each owed. The hearings= =20 would be overseen by an administrative law judge and would last 45 to 60=20 days, Wagner said.=20 CLOSING SESSION Wagner made his comments in the closing session of the 15-day talks, which= =20 were ordered last month by the regulatory commission to try to defuse the= =20 dispute between power wholesalers and California officials before it reache= d=20 the courts.=20 The judge's message was a sharp rebuke to the unyielding stand by Californi= a=20 leaders -- especially Davis, who last week said he wouldn't take a dime les= s=20 than $8.9 billion for California's consumers.=20 The governor issued a statement shortly after the close of talks insisting= =20 that California had won its basic case that the state is owed refunds.=20 "I am pleased that Judge Wagner accepted our methodology for calculating=20 refunds and rejected the generators' position that no refunds are due," Dav= is=20 said.=20 The governor's chief representative at the talks, Michael Kahn, called the= =20 judge's statement a "ringing endorsement" of the state's call for refunds.= =20 Kahn said the judge's order would improve the state's legal position if it= =20 files suit against power sellers.=20 GENERATORS FAVORED But much of the judge's order seemed to favor the generators.=20 For example, state officials have made the case they should be refunded $8.= 9=20 billion for alleged overcharges from May 2000 to May 2001 -- even though th= e=20 regulatory commission has said only that the period starting Oct. 2, 2000= =20 could be considered.=20 The judge said yesterday that he would stick with the October date, meaning= =20 that more than a third of the state's claim -- at least $3 billion -- would= =20 not be refunded by the commission.=20 Brent Bailey, vice president and general counsel of Duke Energy North=20 America, said that under Wagner's guidelines, the state may be eligible for= =20 $1 billion to $1.5 billion.=20 "Certainly to the extent that it helped refute what California has been=20 saying, it's a victory," Bailey said of the judge's statement.=20 But Davis said the nation's big power sellers never came to the table with = a=20 serious offer.=20 "Not surprisingly, the energy pirates that bilked ratepayers out of billion= s=20 of dollars stonewalled and refused to negotiate in good faith," Davis said.= =20 $716 MILLION OFFER=20 Wagner disclosed yesterday that the generators had made an offer to=20 California: $716 million in refunds.=20 The judge said the figure included about $510 million from the so-called Bi= g=20 Five generators, as well as $125 million from BC Hydro's Powerex, $49.6=20 million by a group of 15 electricity marketers, $16.5 million by six=20 California municipal utilities and $25 million offered by other out-of-stat= e=20 power sellers.=20 California officials say it was not a legitimate offer because it included = no=20 cash. It was simply an agreement by the companies to wipe some of the state= 's=20 debt off the books.=20 Throughout the talks, generators complained that the California team was=20 trying to shield some California companies and government power providers= =20 from having to pay any refunds, and trying to disproportionately extract su= ms=20 from out-of-state power companies.=20 FAVORITISM CHARGED According to documents and interviews, the state attempted to remove Pacifi= c=20 Gas and Electric Co., Southern California Edison, San Diego Gas & Electric.= ,=20 the Los Angeles Department of Water and Power and other government power=20 suppliers from the group from which it was asking for refunds, even though= =20 they were paid the same high rates for power as everyone else.=20 Representatives for the power sellers said they believe that Davis made a= =20 political decision to demagogue the companies while refusing to compromise = on=20 the state's claims. They say the governor calculated that his reputation=20 would be enhanced by continuing to attack the generators.=20 "The California delegation did not come into these talks with any willingne= ss=20 to compromise," said Mark Stultz, vice president of the Electric Power Supp= ly=20 Association, a Washington, D.C., trade group. "They went in with a dollar= =20 figure and never budged on that figure. If you're looking for a settlement,= =20 you have to be willing to compromise."=20 Up next 1. The Federal Energy Regulatory Commission will consider, probably= =20 on July 25,=20 new hearings on how much, if anything, California was overcharged. 2. If=20 ordered by the commission, an administrative law judge will take testimony = on=20 how much the state says it was overcharged and how much generators say they= =20 are owed. 3. Regulators will rule based on the judge's recommendation. If t= he=20 parties disagree, they can go to court.=20 E-mail the writers at zcoile@sfchronicle.com. and cberthelsen@sfchronicle.c= om ., Zachary Coile reported from Washington, D.C., and Christian Berthelsen i= n=20 San Francisco.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Davis opens another new power plant=20 Pittsburg facility will generate 555 megawatts=20 Bernadette Tansey, Chronicle Staff Writer Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/07/10/MN175828= .DTL=20 Pittsburg -- Workers were still scraping wet concrete on support columns as= =20 Gov. Gray Davis celebrated the startup of a new power plant in Pittsburg=20 yesterday -- the latest in a string of openings Davis hopes will help=20 California "build its way" out of the energy crisis. The state rushed to=20 throw as many megawatts on line as it could when it looked like the summer= =20 would feature regular blackouts, and yesterday the governor said it was=20 paying off.=20 "This is the third plant I've helped open in the last 13 days," Davis said,= =20 pumping his fist as the Calpine Corp. plant belched an impressive burst of= =20 steam. "In the past 13 days, we've put more power on the grid than Californ= ia=20 did throughout the 1990s."=20 The 555-megawatt Los Medanos Energy Center and the Sutter Energy Center tha= t=20 Calpine opened in Yuba City last week bring a total of 1,115 megawatts=20 online. Last month, Davis threw the switch on a Bakersfield plant that open= ed=20 more than a month ahead of schedule.=20 Davis used yesterday's event to blast out-of-state generators that he=20 maintains have gouged the state for electricity. Yet he lauded San Jose-bas= ed=20 Calpine as a sort of energy favorite son.=20 "They were the first to enter long-term contracts with us," the governor=20 said. Calpine is among the big energy firms being pressed by the state to= =20 issue refunds for what the governor insists were overcharges, but unlike th= e=20 others, Davis said, Calpine is giving ground in negotiations.=20 "They likely will be the first to enter into settlements with us," he said.= =20 Although the Los Medanos plant is one of a generation of efficient new gas-= =20 fired plants that will be as much as 40 percent cheaper to run than their= =20 forebears, the state will be paying well above current market rates for the= =20 first three months of its contract with Calpine.=20 Calpine President Peter Cartwright insisted, however, that the company is n= ot=20 making excess profits off the deal. To ensure that Calpine could provide th= e=20 electricity even if plant construction wasn't finished by its mid-July targ= et=20 date, the company bought the needed power from other energy traders at $232= a=20 megawatt hour when market rates were higher, he said.=20 In addition to the 300 megawatts it has pledged to the state, Calpine will= =20 supply electricity to the Sacramento Municipal Utility District and other= =20 power agencies.=20 In the long term, Calpine will be selling power to California at $59 a=20 megawatt hour, Cartwright said.=20 A spokesman for the state Department of Water Resources, which started buyi= ng=20 power in January after state utilities buckled under high prices, said=20 Calpine's rate is well below the $70 a megawatt hour the state is aiming fo= r=20 as an average price for the long-term contracts.=20 Cartwright said that with its recently opened plants, along with an 875-=20 megawatt facility it plans to open in Pittsburg next May, the company is=20 doing its share to ease the state's supply crunch.=20 "Ours are the lowest contracts in the state," he said. "If these plants=20 weren't online, we'd be having blackouts."=20 A spokeswoman from the state agency that manages the power grid said=20 California is skating so close to blackouts that "every megawatt counts."= =20 "It's definitely making a difference and it will continue to do so over the= =20 summer," said Lorie O'Donley, a spokeswoman for the Independent System=20 Operator.=20 E-mail Bernadette Tansey at btansey@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 11=20 California rejects B.C. Hydro $125 million settlement=20 Tuesday, July 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/s= tate0 321EDT0105.DTL=20 (07-10) 00:21 PDT VANCOUVER, British Columbia (AP) --=20 California has rejected an offer by B.C. Hydro's power trading subsidiary t= o=20 refund $125 million to settle the state's allegations that it was overcharg= ed=20 by the Canadian power company.=20 The dispute will now be resolved by U.S. judicial and regulatory authoritie= s.=20 The offer from Hydro's Powerex subsidiary came during 15 days of settlement= =20 talks between power generators and distributors, California and other weste= rn=20 states.=20 The talks, initiated by the Federal Energy Regulatory Commission, which=20 regulates cross-border power sales in the United States, concluded Monday= =20 evening without resolution.=20 Hydro spokeswoman Elisha Odowichuk said that under the offer, the Crown=20 corporation would have been subtracted $125 million from the $290 million= =20 California still owes British Columbia for power sales.=20 The $125 million was Powerex's first offer and it did not change through th= e=20 negotiations, she said. The company put conditions on that refund figure, b= ut=20 Odowichuk would not say what those conditions were.=20 California has charged that Powerex gouged it by more than $430 million.=20 Odowichuk said Hydro had to join the settlement talks to preserve its=20 otherwise lucrative power trading relationship with California.=20 Electricity imports and exports statistics compiled by Canada's National=20 Energy Board show Powerex exported more than $900 million worth of energy= =20 from January to April.=20 The average cost of that power was $661.56 a megawatt hour.=20 Prices have dropped to around $140 a megawatt hour since the regulatory=20 commission instituted price caps on June 19.=20 ,2001 Associated Press ?=20 Davis' criticism of Texas misdirected, report finds=20 Lynda Gledhill, Mark Martin, Chronicle Staff Writers Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /10/M N48875.DTL=20 Sacramento -- Texas-based electricity generators have received the brunt of= =20 criticism from Gov. Gray Davis for gouging California during the power=20 crisis, but financial information released yesterday shows the lion's share= =20 of the money went elsewhere.=20 Companies with headquarters in Texas garnered less than 10 percent of=20 California's multibillion-dollar energy purchases, while public and private= =20 energy companies from Canada to Georgia to California got the rest.=20 The $424 million that went to Texas companies may still be more than the=20 state should have been charged, and administration officials are attempting= =20 to get refunds from a host of companies, both in and out of Texas.=20 Earlier this year, Davis lambasted the Bush administration for not acting= =20 against power firms in his home state. "What's going on here, pure and=20 simple, is unconscionable price-gouging by the big energy producers -- most= =20 of them, incidentally, located in Texas," he said in May.=20 Yesterday, a spokesman for the governor broadened the verbal assault, sayin= g=20 the Texas firms are representative of the many other out-of-state generator= s=20 who have also gouged California.=20 "Anywhere they wear cowboy hats, they probably have handkerchiefs across=20 their face because they are robbing us blind," said Steve Maviglio, Davis'= =20 spokesman.=20 The latest financial information is contained in a report by the state=20 Department of Water Resources detailing $7.2 billion in power purchases fro= m=20 Jan. 17 through the end of May.=20 About $5.2 billion of that was spent on the spot market where power buys ar= e=20 made a day, hour or even a few minutes before the electricity is actually= =20 used.=20 Because the spot purchases are made with little notice, they are the most= =20 expensive kind of power on the market. The state was forced to step in and= =20 buy the power when the credit ratings of California's major utilities dropp= ed=20 as the energy crisis worsened. The crisis was caused by a series of events= =20 that forced the utilities to pay more for electricity than they could recov= er=20 from customers.=20 The numbers released yesterday show that Texas companies weren't alone in= =20 receiving a share of the energy crisis pie. Some $1.2 billion went to Miran= t,=20 an Atlanta-based company. Mirant has refused to turn over documents=20 subpoenaed by the state Legislature as part of its investigation into alleg= ed=20 market manipulation. Mirant could face contempt proceedings.=20 Municipal generators have also fared well during the energy crisis. Powerex= ,=20 a wholly owned power marketing subsidiary of Vancouver-based BC Hydro,=20 received $1 billion from the state for spot market electricity.=20 The Los Angeles Department of Water and Power, which Davis said charged=20 higher average spot market prices than some generators, received $331=20 million.=20 E-mail Lynda Gledhill at lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 9=20 Developments in California's energy crisis=20 The Associated Press Tuesday, July 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/s= tate1 041EDT0134.DTL=20 (07-10) 07:41 PDT (AP) --=20 Developments in California's energy crisis:=20 TUESDAY=3D * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 MONDAY=3D * A Federal Energy Regulatory Commission administrative law judge says that= =20 California is entitled to no more than $1 billion in refunds for excessive= =20 energy costs. Gov. Gray Davis had been seeking $8.9 billion for overcharges= .=20 * The Department of Water and Power releases 1,770 pages of documents=20 detailing the state's spot market power purchases in the first quarter of t= he=20 year. DWR also releases a report showing that the state's daily power buys= =20 topped $100 million on three days in May.=20 The DWR report says the energy companies that were paid the most by the sta= te=20 for last-minute power were: Mirant Corp., which was paid $1.24 billion as o= f=20 the end of May; Canada-based Powerex, $1.05 billion; and Sempra Companies,= =20 $429 million.=20 * Davis ceremonially switches on the largest licensed power plant to come= =20 online this year, Calpine's 559-megawatt Los Medanos Energy Center in=20 Pittsburg.=20 * No power alerts as electricity reserves stay above 7 percent.=20 * Shares of Edison International closed at $14, up 69 cents. PG&E Corp. ros= e=20 65 cents to close at $14.10. Sempra Energy, the parent company of San Diego= =20 Gas & Electric Co., closed at $27.52, down 21 cents.=20 WHAT'S NEXT=3D * U.S. Bankruptcy Judge Dennis Montali decides Tuesday whether millions of= =20 Pacific Gas and Electric Co. ratepayers can form their own creditors'=20 committee to represent them in the utility's bankruptcy proceeding.=20 * The Senate committee investigating possible price manipulation in=20 California's energy market meets Wednesday. The committee will vote on=20 contempt citations against generators Mirant and Enron, which failed to=20 comply with subpoenas for documents. The committee will meet again July 18 = to=20 consider compliance by six other suppliers that have until Tuesday to turn= =20 over documents.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Southern California Edison and Pacific Gas and Electric say they've lost=20 nearly $14 billion since June 2000 to high wholesale prices the state's=20 electricity deregulation law bars them from passing on to consumers. PG&E,= =20 saying it hasn't received the help it needs from regulators or state=20 lawmakers, filed for federal bankruptcy protection April 6. Electricity and= =20 natural gas suppliers, scared off by the companies' poor credit ratings, ar= e=20 refusing to sell to them, leading the state in January to start buying powe= r=20 for the utilities' nearly 9 million residential and business customers. The= =20 state is also buying power for a third investor-owned utility, San Diego Ga= s=20 & Electric, which is in better financial shape than much larger Edison and= =20 PG&E but is also struggling with high wholesale power costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 Track the state's blackout warnings on the Web at=20 www.caiso.com/SystemStatus.html.=20 ,2001 Associated Press ?=20 Energy talks reach no settlement; state threatens suit=20 MARK SHERMAN, Associated Press Writer Tuesday, July 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/10/s= tate0 400EDT7473.DTL=20 (07-10) 01:00 PDT WASHINGTON (AP) --=20 With talks between the state and power generators stalled, California may g= o=20 to court to help win the $8.9 billion state officials believe it was=20 overcharged for electricity.=20 "I think we have demonstrated very clearly both to the FERC and to the judg= e=20 that the state is owed $8.9 billion and will settle for nothing less," said= =20 Roger Salazar, a spokesman for Gov. Gray Davis.=20 With negotiations at an impasse, the administrative law judge for the Feder= al=20 Energy Regulatory Commission said California is probably owed no more than = $1=20 billion in refunds.=20 "The numbers were too far apart," said Curtis Wagner, the FERC chief=20 administrative law judge.=20 California, Wagner said, may receive nothing at all, because generators may= =20 be owed more than they have to return for any overcharges.=20 He placed the refunds owed the state at between $716 million and $1 billion= .=20 Power providers had offered $716 million as part of an overall settlement,= =20 while California state officials sought $8.9 billion, Wagner said.=20 He said California officials had not made the case for $8.9 billion in=20 refunds.=20 Salazar, however, said the state would go to court and may ask for $20=20 billion.=20 Separately, Wagner split off claims of overcharges from the Pacific=20 Northwest, saying he has not had time to consider those allegations under t= he=20 short timetable ordered by FERC last month.=20 Wagner served as a mediator during the 15 days of negotiations and will=20 recommend a settlement to FERC by next Monday. The commission ordered the= =20 talks last month in an effort to resolve differences between producers and= =20 the state over the breakdown of California's deregulated electricity market= .=20 Consumer advocates assailed the judge's recommendation and urged the state = to=20 continue its attempt to get refunds from what they say are profiteering pow= er=20 companies.=20 "It's like catching a bank robber, but instead of making him give back all = of=20 it, you only make him give back 5 percent of what he stole," said Douglas= =20 Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and=20 Consumer Rights.=20 Power generators, however, were generally pleased with Wagner's comments.= =20 Brent Bailey, general counsel for Duke Energy, said even if the formula=20 Wagner recommends produces $1.5 billion in refunds, "that's a reasonable=20 amount in the context of these settlement talks."=20 California officials, negotiating on behalf of utilities, the Public=20 Utilities Commission and state power buyers, accused the producers of=20 manipulating supply to unfairly drive up prices.=20 The producers have acknowledged prices are high, but blame jumps in the pri= ce=20 of natural gas, which fuels many power plants, and the workings of the free= =20 market.=20 The bill for wholesale power in California soared to $27 billion last year= =20 from $7 billion the year before. Davis has estimated the state could spend = as=20 much as $50 billion this year.=20 The producers reiterated Monday that California's numbers are grossly=20 inflated. Attorneys for the five major generators -- Duke Energy, Dynegy,= =20 Mirant, Reliant Energy and the Williams Cos. -- said in a statement that th= ey=20 have made a "very substantial global settlement offer."=20 Reliant would agree to no more than $50 million in refunds as part of an=20 overall settlement that also would have to include protection from addition= al=20 legal claims, said John H. Stout, a company senior vice president.=20 But Stout also said, "Reliant's fundamental position has been and remains= =20 that no refunds are justified."=20 Toxic fumes not linked to blackouts=20 Backup power OK in facilities, report says=20 Jason B. Johnson, Chronicle Staff Writer Tuesday, July 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /10/M NC115768.DTL=20 Despite a power-related mishap that released toxic fumes from an industrial= =20 plant in May, rolling blackouts are not expected to cause dangerous release= s=20 in Contra Costa, a county study concludes.=20 The county Health Department report found that 52 industrial facilities hav= e=20 adequate backup power plans.=20 The report to be presented to the Board of Supervisors today was prompted b= y=20 a freak traffic accident that knocked out power at Richmond's General=20 Chemical Corp. plant. When the plant powered back up, a cloud of sulfur=20 trioxide and sulfur dioxide was released.=20 Contra Costa hazardous materials director Lew Pascalli said that there is= =20 always a possibility that a plant's hydraulic or mechanical systems could= =20 fail but that those chances are slight given the growing number of power=20 plants coming online and the state's successful conservation effort.=20 He also said industry has done a good job preparing for outages.=20 "The industry is doing a good-faith effort in this particular instance to= =20 make sure that nothing happens," Pascalli said.=20 County officials relied on industry records in determining the adequacy of= =20 the different plans, such as having multiple electrical leads feeding a=20 source regulating hazardous materials.=20 Denny Larson, spokesman for the group Communities for a Better Environment,= =20 said the report relied too heavily on industry self-reporting.=20 "Unfortunately, the conclusions of the report can't be backed up by the=20 facts," Larson said. "Oil and chemical plants in Contra Costa have repeated= ly=20 had toxic releases due to power failures over the years."=20 The 52 facilities include chemical plants, oil refineries and small shops= =20 that produce limited amounts of hazardous materials.=20 For many of these businesses, the loss of power would shut down their=20 operations and make it impossible for substances to be released.=20 Larger facilities, like oil refineries, have either their own backup=20 generators or contracts with cogeneration plants that could supply all or= =20 most of their power independent of the electricity power grid, according to= =20 the report.=20 Plans are also in place to conduct partial shutdowns at plants running on= =20 reserve power during a blackout.=20 General Chemical said all electrical feeds to the chamber processing=20 chemicals are automatically pulled in the event of loss of power. A backup= =20 generator will automatically come online to keep operations stable.=20 Dow Chemical has a contract with a Calpine power plant to supply it with=20 electricity. Battery backup and diesel emergency engines are also at the si= te=20 to ensure enough power to run lights, alarms, controls and emergency shutdo= wn=20 equipment.=20 e-mail Jason B. Johnson at jbjohnson@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 11=20 Power suppliers, state fail to agree on refund total=20 Posted at 10:41 p.m. PDT Monday, July 9, 2001=20 BY JIM PUZZANGHERA=20 Mercury News Washington Bureau=20 WASHINGTON -- California officials and power suppliers failed to agree on= =20 refunds for electricity overcharges as 15 days of contentious negotiations= =20 ended Monday, leaving the matter in the hands of a federal judge who said t= he=20 state is owed much less than the $8.9 billion it demands.=20 The judge overseeing the talks for the Federal Energy Regulatory Commission= =20 put the refunds at between several hundred million dollars and a billion=20 dollars. His estimate is closer to the $716.1 million offer made by power= =20 suppliers during negotiations. The offer was rejected by California=20 officials.=20 But it was unclear Monday which side in the bitter refund battle would=20 prevail, and California officials indicated the dispute is probably headed = to=20 court. At stake is how much the state's electricity consumers will ultimate= ly=20 have to pay for costs that skyrocketed as California's deregulation system= =20 collapsed.=20 Curtis Wagner, the commission's chief administrative law judge, will=20 recommend a formula for the commission to use to calculate a refund dating= =20 back to October. That formula -- a complex methodology that involves factor= s=20 such as daily natural gas prices -- includes many of the provisions the=20 energy suppliers had advocated during the talks.=20 Michael Kahn, who headed the California negotiating team, said the state=20 would contest some aspects of the formula. But even without changes, Kahn= =20 said he was confident the formula will result in more refunds than Wagner= =20 estimated.=20 ``We think the numbers even using the judge's formula are going to be in th= e=20 multiple billions,'' said Kahn, chairman of the state Independent System=20 Operator, which runs the electricity grid. ``California will get its $8.9= =20 billion dollars. If we don't get all of it from the commission .?.?. we'll= =20 still get the remainder of the money'' through the courts.=20 Amount in dispute=20 Power industry representatives appeared pleased with the judge's plan.=20 ``We haven't gone and run the full numbers but it's going to be nowhere nea= r=20 the $8.9 billion,''' said Brent Bailey, vice president and general counsel= =20 for Duke Energy North America. ``But let's face it, that's a pie-in-the-sky= =20 number that nobody in there believed in their right mind was a legitimate= =20 number.''=20 Wagner acknowledged he had not calculated any figures using his formula,=20 saying he arrived at his dollar estimate based on the offers made by the=20 suppliers.=20 The energy commission ordered the private settlement conference last month= =20 when it enacted new price controls to try to rein in soaring electricity=20 prices in California and throughout the West. Commissioners hoped that unde= r=20 pressure of a deadline and their looming intervention the state and the pow= er=20 suppliers could resolve the refund issue and stave off future litigation.= =20 But the suppliers and state officials never came close to a deal,=20 participants said.=20 ``The numbers were too far apart. You saw $8.9 billion on one end and you s= aw=20 $716 million on the other end, and that's a long way to splitting the=20 difference,'' Wagner said. ``I think a lot of the parties genuinely wanted = to=20 settle. Others didn't.''=20 Wagner now has until Monday to make his recommendation to the five-member= =20 commission, which will make the final ruling on refunds. To date, the=20 commission has ordered $125 million in refunds for periods since last Oct. = 2.=20 Wagner said Monday that he will ask that a special hearing be set up in the= =20 next 60 days to get the detailed information from the state and power=20 suppliers needed to determine a refund total using his formula.=20 The state may not end up with any cash, as any refund total could be applie= d=20 to the several billion dollars California and its utilities still owe many = of=20 the power suppliers.=20 Reflecting the tone of the negotiations, California Gov. Gray Davis on Mond= ay=20 blamed power suppliers for the failure of the talks and challenged the=20 commission to resolve the situation.=20 ``Not surprisingly, the energy pirates that bilked ratepayers out of billio= ns=20 of dollars stonewalled and refused to negotiate in good faith with our team= =20 in Washington, D.C.,'' Davis said. ``While in the past the FERC has shown= =20 little, if any, interest in consumers, they now have the opportunity to=20 redeem themselves by returning the $8.9 billion California has demonstrated= =20 it is owed.''=20 Davis may go to court=20 At the opening of a new power plant in Contra Costa County on Monday, Davis= =20 told reporters that he's prepared to take the power generators to court if= =20 FERC doesn't order the full refund. Davis also said the ISO's estimate of= =20 $8.9 billion doesn't represent all the overcharges. He said other estimates= =20 put the figure as high as $20 billion, although he did not elaborate about= =20 how those figures were calculated.=20 John H. Stout, senior vice president for Reliant Energy Wholesale Group, sa= id=20 the state used faulty methodology to arrive at the $8.9 billion figure.=20 California officials and several suppliers said they would continue to=20 negotiate separately, and an official with San Jose-based Calpine said his= =20 company is close to a settlement with the state.=20 Power suppliers urged Wagner not to calculate refunds by applying the energ= y=20 commissions' June price-limits plan retroactively. But that's what Wagner= =20 said he will do. It was a victory for California officials, who had pushed= =20 for it. Wagner, however, also made some changes to the price-limit plan tha= t=20 power suppliers had wanted. He applied it only back to Oct. 2, 2000. State= =20 officials wanted it to cover up to May 2000.=20 $3 billion difference=20 The state's $8.9 billion figure comes from May 2000 through May 2001.=20 Factoring refunds beginning with Oct. 2, 2000, eliminates about $3 billion = in=20 overcharges the state says occurred in the earlier period.=20 Among the changes to the commission's formula that Wagner made was to revis= e=20 the way the prevailing electricity price limit is calculated. Wagner wants= =20 the price limit determined for each hour of each day. The commission's=20 formula sets a price limit during Stage One power emergencies that remains = in=20 effect until the next emergency.=20 But in a sign of just how complex the issue is, Stanford University economi= st=20 Frank Wolak said he believes the standards described by the judge will=20 produce a much higher figure than $1 billion.=20 ``That's the methodology the state used,'' said Wolak, who advises the=20 California ISO on market issues. ``By using the marginal unit for each hour= ,=20 you'll get refund numbers on the order of what the state estimated.''=20 Mercury News Staff Writers Brandon Bailey and Dana Hull contributed to this= =20 report.=20 Contact Jim Puzzanghera at jpuzzanghera@krwashington.com or (202) 383-6043.= =20 Power purchase bills exceed $7.5 billion=20 Published Tuesday, July 10, 2001, in the San Jose Mercury News=20 BY MARK GLADSTONE, NOAM LEVEY AND DION NISSENBAUM=20 Mercury News Sacramento Bureau=20 SACRAMENTO -- Six months after jumping into the electricity business, the= =20 Davis administration on Monday provided the first detailed glimpse of=20 California's daily power purchases, showing more than $5 billion in payment= s,=20 much of it to government-owned utilities and private companies that state= =20 officials have branded as price gougers.=20 The state spent an additional $2.5 billion on a variety of contracts and=20 other electricity services designed to stabilize the volatile energy market= s,=20 according to documents that the state agreed to release last week amid a=20 legal dispute over public access to the data.=20 In roughly the first five months of the year, the state shelled out $1.2=20 billion to Atlanta-based Mirant, the most any company was paid for=20 electricity, followed by $1 billion to Powerex, the marketing arm of BC Hyd= ro=20 in British Columbia. It also paid $331 million to the Los Angeles Departmen= t=20 of Water and Power.=20 The documents raise questions about some of the common assumptions that hav= e=20 arisen around the electricity crisis. For instance, almost 40 percent of th= e=20 state's purchases have come from government-run power generators in=20 California and elsewhere, but not Texas; some of the biggest suppliers are= =20 from the Northwest.=20 Gov. Gray Davis, who has ambitions to run for the White House, has put much= =20 of the blame for the soaring costs of power on energy companies based in=20 President Bush's home state.=20 The figures are tucked inside 1,770 of pages of invoices that Davis has=20 resisted divulging, saying disclosure would encourage suppliers to charge= =20 more. The state, which last month released information on its long-term=20 electricity contracts worth $43 billion, agreed Thursday to release the fir= st=20 quarter details.=20 Short on explanation=20 The figures were disclosed late Monday by the California Department of Wate= r=20 Resources, which buys power for the state's financially strapped major=20 utilities, and seem to buttress the administration's contention that the=20 price of power is gradually dropping but offer little or no explanation for= =20 what prompted the decrease.=20 In January, for instance, the average price for power on the spot market wa= s=20 $321 a megawatt hour. It peaked in April at $332 and dropped to $271 in May= .=20 One megawatt powers about 750 homes.=20 Davis spokesman Steve Maviglio said the price data supports the governor's= =20 assertions that California has been gouged. ``The bad guys are clearly the= =20 out-of-state generators,'' Maviglio said. ``There has been a significant=20 shift of money out of California.''=20 But the documents fail to shed much light on whether, as the administration= =20 contends, the price drop was due to long-term power contracts negotiated by= =20 the state earlier this year. Critics contend that the Davis administration= =20 panicked and rushed into deals that commit the state to pay high prices for= =20 many years.=20 Used for support=20 Republican officials used the price information to bolster their attacks=20 against Davis, a Democrat, for signing long-term contracts with power=20 generators even as the price of power on the spot market was coming down,= =20 partly because of the declining price of natural gas used to fuel many=20 plants.=20 ``It's more clear than ever that the long-term contracts are a bad deal,''= =20 said Assemblyman Tony Strickland, R-Camarillo. ``The governor's really hurt= =20 the ratepayers for the next five or 10 years.''=20 The newly released bills highlight the volatility of California's energy=20 market, where the price per megawatt hour ranged from $70 to $1,000. On any= =20 given day, the records show, the prices from seller to seller varied widely= ,=20 with some of the highest prices being charged by public utilities and=20 companies outside Texas.=20 On one day in February, for example, San Diego-based Sempra Energy was=20 charging $165 per megawatt hour, the Eugene Water and Electric Board was=20 charging nearly $500 and Duke Energy, a North Carolina company, was chargin= g=20 up to $575.=20 The state's daily spending peaked May 10 at $102.4 million for all power,= =20 including the spot market and contracted power.=20 The state began buying power in mid-January on behalf of the state's major= =20 utilities, which were unable to borrow money to buy power after amassing=20 enormous debts for electricity.=20 San Jose-based Calpine Corp., which is building several new power plants=20 around California including one in South San Jose, did only $29 million wor= th=20 of business with the state in the first five months of the year, according = to=20 the figures.=20 The state began buying power in mid-January when Pacific Gas & Electric Co.= =20 and Southern California Edison Co. were on the ropes financially. PG&E late= r=20 went into bankruptcy.=20 On Monday, state lawmakers took another shot at trying to cobble together a= =20 plan to rescue financially ailing Edison.=20 While most concede that a rescue plan Davis worked out with Edison will not= =20 win the necessary support in the Legislature, lawmakers have created severa= l=20 working groups to come up with alternatives.=20 Compromise plan=20 On Monday, state Sen. Byron Sher, D-Redwood City, unveiled the latest=20 compromise proposal that seeks to protect average ratepayers and small=20 businesses from further rate increases and forces everyone else to help=20 finance the Edison bailout.=20 The ``shared pain'' proposal would force power producers, owed about $1=20 billion, to take a 30 percent ``haircut'' and agree to forgive about $300= =20 million in Edison debts. Edison would be asked to swallow $1.2 billion --= =20 about a third of its debt. And big users would be asked to pay off the=20 remaining $2 billion in debts, possibly by paying higher prices for power.= =20 In exchange, large companies would be given the opportunity to buy power on= =20 the open market, a system that would allow many of them to sign cheap energ= y=20 deals.=20 Sher presented the proposal to Senate Democrats Monday afternoon, but it=20 remains unclear how much support the framework will receive in the=20 Legislature.=20 Contact Mark Gladstone at mgladstone@sjmercury.com or (916) 325-4314.=20 ? Refund outlook dims=20 Talks break down; judge says state is owed much less than its $8.9 billion= =20 demand -- and unpaid bills may offset gains.=20 July 10, 2001=20 By DENA BUNIS and JOHN HOWARD The Orange County Register=20 WASHINGTON The nation's chief energy judge said Monday that California is= =20 owed maybe $1 billion in refunds from power generators, a fraction of the= =20 $8.9 billion demanded by Gov. Gray Davis.=20 And even at that, said Judge Curtis Wagner, the electricity sellers are owe= d=20 so much more in unpaid power bills that in the end California might not see= =20 one red cent.=20 Wagner announced his recommendation to the Federal Energy Regulatory=20 Commission after two weeks of fruitless negotiations between all the partie= s=20 to California's electricity crisis. With no settlement, the matter is now i= n=20 the commissioners' hands.=20 Power generators, Wagner said, had offered a combined $716 million in=20 refunds, an offer the state rejected. "I don't think it's 8.9 (billion=20 dollars)," he said afterwards, "because I haven't been shown that it was."= =20 For California consumers, every dollar the state can extract in refunds is = a=20 dollar less that ratepayers have to shell out for state-purchased power. An= d=20 the more money the state gets back, the better the chances of warding off= =20 future rate increases.=20 "California will get its $8.9 billion," insisted Michael Kahn, head of the= =20 state's delegation and the California Independent System Operator. Kahn=20 brushed off Wagner's comments, finding victory in the judge's assertion tha= t=20 the state is owed some refunds, a concept the generators have been unwillin= g=20 to embrace up to now, he said.=20 Since the talks began, some generators have made refund offers -- last week= =20 Duke Energy offered $20 million and on Monday, Reliant officials revealed= =20 their refund offer was $50 million, provided all other actions against the= =20 company were dropped.=20 But the net result of the 15- day closed-door sessions is that California i= s=20 no closer to getting repaid for what it claims was price gouging by power= =20 companies going back to May 2000 than it was the day the talks began.=20 And it means the state is in for possibly more hearings before the FERC. If= =20 unsuccessful there, the whole issue could wind up in court for years.=20 "You can take a horse to water but cannot make him drink," Wagner said duri= ng=20 an afternoon public session where he made his preliminary recommendation. H= e=20 has seven days to put his ideas in writing. At several points during the=20 often-tense talks, Wagner expressed frustration to the negotiators and trie= d=20 to get them to agree, even to the point of holding an unprecedented Sunday= =20 session.=20 "The numbers were too far apart," Wagner said.=20 While Kahn insisted the state had made progress, on hearing of the judge's= =20 comments, state Sen. John Burton, D-Francisco, called them "barely better= =20 than a jab in the eye with a sharp stick." Burton agreed with Kahn that the= =20 state has to do all it can to get more than that.=20 And Davis backed up his team.=20 "Our delegation made a clear and compelling factual argument that there wer= e=20 overcharges made because the market was broken," Davis said. "Remarkably, t= he=20 energy generators and suppliers refused to recognize their responsibility t= o=20 the people of California and own up to their profiteering."=20 Power generators seemed satisfied with the judge's views, even though John= =20 Stout, vice president of Reliant Energy, said his company's "fundamental=20 position has been and remains that no refunds are justified."=20 Brent Bailey, general counsel for Duke Energy, called the judge's=20 recommendation, "a fair one."=20 Republican lawmakers in Sacramento were quick to say it was Davis' failed= =20 energy policies that brought California to this point. They also distanced= =20 themselves from the state's refund request.=20 "I don't believe there really exists a true justification for that number,"= =20 said Assemblyman John Campbell, R-Irvine. "I've never considered that=20 anything more than a wild number to throw out there."=20 The two sides are so far apart in their estimates of overcharges because th= ey=20 are using different assumptions about how to compute the complex pricing=20 structure. And Wagner was more persuaded with the majority of the generator= s'=20 methods.=20 To start with, the state is asking for $8.9 billion, but about $3 billion o= f=20 those alleged overcharges happened between May and October 2000, a period= =20 FERC is not looking at. FERC issued two refund orders in March, finding tha= t=20 power companies had $124 million in overcharges during power alerts. But th= e=20 state is challenging that finding, saying there were overcharges beyond tho= se=20 limited times. And the state is also asking FERC to reconsider allowing=20 refunds for May to October 2000.=20 How energy panel affects California=20 Six months ago, few people had heard of FERC. Now the Federal Energy=20 Regulatory Commission, the agency charged with making sure that the nation'= s=20 power markets are running smoothly and that wholesale prices are "just and= =20 reasonable," rolls off the tongue.=20 The five commissioners who make up FERC - all of whom were members of their= =20 home state's Public Utilities Commissions - ordered the settlement talks th= at=20 concluded Monday. They had hoped all the parties involved in California's= =20 electricity crisis could reach an agreement on proposed refunds, long-term= =20 power contracts and other issues that have divided the parties for months.= =20 FERC's chief judge, Curtis Wagner, was asked to mediate the talks.=20 WHAT WAS AT STAKE?=20 For the state: $8.9 billion that Gov. Gray Davis said was the amount power= =20 companies overcharged California in the past year. Wagner's finding? There= =20 should be refunds. But more like $1 billion.=20 For the generators: More than $5 billion that they say they are owed for=20 unpaid power bills. Wagner's finding? Generators are owed more money than t= he=20 refunds they owe California. He did not specify by how much.=20 For California consumers: A stable electricity market. Until the refund iss= ue=20 is settled and power prices are stabilized long term, what the future holds= =20 for rate increase remains uncertain. Wagner's finding? No settlement.=20 Consumers still in limbo.=20 HOW DID WE GET HERE?=20 In spring 2000, wholesale power prices began to soar. The state began=20 appealing to FERC to cap wholesale prices. In the meantime the utilities we= re=20 running out of money. Generators weren't paid for all the electricity they= =20 sold. Rolling blackouts began.=20 Starting in January, the state began buying the power, replacing the=20 near-bankrupt utilities. Politicians from Sacramento to Washington increase= d=20 the pressure on FERC to cap rates. More than $27 billion was spent to buy= =20 power for California last year, compared with $7 billion the year before. T= he=20 price tag could reach $50 billion this year.=20 On June 19, FERC imposed the kind of soft price caps experts say could=20 moderate wholesale rates. Wholesale prices have come down, but the caps hav= e=20 caused confusion among generators, leading some to hold some power off the= =20 market.=20 WHAT'S NEXT?=20 The FERC commissioners will receive Wagner's report within a week. In it, h= e=20 will suggest they hold a fast-track formal hearing that would last no more= =20 than 60 days.=20 If they agree, after that hearing the commission would rule on refunds and= =20 other California market issues.=20 If either the state or the other parties to this dispute disagree, they can= =20 contest FERC's decision in court. Such legal proceedings could last many=20 years. State reveals details of power purchases=20 Report shows last-minute energy buys in first three months of 2001.=20 July 10, 2001=20 By JENNIFER COLEMAN The Associated Press=20 SACRAMENTO On three days in May, California's daily power allowance topped= =20 $100 million, according to a report released by state power traders.=20 The California Department of Water Resources released the report Monday,=20 along with 1,770 pages of documents that also detailed the last- minute pow= er=20 purchases the state made on the spot market in the first three months of th= e=20 year.=20 The report details the department's electricity spending since Jan. 17, whe= n=20 the state took over electricity purchases for Pacific Gas & Electric Co., S= an=20 Diego Gas & Electric Co., and Southern California Edison.=20 The utilities had amassed billions in debts and were no longer creditworthy= =20 enough to purchase power. Since then, the state has spent nearly $8 billion= =20 to keep the lights on.=20 The state's daily spending peaked May 10 at $102.4 million. The=20 second-highest daily total was May 23, when the state spent $101.8 million.= =20 But since May, spot-market prices have dropped, due in part to moderate=20 weather, lower natural gas prices, increased conservation that lowered dema= nd=20 and because of increased scrutiny by lawmakers and investigators into=20 possible price manipulation. Gov. Gray Davis has said long-term contracts= =20 also drove the price down.=20 "It does look like some of the spot-market prices have gone down, but it=20 looks like it's primarily due to natural gas prices," said Jamie Fisfis,=20 spokesman for Assembly Republicans.=20 The slight reduction in spot-market prices "underscores questions about the= =20 strategy of locking us into long-term contracts, if natural gas prices=20 continue to drop," Fisfis said.=20 Most of the long-term contracts run for 10 years, with one lasting for 20= =20 years.=20 Davis already has released details of the state's long-term power contracts= =20 after losing a court battle with Republican legislators and several news=20 organizations.=20 But Davis wanted to delay the release of the spot-market buys and short-ter= m=20 contracts until now to keep the state's buying strategy secret.According to= =20 the state, Atlanta-based Mirant Corp. got $1.24 billion as of May 31 for=20 spot-market purchases.=20 Canadian Powerex, the marketing arm of BC Hydro, has been paid $1.05 billio= n.=20 The newly released short-term contracts also show that on March 19-20, when= =20 the state had rolling blackouts, the state paid above-average prices in its= =20 largest short-term contracts.=20 For example, Mirant sold the state 650 megawatt-hours at off-peak usage tim= es=20 on March 20 for $345 a megawatt-hour, more than $70 above the average price= =20 of $272.96.=20 Tuesday, July 10, 2001=20 Ghost of Bob Citron roaming halls of capitol=20 Gray Davis is following footsteps of former O.C. treasurer into fiscal chao= s JOHN M.W. MOORLACH=20 Mr. Moorlach is the Orange County treasurer-tax collector.=20 A recent L.A. Times poll found that Californians still remain unconvinced= =20 that our state suffers from a shortage of energy. Perhaps the state's=20 subsidizing of the actual costs for electricity these past five months has= =20 caused us to believe that everything is fine. It is not.=20 The state has been spending an average of $57 million, a medium-sized city'= s=20 annual budget, per day for electricity. Now California is headed toward the= =20 same financial catastrophe that was imposed on its shareholder-owned=20 utilities, finding one of them in Chapter 11 bankruptcy and another on the= =20 precipice. At this pace, it will not be long before the state will be stari= ng=20 a Chapter 9 bankruptcy filing in the face.=20 That's why I'm gnawed by this "d,j. vu" sensation. The similarities and=20 parallels between California of 2001 and Orange County of 1994 are=20 frightening. Here's a refresher. In 1994 the county, through former Treasur= er=20 Robert Citron, was borrowing at variable rates and investing at fixed rates= .=20 The "experts" and the "politicos" were comfortable with the investment=20 scheme.=20 No wonder the electorate was convinced that there were no investing=20 improprieties. Even while their former treasurer was very secretive about h= ow=20 he was investing and what his "exit strategy" would be. Guess what? The=20 unexpected happened. Short-term borrowing rates doubled. The cost of=20 borrowing suddenly exceeded the revenues being generated.=20 It caused the investment pool to implode and Orange County taxpayers realiz= ed=20 a $1.64 billion loss. In spite of pleas to avoid or minimize this train wre= ck=20 the county's leadership, he ignored it. The rest is history. In a=20 half-pregnant deregulation scheme, the state capped the retail price that t= he=20 utilities can charge. It also eliminated the availability to acquire=20 electricity through the use of long-term contracts.=20 Guess what? The unexpected happened. The wholesale price for electricity=20 spiked dramatically above the inflexible retail price cap. It depleted the= =20 available funds for the utilities, and then some, and they are imploding. I= n=20 spite of pleas from the utilities imploring Gov. Gray Davis to avoid or=20 minimize this train wreck, he ignored them. The rest is also history.=20 It gets worse. Davis doesn't allow for the immediate raising of retail rate= s=20 and decides to have the state secretly purchase electricity. Guess what? Th= e=20 expected happened. He depleted our budget surplus! Our reserves! Nearly $9= =20 billion - and counting! He's a Citron, only quintupled!=20 And in the light of day, the secret purchases were not attractively priced= =20 and only compound this financial nightmare. Gov. Davis has done what no=20 Libertarian or Republican could ever dream of doing in such a short time. H= e=20 has returned the budget surplus created by taxpayers to the residents of=20 California by subsidizing their electricity bills.=20 Bravo! It may not be the most equitable way of refunding taxes, but has=20 anyone ever thought up a more efficient method? But, that's not all. He wan= ts=20 it back! Davis now wants to borrow some $13 billion to replace the spent=20 reserves and purchase even more electricity at rates in excess of the retai= l=20 prices! When does this train wreck in slow motion stop?=20 And how do we pay off these bonds? Davis did not want to raise rates last= =20 summer or this past winter. But now he will to pay off this historically=20 largest municipal bond offering with a significant utility rate increase. T= he=20 ratepayers will be reminded for 10 years after Davis is gone about his=20 expensive brilliance. And this elected official wants to purchase the power= =20 grids and bureaucratically manage the utilities? I say "no."=20 If we don't show some leadership in Sacramento soon, potential bond buyers= =20 will also say "no," unless they receive an attractive interest rate. Just a= sk=20 Edison International about attractive interest rates. It just subscribed $8= 00=20 million in bonds paying 14 percent. Tragically, Gov. Davis walked into his= =20 position with an existing budget surplus and now has no tangible legacy to= =20 show for it. No reserves. No improved highways. No new schools. No=20 infrastructure improvements. Only interest payments.=20 Wasn't that Citron's legacy? If amortized over 10 years at 6 percent, the= =20 citizens of California will pay an additional $4.4 billion in interest cost= s.=20 Over 15 years it's $6.7 billion. And therein lies the true legacy of Davis,= =20 squandering the entire budget surplus that he inherited on interest resulti= ng=20 from his indecisiveness and lack of leadership!=20 It is so tragic that the perpetrator of this colossal mess is still in deni= al=20 and continues to play the "blame game." Orange County played the "blame=20 game," too. But it had obvious perpetrators and succeeded in a court of law= =20 in securing a significant amount in retribution payments. I'm not so sure= =20 California will have a similar result.=20 Calpine's Los Medanos Energy Center Adds Needed Generation to California=20 Second New Major Base Load Generator for California=20 July 10, 2001=20 Second New Major Base Load Generator for California=20 SAN JOSE, Calif., July 9 /PRNewswire/ -- San Jose, Calif.-based Calpine=20 Corporation (NYSE: CPN) announced today that its 555-megawatt Los Medanos= =20 Energy Center in Pittsburg, Calif. is providing needed electricity to=20 California's strained power grid. Los Medanos is the second major=20 combined-cycle facility to be licensed and built in California in over a=20 decade. Fueled by natural gas, the facility is designed to add up to=20 555-megawatts of clean, reliable electricity to California on a 24 hours a= =20 day, seven days a week availability. As a cogeneration facility, the projec= t=20 also delivers electricity and steam to USS POSCO for use in industrial=20 processing.=20 Governor Gray Davis and Calpine CEO Peter Cartwright will hold a press=20 conference Monday afternoon to commission the Los Medanos Energy Center and= =20 to recognize the support of the local community, the construction and trade= s=20 people, and numerous organizations that helped develop the facility.=20 Cartwright said, "We are committed to creating innovative energy solutions= =20 for California's growing power market. Los Medanos exemplifies excellence i= n=20 power generation-ratepayers and the environment benefit as Calpine brings t= o=20 California new energy resources like Los Medanos."=20 Los Medanos is the second of eleven announced modern, fuel-efficient energy= =20 centers Calpine is building in the State as part of a $6 billion energy=20 initiative. Three additional facilities are under construction, including a= n=20 880-megawatt facility in Pittsburg at Dow Chemical's facility. By year-end= =20 2005, Calpine expects to be generating 12,000 megawatts of clean, affordabl= e=20 electricity to help repower California.=20 Calpine broke ground on the Los Medanos Energy Center in September 1999. Mo= re=20 than 600 construction and trade personnel worked on the project over a=20 20-month period. During the past several months, the project scheduled two= =20 ten-hour shifts, seven days a week to get the plant operating as soon as=20 possible in light of the energy crisis. And over the past several weeks,=20 technical teams worked round the clock to complete the facility. The total= =20 cost of construction is estimated to be approximately $350 million.=20 The Los Medanos Energy Center is located in Pittsburg, Calif., in Contra=20 Costa County adjacent to the USS POSCO plant and is operated by a 22-member= =20 staff of highly trained personnel.=20 As with all of Calpine's modern base load facilities, Los Medanos uses=20 combined-cycle design with natural gas-fired turbines in combination with a= =20 steam turbine to achieve maximum fuel efficiency. Advanced emissions contro= l=20 technology enables Calpine to reduce certain emissions by more than 90=20 percent.=20 Based in San Jose, Calif., Calpine Corporation is dedicated to providing=20 customers with reliable and competitively priced electricity. Calpine is=20 focused on clean, efficient, natural gas-fired generation and is the world'= s=20 largest producer of renewable geothermal energy. Calpine has launched the= =20 largest power development program in North America. To date, the company ha= s=20 approximately 34,000 megawatts of base load capacity and 7,200 megawatts of= =20 peaking capacity in operation, under construction, pending acquisitions and= =20 in announced development in 29 states, the United Kingdom and Canada. The= =20 company was founded in 1984 and is publicly traded on the New York Stock=20 Exchange under the symbol CPN. For more information about Calpine, visit it= s=20 Website at www.calpine.com.=20 This news release discusses certain matters that may be considered=20 "forward-looking" statements within the meaning of Section 27A of the=20 Securities Act of 1933, as amended, and Section 21E of the Securities=20 Exchange Act of 1934, as amended, including statements regarding the intent= ,=20 belief or current expectations of Calpine Corporation ("the Company") and i= ts=20 management. Prospective investors are cautioned that any such forward-looki= ng=20 statements are not guarantees of future performance and involve a number of= =20 risks and uncertainties that could materially affect actual results such as= ,=20 but not limited to, (i) changes in government regulations, including pendin= g=20 changes in California, and anticipated deregulation of the electric energy= =20 industry, (ii) commercial operations of new plants that may be delayed or= =20 prevented because of various development and construction risks, such as a= =20 failure to obtain financing and the necessary permits to operate or the=20 failure of third-party contractors to perform their contractual obligations= ,=20 (iii) cost estimates are preliminary and actual cost may be higher than=20 estimated, (iv) the assurance that the Company will develop additional=20 plants, (v) a competitor's development of a lower-cost generating gas-fired= =20 power plant, and (vi) the risks associated with marketing and selling power= =20 from power plants in the newly competitive energy market. Prospective=20 investors are also cautioned that the California energy environment remains= =20 uncertain. The Company's management is working closely with a number of=20 parties to resolve the current uncertainty, while protecting the Company's= =20 interests. Management believes that a final resolution will not have a=20 material adverse impact on the Company. Prospective investors are also=20 referred to the other risks identified from time to time in the Company's= =20 reports and registration statements filed with the Securities and Exchange= =20 Commission.=20 MAKE YOUR OPINION COUNT - Click Here=20 http://tbutton.prnewswire.com/prn/11690X52413521=20 SOURCE Calpine Corporation=20 CONTACT: media, Katherine Potter, 408-995-5115, ext. 1168, or investors, Ri= ck=20 Barraza, 408-995-5115, ext. 1125, both of Calpine Corporation=20 Web site: http://www.calpine.com (CPN)=20 National Desk; Section A=20 California and Generators Still Split After 2-Week Talks By JOSEPH KAHN ?=20 07/10/2001=20 The New York Times=20 Page 14, Column 1=20 c. 2001 New York Times Company=20 WASHINGTON, July 9 -- A federal mediator ended two weeks of negotiations=20 about California 's demands for electricity refunds today, with the state a= nd=20 power suppliers seemingly no closer to a settlement than when the talks=20 began.=20 The failure of the negotiations shifts the burden of resolving the yearlong= =20 dispute to the Federal Energy Regulatory Commission, to which the mediator= =20 may recommend a pricing formula that would mean refunds of about $1 billion= .=20 California , which wants $8.9 billion, vowed today that it would seek that= =20 much and more, through the courts if necessary.=20 Although electricity prices in the West have eased in recent weeks, the pow= er=20 crisis that has afflicted California and other Western states seems unlikel= y=20 to be resolved unless rival parties can agree on how much electricity shoul= d=20 have cost during the last 13 months.=20 The power market has been mired in an accounting gridlock. The state claims= =20 that generating companies began grossly overcharging for electricity -- wit= h=20 prices soaring by a factor of 10 or 20 over year-before levels -- beginning= =20 in late spring last year. Generators say they are prepared to pay some=20 refunds, but argue that California 's estimates of overcharges are radicall= y=20 inflated.=20 The mediator in the settlement talks was Curtis L. Wagner Jr., an=20 administrative law judge for the federal agency, who said today that the=20 negotiations had failed to reach the comprehensive voluntary settlement he= =20 had sought.=20 Mr. Wagner said he would recommend to the agency's commissioners that they= =20 convene a 60-day evidentiary hearing that would impose an administrative=20 solution. He also said he would suggest a method for determining fair price= s=20 for electricity .=20 Under federal law, the energy commission has the obligation to ensure ''jus= t=20 and reasonable'' electricity rates. Though the commission declared last yea= r=20 that California 's electricity market had broken down, it only recently beg= an=20 imposing price controls on the market and has yet to address accusations of= =20 past overcharges systematically.=20 While the scope of any refunds remains uncertain, Mr. Wagner's remarks=20 appeared more favorable for generators than for Western states, which have= =20 collectively pressed for as much as $15 billion in refunds.=20 Mr. Wagner said that to determine how much California should have paid for= =20 power since last September, when the commission began monitoring California= =20 energy prices, he would suggest that the agency retroactively apply a price= =20 control formula it adopted in June. He also indicated that he supported a w= ay=20 of calculating the costs of power generation that is closer to the method= =20 favored by power companies than to the one put forward by California=20 officials. The judge suggested that the formula he is recommending could=20 require generators to pay back hundreds of millions or ''maybe a billion''= =20 dollars.=20 California officials gave a positive cast to the judge's statements, callin= g=20 them a step forward because he formally acknowledged that companies would= =20 have to pay some refunds. They also noted that whatever the level of=20 federally mandated refunds, they would have the option of seeking more in= =20 court.=20 ''We are still going to get the $8.9 billion,'' said Michael Kahn, who=20 represented Gov. Gray Davis of California in the talks. ''If we don't get i= t=20 all from the commission, we will get the remainder in the courts.''=20 Governor Davis himself said today that if the agency did not provide refund= s=20 in the amount the state claims it is owed, it would sue generators for $18= =20 billion to $20 billion. ''We are in a war with generators, mostly out of=20 state, that are trying to bleed us dry,'' Mr. Davis said, speaking at the= =20 ceremonial opening of a power plant in Northern California .=20 Representatives of several generating companies said that during the=20 settlement talks, they collectively offered to refund California about $500= =20 million. They estimated that the calculation method suggested by the judge= =20 would result in refunds of no more than $1.5 billion -- far closer to their= =20 offer than to California 's demand.=20 Still, several executives said they now hoped to reach individual settlemen= ts=20 with the state that would end the threat of prolonged litigation and allow= =20 them to collect several billion dollars they say they are owed by the state= =20 and its leading, financially pressed utilities, which ran up huge debts to= =20 suppliers in the last year.=20 ''We remain very interested in reaching a global settlement with the state= =20 that will put this problem behind us once and for all,'' said Brent Bailey,= =20 vice president and general counsel of Duke Energy.=20 Financial=20 Energy Refund Talks Fail In Calif.; Federal Agency's Judge To Propose=20 Settlement Peter Behr ?=20 07/10/2001=20 The Washington Post=20 FINAL=20 Page E01=20 Copyright 2001, The Washington Post Co. All Rights Reserved=20 California consumers were overcharged by as much as $1 billion by electrici= ty=20 suppliers since October, a federal administrative judge said yesterday afte= r=20 state officials and power suppliers failed to reach an agreement on the=20 disputed charges.=20 Gov. Gray Davis (D) and California power officials wanted $8.9 billion in= =20 refunds dating back to May 2000, when the state's energy crisis began.=20 A group of generating companies headed by units of Duke Energy Corp., Relia= nt=20 Energy Inc. and Williams Cos. offered refunds of $716.1 million in the past= =20 week, going back to October. The companies said refunds should be offset by= =20 the larger amounts they are owed for unpaid power deliveries to the state.= =20 "The numbers were too far apart," Curtis L. Wagner Jr., chief judge of the= =20 Federal Energy Regulatory Commission, told reporters after two weeks of=20 closed negotiations ended yesterday. Wagner acknowledged that his refund=20 number was imprecise and said further hearings before FERC are needed to pi= n=20 down the figure.=20 Calpine Corp. of San Jose and possibly one other supplier are expected to= =20 reach individual settlements with the state, the judge said.=20 "A lot of the parties genuinely wanted to settle and others didn't," Wagner= =20 told reporters. "There's an old southern saying," said the 72-year-old=20 Tennessean. "You can take a horse to water, but you can't make it drink."= =20 He declined to say which side balked, but previously he had blasted=20 California officials for not modifying their initial demands.=20 Wagner said he will send his own refund formula to FERC's five commissioner= s=20 within a week. His formula essentially will reflect what he thinks reasonab= le=20 electricity prices would have been in the state at various times since=20 October, considering fuel costs and other factors. Charges over those level= s=20 would be subject to refund, if FERC agrees.=20 The judge's recommendation is likely to carry considerable weight with FERC= 's=20 commissioners, according to energy analysts. Earlier this year, FERC=20 tentatively ordered $125 million in refunds for the first three months of= =20 this year, an amount that Davis called far too low.=20 Facing increasing political pressure from Congress, FERC -- with two new=20 members appointed by President Bush -- has taken a harder line on Californi= a=20 's power prices. Last month, the commissioners imposed price restraints on= =20 wholesale power transactions in California and 10 other western states.=20 Wagner patterned his formula after FERC's ruling last month.=20 The nation's wealthiest state has been battered by an extraordinary surge i= n=20 electricity and gas prices that have pushed its electricity costs up from $= 7=20 billion in 1999 to an estimated $27 billion last year. Power prices did not= =20 retreat from record levels until last month.=20 Davis's top aides quickly claimed vindication yesterday.=20 "We think the numbers, even using the judge's formula, are going to be in t= he=20 multiple billions," said Michael Kahn, chairman of the California Independe= nt=20 System Operator, the state's power grid manager.=20 Kahn noted that the state refused to drop a growing list of legal claims=20 against the principal energy suppliers, most of them headquartered outside= =20 the state. The companies had insisted on being released from the state's=20 legal claims as part of any settlement, according to sources close to the= =20 negotiations.=20 "We will have a viable claim in state court and other jurisdictions for the= =20 remainder," Kahn said. " California will get its $8.9 billion."=20 But the state's own expert witness, economist Eric Hildebrandt, chief marke= t=20 monitor for the California grid, testified before Wagner that the=20 out-of-state generators and other nonpublic power suppliers would owe about= =20 $3.7 billion using FERC's pricing formula of last month -- less than half t= he=20 $8.9 billion goal.=20 Duke Energy is "very pleased'' by Wagner's action, said Brent Bailey, vice= =20 president and general counsel of the Charlotte-based company. The generator= s,=20 however, repeated their claims that Davis is trying to make them scapegoats= =20 for the state's failed electricity deregulation plan.=20 The major generators, in a statement yesterday, said they had delivered onl= y=20 20 million megawatt hours out of the 145 million the state power grid used= =20 from October 2000 to last May. (A megawatt supplies enough power for about= =20 750 homes.)=20 California utilities and municipal power companies also reaped large profit= s,=20 the generators said.=20 "The refunds sought by California would send a profoundly counterproductive= =20 message to suppliers: when prices are low and surpluses exist, you face a= =20 steep downside; when scarcity develops and prices rise we will take away al= l=20 upside [profit]. No one will invest [in California power facilities] in tha= t=20 climate," the generators' statement said. "The power supply shortage thus= =20 will continue without relief."=20 http://www.washingtonpost.com=20 Contact: http://www.washingtonpost.com=20 Economy=20 California and Energy Companies Miss Deadline By Richard B. Schmitt ?=20 07/10/2001=20 The Wall Street Journal=20 Page A2=20 (Copyright (c) 2001, Dow Jones & Company, Inc.)=20 WASHINGTON -- State officials and power-company executives failed to meet a= =20 federal deadline for settling $8.9 billion of disputed California electrici= ty=20 charges, as a federal mediator overseeing the talks suggested the state's= =20 demand was excessive.=20 Cautioning that he hadn't done formal calculations, Curtis L. Wagner Jr., t= he=20 chief administrative law judge of the Federal Energy Regulatory Commission,= =20 put the level of potential refunds at "hundreds of millions of dollars, may= be=20 a billion dollars." He also said any sums due the state could well be offse= t=20 by monies its insolvent utilities owe in unpaid power bills.=20 Mr. Wagner said he would recommend to the commission that any refunds be=20 calculated only from October -- the state had been seeking rebates calculat= ed=20 from May 2000 -- in line with an earlier FERC jurisdictional ruling. That= =20 decision alone would shave $3 billion from the $8.9 billion claim.=20 Mr. Wagner, who is expected to issue formal findings in the next few days,= =20 said he would recommend that the FERC hold an evidentiary hearing to assess= =20 the correct method for figuring refunds.=20 The collapse of the talks doesn't preclude individual deals later between= =20 energy companies and the state, which has accused them of overcharging for= =20 power during the past two years. Yesterday, some industry lawyers indicated= a=20 willingness to keep bargaining, and Mr. Wagner said two "partial" settlemen= ts=20 were in the works.=20 Yet, absent any such solution, the overcharge issue -- a flash point in the= =20 California power crisis -- is apt to be resolved in protracted legal and=20 regulatory proceedings, which could drag on for months or even years.=20 The negotiations began June 25, with a deadline set for midnight last night= .=20 But late yesterday, participants indicated they were billions of dollars=20 apart, with basic differences over everything from the disputed charges to= =20 doubts about whether the FERC, which ordered the talks, could enforce a dea= l=20 because of the industry's questions about the reach of the agency's=20 authority.=20 "We haven't reached a settlement. We really haven't come close," said John= =20 Stout a senior vice president of Reliant Energy Inc.'s wholesale-power grou= p.=20 Reliant had offered to pay California about $50 million to extricate itself= =20 from the fight. That is more than a third of the Houston company's operatin= g=20 profit during the relevant period, he said, although far shy of the more th= an=20 $375 million California sought from Reliant.=20 Mr. Wagner said the industry offered a total of $716 million to settle the= =20 matter.=20 The refund issue is fast becoming a test of the agency's authority and=20 credibility. The FERC, a onetime regulatory backwater, has come under inten= se=20 scrutiny of late for its largely hands-off monitoring of deregulated=20 California markets. The commission has ordered some companies to pay refund= s,=20 but they have been relatively small -- such as a $124 million rebate coveri= ng=20 wholesale electricity bills in California in January and February.=20 California Gov. Gray Davis has said he hopes two new FERC members will take= a=20 much more aggressive tack. The agency is expected to act quickly on the=20 judge's call for a hearing and other findings.=20 Yesterday, Michael Kahn, a San Francisco lawyer representing Gov. Davis at= =20 the settlement, declared he was "gratified" by Mr. Wagner's findings, sayin= g=20 they validated the state's claims to some refunds, a concept the industry h= ad=20 rejected at the talks' outset. "We've had a ringing endorsement of the idea= =20 of refunds and we'll get back lots of money," he said, adding that what the= =20 state doesn't recoup via the FERC it will pursue in court.=20 But power generators, who derided the state's request for a huge refund as= =20 "ludicrous" and "unsound," felt vindicated by yesterday's proceedings. "The= =20 state came away with far less than its expectations," said Robert Loeffler,= =20 an attorney for a unit of AES Corp. of Arlington, Va. "The common expectati= on=20 now is that any refunds will be way below this $9 billion." =====================================

angela.wilson@enron.com

Energy Issues

Please see the following articles: Sac Bee, Wed, 7/11: Mediator talked of a bigger refund: He reportedly suggested a $4.5 billion deal midway through the failed talks Sac Bee, Wed, 7/11: Davis repeats threat to sue FERC to get full refund Sac Bee, Wed, 7/11: Dan Walters: Davis plays in a virtual world while the= =20 energy reality continues=20 Sac Bee, Wed, 7/11: Energy Digest: Ratepayer panel shot down again Sac Bee, Wed, 7/11: Missing megawatts: Conservation saving state from=20 blackouts (Editorial) SD Union, Wed, 7/11: Governor tells FERC to be fair and then some SD Union, Wed, 7/11: Calpine says deal with state close on alleged overchar= ges SD Union, Wed, 7/11: Judge refuses to let ratepayers form official committe= e=20 in utility bankruptcy case LA Times, Wed, 7/11: Judge Bars Ratepayers Panel From PG&E Case SF Chron, Wed, 7/11: Developments in California's energy crisis SF Chron, Wed, 7/11: Enron Corp. sues to block Senate from forcing document= =20 release SF Chron, Wed, 7/11: Governor threatens to sue utilities for refunds=20 Davis says California won't settle for $1 billion SF Chron, Wed, 7/11: News briefs on the California power crisis Mercury News, Wed, 7/11: White House bends under energy conservation pressu= re=20 Mercury News, Wed, 7/11: Davis ups the voltage (Editorial) OC Register, Wed, 7/11: Lights go out on Davis' power show (Commentary) ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------ Mediator talked of a bigger refund: He reportedly suggested a $4.5 billion= =20 deal midway through the failed talks. By David Whitney Bee Washington Bureau (Published July 11, 2001)=20 WASHINGTON -- Midway through the negotiations between California and power= =20 sellers to settle the myriad issues arising out of the state's energy crisi= s,=20 the mediator told California's negotiating team that he thought a deal wort= h=20 more than $4.5 billion would be appropriate -- a much higher figure than he= =20 suggested after the talks ended Monday.=20 Whether the statement by Curtis Wagner, the chief administrative law judge= =20 for the Federal Energy Regulatory Commission, was a negotiating ploy or a= =20 reflection of his evolving beliefs is not clear.=20 Before the settlement talks began two weeks earlier, Wagner said he thought= =20 Gov. Gray Davis' demand for $8.9 billion in refunds was too high and that a= =20 settlement probably would be in the range of $2 billion to $2.5 billion.=20 The disclosure that Wagner had contemplated a much higher figure midway=20 through the negotiations suggests the state had more support than the judge= =20 let on Monday when he said after the talks foundered that he thought a deal= =20 should involve "hundreds of millions, maybe a billion" dollars.=20 While the state wants $8.9 billion, $3 billion of that was for overcharges= =20 during the five months preceding last October and are beyond FERC's scope o= f=20 review. Even as a starting point then, the $4.5 billion mentioned by Wagner= =20 represented 75 percent of the money the state was demanding for alleged pri= ce=20 gouging between October and May.=20 The judge's $4.5 billion figure, divided between cash payments and savings= =20 from long-term power contracts, was confirmed by three sources who asked to= =20 be identified only as "close to the negotiations" because participants had= =20 been required to sign confidentiality statements.=20 The sources gave virtually identical accounts of a July 2 meeting with Wagn= er=20 in which the judge also dismissed as "inadequate" a $670 million settlement= =20 offer made by power generators and marketers.=20 By Monday, the settlement offer had risen to $716 million. But the state=20 refused to back off its $8.9 billion demand, and there never was any seriou= s=20 back-and-forth negotiations during the 15-day period the regulatory=20 commission had given Wagner to craft a deal.=20 As a consequence of the failed talks, Wagner said Monday that within a week= =20 he will send the five-member commission his recommendations on how it might= =20 approach an order refunding power overcharges.=20 Among Wagner's suggestions is that the commission convene a hearing before = a=20 different administrative judge to take testimony from generators, marketers= =20 and the state on how to arrive at a fair settlement.=20 The options sketchily outlined by Wagner on Monday included limiting the ti= me=20 when refunds are allowed -- something that could reduce state claims by abo= ut=20 one-third -- and changing the way power plant costs are calculated to a=20 formula more favored by generators.=20 It is not clear whether Wagner, who moved from one negotiating team to=20 another during his two-week quest for a deal, ever raised the $4.5 billion= =20 settlement figure to the power marketers and generators.=20 Joel Newton, who represented Dynegy Power, Duke Energy, Reliant Energy,=20 Williams-AES and Mirant in the talks, said Tuesday he was bound by the=20 confidentiality pledge to keep silent on the internal negotiations.=20 Wagner also is refusing all media calls.=20 According to the account of the negotiations confirmed by sources Tuesday,= =20 Wagner was angry at the snail's pace of progress after the first week of th= e=20 talks.=20 On Friday, June 29, Wagner called everyone into his hearing room and scolde= d=20 them. He condemned the California team, saying they all ought to wear "clow= n=20 suits" because they were "in the pocket" of Davis and refused to show any= =20 independence.=20 He then turned to the generators and said that after a week of talks, nothi= ng=20 had been heard from them. He told them he wanted them to produce "real=20 numbers, and hard numbers" over the weekend and that if they didn't, he wou= ld=20 -- "and you're not going to like it."=20 Wagner's admonition apparently moved no one toward a deal. On Monday, in th= e=20 meeting with the California delegation, one source quoted Wagner as saying= =20 the settlement number he received from the generators and marketers "is so= =20 low I can't even present it to you."=20 "I'm not happy with the figures, they're not adequate," others quoted the= =20 judge as saying.=20 At that point, the sources said, Wagner said he was thinking of a settlemen= t=20 of $2.5 billion in cash, $2 billion in long-term contract savings and other= =20 money from out-of-state investor-owned utilities and even the federal=20 Bonneville Power Administration, which markets power from dams in the=20 Northwest.=20 But as the clock wound down on the negotiations, nothing much happened unti= l=20 Friday and Saturday, when the California team met with the five largest pow= er=20 generators.=20 It was at those meetings that the generators offered $510 million in refund= s=20 to settle their disputes with the state. But the money would have gone to= =20 reduce the tab for what they were owed by the state and California utilitie= s,=20 and it was loaded with conditions, including the state dropping all of its= =20 investigations and lawsuits.=20 Wagner declared the talks over Monday, saying he was unable to bring the=20 parties together.=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com. Davis repeats threat to sue FERC to get full refund=20 By Emily Bazar Bee Capitol Bureau=20 (Published July 11, 2001)=20 Gov. Gray Davis shot words of caution at federal regulators Tuesday, warnin= g=20 that he will sue them if they order power companies to refund anything less= =20 than the $8.9 billion he and other state officials have demanded.=20 The Democratic governor also lobbed threats at state legislators, suggestin= g=20 that he may call a special session to prevent them from embarking upon a=20 monthlong summer break next week.=20 Instead of vacationing, Davis said, lawmakers must work to approve an=20 agreement between the state and Southern California Edison that would save= =20 the utility from bankruptcy.=20 Though the governor has indicated previously that the state may take the=20 Federal Energy Regulatory Commission to court, his announcement Tuesday mad= e=20 it clear he intends to follow through.=20 Settlement talks with power generators to determine how much, if any, the= =20 companies overcharged California for electricity concluded Monday with no= =20 resolution.=20 Now, the decision rests with the FERC's governing board, and Davis said the= =20 state won't back away from the $8.9 billion figure it demanded during talks= .=20 "You order what you think is fair," Davis said during a news conference wit= h=20 the state's top negotiators. "We'll take what you order, and we'll see you = in=20 court."=20 Davis acknowledged that a legal battle could drag out for months or years.= =20 He added that he believes the disagreement -- or even a protracted court=20 battle -- will not affect a tentative agreement between the state and Ediso= n.=20 Under terms of the deal, money to pay off the utility's debt would come fro= m=20 a state purchase of its transmission lines and from a portion of consumers'= =20 electricity rates.=20 According to the agreement, the Legislature must approve the deal by Aug. 1= 5,=20 and Davis said he intends to hold lawmakers to that date.=20 Davis said the deadline is important because creditor committees will=20 scrutinize the Legislature's every move to determine whether to force Ediso= n=20 into bankruptcy court rather than await a political deal.=20 Legislators are scheduled to leave for summer recess July 20 and return Aug= .=20 20.=20 Davis threatened to use his executive powers to force lawmakers to remain i= n=20 Sacramento and work on the Edison agreement, if necessary.=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . Dan Walters: Davis plays in a virtual world while the energy reality contin= ues (Published July 11, 2001)=20 California still has a very real and very severe energy crisis, to wit:=20 The state is still running up massive debts as it pays more for power than = it=20 can recover from ratepayers and is having trouble borrowing billions of=20 dollars to cover the debt.=20 There is a strong possibility, perhaps a probability, that when summer's he= at=20 truly descends, there will be severe power blackouts as air conditioners=20 demand more juice than California can generate or buy.=20 One major utility, Pacific Gas and Electric, has filed for bankruptcy=20 protection and a second, Southern California Edison, is on the brink of=20 joining it.=20 There is, however, a virtual energy crisis consisting of political spin,=20 media leaks and made-for-television buzz words -- and it is rapidly becomin= g=20 dominant, while the real situation fades into the background.=20 This week's comic opera proceedings before a Federal Energy Regulatory=20 Commission administrative judge in Washington had little to do with reality= =20 and everything to do with the virtual version.=20 Gov. Gray Davis and other officials demanded $8.9 billion in refunds from t= he=20 generators and brokers who have been selling California power for the past= =20 year, alleging that California is, in Davis' words, "being gouged and rippe= d=20 off." But the number itself was more or less plucked out of thin air -- an= =20 arithmetic exercise by the state power grid's traffic controller not intend= ed=20 for a refund proceeding. And while Judge Curtis Wagner saw it as unrealisti= c,=20 Davis and other state officials insisted on its validity.=20 "There are refunds due that total hundreds of millions of dollars and maybe= a=20 billion dollars," Wagner said as a final negotiating session collapsed. But= =20 that's a far cry from the $8.9 billion that Davis insists is due. "If you= =20 think California is going to settle for $1 billion in refunds, we will see= =20 you in court," Davis said Tuesday.=20 Why is Davis being so belligerent? Because it's good politics. Ever since h= e=20 began berating out-of-state generators and accusing them of ripping off=20 California, Davis' approval ratings have been climbing. If he settled for= =20 substantially less -- the power generators probably would agree to a couple= =20 of billion dollars to rid themselves of the matter -- Davis would be=20 embarrassed. Politically, he's served by continuing to portray himself as= =20 fighting for California and against the out-of-state generators.=20 That it's more political construct than reality is indicated by another eve= nt=20 this week, Davis' release of state power purchase data from early in the ye= ar=20 -- numbers that were made public only because a judge told him he had to do= =20 it.=20 Davis and his minions have been accusing Texas-based generators and power= =20 brokers of particularly egregious price gouging -- clearly playing on=20 Californians' instinctive mistrust of anything Texan and implying that Texa= n=20 George W. Bush is a co-conspirator. But the power purchase records -- which= =20 were released only to journalists willing to pay a stiff fee -- indicate th= at=20 less than 10 percent of California's power purchase dollars were going to= =20 Texas and the private sellers, in general, charged the state less than such= =20 publicly owned utilities as the Los Angeles Department of Water and Power.= =20 The clearly adverse position being taken by FERC and the purchase data that= =20 undercut his jingoistic sloganeering are not, however, deterring Davis from= =20 continuing to operate, at least for public consumption, in the melodramatic= =20 virtual world.=20 One cannot, however, ignore reality forever. The likelihood of a=20 pro-generator decision from FERC means that there will be no easy out for= =20 Davis, or for his pending deal to prevent Southern California Edison from= =20 slipping into bankruptcy court. The Legislature has refused to act on the= =20 Edison rescue plan while it awaited an indication of whether the utility's= =20 debts would be slimmed down by FERC.=20 This week's farcical events make it more likely that the Edison deal will= =20 stall out permanently in the Legislature and its creditors will force the= =20 utility into bankruptcy court later this summer. That's part of that nasty= =20 old reality that cannot simply be wished away.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . Energy Digest: Ratepayer panel shot down again (Published July 11, 2001)=20 SAN FRANCISCO -- U.S. Bankruptcy Judge Dennis Montali on Tuesday reaffirmed= =20 his earlier decision to disband a ratepayers committee that would have give= n=20 consumers an official voice in the Pacific Gas and Electric Co. bankruptcy= =20 case.=20 The judge said bankruptcy court isn't the right forum for refunding rates o= r=20 settling potential future claims.=20 He eliminated erroneous statements from the opinion he originally issued=20 seven weeks ago. U.S. bankruptcy trustee Linda Ekstrom Stanley, who had mov= ed=20 for reconsideration, called the new version "a very careful decision" but d= id=20 not rule out an appeal.=20 Stanley on May 4 appointed an official committee of ratepayers to represent= =20 PG&E customers, saying they might be forced to pay for the utility's massiv= e=20 losses.=20 --Claire Cooper Missing megawatts: Conservation saving state from blackouts (Published July 11, 2001)=20 A public that doesn't believe that California's electricity crisis is genui= ne=20 is nonetheless acting as if it is. Experts are revising down scary=20 predictions of rolling blackout after rolling blackout as Californians have= =20 opted to conserve rather than consume.=20 During June, Californians cut back on electricity use by roughly 4,750=20 megawatts when it mattered the most, on hot afternoons. Those decisions=20 shaved about 12 percent from the expected demand. That's equivalent to the= =20 output of nine or 10 medium-size power plants. Last June, grid operators ha= d=20 to call six shortage alerts. This June, which was hotter, they called none.= =20 For a state that's been derided as selfish and wasteful, that's nothing sho= rt=20 of amazing.=20 Some of what Californians are doing now to conserve isn't likely to become= =20 habit in the long run. Businesses may want to turn back on all the banks of= =20 lights. Homeowners may decide that 82 degrees is the right temperature when= =20 power is short but too warm when California's supply emergency is over.=20 Yet there's a huge potential payoff into the future if some of these change= s=20 become permanent. It's encouraging that the most effective forms of=20 conservation -- switching to more energy-efficient appliances or=20 manufacturing techniques -- have yet to be implemented on a large scale.=20 Subsidies for these programs have yet to translate into changes in business= es=20 and in homes that will lower demand even further.=20 For a while this spring, some attempted to diminish the role of conservatio= n.=20 Conservation is a "personal virtue," said Vice President Dick Cheney. But= =20 Californians know it's become both a personal and public necessity. The=20 public may have thought the electricity shortage was an illusion, but=20 everyone knew that the higher electricity bills that began arriving in June= =20 were real. And so was the risk that the lights would go out on hot days.=20 Yes, the state needs more supply to catch up with the growth in demand. Yet= =20 long after the crisis is over, there will be plenty of potential on the=20 efficiency side of the equation as well, to protect the quality of life and= =20 reduce the high electricity costs that will likely plague the state for yea= rs. Governor tells FERC to be fair and then some=20 Davis firm on demand for $8.9 billion refund By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 July 11, 2001=20 SACRAMENTO -- Gov. Gray Davis had a tough message for federal regulators=20 yesterday after the failure of settlement talks in California's bid to get = an=20 $8.9 billion refund from electricity suppliers: "See you in court."=20 The governor said California will seek a full $8.9 billion refund for=20 electricity overcharges, even if federal regulators award the maximum refun= d=20 of $5.4 billion allowed under their guidelines.=20 "Our message is just order what you are going to order," Davis said of the= =20 Federal Energy Regulatory Commission. "We believe you should order $8.9=20 billion. But you order what you think is fair. We will take what you order,= =20 then we will see you in court."=20 Davis, joined by his negotiating team, made the remarks at a news conferenc= e=20 a day after two weeks of closed-door talks with suppliers in Washington=20 failed to reach an agreement.=20 An administrative law judge made a recommendation to the regulatory=20 commission that Davis' top negotiator, Michael Kahn, chairman of the=20 California Independent System Operator, expects to result in a refund of mo= re=20 than $1 billion.=20 Davis said that a revealing decision will be made by the commission, which = he=20 hopes has embarked on a "new path" with the appointment by President Bush o= f=20 two new members, Pat Wood of Texas and Nora Brownell of Pennsylvania.=20 "Are they on the side of consumers, as the federal power act envisions them= =20 being," Davis asked, "or are they just there to do the industry's bidding, = as=20 they have so often in the past?"=20 Kahn said rules adopted by FERC cut off the refund period at last October,= =20 trimming $3 billion from the $8.9 billion overcharge claimed by California= =20 dating to May 2000.=20 He said FERC has no jurisdiction over municipal utilities, such as the Los= =20 Angeles Department of Water and Power, that sold power to the state. The=20 municipal districts overcharged the state by about $600 million, according = to=20 Kahn.=20 As a result, he said, the maximum refund that FERC could order for Californ= ia=20 is about $5.4 billion.=20 "We made it clear to everyone that if we did not settle for $8.9 billion, w= e=20 would seek redress in court for the remainder of the money above $5.4=20 billion," Kahn said.=20 Calpine of San Jose and several other generators have expressed interest in= =20 the state's offer to negotiate one-on-one with the state while the federal= =20 regulators consider their decision, Kahn said. Calpine says deal with state close on alleged overcharges=20 By Don Thompson ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO =01) Calpine Corp. said Tuesday it is near agreement with Califo= rnia=20 officials over money the state says the company overcharged for electricity= .=20 That would make it the first company to settle a part of the $8.9 billion t= he=20 state wants in negotiations before the Federal Energy Regulatory Commission= .=20 However, San Jose-based Calpine has offered far less than the $236 million= =20 the state claims it is owed.=20 "We obviously disagree with that number, because we disagree with some of t= he=20 assumptions" used for the estimate, said Calpine spokesman Bill Highlander.= =20 "We don't think it's anywhere near that. We think it's a low number."=20 He wouldn't specify the company's counteroffer, but noted new FERC figures= =20 showing the company did $29 million in business with the state in the first= =20 five months of this year.=20 The California Independent System Operator estimated the company owed more = in=20 overcharges than it had in total sales for the period from May 2000 to May= =20 2001, a financial impossibility, Highlander said.=20 The ISO essentially multiplied what Calpine was able to produce by the amou= nt=20 it charged for electricity, Highlander said, without taking into account ho= w=20 much electricity the company actually sold.=20 ISO spokesman Michael Bustamante defended the projections by the state's gr= id=20 operator, estimates he said were validated during two weeks of FERC=20 negotiations that ended Monday. The ISO took the methodology adopted by the= =20 federal regulator in a June 19 order capping electricity rates, then worked= =20 backward to May 2000 to reach its estimate, Bustamante said.=20 Generators and state negotiators were unable to reach a settlement during t= he=20 two weeks of talks overseen by FERC chief administrative law judge Curtis L= .=20 Wagner, leaving Wagner to make his own recommendation to the commission.=20 Wagner said Monday the state may be owed perhaps $1 billion in overcharges,= =20 but said that could be offset by money the generators are owed for the powe= r=20 they sold into the state.=20 California officials believe generators owe about $4 billion in refunds usi= ng=20 the June 19 order that Wagner adopted as his benchmark, even given Wagner's= =20 determination that the commission can only consider overcharges after Oct. = 2.=20 At one point during negotiations, Wagner told California officials he thoug= ht=20 an appropriate settlement should top $4.5 billion, according to one=20 negotiator who spoke on condition he not be named. Wagner suggested=20 generators could pay $2.5 billion in cash and $2 billion in long-term=20 electricity contracts at cheaper rates, the source said.=20 That was very different from the $670 million in refunds Wagner privately= =20 said generators were offering. For instance, the source said, while Reliant= =20 Energy on Monday offered $50 million in refunds, California believes=20 Reliant's share of overcharges is closer to $1 billion.=20 Jan Smutny-Jones, executive director of the Independent Energy Producers,= =20 applauded the possibility that some generators will settle with the state= =20 without waiting for a FERC decision and likely protracted court battle.=20 "We need to solve this problem and move on," Smutny-Jones said.=20 ?? =01) Associated Press writer Mark Sherman contributed to this story from=20 Washington, D.C.=20 Judge refuses to let ratepayers form official committee in utility bankrupt= cy=20 case=20 ASSOCIATED PRESS=20 July 10, 2001=20 SAN FRANCISCO =01) The federal judge overseeing Pacific Gas and Electric Co= .'s=20 bankruptcy case ruled Tuesday the utility's ratepayers cannot form an=20 official committee to represent their interests.=20 Ratepayer advocates had sought such recognition to ensure the utility would= =20 not raise rates further as a way of paying off its debts.=20 But U.S. Bankruptcy Judge Dennis Montali agreed with PG&E and the official= =20 creditors committee and rejected the idea for the second time in two months= .=20 Montali suggested instead that ratepayers organize an informal committee to= =20 bring their concerns to the court, and said the ratepayers also could bring= =20 matters before the state Public Utilities Commission.=20 A separate committee of ratepayers would have been able to vote on the fina= l=20 reorganization of the company, a plan that could affect power service and= =20 rates.=20 PG&E filed for Chapter 11 bankruptcy April 6, and owes billions of dollars = to=20 more than 50,000 creditors. It was brought down, in part, by California's= =20 botched experiment with deregulation.=20 Judge Bars Ratepayers Panel From PG&E Case Power: Customers are not creditors in the utility's bankruptcy, ruling says= .=20 Action does not preclude refunds for consumers. TIM REITERMAN TIMES STAFF WRITER July 11 2001 SAN FRANCISCO -- A federal judge Tuesday reaffirmed his decision to bar a= =20 ratepayers committee from Pacific Gas & Electric Co.'s bankruptcy case and= =20 denounced the committee's attorney for suggesting that the action could=20 prevent PG&E customers from receiving refunds for excessive energy charges. Judge Dennis Montali ruled against a U.S. trustee and the ratepayers=20 committee in deciding that ratepayers as a group had no claims and were not= =20 creditors when PG&E filed for bankruptcy on April 6. But Montali criticized "misguided remarks" by a committee attorney on July = 5=20 and news media accounts that followed the hearing. The judge said the repor= ts=20 left the misconception that by disallowing a ratepayers committee, he would= =20 reject all claims of ratepayers and they could lose out on future refunds. The judge and PG&E officials emphasized that there are no matters involving= =20 PG&E customer refunds before the state Public Utilities Commission. State officials are seeking about $9 billion in refunds, however, from the= =20 Federal Energy Regulatory Commission for alleged overcharges to Californian= s=20 by energy companies since last year. The distribution of any ratepayer refunds would be decided by the PUC, and= =20 customers would be paid whether or not they filed Bankruptcy Court claims b= y=20 a Sept. 5 deadline, the judge and PG&E attorneys said. The judge took the highly unusual step of directing PG&E and U.S. Trustee= =20 Linda Ekstrom Stanley to consider remedies to allay any confusion among=20 PG&E's 5.5 million customers. He suggested publishing clarifications in newspapers that carried the=20 erroneous information, in PG&E customer bills and on Web sites. Stanley had formed a ratepayers committee of business, government and=20 consumer representatives, saying they will be affected by PG&E's Chapter 11= =20 reorganization. But Montali decided that ratepayers do not qualify as creditors under=20 bankruptcy law and are not entitled to official status that allows them to= =20 participate in the bankruptcy and receive funding from PG&E. Stanley said she has not yet decided whether to appeal the ruling to federa= l=20 district court.=20 Copyright 2001, Los Angeles Times=20 Developments in California's energy crisis=20 The Associated Press Wednesday, July 11, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/11/s= tate1 036EDT0129.DTL=20 (07-11) 07:36 PDT (AP) --=20 Developments in California's energy crisis:=20 WEDNESDAY=3D * No power alerts Wednesday as electricity reserves stay above 7 percent.= =20 TUESDAY=3D * U.S. Bankruptcy Judge Dennis Montali again agreed with PG&E and the=20 official creditors committee, saying such a committee of Pacific Gas and=20 Electric Co. ratepayers has no legal standing in bankruptcy court. Ratepaye= r=20 advocates had sought the recognition to ensure the utility would not raise= =20 rates further as a way of paying off its debts.=20 * PG&E has agreed to pay $4.1 million in tax penalties to 49 counties where= =20 the utility owns property. The utility already paid $41.2 million in overdu= e=20 property taxes in May -- the additional amount covers a 10 percent fee for= =20 paying those taxes late.=20 * Calpine Corporation says it is near agreement with California officials= =20 over money the state says the company overcharged for electricity. That wou= ld=20 make it the first company to settle a portion of the $8.9 billion dollars t= he=20 state is seeking in proceedings before the Federal Energy Regulatory=20 Commission. But the San Jose-based company is offering much less than the= =20 $236 million dollars the state claims it is owed.=20 * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 * Shares of Edison International closed at $14.05, up 5 cents. PG&E Corp.= =20 drop 55 cents to close at $13.55. Sempra Energy, the parent company of San= =20 Diego Gas & Electric Co., closed at $27.67, up 15 cents.=20 WHAT'S NEXT=3D * The Senate committee investigating possible price manipulation in=20 California's energy market meets Wednesday. The committee will vote on=20 contempt citations against generators Mirant and Enron, which failed to=20 comply with subpoenas for documents. The committee will meet again July 18 = to=20 consider compliance by six other suppliers that have until Tuesday to turn= =20 over documents.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Southern California Edison and Pacific Gas and Electric say they've lost=20 nearly $14 billion since June 2000 to high wholesale prices the state's=20 electricity deregulation law bars them from passing on to consumers. PG&E,= =20 saying it hasn't received the help it needs from regulators or state=20 lawmakers, filed for federal bankruptcy protection April 6. Electricity and= =20 natural gas suppliers, scared off by the companies' poor credit ratings, ar= e=20 refusing to sell to them, leading the state in January to start buying powe= r=20 for the utilities' nearly 9 million residential and business customers. The= =20 state is also buying power for a third investor-owned utility, San Diego Ga= s=20 & Electric, which is in better financial shape than much larger Edison and= =20 PG&E but is also struggling with high wholesale power costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 Track the state's blackout warnings on the Web at=20 www.caiso.com/SystemStatus.html.=20 ,2001 Associated Press ?=20 Enron Corp. sues to block Senate from forcing document release=20 DON THOMPSON, Associated Press Writer Wednesday, July 11, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/11/s= tate1 212EDT0141.DTL=20 (07-11) 09:12 PDT SACRAMENTO (AP) --=20 Enron Corp. is suing state officials to stop a Senate subpoena of its=20 financial records in a dispute over alleged overcharges for its electricity= =20 sales to California.=20 "They've sent two things to Texas -- our money and these documents, and the= y=20 saying we can't get either one back," said Laurence Drivon, special legal= =20 counsel to the Senate Select Committee to Investigate Market Manipulation.= =20 The suit came hours before the committee will consider asking the full Sena= te=20 to cite the Houston-based company for contempt Wednesday. The other subject= =20 of possible sanctions, Atlanta-based Mirant Inc., appears to be cooperating= ,=20 Drivon said.=20 Committee chairman Joe Dunn, a Santa Ana Democrat, said the committee's=20 investigation will continue despite Enron's "pure act of intimidation. We'r= e=20 not going to back down."=20 Enron's suit said the company's financial papers are outside the committee'= s=20 jurisdiction because most of its operations and paperwork are outside=20 California.=20 That shouldn't matter, Drivon said, citing last year's successful of=20 out-of-state documents during the investigation into the activities of form= er=20 Insurance Commissioner Chuck Quackenbush. Previous investigations have=20 included documents subpoenaed from other nations, he said.=20 Companies doing business in California cannot claim immunity from its laws = or=20 oversight, Drivon and Dunn said. Houston-based Reliant Energy made the same= =20 argument but then agreed to turn over 1,800 documents.=20 ,2001 Associated Press ?=20 Governor threatens to sue utilities for refunds=20 Davis says California won't settle for $1 billion=20 Mark Martin, Chronicle Staff Writer Wednesday, July 11, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /11/M N139275.DTL=20 Sacramento -- One day after a federal judge rebuked California's claim that= =20 energy generators owe the state $8.9 billion, Gov. Gray Davis all but vowed= =20 to sue the companies to recoup the money.=20 "If you think California will settle for $1 billion in refunds, we'll see y= ou=20 in court," Davis said yesterday.=20 Continuing his heated rhetoric on the energy crisis, Davis blasted the ener= gy=20 companies for being inflexible during a 14-day negotiation session in=20 Washington, D.C., that ended Monday. Both the state and power generators=20 argue each is owed money as a result of California's dysfunctional=20 electricity market.=20 Federal Energy Regulatory Commission chief administrative law Judge Curtis = L.=20 Wagner ended the talks by saying the state was owed far less than it claime= d,=20 but the FERC's governing board will make a final decision on who owes what = to=20 whom in the coming months.=20 Yesterday, Davis made it clear he wouldn't accept a FERC decision that=20 strayed far from the state's calculations that power companies overcharged= =20 California nearly $9 billion.=20 "The ball is in the FERC's court," he said. "They must step up and provide= =20 the refunds we've asked for."=20 While Davis said California officials had gone to Washington prepared to=20 discuss ways to reach a settlement, including renegotiating long-term=20 contracts to buy power, an energy industry official faulted the state for i= ts=20 unwillingness to compromise.=20 Generators put forward an offer even though they believe no refunds are owe= d,=20 said Jan Smutny-Jones, executive director of the Independent Energy=20 Producers.=20 Smutny-Jones said the state needed to stop thinking it would get the $8.9= =20 billion.=20 "It's clear from the way the issue was characterized by the judge that $9= =20 billion is not something the state is going to see any time in the near=20 future, " he added. "It is not based in reality."=20 Davis also took heat from Republicans yesterday.=20 "He desperately needs that refund, so he can renegotiate the dreadful=20 contracts he has entered into," said Rob Stutzman, a consultant for the=20 California Republican Party. "He's sitting at the poker table with very few= =20 chips."=20 In other energy news yesterday, a judge refused to let a committee represen= t=20 the public in the Pacific Gas & Electric Co. bankruptcy case and said a=20 consumer lawyer's "irresponsible position" at a hearing last week could=20 mislead PG&E customers into filing needless refund claims with the court.= =20 U.S. Bankruptcy Judge Dennis Montali said any refunds owed to customers wer= e=20 unrelated to the bankruptcy case and would be determined by regulators.=20 At the hearing Thursday, attorney KaarenThomas argued that unless a committ= ee=20 represented customers' interests, PG&E could try to bar all refund claims= =20 that weren't filed by Sept. 5.=20 Montali ruled in May that the committee was not authorized by federal=20 bankruptcy law, and reaffirmed his ruling yesterday.=20 Chronicle staff writers Lynda Gledhill and Robert Egelko contributed to thi= s=20 report.=20 E-mail Mark Martin at markmartin@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 3=20 News briefs on the California power crisis=20 The Associated Press Wednesday, July 11, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/11/s= tate0 738EDT0118.DTL=20 (07-11) 04:38 PDT SAN JOSE, Calif. (AP) --=20 Energy supplier Calpine Corp. has reached a deal to purchase 236 billion=20 cubic feet of natural gas in Texas and New Mexico for $355 million plus=20 assumption of nearly $50 million of debt.=20 Company officials made the announcement Tuesday and said the purchase will= =20 increase its natural gas reserves.=20 "This transaction meets our desire to own and operate production in a=20 strategic basin," said Cathy Piece, Calpine's director of land and=20 acquisitions. "These assets significantly strengthen our reserve base and= =20 will help fuel our growing Western power program."=20 The San Jose-based company has agreed to purchase 35 wells in New Mexico th= at=20 produce 6 million cubic feet of gas per day from The Bayless Companies. The= =20 second transaction involves the acquisition of a majority interest of Micha= el=20 Petroleum of Houston. The Texas company produces about 43 million cubic fee= t=20 of gas per day.=20 Calpine officials said the agreements will allow them to meet their future= =20 capacity demands for both natural gas and electricity. The company wants to= =20 generate more than 70,000 megawatts of electricity by the end of 2005 and= =20 have natural gas reserves of 6.7 trillion cubic feet.=20 LOS ANGELES (AP) -- Newly elected Mayor James Hahn has postponed selling th= e=20 city's surplus power to the state so he can examine how it will impact=20 ratepayers.=20 Hahn's predecessor, Richard Riordan, said last month the city's Department = of=20 Water and Power would sell its extra electricity -- about 500 megawatts a= =20 day_ to the state at cost between July and September.=20 The contract was supposed to have been signed last week.=20 Steve Maviglio, a spokesman for Gov. Gray Davis, said Tuesday that the stat= e=20 is ready to sign the contract.=20 "We're ready to sign," he said. "Like most negotiations that aren't final,= =20 things go back and forth. The new (Hahn) administration wants to review the= =20 document before it."=20 Davis had threatened to seize surplus power from municipal utilities, which= =20 haven't been subjected to the California energy crisis, because he claimed= =20 they were gouging the state.=20 TEMECULA, Calif. (AP) -- State officials said they are studying alternative= =20 routes for a power transmission line proposed by San Diego Gas and Electric= =20 Co.=20 The utility wants to run a 500,000-volt power line through southwestern=20 Riverside County connecting its power grid with Southern California Edison'= s.=20 The cost of the project is estimated at $271 million and must be approved b= y=20 the state's Public Utilities Commission.=20 But state officials listed alternative routes in papers released at a publi= c=20 hearing Tuesday. Some of the other ideas include putting the transmission= =20 line around the edges of an Indian reservation or running a route through t= he=20 Cleveland National Forest.=20 Once a final selection is made, the information will be given to PUC=20 commissioners who will either approve or deny the project.=20 Many residents who live in the path of the proposed transmission line don't= =20 want the project. An attorney representing several groups that oppose SDG&E= 's=20 plans said there was no mention of alternative routes in environmental=20 documents submitted by the company.=20 "Looking at the various route segments offered by SDG&E as alternatives is= =20 like trying to arrange the deck chairs on the Titanic," said attorney Mark= =20 Mihaly.=20 ,2001 Associated Press ?=20 White House bends under energy conservation pressure=20 Posted at 6:25 a.m. PDT Wednesday, July 11, 2001=20 BY H. JOSEF HEBERT=20 Associated Press Writer=20 WASHINGTON (AP) -- Under pressure to include more conservation measures tha= t=20 reduce energy use, congressional Republicans are moving toward a compromise= =20 to increase fuel efficiency requirements for sport utility vehicles as part= =20 of an energy package.=20 Key House GOP lawmakers said Tuesday they expect some increase in fuel=20 economy requirements, especially for SUVs, in energy legislation working it= s=20 way through the House. Democrats, who have a majority in the Senate, also= =20 favor requiring improved motor vehicle fuel efficiency.=20 At the same time, the Bush administration signaled its willingness Tuesday = to=20 begin a rule-changing process that would allow the first increase in 25 yea= rs=20 in the federal corporate automobile fuel economy, or CAFE, standard.=20 Transportation Secretary Norman Mineta asked Congress to lift immediately a= =20 six-year prohibition that bans the department from consideration of fuel=20 economy increases. Lawmakers already agreed this year not to extend the ban= =20 beyond September, but Mineta said he wants to start examining possible=20 changes right away.=20 CAFE standards, which mandate fuel economy requirements for vehicle fleets,= =20 have not been increased since their introduction in 1975. That year's law,= =20 spurred by energy shortages in the early 1970s, required passengers cars to= =20 meet a fleet average of at least 27.5 miles per gallon. Light trucks -- a= =20 category that includes SUVs, vans and pickups -- have to meet a 20.7 mpg=20 fleet average.=20 With the widespread popularity of SUVs and vans in recent years, many=20 environmentalists have argued that the lower truck standard has compromised= =20 the intent of the 1975 law. SUVs and vans comprise more than 40 percent of= =20 the passenger vehicles on the road today.=20 As three committees began crafting energy legislation, lawmakers were=20 searching for a bipartisan compromise to increase fuel economy requirements= =20 for motor vehicles. Some increase in the CAFE requirement was virtually=20 assured, several GOP lawmakers said, although disagreements remain on how= =20 much of an increase, whether it should apply to automobiles as well as SUVs= ,=20 vans and small trucks, and the timetable for phasing in new requirements.= =20 Energy legislation that the House Energy and Commerce Committee was taking = up=20 later Wednesday contains no fuel economy provision.=20 But Rep. Billy Tauzin, R-La., the committee chairman, said discussions were= =20 under way to work out a compromise on a fuel economy proposal. He said he= =20 expects an amendment on CAFE to be added to the bill, either during=20 deliberations in his committee or on the House floor.=20 Rep. Joe Barton, R-Texas, chairman of the subcommittee drafting the energy= =20 package, saw a good chance the truck standards will be raised and said the= =20 automobile standard might be increased as well. Other GOP sources who talke= d=20 about the private discussions on condition of not being identified by name= =20 said a likely outcome is that the truck standard will be increased three or= =20 four mpg and the auto standard left alone.=20 Momentum for some CAFE increase has been growing in recent weeks as GOP=20 lawmakers came under increasing pressure to come up with additional=20 conservation proposals to those proposed in the White House's energy policy= .=20 It largely focuses on production, with few specific measures to dramaticall= y=20 curb energy demand.=20 Democrats have pressed for tougher automobile fuel economy standards.=20 Automakers have fought attempts to increase the standards. They say such=20 government edicts limit consumer choice and force manufacturers to build=20 smaller cars that customers don't want. Supporters of increased fuel econom= y=20 argue that new technologies are available to increase fuel efficiency witho= ut=20 decreasing vehicle size.=20 President Bush's energy blueprint would consider CAFE increases, but not=20 before a National Academy of Sciences report is issued, probably this month= ,=20 on impact of the standard on energy savings, safety and auto industry=20 competition. Davis ups the voltage=20 Published Wednesday, July 11, 2001, in the San Jose Mercury News=20 Vow to sue for refunds may be a bluff, but he should keep pushing FERC=20 THE strategic choice facing Gov. Gray Davis in the struggle over electricit= y=20 price refunds has come down to three questions: When do you negotiate, when= =20 do you demand, and when do you bluff?=20 Negotiations are over, Davis declared Tuesday. He demanded that the Federal= =20 Energy Regulatory Commission order refunds now. ``The case is nearly a year= =20 old,'' he said. ``They have to decide which side they're on.''=20 Probably no one but Davis knew to what extent he was bluffing when he also= =20 said, ``If you think California is going to settle for $1 billion in refund= s,=20 we will see you in court.''=20 A FERC administrative judge said Monday that the amount due the state may b= e=20 around $1 billion, or perhaps nothing at all, when counter-claims against t= he=20 state are subtracted.=20 Energy experts are divided about whether the state would win a suit to=20 overturn a decision by a federal commission. The federal courts have some= =20 limited jurisdiction, according to University of California Energy Institut= e=20 director Severin Borenstein, but that a court would reverse a commission in= a=20 case like this is ``extremely unlikely.''=20 Frank Wolak, a Stanford economist, had the opposite view, when asked whethe= r=20 the state has a good chance of winning: ``I think so. It happens all the=20 time.''=20 At a Sacramento press conference, Davis continued to insist that there have= =20 been overcharges of $8.9 billion. But other state officials conceded that= =20 only $5.4 billion of that is actually on the table in the FERC proceedings.= =20 Davis said he'll take what he can get there, and sue for the rest.=20 The state argues that because FERC has determined that wholesale prices hav= e=20 not met the Federal Power Act's requirement to be ``just and reasonable,''= =20 refunds are in order. But the commission has not defined what portion=20 exceeded ``just and reasonable.''=20 Throughout his press conference, Davis used the prospect of litigation like= a=20 goad to spur the federal regulators into action. But if you listened=20 carefully, he also indicated he'll give them more time to consider the case= .=20 Considering the iffy odds of winning in court, we suggest he keep goading t= he=20 federal commissioners -- while giving them all the time they need. Wednesday, July 11, 2001=20 Lights go out on Davis' power show=20 Three new developments show that some economic reality finally is being=20 applied to California's electricity crisis:=20 First, "The nation's chief energy judge said Monday that California is owed= =20 maybe $1 billion in refunds from power generators, a fraction of the $8.9= =20 billion demanded by Gov. Gray Davis," reported the Register yesterday. Even= =20 that $1 billion amount might be balanced by the amount the state still owes= =20 the power producers.=20 To suggest workable and market-oriented solutions to the California=20 electricity crisis. Judge Curtis Wagner's recommendation will be taken up by the Federal Energy= =20 Regulatory Commission, which is being petitioned for the money by the state= =20 of California.=20 Because the judge's words will bolster FERC's apparent desire not to grant= =20 the "refunds," the state probably will go to court, where the matter could = be=20 stuck for years. "In the long term, this may indicate that competitive electricity has a=20 future even in California, but not thanks to the state," Robert Michaels, a= =20 professor of economics at Cal State Fullerton, told us. He's referring to t= he=20 state's botched 1996 "deregulation" effort, which has been made worse by Go= v.=20 Gray Davis and other officials since the crisis began a year ago. "FERC since the 1980s favors competition, within the parameters of politica= l=20 reality," Mr. Michaels added. "Now we're at square one: The industry doesn'= t=20 owe $9 billion to California." As this process continues, he said, another= =20 positive aspect will be that a lot of facts will get aired. "We'll see what= =20 has been happening in the markets" in which power is bought and sold. Second, light already is shining on one area: This crisis was not "Made in= =20 Texas'' by cronies of President Bush, as Gov. Davis and other Democrats hav= e=20 been contending.=20 In May, the governor attacked the president for ignoring "the greed of thes= e=20 Texas energy companies," such as Reliant and Dynergy. In fact, according to information on state power contracts the governor=20 finally released Monday, Texas companies were way down on the list of=20 producers.=20 "In roughly the first five months of the year, the state shelled out $1.2= =20 billion to Atlanta-based Mirant, the most any company was paid for=20 electricity, followed by $1 billion to Powerex, the marketing arm of BC Hyd= ro=20 in British Columbia [in Canada]. It also paid $331 million to the Los Angel= es=20 Department of Water and Power," reported the San Jose Mercury News. Only about 10 percent of our state's power during this period came from=20 companies with headquarters in Texas. Third, and finally, a new study by the Cato Institute shows what should be= =20 done next:=20 lAbolish retail rate caps, allowing prices to be set by the market.=20 This would be a better system than the present one, where the state buys th= e=20 electricity and passes much of the cost along through the state budget (pai= d=20 by taxpayers) and bonds paid for by long-term electricity price increases.= =20 Higher immediate prices would encourage conservation and production, leadin= g=20 in time to lower prices. lMove to real-time pricing so people shift activities such as washing to=20 off-peak hours.=20 lAbolish the Independent System Operator, which moves electrons around.=20 Give this function back to the utilities, who did it far better before=20 "deregulation." Gov. Davis should set the pace by ending his Clintonian bla= me=20 shifting and embracing these realistic solutions.=20

dasovich-j/all_documents/28600.

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Subject: Energy Issues Sender: angela.wilson@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'miyung.buster@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/28600. ===================================== Please see the following articles: Sac Bee, Wed, 7/11: Mediator talked of a bigger refund: He reportedly suggested a $4.5 billion deal midway through the failed talks Sac Bee, Wed, 7/11: Davis repeats threat to sue FERC to get full refund Sac Bee, Wed, 7/11: Dan Walters: Davis plays in a virtual world while the= =20 energy reality continues=20 Sac Bee, Wed, 7/11: Energy Digest: Ratepayer panel shot down again Sac Bee, Wed, 7/11: Missing megawatts: Conservation saving state from=20 blackouts (Editorial) SD Union, Wed, 7/11: Governor tells FERC to be fair and then some SD Union, Wed, 7/11: Calpine says deal with state close on alleged overchar= ges SD Union, Wed, 7/11: Judge refuses to let ratepayers form official committe= e=20 in utility bankruptcy case LA Times, Wed, 7/11: Judge Bars Ratepayers Panel From PG&E Case SF Chron, Wed, 7/11: Developments in California's energy crisis SF Chron, Wed, 7/11: Enron Corp. sues to block Senate from forcing document= =20 release SF Chron, Wed, 7/11: Governor threatens to sue utilities for refunds=20 Davis says California won't settle for $1 billion SF Chron, Wed, 7/11: News briefs on the California power crisis Mercury News, Wed, 7/11: White House bends under energy conservation pressu= re=20 Mercury News, Wed, 7/11: Davis ups the voltage (Editorial) OC Register, Wed, 7/11: Lights go out on Davis' power show (Commentary) ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------ Mediator talked of a bigger refund: He reportedly suggested a $4.5 billion= =20 deal midway through the failed talks. By David Whitney Bee Washington Bureau (Published July 11, 2001)=20 WASHINGTON -- Midway through the negotiations between California and power= =20 sellers to settle the myriad issues arising out of the state's energy crisi= s,=20 the mediator told California's negotiating team that he thought a deal wort= h=20 more than $4.5 billion would be appropriate -- a much higher figure than he= =20 suggested after the talks ended Monday.=20 Whether the statement by Curtis Wagner, the chief administrative law judge= =20 for the Federal Energy Regulatory Commission, was a negotiating ploy or a= =20 reflection of his evolving beliefs is not clear.=20 Before the settlement talks began two weeks earlier, Wagner said he thought= =20 Gov. Gray Davis' demand for $8.9 billion in refunds was too high and that a= =20 settlement probably would be in the range of $2 billion to $2.5 billion.=20 The disclosure that Wagner had contemplated a much higher figure midway=20 through the negotiations suggests the state had more support than the judge= =20 let on Monday when he said after the talks foundered that he thought a deal= =20 should involve "hundreds of millions, maybe a billion" dollars.=20 While the state wants $8.9 billion, $3 billion of that was for overcharges= =20 during the five months preceding last October and are beyond FERC's scope o= f=20 review. Even as a starting point then, the $4.5 billion mentioned by Wagner= =20 represented 75 percent of the money the state was demanding for alleged pri= ce=20 gouging between October and May.=20 The judge's $4.5 billion figure, divided between cash payments and savings= =20 from long-term power contracts, was confirmed by three sources who asked to= =20 be identified only as "close to the negotiations" because participants had= =20 been required to sign confidentiality statements.=20 The sources gave virtually identical accounts of a July 2 meeting with Wagn= er=20 in which the judge also dismissed as "inadequate" a $670 million settlement= =20 offer made by power generators and marketers.=20 By Monday, the settlement offer had risen to $716 million. But the state=20 refused to back off its $8.9 billion demand, and there never was any seriou= s=20 back-and-forth negotiations during the 15-day period the regulatory=20 commission had given Wagner to craft a deal.=20 As a consequence of the failed talks, Wagner said Monday that within a week= =20 he will send the five-member commission his recommendations on how it might= =20 approach an order refunding power overcharges.=20 Among Wagner's suggestions is that the commission convene a hearing before = a=20 different administrative judge to take testimony from generators, marketers= =20 and the state on how to arrive at a fair settlement.=20 The options sketchily outlined by Wagner on Monday included limiting the ti= me=20 when refunds are allowed -- something that could reduce state claims by abo= ut=20 one-third -- and changing the way power plant costs are calculated to a=20 formula more favored by generators.=20 It is not clear whether Wagner, who moved from one negotiating team to=20 another during his two-week quest for a deal, ever raised the $4.5 billion= =20 settlement figure to the power marketers and generators.=20 Joel Newton, who represented Dynegy Power, Duke Energy, Reliant Energy,=20 Williams-AES and Mirant in the talks, said Tuesday he was bound by the=20 confidentiality pledge to keep silent on the internal negotiations.=20 Wagner also is refusing all media calls.=20 According to the account of the negotiations confirmed by sources Tuesday,= =20 Wagner was angry at the snail's pace of progress after the first week of th= e=20 talks.=20 On Friday, June 29, Wagner called everyone into his hearing room and scolde= d=20 them. He condemned the California team, saying they all ought to wear "clow= n=20 suits" because they were "in the pocket" of Davis and refused to show any= =20 independence.=20 He then turned to the generators and said that after a week of talks, nothi= ng=20 had been heard from them. He told them he wanted them to produce "real=20 numbers, and hard numbers" over the weekend and that if they didn't, he wou= ld=20 -- "and you're not going to like it."=20 Wagner's admonition apparently moved no one toward a deal. On Monday, in th= e=20 meeting with the California delegation, one source quoted Wagner as saying= =20 the settlement number he received from the generators and marketers "is so= =20 low I can't even present it to you."=20 "I'm not happy with the figures, they're not adequate," others quoted the= =20 judge as saying.=20 At that point, the sources said, Wagner said he was thinking of a settlemen= t=20 of $2.5 billion in cash, $2 billion in long-term contract savings and other= =20 money from out-of-state investor-owned utilities and even the federal=20 Bonneville Power Administration, which markets power from dams in the=20 Northwest.=20 But as the clock wound down on the negotiations, nothing much happened unti= l=20 Friday and Saturday, when the California team met with the five largest pow= er=20 generators.=20 It was at those meetings that the generators offered $510 million in refund= s=20 to settle their disputes with the state. But the money would have gone to= =20 reduce the tab for what they were owed by the state and California utilitie= s,=20 and it was loaded with conditions, including the state dropping all of its= =20 investigations and lawsuits.=20 Wagner declared the talks over Monday, saying he was unable to bring the=20 parties together.=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com. Davis repeats threat to sue FERC to get full refund=20 By Emily Bazar Bee Capitol Bureau=20 (Published July 11, 2001)=20 Gov. Gray Davis shot words of caution at federal regulators Tuesday, warnin= g=20 that he will sue them if they order power companies to refund anything less= =20 than the $8.9 billion he and other state officials have demanded.=20 The Democratic governor also lobbed threats at state legislators, suggestin= g=20 that he may call a special session to prevent them from embarking upon a=20 monthlong summer break next week.=20 Instead of vacationing, Davis said, lawmakers must work to approve an=20 agreement between the state and Southern California Edison that would save= =20 the utility from bankruptcy.=20 Though the governor has indicated previously that the state may take the=20 Federal Energy Regulatory Commission to court, his announcement Tuesday mad= e=20 it clear he intends to follow through.=20 Settlement talks with power generators to determine how much, if any, the= =20 companies overcharged California for electricity concluded Monday with no= =20 resolution.=20 Now, the decision rests with the FERC's governing board, and Davis said the= =20 state won't back away from the $8.9 billion figure it demanded during talks= .=20 "You order what you think is fair," Davis said during a news conference wit= h=20 the state's top negotiators. "We'll take what you order, and we'll see you = in=20 court."=20 Davis acknowledged that a legal battle could drag out for months or years.= =20 He added that he believes the disagreement -- or even a protracted court=20 battle -- will not affect a tentative agreement between the state and Ediso= n.=20 Under terms of the deal, money to pay off the utility's debt would come fro= m=20 a state purchase of its transmission lines and from a portion of consumers'= =20 electricity rates.=20 According to the agreement, the Legislature must approve the deal by Aug. 1= 5,=20 and Davis said he intends to hold lawmakers to that date.=20 Davis said the deadline is important because creditor committees will=20 scrutinize the Legislature's every move to determine whether to force Ediso= n=20 into bankruptcy court rather than await a political deal.=20 Legislators are scheduled to leave for summer recess July 20 and return Aug= .=20 20.=20 Davis threatened to use his executive powers to force lawmakers to remain i= n=20 Sacramento and work on the Edison agreement, if necessary.=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . Dan Walters: Davis plays in a virtual world while the energy reality contin= ues (Published July 11, 2001)=20 California still has a very real and very severe energy crisis, to wit:=20 The state is still running up massive debts as it pays more for power than = it=20 can recover from ratepayers and is having trouble borrowing billions of=20 dollars to cover the debt.=20 There is a strong possibility, perhaps a probability, that when summer's he= at=20 truly descends, there will be severe power blackouts as air conditioners=20 demand more juice than California can generate or buy.=20 One major utility, Pacific Gas and Electric, has filed for bankruptcy=20 protection and a second, Southern California Edison, is on the brink of=20 joining it.=20 There is, however, a virtual energy crisis consisting of political spin,=20 media leaks and made-for-television buzz words -- and it is rapidly becomin= g=20 dominant, while the real situation fades into the background.=20 This week's comic opera proceedings before a Federal Energy Regulatory=20 Commission administrative judge in Washington had little to do with reality= =20 and everything to do with the virtual version.=20 Gov. Gray Davis and other officials demanded $8.9 billion in refunds from t= he=20 generators and brokers who have been selling California power for the past= =20 year, alleging that California is, in Davis' words, "being gouged and rippe= d=20 off." But the number itself was more or less plucked out of thin air -- an= =20 arithmetic exercise by the state power grid's traffic controller not intend= ed=20 for a refund proceeding. And while Judge Curtis Wagner saw it as unrealisti= c,=20 Davis and other state officials insisted on its validity.=20 "There are refunds due that total hundreds of millions of dollars and maybe= a=20 billion dollars," Wagner said as a final negotiating session collapsed. But= =20 that's a far cry from the $8.9 billion that Davis insists is due. "If you= =20 think California is going to settle for $1 billion in refunds, we will see= =20 you in court," Davis said Tuesday.=20 Why is Davis being so belligerent? Because it's good politics. Ever since h= e=20 began berating out-of-state generators and accusing them of ripping off=20 California, Davis' approval ratings have been climbing. If he settled for= =20 substantially less -- the power generators probably would agree to a couple= =20 of billion dollars to rid themselves of the matter -- Davis would be=20 embarrassed. Politically, he's served by continuing to portray himself as= =20 fighting for California and against the out-of-state generators.=20 That it's more political construct than reality is indicated by another eve= nt=20 this week, Davis' release of state power purchase data from early in the ye= ar=20 -- numbers that were made public only because a judge told him he had to do= =20 it.=20 Davis and his minions have been accusing Texas-based generators and power= =20 brokers of particularly egregious price gouging -- clearly playing on=20 Californians' instinctive mistrust of anything Texan and implying that Texa= n=20 George W. Bush is a co-conspirator. But the power purchase records -- which= =20 were released only to journalists willing to pay a stiff fee -- indicate th= at=20 less than 10 percent of California's power purchase dollars were going to= =20 Texas and the private sellers, in general, charged the state less than such= =20 publicly owned utilities as the Los Angeles Department of Water and Power.= =20 The clearly adverse position being taken by FERC and the purchase data that= =20 undercut his jingoistic sloganeering are not, however, deterring Davis from= =20 continuing to operate, at least for public consumption, in the melodramatic= =20 virtual world.=20 One cannot, however, ignore reality forever. The likelihood of a=20 pro-generator decision from FERC means that there will be no easy out for= =20 Davis, or for his pending deal to prevent Southern California Edison from= =20 slipping into bankruptcy court. The Legislature has refused to act on the= =20 Edison rescue plan while it awaited an indication of whether the utility's= =20 debts would be slimmed down by FERC.=20 This week's farcical events make it more likely that the Edison deal will= =20 stall out permanently in the Legislature and its creditors will force the= =20 utility into bankruptcy court later this summer. That's part of that nasty= =20 old reality that cannot simply be wished away.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . Energy Digest: Ratepayer panel shot down again (Published July 11, 2001)=20 SAN FRANCISCO -- U.S. Bankruptcy Judge Dennis Montali on Tuesday reaffirmed= =20 his earlier decision to disband a ratepayers committee that would have give= n=20 consumers an official voice in the Pacific Gas and Electric Co. bankruptcy= =20 case.=20 The judge said bankruptcy court isn't the right forum for refunding rates o= r=20 settling potential future claims.=20 He eliminated erroneous statements from the opinion he originally issued=20 seven weeks ago. U.S. bankruptcy trustee Linda Ekstrom Stanley, who had mov= ed=20 for reconsideration, called the new version "a very careful decision" but d= id=20 not rule out an appeal.=20 Stanley on May 4 appointed an official committee of ratepayers to represent= =20 PG&E customers, saying they might be forced to pay for the utility's massiv= e=20 losses.=20 --Claire Cooper Missing megawatts: Conservation saving state from blackouts (Published July 11, 2001)=20 A public that doesn't believe that California's electricity crisis is genui= ne=20 is nonetheless acting as if it is. Experts are revising down scary=20 predictions of rolling blackout after rolling blackout as Californians have= =20 opted to conserve rather than consume.=20 During June, Californians cut back on electricity use by roughly 4,750=20 megawatts when it mattered the most, on hot afternoons. Those decisions=20 shaved about 12 percent from the expected demand. That's equivalent to the= =20 output of nine or 10 medium-size power plants. Last June, grid operators ha= d=20 to call six shortage alerts. This June, which was hotter, they called none.= =20 For a state that's been derided as selfish and wasteful, that's nothing sho= rt=20 of amazing.=20 Some of what Californians are doing now to conserve isn't likely to become= =20 habit in the long run. Businesses may want to turn back on all the banks of= =20 lights. Homeowners may decide that 82 degrees is the right temperature when= =20 power is short but too warm when California's supply emergency is over.=20 Yet there's a huge potential payoff into the future if some of these change= s=20 become permanent. It's encouraging that the most effective forms of=20 conservation -- switching to more energy-efficient appliances or=20 manufacturing techniques -- have yet to be implemented on a large scale.=20 Subsidies for these programs have yet to translate into changes in business= es=20 and in homes that will lower demand even further.=20 For a while this spring, some attempted to diminish the role of conservatio= n.=20 Conservation is a "personal virtue," said Vice President Dick Cheney. But= =20 Californians know it's become both a personal and public necessity. The=20 public may have thought the electricity shortage was an illusion, but=20 everyone knew that the higher electricity bills that began arriving in June= =20 were real. And so was the risk that the lights would go out on hot days.=20 Yes, the state needs more supply to catch up with the growth in demand. Yet= =20 long after the crisis is over, there will be plenty of potential on the=20 efficiency side of the equation as well, to protect the quality of life and= =20 reduce the high electricity costs that will likely plague the state for yea= rs. Governor tells FERC to be fair and then some=20 Davis firm on demand for $8.9 billion refund By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 July 11, 2001=20 SACRAMENTO -- Gov. Gray Davis had a tough message for federal regulators=20 yesterday after the failure of settlement talks in California's bid to get = an=20 $8.9 billion refund from electricity suppliers: "See you in court."=20 The governor said California will seek a full $8.9 billion refund for=20 electricity overcharges, even if federal regulators award the maximum refun= d=20 of $5.4 billion allowed under their guidelines.=20 "Our message is just order what you are going to order," Davis said of the= =20 Federal Energy Regulatory Commission. "We believe you should order $8.9=20 billion. But you order what you think is fair. We will take what you order,= =20 then we will see you in court."=20 Davis, joined by his negotiating team, made the remarks at a news conferenc= e=20 a day after two weeks of closed-door talks with suppliers in Washington=20 failed to reach an agreement.=20 An administrative law judge made a recommendation to the regulatory=20 commission that Davis' top negotiator, Michael Kahn, chairman of the=20 California Independent System Operator, expects to result in a refund of mo= re=20 than $1 billion.=20 Davis said that a revealing decision will be made by the commission, which = he=20 hopes has embarked on a "new path" with the appointment by President Bush o= f=20 two new members, Pat Wood of Texas and Nora Brownell of Pennsylvania.=20 "Are they on the side of consumers, as the federal power act envisions them= =20 being," Davis asked, "or are they just there to do the industry's bidding, = as=20 they have so often in the past?"=20 Kahn said rules adopted by FERC cut off the refund period at last October,= =20 trimming $3 billion from the $8.9 billion overcharge claimed by California= =20 dating to May 2000.=20 He said FERC has no jurisdiction over municipal utilities, such as the Los= =20 Angeles Department of Water and Power, that sold power to the state. The=20 municipal districts overcharged the state by about $600 million, according = to=20 Kahn.=20 As a result, he said, the maximum refund that FERC could order for Californ= ia=20 is about $5.4 billion.=20 "We made it clear to everyone that if we did not settle for $8.9 billion, w= e=20 would seek redress in court for the remainder of the money above $5.4=20 billion," Kahn said.=20 Calpine of San Jose and several other generators have expressed interest in= =20 the state's offer to negotiate one-on-one with the state while the federal= =20 regulators consider their decision, Kahn said. Calpine says deal with state close on alleged overcharges=20 By Don Thompson ASSOCIATED PRESS=20 July 10, 2001=20 SACRAMENTO =01) Calpine Corp. said Tuesday it is near agreement with Califo= rnia=20 officials over money the state says the company overcharged for electricity= .=20 That would make it the first company to settle a part of the $8.9 billion t= he=20 state wants in negotiations before the Federal Energy Regulatory Commission= .=20 However, San Jose-based Calpine has offered far less than the $236 million= =20 the state claims it is owed.=20 "We obviously disagree with that number, because we disagree with some of t= he=20 assumptions" used for the estimate, said Calpine spokesman Bill Highlander.= =20 "We don't think it's anywhere near that. We think it's a low number."=20 He wouldn't specify the company's counteroffer, but noted new FERC figures= =20 showing the company did $29 million in business with the state in the first= =20 five months of this year.=20 The California Independent System Operator estimated the company owed more = in=20 overcharges than it had in total sales for the period from May 2000 to May= =20 2001, a financial impossibility, Highlander said.=20 The ISO essentially multiplied what Calpine was able to produce by the amou= nt=20 it charged for electricity, Highlander said, without taking into account ho= w=20 much electricity the company actually sold.=20 ISO spokesman Michael Bustamante defended the projections by the state's gr= id=20 operator, estimates he said were validated during two weeks of FERC=20 negotiations that ended Monday. The ISO took the methodology adopted by the= =20 federal regulator in a June 19 order capping electricity rates, then worked= =20 backward to May 2000 to reach its estimate, Bustamante said.=20 Generators and state negotiators were unable to reach a settlement during t= he=20 two weeks of talks overseen by FERC chief administrative law judge Curtis L= .=20 Wagner, leaving Wagner to make his own recommendation to the commission.=20 Wagner said Monday the state may be owed perhaps $1 billion in overcharges,= =20 but said that could be offset by money the generators are owed for the powe= r=20 they sold into the state.=20 California officials believe generators owe about $4 billion in refunds usi= ng=20 the June 19 order that Wagner adopted as his benchmark, even given Wagner's= =20 determination that the commission can only consider overcharges after Oct. = 2.=20 At one point during negotiations, Wagner told California officials he thoug= ht=20 an appropriate settlement should top $4.5 billion, according to one=20 negotiator who spoke on condition he not be named. Wagner suggested=20 generators could pay $2.5 billion in cash and $2 billion in long-term=20 electricity contracts at cheaper rates, the source said.=20 That was very different from the $670 million in refunds Wagner privately= =20 said generators were offering. For instance, the source said, while Reliant= =20 Energy on Monday offered $50 million in refunds, California believes=20 Reliant's share of overcharges is closer to $1 billion.=20 Jan Smutny-Jones, executive director of the Independent Energy Producers,= =20 applauded the possibility that some generators will settle with the state= =20 without waiting for a FERC decision and likely protracted court battle.=20 "We need to solve this problem and move on," Smutny-Jones said.=20 ?? =01) Associated Press writer Mark Sherman contributed to this story from=20 Washington, D.C.=20 Judge refuses to let ratepayers form official committee in utility bankrupt= cy=20 case=20 ASSOCIATED PRESS=20 July 10, 2001=20 SAN FRANCISCO =01) The federal judge overseeing Pacific Gas and Electric Co= .'s=20 bankruptcy case ruled Tuesday the utility's ratepayers cannot form an=20 official committee to represent their interests.=20 Ratepayer advocates had sought such recognition to ensure the utility would= =20 not raise rates further as a way of paying off its debts.=20 But U.S. Bankruptcy Judge Dennis Montali agreed with PG&E and the official= =20 creditors committee and rejected the idea for the second time in two months= .=20 Montali suggested instead that ratepayers organize an informal committee to= =20 bring their concerns to the court, and said the ratepayers also could bring= =20 matters before the state Public Utilities Commission.=20 A separate committee of ratepayers would have been able to vote on the fina= l=20 reorganization of the company, a plan that could affect power service and= =20 rates.=20 PG&E filed for Chapter 11 bankruptcy April 6, and owes billions of dollars = to=20 more than 50,000 creditors. It was brought down, in part, by California's= =20 botched experiment with deregulation.=20 Judge Bars Ratepayers Panel From PG&E Case Power: Customers are not creditors in the utility's bankruptcy, ruling says= .=20 Action does not preclude refunds for consumers. TIM REITERMAN TIMES STAFF WRITER July 11 2001 SAN FRANCISCO -- A federal judge Tuesday reaffirmed his decision to bar a= =20 ratepayers committee from Pacific Gas & Electric Co.'s bankruptcy case and= =20 denounced the committee's attorney for suggesting that the action could=20 prevent PG&E customers from receiving refunds for excessive energy charges. Judge Dennis Montali ruled against a U.S. trustee and the ratepayers=20 committee in deciding that ratepayers as a group had no claims and were not= =20 creditors when PG&E filed for bankruptcy on April 6. But Montali criticized "misguided remarks" by a committee attorney on July = 5=20 and news media accounts that followed the hearing. The judge said the repor= ts=20 left the misconception that by disallowing a ratepayers committee, he would= =20 reject all claims of ratepayers and they could lose out on future refunds. The judge and PG&E officials emphasized that there are no matters involving= =20 PG&E customer refunds before the state Public Utilities Commission. State officials are seeking about $9 billion in refunds, however, from the= =20 Federal Energy Regulatory Commission for alleged overcharges to Californian= s=20 by energy companies since last year. The distribution of any ratepayer refunds would be decided by the PUC, and= =20 customers would be paid whether or not they filed Bankruptcy Court claims b= y=20 a Sept. 5 deadline, the judge and PG&E attorneys said. The judge took the highly unusual step of directing PG&E and U.S. Trustee= =20 Linda Ekstrom Stanley to consider remedies to allay any confusion among=20 PG&E's 5.5 million customers. He suggested publishing clarifications in newspapers that carried the=20 erroneous information, in PG&E customer bills and on Web sites. Stanley had formed a ratepayers committee of business, government and=20 consumer representatives, saying they will be affected by PG&E's Chapter 11= =20 reorganization. But Montali decided that ratepayers do not qualify as creditors under=20 bankruptcy law and are not entitled to official status that allows them to= =20 participate in the bankruptcy and receive funding from PG&E. Stanley said she has not yet decided whether to appeal the ruling to federa= l=20 district court.=20 Copyright 2001, Los Angeles Times=20 Developments in California's energy crisis=20 The Associated Press Wednesday, July 11, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/11/s= tate1 036EDT0129.DTL=20 (07-11) 07:36 PDT (AP) --=20 Developments in California's energy crisis:=20 WEDNESDAY=3D * No power alerts Wednesday as electricity reserves stay above 7 percent.= =20 TUESDAY=3D * U.S. Bankruptcy Judge Dennis Montali again agreed with PG&E and the=20 official creditors committee, saying such a committee of Pacific Gas and=20 Electric Co. ratepayers has no legal standing in bankruptcy court. Ratepaye= r=20 advocates had sought the recognition to ensure the utility would not raise= =20 rates further as a way of paying off its debts.=20 * PG&E has agreed to pay $4.1 million in tax penalties to 49 counties where= =20 the utility owns property. The utility already paid $41.2 million in overdu= e=20 property taxes in May -- the additional amount covers a 10 percent fee for= =20 paying those taxes late.=20 * Calpine Corporation says it is near agreement with California officials= =20 over money the state says the company overcharged for electricity. That wou= ld=20 make it the first company to settle a portion of the $8.9 billion dollars t= he=20 state is seeking in proceedings before the Federal Energy Regulatory=20 Commission. But the San Jose-based company is offering much less than the= =20 $236 million dollars the state claims it is owed.=20 * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 * Shares of Edison International closed at $14.05, up 5 cents. PG&E Corp.= =20 drop 55 cents to close at $13.55. Sempra Energy, the parent company of San= =20 Diego Gas & Electric Co., closed at $27.67, up 15 cents.=20 WHAT'S NEXT=3D * The Senate committee investigating possible price manipulation in=20 California's energy market meets Wednesday. The committee will vote on=20 contempt citations against generators Mirant and Enron, which failed to=20 comply with subpoenas for documents. The committee will meet again July 18 = to=20 consider compliance by six other suppliers that have until Tuesday to turn= =20 over documents.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Southern California Edison and Pacific Gas and Electric say they've lost=20 nearly $14 billion since June 2000 to high wholesale prices the state's=20 electricity deregulation law bars them from passing on to consumers. PG&E,= =20 saying it hasn't received the help it needs from regulators or state=20 lawmakers, filed for federal bankruptcy protection April 6. Electricity and= =20 natural gas suppliers, scared off by the companies' poor credit ratings, ar= e=20 refusing to sell to them, leading the state in January to start buying powe= r=20 for the utilities' nearly 9 million residential and business customers. The= =20 state is also buying power for a third investor-owned utility, San Diego Ga= s=20 & Electric, which is in better financial shape than much larger Edison and= =20 PG&E but is also struggling with high wholesale power costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 Track the state's blackout warnings on the Web at=20 www.caiso.com/SystemStatus.html.=20 ,2001 Associated Press ?=20 Enron Corp. sues to block Senate from forcing document release=20 DON THOMPSON, Associated Press Writer Wednesday, July 11, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/11/s= tate1 212EDT0141.DTL=20 (07-11) 09:12 PDT SACRAMENTO (AP) --=20 Enron Corp. is suing state officials to stop a Senate subpoena of its=20 financial records in a dispute over alleged overcharges for its electricity= =20 sales to California.=20 "They've sent two things to Texas -- our money and these documents, and the= y=20 saying we can't get either one back," said Laurence Drivon, special legal= =20 counsel to the Senate Select Committee to Investigate Market Manipulation.= =20 The suit came hours before the committee will consider asking the full Sena= te=20 to cite the Houston-based company for contempt Wednesday. The other subject= =20 of possible sanctions, Atlanta-based Mirant Inc., appears to be cooperating= ,=20 Drivon said.=20 Committee chairman Joe Dunn, a Santa Ana Democrat, said the committee's=20 investigation will continue despite Enron's "pure act of intimidation. We'r= e=20 not going to back down."=20 Enron's suit said the company's financial papers are outside the committee'= s=20 jurisdiction because most of its operations and paperwork are outside=20 California.=20 That shouldn't matter, Drivon said, citing last year's successful of=20 out-of-state documents during the investigation into the activities of form= er=20 Insurance Commissioner Chuck Quackenbush. Previous investigations have=20 included documents subpoenaed from other nations, he said.=20 Companies doing business in California cannot claim immunity from its laws = or=20 oversight, Drivon and Dunn said. Houston-based Reliant Energy made the same= =20 argument but then agreed to turn over 1,800 documents.=20 ,2001 Associated Press ?=20 Governor threatens to sue utilities for refunds=20 Davis says California won't settle for $1 billion=20 Mark Martin, Chronicle Staff Writer Wednesday, July 11, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/07= /11/M N139275.DTL=20 Sacramento -- One day after a federal judge rebuked California's claim that= =20 energy generators owe the state $8.9 billion, Gov. Gray Davis all but vowed= =20 to sue the companies to recoup the money.=20 "If you think California will settle for $1 billion in refunds, we'll see y= ou=20 in court," Davis said yesterday.=20 Continuing his heated rhetoric on the energy crisis, Davis blasted the ener= gy=20 companies for being inflexible during a 14-day negotiation session in=20 Washington, D.C., that ended Monday. Both the state and power generators=20 argue each is owed money as a result of California's dysfunctional=20 electricity market.=20 Federal Energy Regulatory Commission chief administrative law Judge Curtis = L.=20 Wagner ended the talks by saying the state was owed far less than it claime= d,=20 but the FERC's governing board will make a final decision on who owes what = to=20 whom in the coming months.=20 Yesterday, Davis made it clear he wouldn't accept a FERC decision that=20 strayed far from the state's calculations that power companies overcharged= =20 California nearly $9 billion.=20 "The ball is in the FERC's court," he said. "They must step up and provide= =20 the refunds we've asked for."=20 While Davis said California officials had gone to Washington prepared to=20 discuss ways to reach a settlement, including renegotiating long-term=20 contracts to buy power, an energy industry official faulted the state for i= ts=20 unwillingness to compromise.=20 Generators put forward an offer even though they believe no refunds are owe= d,=20 said Jan Smutny-Jones, executive director of the Independent Energy=20 Producers.=20 Smutny-Jones said the state needed to stop thinking it would get the $8.9= =20 billion.=20 "It's clear from the way the issue was characterized by the judge that $9= =20 billion is not something the state is going to see any time in the near=20 future, " he added. "It is not based in reality."=20 Davis also took heat from Republicans yesterday.=20 "He desperately needs that refund, so he can renegotiate the dreadful=20 contracts he has entered into," said Rob Stutzman, a consultant for the=20 California Republican Party. "He's sitting at the poker table with very few= =20 chips."=20 In other energy news yesterday, a judge refused to let a committee represen= t=20 the public in the Pacific Gas & Electric Co. bankruptcy case and said a=20 consumer lawyer's "irresponsible position" at a hearing last week could=20 mislead PG&E customers into filing needless refund claims with the court.= =20 U.S. Bankruptcy Judge Dennis Montali said any refunds owed to customers wer= e=20 unrelated to the bankruptcy case and would be determined by regulators.=20 At the hearing Thursday, attorney KaarenThomas argued that unless a committ= ee=20 represented customers' interests, PG&E could try to bar all refund claims= =20 that weren't filed by Sept. 5.=20 Montali ruled in May that the committee was not authorized by federal=20 bankruptcy law, and reaffirmed his ruling yesterday.=20 Chronicle staff writers Lynda Gledhill and Robert Egelko contributed to thi= s=20 report.=20 E-mail Mark Martin at markmartin@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 3=20 News briefs on the California power crisis=20 The Associated Press Wednesday, July 11, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/07/11/s= tate0 738EDT0118.DTL=20 (07-11) 04:38 PDT SAN JOSE, Calif. (AP) --=20 Energy supplier Calpine Corp. has reached a deal to purchase 236 billion=20 cubic feet of natural gas in Texas and New Mexico for $355 million plus=20 assumption of nearly $50 million of debt.=20 Company officials made the announcement Tuesday and said the purchase will= =20 increase its natural gas reserves.=20 "This transaction meets our desire to own and operate production in a=20 strategic basin," said Cathy Piece, Calpine's director of land and=20 acquisitions. "These assets significantly strengthen our reserve base and= =20 will help fuel our growing Western power program."=20 The San Jose-based company has agreed to purchase 35 wells in New Mexico th= at=20 produce 6 million cubic feet of gas per day from The Bayless Companies. The= =20 second transaction involves the acquisition of a majority interest of Micha= el=20 Petroleum of Houston. The Texas company produces about 43 million cubic fee= t=20 of gas per day.=20 Calpine officials said the agreements will allow them to meet their future= =20 capacity demands for both natural gas and electricity. The company wants to= =20 generate more than 70,000 megawatts of electricity by the end of 2005 and= =20 have natural gas reserves of 6.7 trillion cubic feet.=20 LOS ANGELES (AP) -- Newly elected Mayor James Hahn has postponed selling th= e=20 city's surplus power to the state so he can examine how it will impact=20 ratepayers.=20 Hahn's predecessor, Richard Riordan, said last month the city's Department = of=20 Water and Power would sell its extra electricity -- about 500 megawatts a= =20 day_ to the state at cost between July and September.=20 The contract was supposed to have been signed last week.=20 Steve Maviglio, a spokesman for Gov. Gray Davis, said Tuesday that the stat= e=20 is ready to sign the contract.=20 "We're ready to sign," he said. "Like most negotiations that aren't final,= =20 things go back and forth. The new (Hahn) administration wants to review the= =20 document before it."=20 Davis had threatened to seize surplus power from municipal utilities, which= =20 haven't been subjected to the California energy crisis, because he claimed= =20 they were gouging the state.=20 TEMECULA, Calif. (AP) -- State officials said they are studying alternative= =20 routes for a power transmission line proposed by San Diego Gas and Electric= =20 Co.=20 The utility wants to run a 500,000-volt power line through southwestern=20 Riverside County connecting its power grid with Southern California Edison'= s.=20 The cost of the project is estimated at $271 million and must be approved b= y=20 the state's Public Utilities Commission.=20 But state officials listed alternative routes in papers released at a publi= c=20 hearing Tuesday. Some of the other ideas include putting the transmission= =20 line around the edges of an Indian reservation or running a route through t= he=20 Cleveland National Forest.=20 Once a final selection is made, the information will be given to PUC=20 commissioners who will either approve or deny the project.=20 Many residents who live in the path of the proposed transmission line don't= =20 want the project. An attorney representing several groups that oppose SDG&E= 's=20 plans said there was no mention of alternative routes in environmental=20 documents submitted by the company.=20 "Looking at the various route segments offered by SDG&E as alternatives is= =20 like trying to arrange the deck chairs on the Titanic," said attorney Mark= =20 Mihaly.=20 ,2001 Associated Press ?=20 White House bends under energy conservation pressure=20 Posted at 6:25 a.m. PDT Wednesday, July 11, 2001=20 BY H. JOSEF HEBERT=20 Associated Press Writer=20 WASHINGTON (AP) -- Under pressure to include more conservation measures tha= t=20 reduce energy use, congressional Republicans are moving toward a compromise= =20 to increase fuel efficiency requirements for sport utility vehicles as part= =20 of an energy package.=20 Key House GOP lawmakers said Tuesday they expect some increase in fuel=20 economy requirements, especially for SUVs, in energy legislation working it= s=20 way through the House. Democrats, who have a majority in the Senate, also= =20 favor requiring improved motor vehicle fuel efficiency.=20 At the same time, the Bush administration signaled its willingness Tuesday = to=20 begin a rule-changing process that would allow the first increase in 25 yea= rs=20 in the federal corporate automobile fuel economy, or CAFE, standard.=20 Transportation Secretary Norman Mineta asked Congress to lift immediately a= =20 six-year prohibition that bans the department from consideration of fuel=20 economy increases. Lawmakers already agreed this year not to extend the ban= =20 beyond September, but Mineta said he wants to start examining possible=20 changes right away.=20 CAFE standards, which mandate fuel economy requirements for vehicle fleets,= =20 have not been increased since their introduction in 1975. That year's law,= =20 spurred by energy shortages in the early 1970s, required passengers cars to= =20 meet a fleet average of at least 27.5 miles per gallon. Light trucks -- a= =20 category that includes SUVs, vans and pickups -- have to meet a 20.7 mpg=20 fleet average.=20 With the widespread popularity of SUVs and vans in recent years, many=20 environmentalists have argued that the lower truck standard has compromised= =20 the intent of the 1975 law. SUVs and vans comprise more than 40 percent of= =20 the passenger vehicles on the road today.=20 As three committees began crafting energy legislation, lawmakers were=20 searching for a bipartisan compromise to increase fuel economy requirements= =20 for motor vehicles. Some increase in the CAFE requirement was virtually=20 assured, several GOP lawmakers said, although disagreements remain on how= =20 much of an increase, whether it should apply to automobiles as well as SUVs= ,=20 vans and small trucks, and the timetable for phasing in new requirements.= =20 Energy legislation that the House Energy and Commerce Committee was taking = up=20 later Wednesday contains no fuel economy provision.=20 But Rep. Billy Tauzin, R-La., the committee chairman, said discussions were= =20 under way to work out a compromise on a fuel economy proposal. He said he= =20 expects an amendment on CAFE to be added to the bill, either during=20 deliberations in his committee or on the House floor.=20 Rep. Joe Barton, R-Texas, chairman of the subcommittee drafting the energy= =20 package, saw a good chance the truck standards will be raised and said the= =20 automobile standard might be increased as well. Other GOP sources who talke= d=20 about the private discussions on condition of not being identified by name= =20 said a likely outcome is that the truck standard will be increased three or= =20 four mpg and the auto standard left alone.=20 Momentum for some CAFE increase has been growing in recent weeks as GOP=20 lawmakers came under increasing pressure to come up with additional=20 conservation proposals to those proposed in the White House's energy policy= .=20 It largely focuses on production, with few specific measures to dramaticall= y=20 curb energy demand.=20 Democrats have pressed for tougher automobile fuel economy standards.=20 Automakers have fought attempts to increase the standards. They say such=20 government edicts limit consumer choice and force manufacturers to build=20 smaller cars that customers don't want. Supporters of increased fuel econom= y=20 argue that new technologies are available to increase fuel efficiency witho= ut=20 decreasing vehicle size.=20 President Bush's energy blueprint would consider CAFE increases, but not=20 before a National Academy of Sciences report is issued, probably this month= ,=20 on impact of the standard on energy savings, safety and auto industry=20 competition. Davis ups the voltage=20 Published Wednesday, July 11, 2001, in the San Jose Mercury News=20 Vow to sue for refunds may be a bluff, but he should keep pushing FERC=20 THE strategic choice facing Gov. Gray Davis in the struggle over electricit= y=20 price refunds has come down to three questions: When do you negotiate, when= =20 do you demand, and when do you bluff?=20 Negotiations are over, Davis declared Tuesday. He demanded that the Federal= =20 Energy Regulatory Commission order refunds now. ``The case is nearly a year= =20 old,'' he said. ``They have to decide which side they're on.''=20 Probably no one but Davis knew to what extent he was bluffing when he also= =20 said, ``If you think California is going to settle for $1 billion in refund= s,=20 we will see you in court.''=20 A FERC administrative judge said Monday that the amount due the state may b= e=20 around $1 billion, or perhaps nothing at all, when counter-claims against t= he=20 state are subtracted.=20 Energy experts are divided about whether the state would win a suit to=20 overturn a decision by a federal commission. The federal courts have some= =20 limited jurisdiction, according to University of California Energy Institut= e=20 director Severin Borenstein, but that a court would reverse a commission in= a=20 case like this is ``extremely unlikely.''=20 Frank Wolak, a Stanford economist, had the opposite view, when asked whethe= r=20 the state has a good chance of winning: ``I think so. It happens all the=20 time.''=20 At a Sacramento press conference, Davis continued to insist that there have= =20 been overcharges of $8.9 billion. But other state officials conceded that= =20 only $5.4 billion of that is actually on the table in the FERC proceedings.= =20 Davis said he'll take what he can get there, and sue for the rest.=20 The state argues that because FERC has determined that wholesale prices hav= e=20 not met the Federal Power Act's requirement to be ``just and reasonable,''= =20 refunds are in order. But the commission has not defined what portion=20 exceeded ``just and reasonable.''=20 Throughout his press conference, Davis used the prospect of litigation like= a=20 goad to spur the federal regulators into action. But if you listened=20 carefully, he also indicated he'll give them more time to consider the case= .=20 Considering the iffy odds of winning in court, we suggest he keep goading t= he=20 federal commissioners -- while giving them all the time they need. Wednesday, July 11, 2001=20 Lights go out on Davis' power show=20 Three new developments show that some economic reality finally is being=20 applied to California's electricity crisis:=20 First, "The nation's chief energy judge said Monday that California is owed= =20 maybe $1 billion in refunds from power generators, a fraction of the $8.9= =20 billion demanded by Gov. Gray Davis," reported the Register yesterday. Even= =20 that $1 billion amount might be balanced by the amount the state still owes= =20 the power producers.=20 To suggest workable and market-oriented solutions to the California=20 electricity crisis. Judge Curtis Wagner's recommendation will be taken up by the Federal Energy= =20 Regulatory Commission, which is being petitioned for the money by the state= =20 of California.=20 Because the judge's words will bolster FERC's apparent desire not to grant= =20 the "refunds," the state probably will go to court, where the matter could = be=20 stuck for years. "In the long term, this may indicate that competitive electricity has a=20 future even in California, but not thanks to the state," Robert Michaels, a= =20 professor of economics at Cal State Fullerton, told us. He's referring to t= he=20 state's botched 1996 "deregulation" effort, which has been made worse by Go= v.=20 Gray Davis and other officials since the crisis began a year ago. "FERC since the 1980s favors competition, within the parameters of politica= l=20 reality," Mr. Michaels added. "Now we're at square one: The industry doesn'= t=20 owe $9 billion to California." As this process continues, he said, another= =20 positive aspect will be that a lot of facts will get aired. "We'll see what= =20 has been happening in the markets" in which power is bought and sold. Second, light already is shining on one area: This crisis was not "Made in= =20 Texas'' by cronies of President Bush, as Gov. Davis and other Democrats hav= e=20 been contending.=20 In May, the governor attacked the president for ignoring "the greed of thes= e=20 Texas energy companies," such as Reliant and Dynergy. In fact, according to information on state power contracts the governor=20 finally released Monday, Texas companies were way down on the list of=20 producers.=20 "In roughly the first five months of the year, the state shelled out $1.2= =20 billion to Atlanta-based Mirant, the most any company was paid for=20 electricity, followed by $1 billion to Powerex, the marketing arm of BC Hyd= ro=20 in British Columbia [in Canada]. It also paid $331 million to the Los Angel= es=20 Department of Water and Power," reported the San Jose Mercury News. Only about 10 percent of our state's power during this period came from=20 companies with headquarters in Texas. Third, and finally, a new study by the Cato Institute shows what should be= =20 done next:=20 lAbolish retail rate caps, allowing prices to be set by the market.=20 This would be a better system than the present one, where the state buys th= e=20 electricity and passes much of the cost along through the state budget (pai= d=20 by taxpayers) and bonds paid for by long-term electricity price increases.= =20 Higher immediate prices would encourage conservation and production, leadin= g=20 in time to lower prices. lMove to real-time pricing so people shift activities such as washing to=20 off-peak hours.=20 lAbolish the Independent System Operator, which moves electrons around.=20 Give this function back to the utilities, who did it far better before=20 "deregulation." Gov. Davis should set the pace by ending his Clintonian bla= me=20 shifting and embracing these realistic solutions.=20 =====================================

alan.comnes@enron.com

Summary of the Wednesday FERC Orders

The FERC orders will not be out until sometime Thursday but here is a boile= d=20 down version of what we heard from the meeting, the press, and the press=20 release: FERC Market Monitoring and Mitigation Plan for California ? Approved 2-1 with Massey dissenting ? Imposes mitigation (caps) in R/T in California only during Stage 1/2/3=20 beginning _____ (not clear; assume immediately or soon). o Applies to all thermal generation with a PGA with ISO (even if not a FER= C=20 jurisdictional entity) o All subject generation is paid a single proxy price o Proxy price is based upon the marginal unit=01,s gas price x heat rate += =20 emission adder. (Heat rate determining cap will not longer be pegged at=20 18,000 but will change daily and posted by CAISO) o Proxy price is determined on a day-ahead basis Still not clear what ga= s=20 price will be used.=20 o Bids above the proxy are allowed but the seller must justify the cost ? Hydroelectric resources--in-state or out-of-state--are exempt. ? CAISO will still acquire resources outside of the proxy price via OOM cal= ls ? Silent on exports and expect CAISO to cut exports unless ordered to do=20 otherwise. (However, requirement for CAISO to become a part of a =01&real= =018 RTO=20 would imply that it must honor firm schedules.) ? All LSE in R/T markets to submit demand bids and to identify load that ca= n=20 be curtailed at a specified price ? Contingent on CAISO filing a plan to become part of a region wide RTO by= =20 June 1. I.e., if CAISO does not make an adequate showing, all mitigation= =20 measures are cancelled. ? Opens an investigation on a subset of transactions. According to Massey= =20 this band is very narrow. ? The $150 breakpoint and reporting requirements, which were put into effec= t=20 with the December order, will end with this order.=20 ? In all hours (not just emergencies) there is increased market monitoring = of=20 outages and bidding behavior ? Although the plan is only for California, it seeks comments on a West-wid= e=20 price mitigation plan. ? Also seeks comments on whether CAISO should impose an adder to address=20 generator unpaid bills. RTO West: ? RTO West Phase 1 filing (made back in Nov 2000) is accepted. ? TransConnect, a Transco proposed by RTO West's transmission-owning IOUs,= =20 was also accepted. =20 ? Incentive rates allowed if owner separates transmission from the generati= on. ? Phase 2 filing due December 1. This filing will require tariffs and=20 additional details including how RTO West can become part of a larger=20 West-wide RTO ? Order encourages Canadian utilities to be a part of RTO West

dasovich-j/all_documents/11637.

dasovich-j

Subject: Summary of the Wednesday FERC Orders Sender: alan.comnes@enron.com Recipients: ['michael.driscoll@enron.com', 'mike.swerzbin@enron.com', 'tim.belden@enron.com'] File: dasovich-j/all_documents/11637. ===================================== The FERC orders will not be out until sometime Thursday but here is a boile= d=20 down version of what we heard from the meeting, the press, and the press=20 release: FERC Market Monitoring and Mitigation Plan for California ? Approved 2-1 with Massey dissenting ? Imposes mitigation (caps) in R/T in California only during Stage 1/2/3=20 beginning _____ (not clear; assume immediately or soon). o Applies to all thermal generation with a PGA with ISO (even if not a FER= C=20 jurisdictional entity) o All subject generation is paid a single proxy price o Proxy price is based upon the marginal unit=01,s gas price x heat rate += =20 emission adder. (Heat rate determining cap will not longer be pegged at=20 18,000 but will change daily and posted by CAISO) o Proxy price is determined on a day-ahead basis Still not clear what ga= s=20 price will be used.=20 o Bids above the proxy are allowed but the seller must justify the cost ? Hydroelectric resources--in-state or out-of-state--are exempt. ? CAISO will still acquire resources outside of the proxy price via OOM cal= ls ? Silent on exports and expect CAISO to cut exports unless ordered to do=20 otherwise. (However, requirement for CAISO to become a part of a =01&real= =018 RTO=20 would imply that it must honor firm schedules.) ? All LSE in R/T markets to submit demand bids and to identify load that ca= n=20 be curtailed at a specified price ? Contingent on CAISO filing a plan to become part of a region wide RTO by= =20 June 1. I.e., if CAISO does not make an adequate showing, all mitigation= =20 measures are cancelled. ? Opens an investigation on a subset of transactions. According to Massey= =20 this band is very narrow. ? The $150 breakpoint and reporting requirements, which were put into effec= t=20 with the December order, will end with this order.=20 ? In all hours (not just emergencies) there is increased market monitoring = of=20 outages and bidding behavior ? Although the plan is only for California, it seeks comments on a West-wid= e=20 price mitigation plan. ? Also seeks comments on whether CAISO should impose an adder to address=20 generator unpaid bills. RTO West: ? RTO West Phase 1 filing (made back in Nov 2000) is accepted. ? TransConnect, a Transco proposed by RTO West's transmission-owning IOUs,= =20 was also accepted. =20 ? Incentive rates allowed if owner separates transmission from the generati= on. ? Phase 2 filing due December 1. This filing will require tariffs and=20 additional details including how RTO West can become part of a larger=20 West-wide RTO ? Order encourages Canadian utilities to be a part of RTO West =====================================

trhtml-owner@maui.tr.com

Telecommunications Reports -- 01/29/01

=20 Telecommunications Reports - January 29, 2001 FCC Expands ILEC Line-Sharing Mandates To Fiber Loops, Confirms=20 Line-Splitting Duty Critics Worry White House =0F`E-rate=0F' Proposal May Reduce Funding, Disco= urage=20 Participation FCC Gears Up To Enforce E-rate =0F'Net-Filter Mandate Large Carriers Want 700 MHz Auction Postponed, But Small Providers,=20 Broadcasters Oppose Delay FCC Takes Additional Steps To Help Clear 700 MHz Band The FCC=0F's Enforcement Bureau is a proposing a monetary forfeiture... Easing Spectrum Crunch Tops CTIA=0F's 2001 Lobbying Agenda Nextel Communications, Inc., has agreed to purchase specialized mobile=20 radio... Commission Examines Merits Of Lifting CMRS Spectrum Cap Bookham Technology plc, an Oxfordshire, England=0F-based... Appellate Court Upholds Nextel Tower Permit Finance Panel Senators Back Broadband Service Tax Credits Verizon Wants Law Changing Approach to Broadband Regs Utah Bill Would Halt Plan To Merge Consumer Agencies Reps. Cannon, Eshoo Unveil Internet Privacy Measure Appeals Court Says FCC Erred in Rejecting U S WEST Bid for =0F`Nondominant= =0F'=20 Regulation The FCC=0F's Enforcement Bureau has issued a monetary forfeiture... FCC Gives Bells =0F`Blueprint=0F' In OK of SWBT=0F's InterLATA Bid FCC Rethinks Limitations On Carriers=0F' Use of EELs Pole Attachment, TELRIC Rates To Be Challenged in High Court Supreme Court Again Refuses To Hear State Immunity Cases =0F'Net-Based Directory Publishers Can Access LEC Data, FCC Says Analysts See Lucent Plan Leading To Profitability, But Not Growth Court Says WorldCom Tariff Trumps Service Pact with ICOM Long Distance Revenues Head North, FCC Reports Telefonica, Portugal Telecom Foresee Brazilian Consolidation Losses in Handset Operations Spur Ericsson To Exit Business CRTC Nixes Vancouver Bid For Fiber-Deployment Fees Brazil, France Face Setback In Awarding Wireless Licenses Wireless Industry Seeks Changes In Antenna-Collocation Agreement The Telecommunications Industry Association has published... Carriers, Others See Problems In FCC=0F's ID-Number Proposal=20 Building Owners, Carriers Spar over FCC Proposal To Block Service, Extend B= an=20 on Exclusive Pacts Missouri Lawmakers Seek To Oust Three PSC Members FCC Says ATU Must Refund $2.7M For Misallocating Costs =0F`C,=0F' =0F`F,=0F' Block Reauction Nets Record $16.8B; Large Carrier Par= ticipation May=20 Be Contested Pa. ALJ Slams Verizon Plan To Avoid Full Structural Split Carriers Back Simplified Transfers Of International Authorizations Personnel Regulatory & Government Affairs Industry News Verizon=0F-Vodafone Assets DT Acquisitions What=0F's Ahead. . . Falling Credit Ratings Create Costly Obstacle for Carriers Telecom Sector=0F's Dubious Debts Create Drag on Financial Markets Conn. Draft Decision Would Let SNET Drop Cable TV Business Executive Briefings FCC Expands ILEC Line-Sharing Mandates To Fiber Loops, Confirms=20 Line-Splitting Duty The FCC has given data CLECs (competitive local exchange carriers) a major= =20 win by expanding incum-bent local exchange carriers=0F' =0F"line-sharing=0F= " and =0F" line-splitting=0F" duties. The FCC tinkered with its rules governing those= =20 duties in an order and further notice of proposed rulemaking released in=20 Common Carrier dockets 96-98 and 98-147. The order addressed petitions for= =20 reconsideration and clarification of a previous order on line sharing (TR,= =20 Nov. 22, 1999). Line sharing is the requirement that incumbent local exchange carriers=20 (ILECs) allow competitors to offer high-speed service over the high-frequen= cy=20 portion of a loop, while the ILEC continues to offer voice service over the= =20 low-frequency portion. In the order adopted Jan. 19, the FCC said ILECs must provide line sharing= =20 over the entire loop even if they=0F've deployed fiber in the loop to suppl= ement=20 or replace the original copper line. The order was one of many actions tha= t=20 the FCC took on the last day of Chairman William E. Kennard=0F's tenure but= that=20 were not immediately available, eventually trickling out of the Commission= =20 last week. Rhythms NetConnections, Inc., had filed a petition for clarification with t= he=20 FCC, complaining that some ILECs were contending they didn=0F't have to unb= undle=20 fiber portions of the loop when those portions were used to provide xDSL=20 (digital subscriber line) services. =0F"In the absence of this clarification, a competitive LEC might undertake= to=20 collocate a DSLAM [digital subscriber line access multiplexer] in an=20 incumbent=0F's central office to provide line-shared xDSL services to custo= mers,=20 only to be told by the incumbent that it was migrating those customers to= =20 fiber-fed facilities,=0F" the FCC said. In that case, the CLEC would have = to=20 collocate another DSLAM in a remote terminal to continue offering line-shar= ed=20 services to the same customers. =0F"All indications are that fiber deployment by incumbent LECs is increasi= ng=20 and that collocation by competitive LECs at remote terminals is likely to b= e=20 costly, time-consuming, and often unavailable,=0F" the FCC said. The FCC says ILECs must allow for =0F"line splitting,=0F" so competitors th= at offer=20 voice service using the unbundled network element platform can provide=0F-o= r=20 partner with another data CLEC to provide=0F-DSL service on those same line= s. =0F"Incumbent LECs are required to make all necessary network modifications= to=20 facilitate line splitting, including providing nondiscriminatory access to= =20 [operation support systems] necessary for preordering, ordering,=20 provisioning, maintenance and repair, and billing for loops used in=20 line-splitting arrangements,=0F" the FCC said. The FCC =0F"strongly urged=0F" ILECs and CLECs to =0F"work together to deve= lop=20 processes and systems to support competing carriers=0F' ordering and=20 provisioning of unbundled loops and switching necessary for line splitting.= =0F" The FCC, however, denied a related petition for clarification filed by AT&T= =20 Corp. It had asked the FCC to require ILECs to make their xDSL services=20 available to customers even if they obtain voice service from competing=20 carriers using the ILECs=0F' lines. AT&T was worried that customers wouldn= =0F't=20 switch their voice service to a competitor if that change would eliminate= =20 their ability to get DSL services. =0F"Although the line-sharing order obligates incumbent LECs to make the=20 high-frequency portion of the loop separately available to competing carrie= rs=20 on loops where incumbent LECs provide voice service, it does not require th= at=20 they provide xDSL service when they are no longer the voice provider,=0F" t= he=20 FCC said. =0F"To the extent that AT&T believes that specific incumbent behavior const= rains=20 competition in a manner inconsistent with the Commission=0F's line-sharing = rules=20 and/or the [Communications Act of 1934, as amended] itself, we encourage AT= &T=20 to pursue enforcement action,=0F" it said. The FCC also denied requests from Bell Atlantic Corp. (now Verizon=20 Communications, Inc.). It had asked the FCC to (1) reconsider the=20 requirement that ILECs refusing to condition a loop for the provision of DS= L=20 service demonstrate to the relevant state commission that conditioning that= =20 loop would degrade voice services and(2) permit a line-sharing deployment= =20 schedule other than the one it adopted. Rhythms applauded the FCC=0F's decision. =0F"By expanding the definition o= f line=20 sharing to include fiber loops and ensuring our ability to use consumers=0F= '=20 existing voice lines for data services, we can bring the benefits of the mo= st=20 robust broadband service offerings to consumers,=0F" said Jeffrey Blumenfel= d,=20 chief legal officer and general counsel for Rhythms. During a press briefing last week (see separate story), Thomas J. Tauke,=20 senior vice president-public policy and external affairs at Verizon=20 Communications, Inc., criticized the FCC=0F's decision, specifically the=20 provisions requiring line splitting. The FCC =0F"didn=0F't address how thi= s is to=20 be done,=0F" he said. Jonathan Lee, vice president-regulatory affairs at the Competitive=20 Telecommunications Association, said the order was an =0F"unmitigated win= =0F" for=20 data CLECs. But he said the FCC=0F's decision not to grant AT&T=0F's petit= ion for=20 clarification was =0F"regrettable.=0F" Residential consumers who have DSL available only from the ILEC won=0F't be= able=20 to switch their voice service without losing their DSL service, he said. M= r.=20 Lee compared the ILECs=0F' =0F"tying=0F" of voice and DSL service to Micros= oft Corp.=0F's=20 practice of linking its Internet Explorer Web browser with its Windows=20 operating system. The ILEC practice =0F"could run afoul of antitrust laws,= =0F" he=20 said. Critics Worry White House =0F`E-rate=0F' Proposal May Reduce Funding, Disco= urage=20 Participation The education reform package that President Bush sent to Congress last week= =20 is drawing criticism from policy-makers who helped draft and implement the = =0F" E-rate=0F" telecom discount program. It=0F's also sparking concern among s= chools=20 and libraries that have participated in the program and benefited from it. They=0F're worried that the president=0F's E-rate proposal, if adopted in i= ts=20 current =0F"blueprint=0F" form, would discourage certain schools from apply= ing for=20 discounts on telecom and Internet services and internal connections. In th= e=20 long run, they fear that the president=0F's proposal would lead to decrease= d=20 funding for the program, which currently stands at $2.25 billion a year. The main problem, these critics say, is that shifting administration of the= =20 program to the Department of Education, as President Bush has said he inten= ds=20 to do, would render E-rate funding dependent on congressional=20 appropriations. In its current form under the FCC=0F's oversight, the prog= ram=20 is funded by universal service contributions assessed from telecom carriers= . The technology part of the president=0F's education reform initiative unvei= led=20 last week calls for combining the E-rate with several Department of Educati= on=20 programs to form one =0F"performance-based technology grant program.=0F" T= hen, it=20 says, funding for that program would be disbursed =0F"by formula=0F" to sta= tes=20 through block grants. The aim is to streamline the many =0F"duplicative technology programs=0F" i= nto one=20 education grant plan, the Bush administration says. Such streamlining woul= d=20 go a long way toward reducing the E-rate program=0F's =0F"burdensome paperw= ork=0F"=20 requirements and adding more flexibility to those program, the proposal say= s. =0F"Flexibility will be increased by allowing funds to be used for purposes= that=20 include software purchases and development, wiring and technology=20 infrastructure, and teacher training in the use of technology,=0F" it state= s. =20 It also would permit E-rate recipients to use federal funds to pay for=20 Internet filtering software, which is being mandated for the first time thi= s=20 year by the Children=0F's Internet Protection Support Act of 2000 (TR, Jan.= 22). But key U.S. lawmakers and education officials aren=0F't prepared to embrac= e the=20 plan yet. They say more details are needed from the Bush administration on= =20 several issues, including how the E-rate program would be funded and what= =20 formula would be used to distribute money among the states. Jeff Burnett, director-government relations at the National Association of= =20 Independent Schools, says the language of the proposal is cloudy when it=20 comes to whether the program would be supported by the Universal Service=20 Fund, as it is now, or by general tax revenues. =0F"That=0F's a huge quest= ion=20 mark, and we are highly nervous about it because it does appear that it wou= ld=20 become part of the Department of Education=0F's budget,=0F" he says. Mr. Burnett says making the E-rate dependent on general tax revenues could = =0F" destabilize=0F" its funding and discourage some private and parochial schoo= ls=20 from applying for telecom discounts. =0F"It would go from where it is now,= a=20 pretty stable $2.25 billion per year, to where you would have arguments eve= ry=20 year in Congress over how much money it would get.=0F" Plus, he says, E-rate funds =0F"no longer would be string-free=0F" if they = were to=20 be allocated by the federal government. Moving the program to the Departme= nt=20 of Education could discourage religious schools from participating because = of=20 potential =0F"church-state problems,=0F" he says, referring to the First Am= endment=20 to the U.S. Constitution, which prohibits congressional establishment of an= =20 official religion. And some states may be restricted by their state=20 constitutions from providing federally funded educational services to priva= te=20 and religious schools, he adds. Former FCC Chairman Reed E. Hundt, who oversaw the implementation of the=20 E-rate program back in 1996, fears that the end result could be the =0F"kil= ling=20 of the program altogether=0F" or a =0F"chopping of it down from a significa= nt=20 program to an insignificant one.=0F" =20 Having the Education Department oversee the E-rate program would remove=20 stability from the program, Mr. Hundt stressed. =0F"Where are they going t= o=20 find 2, 3, or 4 billion dollars in the general [tax revenues] to pay for it= ?=0F"=20 he asked. =0F"The bigger [telecom service] providers probably would be hap= py,=20 but the [support] would be reduced,=0F" Mr. Hundt told TR last week. He also rejected the administration=0F's claims that consolidating the educ= ation=20 technology programs would reduce applicants=0F' paperwork and filing=20 requirements. =0F"Moving it to the Department of Education is not a way to= =20 simplify paperwork,=0F" Mr. Hundt said. =0F"Nothing is simpler than the wa= y it=0F's=20 done now. These forms don=0F't even go to the government; they go to a=20 privately run trust fund,=0F" he added. A source who works with schools on fine-tuning their E-rate applications=20 foresees a =0F"food fight at the state level=0F" if the Bush administration= =20 institutes a block-grant program. =0F"There won=0F't be the same spirit of= =20 cooperation among the schools and libraries that there is today,=0F" the so= urce=20 says. =0F"Instead, they=0F'll see each other as competition.=0F" A library official said that even if the E-rate program remained part of th= e=20 USF, expanding its scope to include software purchases and teacher training= =20 could give telecom carriers grounds for a legal challenge of the assessment= s=20 made on their revenues. =0F"If the money is to come from the service provi= der,=20 then the program must directly relate back to the services that they=20 provide. I could see someone challenging the software and teacher-training= =20 aspects,=0F" the source says. Snowe, Rockefeller Are Skeptical The program has received an icy response from two U.S. senators who were=20 among the original sponsors of the legislation that added the E-rate=20 provisions to the Telecommunications Act of 1996: Republican Olympia J.=20 Snowe (Maine) and Democrat John D. Rockefeller IV (W.Va.). In a statement issued soon after the Bush education proposal was released= =20 Jan. 23, Sen. Rockefeller vowed to =0F"aggressively fight=0F" the E-rate as= pects of=20 the proposal. It would be a =0F"grave mistake=0F" to fold the E-rate into = a block=20 grant program with the Education Department technology programs, Sen.=20 Rockefeller said. =0F"Under the Bush block-grant approach, local schools would have less=20 flexibility, not more,=0F" Sen. Rockefeller said. =0F"Private and parochia= l=20 schools would have to negotiate with state education agencies and worry abo= ut=20 entanglements of federal regulations. Most importantly, the secure funding= =20 for the E-rate and investments in technology would be jeopardized,=0F" he s= aid. Sen. Snowe also worries about turning the E-rate into a block-grant program= . =20 Among other things, she says, such a proposal could deter private and=20 parochial schools from participating in the program. =20 =0F"We plan to work with President Bush and our colleagues in the Congress = to=20 ensure that the current program is protected, as we don=0F't support any ef= forts=20 that would undermine its goals,=0F" a Snowe aide told TR. =20 New House telecommunications subcommittee Chairman Fred Upton (R., Mich.) h= as=20 told President Bush in a letter that he plans to hold several hearings this= =20 year on =0F"aspects of your proposal that fall under the subcommittee=0F's= =20 jurisdiction,=0F" including the E-rate plan. Rep. Upton has asked the Bush administration to focus on broadband service= =20 deployment, =0F"particularly as it relates to how increased access to high-= speed=20 data services in our homes and schools could vastly improve educational=20 opportunities.=0F" Numerous calls to the White House seeking comment weren= =0F't=20 returned before TR=0F's Friday afternoon news deadline. FCC Gears Up To Enforce E-rate =0F'Net-Filter Mandate The FCC wants advice on how to implement the Children=0F's Internet Protect= ion=20 Act of 2000 (CIPA), which requires schools and libraries that receive =0F" E-rate=0F" discounts for Internet services and internal connections to use = =0F" filtering=0F" technology that prevents minors from accessing =0F"harmful=0F= " material=20 over the =0F'Net. The FCC has suggested that recipients certify compliance with the CIPA on= =20 forms they must file when applying for E-rate discounts on telecom services= ,=20 Internet services, and internal connections. Under the CIPA, the =0F"Internet safety technology=0F" must filter out =0F"= visual=20 depictions=0F" of =0F"obscene=0F" material or =0F"child pornography,=0F" ev= en when adults=20 are using the computers. Schools and libraries are required to bar access = to=20 visual depictions that are =0F"harmful to minors=0F" only when minors are u= sing the=20 computers. The law requires E-rate recipients to certify each program year that they a= re=20 complying with the filtering mandate and that they monitor the operation of= =20 the filtering technology while the computers are in use. The law allows an= =20 administrator to disable the filtering technology while the computer is bei= ng=20 used by an adult =0F"for bona fide research or other lawful purpose.=0F" Schools and libraries have one year to adopt an Internet safety policy; in= =20 the first year after the effective date of the law, they either must certif= y=20 that they have such a policy or that they are developing one. The law also allows schools and libraries to seek a waiver from the FCC=20 during the law=0F's second year, if state or local procurement rules or=20 competitive bidding requirements have prevented them from implementing an= =20 Internet safety policy. The FCC=0F's further notice of proposed rulemaking released last week in Co= mmon=20 Carrier docket 96-45 proposes that E-rate recipients this year certify eith= er=20 that they have complied with all relevant provisions of the CIPA or that th= e=20 CIPA requirements don=0F't apply. The certifications would appear on their= =0F" receipt of confirmation=0F" forms (FCC Form 486). The CIPA doesn=0F't require schools and libraries that use E-rate funds onl= y for=20 telecom services=0F-and not for Internet access or internal connections=0F-= to=20 install the filtering technology. The FCC proposes that in future years recipients include their compliance= =20 certifications on FCC Form 471, which is used to describe the services to b= e=20 funded. It asks how to implement the =0F"remedial=0F" provisions of the CI= PA,=20 which detail ways an applicant can correct its noncompliance or=20 noncertification. Comments are due 15 days after publication of the=20 rulemaking notice in the Federal Register; replies are due 30 days later. The American Library Association has announced plans to challenge the=20 constitutionality of the CIPA (TR, Jan. 22), whose Internet-filtering=20 requirements extend to other federal programs that subsidize schools=0F' an= d=20 libraries=0F' purchases of computers and Internet access. The ALA, which notes that the CIPA takes effect April 20, has launched a We= b=20 site where it will post information about its activities regarding the CIPA= =20 (http://www.ala.org/cipa). Meanwhile, President Bush last week announced a proposal for modifying the= =20 E-rate program, including reducing the paperwork demands on applicants (see= =20 separate story). Large Carriers Want 700 MHz Auction Postponed, But Small Providers,=20 Broadcasters Oppose Delay Large wireless carriers are once again asking the FCC to postpone the=20 scheduled auction of licenses for the 700 megahertz band, citing a host of= =20 familiar concerns that they say could dampen enthusiasm for bidding on the= =20 frequencies. But rural carriers and TV broadcasters are urging the Commission to begin t= he=20 auction March 6, as scheduled, noting that the sale already has been=20 postponed three times. They say that large carriers have had plenty of tim= e=20 to prepare for the auction and that further delays would be unfair to them. They offered their views in comments filed with the FCC last week in respon= se=20 to a request by Verizon Wireless to delay the sale until September (TR, Jan= .=20 22). Several large carriers that supported the request asked for an even= =20 longer postponement. Supporters of postponement cited the presence of broadcasters in the spectr= um=20 and the need to negotiate band-clearing agreements as evidence to support= =20 their cause (see separate story). Most of their arguments echoed those of= =20 Verizon Wireless. TV broadcasters don=0F't have to evacuate the spectrum (channels 60=0F-69) = as part=20 of the transition to digital TV until 2006 at the earliest. But wireless= =20 carriers, citing the uncertainty about when the frequencies slated to be=20 auctioned will be available for use, have asked the FCC and Congress to for= ce=20 the broadcasters out early. In addition to the presence of the broadcasters, other reasons the large=20 carriers said the auction should be delayed included concerns that (1)a=20 reauction of =0F"C=0F" and =0F"F=0F" block PCS (personal communications ser= vice) licenses=20 hadn=0F't finished in time for carriers to assess their spectrum needs in t= he=20 700 MHz auction (see separate story), (2)companies need more time to prepar= e=20 for package bidding rules that will be used for the first time in the aucti= on=20 (TR, July 10, 2000), and (3)a high-level effort to identify and allocate=20 frequencies for third-generation (3G) services will affect carriers=0F' int= erest=20 in the 700 MHz band (see separate story). The Cellular Telecommunications & Internet Associationsaid carriers=20 interested in participating in the 700 MHz band auction wouldn=0F't have ti= me to=20 assess their bidding strategies and spectrum needs and form alliances becau= se=20 the C and F block reauction concluded last week, after the comments were=20 filed. In addition, the Commission=0F's anticollusion rules limit contact= =20 between bidders, CTIA noted. CTIA added that prospective 700 MHz band bidders wouldn=0F't have time to= =20 negotiate the band-clearing agreements the FCC is encouraging. And it cite= d=20 carriers=0F' need to prepare for package-bidding rules. In the end, the sa= me=20 factors that led the FCC to delay the auction last year still exist, CTIA= =20 said. AT&T Wireless Services, Inc.,asked the FCC to delay the auction until March= =20 2002. Such a move =0F"will give incumbents, prospective bidders, and the= =20 Commission an opportunity to resolve much of the uncertainty associated wit= h=20 this band,=0F" the carrier said. AT&T Wireless also said more time was nee= ded=20 to assess whether recent FCC actions designed to speed broadcasters=0F'=20 transition to digital TV would accomplish their goals. It suggested that the FCC schedule the auction of channels 60=0F-69 in=20 conjunction with a sale of channels 52=0F-59, which the FCC is statutorily= =20 required to license by September 2002. Cingular Wireless LLCasked the FCC to delay the auction until at least 60 t= o=20 90 days after it acts on all =0F"long form=0F" applications filed by winnin= g=20 bidders in the C and F block reauction. It also suggested that FCC=20 coordinate the timing of licensing channels 60=0F-69 and channels 52=0F-59. Nextel Communications, Inc.,wants the auction delayed until November. That= =20 move would give carriers time to assess the spectrum-allocation decisions= =20 made under the 3G initiative, Nextel said. Although the 30 MHz of commerci= al=20 spectrum in the 700 MHz band is not under consideration as part of that=20 effort, the frequencies are considered ideally suited for such advanced=20 services. Telephone and Data Systems, Inc.,filing on behalf of itself and its United= =20 States Cellular Corp.subsidiary, supported a delay until September or later= =20 if several other related proceedings aren=0F't completed. A postponement is =0F"essential=0F" for smaller and midsize companies that = need=20 time to assess 700 MHz market valuations, to locate funding sources, and to= =20 prepare for the package-bidding methodology, TDS said. =0F"In July of 2000, the Commission postponed this very auction for precise= ly=20 these same reasons, a decision strongly supported by the wireless industry,= =0F"=20 said Motorola, Inc.=0F"The logic of that postponement should apply with equ= al=20 force to the present request by Verizon.=0F" It added =0F"that forcing carriers to engage in competitive bidding for spe= ctrum=20 without adequate preparation will itself create a market distortion both in= =20 the actual process and in the rapidly evolving mobile marketplace.=0F" The Association of Public-Safety Communications Officials-Internationalsaid= =20 it backed a postponement =0F"to the extent that such a delay may facilitate= the=20 ultimate clearing of television broadcasters from the 700 MHz band. . .Any= =20 effort that facilitates band-clearing on channels 60=0F-69 is likely to ben= efit=20 public safety agencies waiting to use the 700 MHz band.=0F" Spectrum Exchange Group LLCsought a delay of two to six months, saying such= =20 an action would strike =0F"the appropriate balance between the needs of the= =20 bidders and incumbent broadcasters to establish a band-clearing agreement,= =20 and the urgency of putting this valuable spectrum to its best use.=0F" Ronald M. Harstad and Michael H. Rothkopfof Rutgers University and Aleksand= ar=20 Pekecof Duke University also argued for a delay, citing the 3G initiative,= =20 the need to negotiate band-clearing agreements, and the introduction of=20 package bidding. Rural Carriers, Broadcasters Object But a group representing rural carriers urged the FCC to hold the auction a= s=20 scheduled. =0F"The Commission should not establish auction deadlines that= =20 comport with the business plans of any private company,=0F" the Rural=20 Telecommunications Groupsaid. =0F"And, stripped to its essence, Verizon ur= ges=20 the Commission to delay the 700 MHz [band] auction merely for Verizon=0F's= =20 business convenience.=0F" Delaying the sale would benefit Verizon Wireless at the expense of=20 competitors that skipped the C and F block reauction with the expectation o= f=20 bidding in the 700 MHz band sale, the group said. It added that it opposed= =20 any linkage between the 700 MHz band auction and the initiative to allocate= =20 3G spectrum. =0F"This informal daisy chain between auctions=0F-and between auctions and = other=20 allocation proceedings=0F-can only serve to advantage the largest carriers = who=20 seek to participate seriatim in each and every auction,=0F" it said. Paxson Communications Corp.,the largest incumbent broadcaster in channels 6= 0=0F- 69, also asked the FCC to reject the postponement request. Further delay = =0F"is=20 unfair to incumbent broadcasters who are seeking to get past the auction an= d=20 determine the future availability of this spectrum for both their digital a= nd=20 analog operations,=0F" it said. The broadcaster added that wireless carriers had plenty of time to prepare= =20 for the sale. And it noted that the FCC already had missed a September 200= 0=20 statutory deadline for depositing proceeds from the sale into the U.S.=20 Treasury. Equity Broadcasting Corp.said it supported Paxson=0F's comments. =0F"Further delay will slow the digital transition, violate congressional= =20 directive, and will not benefit potential bidders for the spectrum,=0F" agr= eed=20 Shop At Home Network.=0F"Moreover, Verizon=0F's arguments that a further de= lay will=20 benefit it and other potential auction participants are specious at best.= =0F" FCC Takes Additional Steps To Help Clear 700 MHz Band The FCC has taken additional steps to help spur the relocation of incumbent= =20 TV broadcasters from the 700 megahertz band in order to make way for wirele= ss=20 carriers. But it said it wouldn=0F't force the incumbents to clear the=20 frequencies=0F-at least not yet. In a third report and order released last week, the Commission said it had= =20 decided to allow the private sector to determine what band-clearing=20 mechanisms best suited the needs of broadcasters and wireless carriers. Specifically, the FCC has decided not to impose cost-sharing rules, cost=20 caps, or cost-recovery guidelines at this time on the relocation of incumbe= nt=20 broadcasters. Last year the agency asked whether it should impose such rul= es=20 (TR, June 26 and July 10, 2000). =0F`Secondary Auctions=0F' Touted The FCC also will leave it up to industry to decide if =0F"secondary auctio= ns=0F"=20 should be organized to facilitate band-clearing agreements before the=20 auction, which is scheduled to begin March 6. The FCC earlier asked for=20 comments on whether it had the authority to conduct such auctions. In the order released last week, the FCC reiterated its view of the benefit= s=20 of such auctions, saying they =0F"have potential to offer both broadcasters= and=20 new entrants additional opportunities to reduce the potential transaction= =20 costs of negotiating with each other directly after the auction.=0F" As part of their transition to digital TV (DTV), broadcasters don=0F't have= to=20 leave the 700 MHz band (channels 60=0F-69) until 2006 at the earliest. The= y may=20 stay longer if less than 85% of households in their markets have access to= =20 DTV signals. That timetable has created uncertainty among wireless carrier= s=20 about how much to bid=0F-or whether to bid at all=0F-on the spectrum when i= t is=20 auctioned. Wireless carriers have asked the FCC to force TV broadcasters out of the=20 spectrum before they are required to leave (TR, Aug. 21, 2000). For their= =20 part, broadcasters have fought such band-clearing mandates and instead have= =20 urged the FCC to address larger issues related to the DTV transition,=20 especially digital =0F"must-carry=0F" cable TV rights. The FCC recently took several actions that it said would facilitate=20 broadcasters=0F' transition to DTV, including those dealing with must-carry= =20 rights. In its 700 MHz band order, the FCC said it wanted to give voluntary=20 mechanisms a chance in clearing the frequencies for wireless services. =0F= "We=20 believe that voluntary agreements between broadcasters and licensees should= =20 result in the effective clearing of the 700 MHz band,=0F" it said. =0F"How= ever, we=20 will revisit this issue in the future if we find it necessary.=0F" The FCC=0F's latest action builds upon the policies it adopted last year to= =20 provide guidance to broadcasters and carriers regarding the regulatory=20 treatment of private band-clearing agreements. For example, the agency extended to three-way agreements a general =0F" rebuttable presumption=0F" adopted last year for bilateral pacts. The=20 presumption is that such agreements are in the public interest. The FCC also provided guidance on interference issues arising from relocati= on=20 agreements that involve moving a broadcaster to a channel below channel 59.= =20 And it has streamlined the review of band-clearing agreements and affirmed= =20 that it expeditiously will process band-clearing agreements. It also=20 clarified that voluntary agreements to temporarily relocate licensees into= =20 channels 52=0F-58 would be permitted. Commissioner Gloria Tristani dissented in part from the report and order. = In=20 a statement, she said she opposed the decision to extend the rebuttable=20 presumption to three-way agreements. She expressed concern that such=20 agreements would result in a loss of TV service for viewers and said she=20 wanted to consider band-clearing agreements case by case. =0F"As I have stated previously, my ultimate concern is that the presumptio= n in=20 favor of band clearing reflects a diminishing regard for the public value o= f=20 free, over-the-air television services,=0F" Commissioner Tristani said. She also took exception with the FCC=0F's statement that it might revisit i= ssues=20 surrounding the mandatory relocation of broadcasters. =0F"I remain convinc= ed=20 that such action would contravene the statute=0F" establishing broadcasters= =0F' DTV=20 transition, she said. The FCC=0F's order was adopted Jan. 18 in Wireless Telecommunications docke= t=20 99-168, Cable Services docket 98-120, and Mass Media docket 00-39. A news= =20 release on the action and the text of the document were released Jan. 23. Kennard Requests Hard Stand In a related development, former FCC Chairman William E. Kennard has asked= =20 Congress to take a hard stand against broadcasters in their transition to= =20 DTV. Writing Jan. 19 to Sen. Ernest F. Hollings (D., S.C.), Mr. Kennard=20 suggested that Congress set a firm deadline of Dec. 31, 2006, for TV=20 broadcasters in channels 52=0F-69 to relocate. =20 He also proposed that broadcasters using channels 2=0F-51 after that date b= e=20 charged an escalating fee to encourage them to clear the spectrum. Writing Jan. 26 to Senate Commerce, Science, and Transportation Committee= =20 Chairman John McCain (R., Ariz.), Lyle Gallagher, president of the=20 Association of Public-Safety Communications Officials-International,=20 expressed support for Mr. Kennard=0F's proposals to help clear the 700 MHz = band. At the very least, steps should be taken to clear channels 60=0F-69, Mr.=20 Gallagher said. Public safety agencies urgently need access to 24 MHz of= =20 spectrum in the 700 MHz band that the FCC has reallocated for their use, he= =20 said, but much of it is occupied by broadcasters. =0F"By making the Dec. 31, 2006, date firm for channels 60=0F-69, state and= local=20 governments throughout the nation could plan on spectrum being available no= =20 later than Jan. 1, 2007, and could proceed with necessary funding, frequenc= y=20 planning, design, and construction for new radio systems,=0F" he added. = =0F"APCO=20 also supports adoption of legislative and regulatory provisions that may=20 allow for clearing of channels 60=0F-69 even prior to 2006.=0F" The FCC=0F's Enforcement Bureau is a proposing a monetary forfeiture... The FCC=0F's Enforcement Bureau is a proposing a monetary forfeitureof $5,0= 00=20 against Verizon Southwest, Inc., for operating a paging station in Juno,=20 Texas, without Commission authorization. Verizon told the agency that it= =20 operated the station without authorization between Nov. 1, 1998, and Feb. 7= ,=20 2000. The bureau released a notice of apparent liability for forfeiture=20 against Verizon Jan. 25 in file no. EB-00-TS-212. Easing Spectrum Crunch Tops CTIA=0F's 2001 Lobbying Agenda Spectrum issues will top the wireless industry=0F's Washington agenda for t= his=20 year, according to Cellular Telecommunications & Internet Association=20 President and Chief Executive Officer Thomas E. Wheeler. A scarcity in=20 frequencies is hurting U.S. carriers=0F' competitiveness with their foreign= =20 counterparts and thwarting development of the wireless Internet, he said. Mr. Wheeler urged the FCC to lift the cap on how much spectrum a carrier ma= y=20 hold in any one market while a high-level effort to identify and allocate= =20 frequencies for third-generation (3G) services proceeded. Such a move woul= d=20 ease the spectrum crunch, he reasoned. At a briefing for reporters last week, he said the Bush administration had= =20 its work cut out for it in collaborating with the FCC to find suitable band= s=20 for 3G use. U.S. Seen Falling Behind =0F"God bless the Clinton administration for starting the spectrum policy r= eview=20 process, but [it] couldn=0F't bring it to fruition, and it now falls to the= Bush=20 administration to deal with the really hard parts and to make decisions,=0F= " Mr.=20 Wheeler said. =0F"Those decisions will probably take time. We can=0F't afford time. It= =0F's what=20 we don=0F't have. Japan and Europe are already building the [networks whil= e] we=0F' re still trying to figure out where we should get it,=0F" he added. Then-President Clinton launched the 3G initiative by executive memorandum i= n=20 October 2000 (TR, Oct. 16, Nov. 6, and Nov. 20, 2000; and Jan. 8 and 22). = =20 The memorandum calls for the FCC to license the spectrum by Sept. 30, 2002,= =20 after a collaborative effort led by the FCC and the Commerce Department=0F'= s=20 National Telecommunications & Information Administration. But a key obstacle is that the bands being examined most closely for 3G=20 applications already are occupied by military, commercial, and educational= =20 users. Mr. Wheeler said that the time it would take to allocate 3G spectrum made i= t=20 even more important for the FCC to lift the spectrum cap immediately. The= =20 FCC asked for comments on the issue last week (see separate story). He said he had =0F"some very profitable discussions=0F" with Bush transitio= n team=20 officials on spectrum issues, although he wouldn=0F't elaborate. He also s= aid=20 he was pleased that Donald L. Evans stressed the importance of allocating 3= G=20 spectrum in his Senate confirmation hearing for secretary of commerce earli= er=20 this month (TR, Jan. 8). Mr. Wheeler said another key issue for the coming year was finding ways to= =20 use wireless technologies to bridge the =0F"digital divide.=0F" He stresse= d that=20 the gap wouldn=0F't =0F"be bridged by just pumping more money into existing= subsidy=20 programs,=0F" although he said changes in the universal service program wer= e=20 needed. On other issues, Mr. Wheeler said CTIA also hoped there would be=20 congressional or FCC action on Internet privacy, =0F"calling-party-pays=0F"= billing=20 arrangements, and reciprocal compensation. Regarding privacy, he said the= =20 trade group had gotten a positive response from members of Congress and=20 regulators to its proposed principles for location-information services (TR= ,=20 Oct. 30 and Nov. 27, 2000). Mr. Wheeler defended the industry=0F's claims regarding the safety of mobil= e=20 phones. A new book by George L. Carlo, a scientist who led a seven-year, $= 27=20 million industry-funded initiative to study the issue, says the wireless=20 industry has downplayed evidence that the phones can cause illness (TR, Dec= .=20 25, 2000). The book is particularly critical of Mr. Wheeler. The industry= =20 also has suffered recent setbacks in pending court cases that claim mobile= =20 phones are dangerous to humans (TR, Jan. 22). =0F"I don=0F't think that the issue is George Carlo or Tom Wheeler or CTIA,= =0F" Mr.=20 Wheeler said. =0F"The whole issue is, What=0F's the science? . . .We=0F've= supported=20 independent science and will continue to support independent science.=0F" As for litigation, he said that lawsuits alleging a link between exposure t= o=20 radio frequency emissions and health effects such as cancer had been=20 dismissed in the past. Nextel Communications, Inc., has agreed to purchase specialized mobile=20 radio... Nextel Communications, Inc., has agreed to purchase specialized mobile=20 radio(SMR) licenses from Arch Wireless, Inc., for $175 million and invest $= 75=20 million in the paging carrier. In exchange, Nextel will receive a new seri= es=20 of Arch preferred stock. The two companies also will explore ways to=20 collaborate on marketing. Arch said it didn=0F't expect to need the SMR=20 spectrum because of upgrades to its two-way messaging network. Nextel said= =20 the transition would give it about 20 megahertz of SMR spectrum in the 800= =20 and 900 MHz bands in 52 of the top 100 U.S. markets. Commission Examines Merits Of Lifting CMRS Spectrum Cap The FCC is reexamining whether to lift its cap on the amount of spectrum=20 wireless carriers may hold in any one market. The Commission also is=20 considering whether it should eliminate its cellular cross-interest rule. In a notice of proposed rulemaking released last week, the FCC asked for=20 comments on whether the spectrum cap should be retained, modified, or=20 eliminated to comply with the public-interest standard set forth in section= =20 11 of the Communications Act, as amended. Specifically, the agency is soliciting views on whether =0F"meaningful econ= omic=20 competition=0F" in the commercial mobile radio service (CMRS) market has=20 rendered spectrum aggregation limits, including the cellular cross-interest= =20 rule, unnecessary. Under the agency=0F's rules, carriers aren=0F't allowed to hold more than 4= 5=20 megahertz of spectrum in urban markets and 55 MHz in rural markets. The=20 cellular cross-interest rule restricts an entity=0F's ownership interest in= =20 cellular carriers operating in the same market. The FCC wants to know=20 whether those limits are still needed to prevent harmful concentration of= =20 spectrum holdings or ensure opportunities for new players to enter the mark= et. The Commission is asking for comments on what constitutes =0F"meaningful=20 economic competition=0F" under section 11 and how competitive conditions ha= ve=20 changed since it last reviewed the restrictions in 1999. In the largest metropolitan areas, where seven in 10 Americans live, at lea= st=20 five mobile telephone carriers are offering service, the agency noted last= =20 week. As a result, it said, prices are declining, coverage areas are=20 expanding, and new service packages are being offered. It wants to know if= =20 there are public-interest reasons for maintaining the cap regardless of suc= h=20 competitive developments. Large wireless carriers have lobbied the FCC to lift the cap, saying it has= =20 thwarted the U.S. wireless industry=0F's deployment of third-generation (3G= )=20 services, placing it at a disadvantage with foreign competitors. Some=20 smaller carriers, however, have asked the FCC to retain the cap, saying it= =0F's=20 needed to ensure that they remain competitive against their larger=20 counterparts. In a broad review of the cap conducted in 1999, the FCC decided to retain t= he=20 restriction, although it eased the limit in rural markets (TR, Sept. 20,=20 1999). At the time, it concluded that the cap was a safeguard against=20 excessive concentration in the CMRS market, preserving competition and the= =20 consumer benefits it had produced. It also determined in 1999 that the=20 cellular cross-interest restriction was necessary to protect competition. = =20 The agency eased the rules somewhat, however, permitting some degree of=20 cross-interest. In November 2000, the FCC denied two petitions for reconsideration of its= =20 1999 decision but said it would reexamine the cap as part of its 2000=20 biennial review (TR, Nov. 13, 2000). The notice of proposed rulemaking,=20 adopted Jan. 19 and released Jan. 23 in Wireless Telecommunications docket= =20 01-14, stems from that review. Comments are due 60 days after the notice= =0F's=20 publication in the Federal Register, and replies are due 30 days after that= . In a separate statement, Commissioner Harold W. Furchtgott-Roth said that h= e=20 supported the rulemaking notice but that he tentatively would have conclude= d=20 that the cap should be lifted. =0F"The use of a spectrum cap is a drastic regulatory remedy that continues= to=20 search for a corresponding competitive ill,=0F" he said. =0F"I have grown= =20 impatient with the Commission=0F's repeated reexaminations of these issues= =20 without substantial alterations in our policy approach.=0F" Industry Praises Review Thomas E. Wheeler, president and chief executive officer of the Cellular=20 Telecommunications & Internet Association, said that lifting the cap was=20 crucial while a high-level effort to identify and allocate 3G bands winds= =20 through the regulatory process (see separate story). Mr. Wheeler told reporters at a luncheon last week that such access to=20 additional spectrum was necessary for the U.S. to maintain its leadership i= n=20 the development of the Internet as it moves to wireless devices. Japan and European countries have moved more quickly to allocate frequencie= s=20 for 3G services, setting aside twice as much spectrum as the U.S. has, he= =20 said. The Personal Communications Industry Association, however, has said the cap= =20 is necessary to give smaller carriers a chance to enter the CMRS market. Mr. Wheeler noted that newly named FCC Chairman Michael K. Powell had said = he=20 would favor lifting the spectrum cap. =0F"Clearly in some of the opinions = that=20 he=0F's written in the spectrum proceeding, he=0F's asked the question, Why= should=20 this continue?=0F" Mr. Wheeler said. =0F"We=0F're hopeful.=0F" Then-Commissioner Powell voted to retain the cap in November 2000 but said = he=20 tended to agree with Commissioner Furchtgott-Roth=0F's conclusion that the = cap =0F" has outlived its usefulness.=0F" Notice Explores Alternatives In its rulemaking notice, the FCC seeks comments on alternatives to lifting= =20 the spectrum cap entirely or leaving it untouched. For example, it asks=20 whether it should apply the cap only to spectrum used for voice services. = It=20 also asks whether it should retain the cap in markets where there is less= =20 competition and eliminate it in other markets where more carriers are=20 offering service. The FCC also solicits opinions on whether to treat already-licensed spectru= m=20 differently from frequencies licensed in the future. =0F"As a general matt= er,=20 we believe that newly available CMRS-suitable spectrum either should be=20 excluded from the spectrum cap, or, if it is included, that the cap should = be=20 adjusted accordingly,=0F" the Commission said. The FCC also wants opinions on how eliminating or relaxing the cap would=20 affect its authority to review license-transfer requests under section 310(= d)=20 of the Act. If it makes such changes to the cap, it wants to know whether = it=20 could or should =0F"incorporate other methods=0F" into its license-transfer= review=20 to prevent consolidations =0F"that would eliminate the benefits brought by= =20 competition.=0F" It also seeks comments on whether removing the cap would place more of a=20 burden on the FCC and industry in the review of license transfers. If the Commission decides to keep the spectrum cap for now, it wants to kno= w=20 what further market developments could make the cap unnecessary and whether= =20 it should set a =0F"sunset=0F" date for the restrictions. Regarding the cellular cross-interest rule, the FCC asked whether the=20 restriction was still necessary to prevent cellular carriers from merging i= n=20 markets where there is little or no other competition. Bookham Technology plc, an Oxfordshire, England=0F-based... Bookham Technology plc, an Oxfordshire, England=0F-basedoptical=20 network-components manufacturer, has signed a =0F"multimillion-dollar=0F" c= ontract=20 to provide wavelength division multiplexing equipment to Fujitsu=20 Telecommunications Europe Ltd. Bookham agreed to deliver up to 10,000=20 bidirectional transceiver modules per month to Fujitsu Telecom, a unit of= =20 Fujitsu Ltd. Japan. Fujitsu will use the components in SONET (synchronous= =20 optical network), fiber-to-the-curb, and other telecom network-access=20 equipment deployments. =20 Appellate Court Upholds Nextel Tower Permit A Pennsylvania state court has upheld a local zoning board=0F's decision to= let=20 Nextel Communications, Inc., build a communications tower under a special= =20 exemption provision for radio transmitters. Residents opposing the tower h= ad=20 argued that the entire 150-foot structure didn=0F't qualify as a transmitte= r. The opinion, written by Commonwealth Court President Judge Joseph T. Doyle,= =20 affirmed a trial court decision that upheld the action of the Newlin Townsh= ip=20 Zoning Board. The township=0F's zoning ordinance limits the types of buildings that can b= e=20 constructed but allows the board to grant a special exemption to authorize= =20 the construction of a =0F"radio or television transmitter.=0F" But the ord= inance=20 doesn=0F't define radio transmitter. The residents asserted that the =0F"radio transmitter component of the faci= lity=20 is but a minor element=0F" and said the tower =0F"falls far outside any com= monly=20 understood definition of radio transmitter.=0F" They argued that because t= he=20 tower didn=0F't fit into that or any other category, the zoning ordinance d= idn=0F't=20 permit it to be constructed within the township. Judge Doyle ruled that the record supported the board=0F's decision. The ju= dge=20 noted that testimony by a Nextel engineer demonstrated that the tower was a= n=20 integral part of the facility. He concluded that the =0F"entire system ope= rates=20 together in order to transmit the necessary information for the cellular=20 network to function.=0F" Senior Judge William J. Lederer and Judge Bonnie B. Leadbetter joined Judge= =20 Doyle=0F's opinion in Robert and Loren Pearson v. Zoning Hearing Board of N= ewlin=20 Township and Nextel Communications of the Mid Atlantic, Inc. (case no. 3182= ). Finance Panel Senators Back Broadband Service Tax Credits Former New York Sen. Daniel Patrick Moynihan (D.) may have retired, but his= =20 push to extend tax credits to carriers that deploy high-speed Internet=20 facilities is being revived by key Democrats and Republicans who control th= e=20 congressional purse strings. Its proponents also have asked President Bush= =20 to include the measure in his initial budget submission to Congress. On Jan. 23, Sen. John D. Rockefeller IV (D., W.Va.) led a bipartisan group = of=20 more than 30 U.S. senators=0F-including freshman Hillary Rodham Clinton (D.= ,=20 N.Y.), who won the seat left vacant by Sen. Moynihan=0F-to introduce the=20 Broadband Internet Access Act (S 88). A companion bill is expected to be= =20 introduced in the House Ways and Means Committee this week by committee=20 members Philip English (R., Pa.) and Robert T. Matsui (D., Calif.) The Senate bill is a slightly altered version of Sen. Moynihan=0F's legisla= tion=20 of the same name, which almost cleared the Senate last fall as part of the = =0F" New Markets=0F" tax-break package (TR, June 12 and Oct. 2, 2000). =20 =0F"This bill represents my commitment to making sure that no community is = left=20 behind in the technology revolution,=0F" Sen. Rockefeller said in a stateme= nt. =20 The bill =0F"will ensure that communities everywhere, whether rural or urba= n,=20 will have the tools necessary to compete in the global economy,=0F" he=20 continued. Added Sen. John F. Kerry (D., Mass.), a co-sponsor: =0F"Too man= y=20 businesses are shying away from areas where broadband access is either too= =20 expensive or unavailable, and underserved areas are put at a tremendous=20 disadvantage.=0F" Like the Moynihan plan, the new bill would provide a tax credit equal to 10= %=20 of a carrier=0F's investment in equipment used to provide =0F"current-gener= ation=20 broadband=0F" services to business or residential customers in rural and=20 low-income areas. It defines current-generation broadband services as=20 services that can transmit at least 1.5 megabits per second downstream (to= =20 the subscriber) and at least 200 kilobits per second upstream (from the=20 subscriber). Carriers also could claim a tax credit equal to 20% of a carrier=0F's inves= tment=20 in equipment used to deploy =0F"next-generation=0F" broadband services to = =0F"all=20 residential customers,=0F" according to Sen. Rockefeller. His bill defines= =20 next-generation services as those able to transmit at least 22 Mbps=20 downstream and at least 5 Mbps upstream. A Rockefeller aide said the=20 upstream transmission requirements were lower than those in last year=0F's = bill=20 because lawmakers =0F"didn=0F't want to cut out any potentially good broadb= and=20 suppliers, like wireless and satellite providers.=0F" Because the measure would amend the Internal Revenue Code of 1986, it has= =20 been referred to the Senate Finance Committee, where several of its members= =20 are co-sponsors, including Sens. Rockefeller and Kerry, Minority Leader=20 Thomas A. Daschle (D., S.D.), Finance Committee ranking Democrat Max Baucus= =20 (Mont.), Orrin G. Hatch (R., Utah), Olympia J. Snowe (R., Maine), Blanche L= .=20 Lincoln (D., Ark.), and Kent Conrad (D., N.D.). =0F"It is crucial that we act quickly,=0F" the lawmakers said in a Jan. 22 = letter=20 to President Bush. =0F"A number of other nations, including China, Japan,= =20 Sweden, and Singapore, are moving aggressively to surpass the U.S. in=20 broadband infrastructure over the next five years.=0F" The proposed Broadband Internet Access Act =0F"is a truly bipartisan measur= e,=0F"=20 they told the president. =0F"Clearly, such support indicates a general=20 recognition of the need to extend a high-speed information system to all=20 Americans. This legislation provides the vehicle for delivering such a=20 system, and we hope you will support it in your upcoming budget proposal,= =0F"=20 they said. The support of Republicans Hatch and Snowe is important because they give t= he=20 bill much-needed bipartisan support on the Finance Committee, something it= =20 didn=0F't have last session, the Rockefeller aide said. =0F"We=0F're hopef= ul=0F" that=20 new Finance Committee Chairman Charles E. Grassley (R., Iowa) will allow th= e=20 measure to come up for a committee vote. Calls to Sen. Grassley=0F's offic= e=20 were not returned by TR=0F's deadline. Meanwhile, one day later, Sen. Kerry introduced a portion of the broadband= =20 tax-credit bill as a separate, stand-alone measure. His bill, S 150, would= =20 authorize a tax credit equal to 10% of a carrier=0F's investment in equipme= nt=20 used to provide current-generation broadband services to underserved areas.= =20 But it wouldn=0F't provide tax credits for investments to deliver those ser= vices=20 to rural areas, nor would it provide added tax credits for delivering=20 next-generation services. A Kerry aide said the senator crafted the separate bill to attract more=20 attention to the lack of high-speed deployment to low-income communities. = =0F" That=0F's the area he=0F's most concerned with,=0F" the aide told TR.=20 Verizon Wants Law Changing Approach to Broadband Regs The =0F"time is ripe=0F" for legislation creating a new regulatory regime f= or=20 broadband services and networks, similar to the regime that governs the=20 wireless industry, according to Verizon Communications, Inc. Such an=20 approach would entail =0F"no economic regulation and minimal rules,=0F" and= states=20 would be preempted from regulating broadband services. Meeting with reporters in Washington Jan. 25, Verizon executives said recen= t=20 court decisions had made it more important for Congress to develop a new=20 regime for such services. Thomas J. Tauke, Verizon senior vice president-federal government relations= ,=20 said representatives of incumbent telephone companies, cable TV providers,= =20 and telecom equipment providers had discussed with each other the need for= =20 new broadband legislation. =0F"There has been no organized effort=0F" by the industry segments to coor= dinate=20 lobbying efforts, Mr. Tauke said. =0F"But it=0F's fair to say there=0F's b= een a lot=20 of discussion among the players.=0F" Recent court decisions on the appropriate regulatory regime for cable modem= =20 services (TR, April 17, May 22, and June 26, 2000) have troubled the cable = TV=20 industry by suggesting that they could be considered telecom services, Mr.= =20 Tauke said. He also cited the recent federal appeals court decision overturning the FCC= =0F's=20 regime for advanced services affiliates (TR, Jan. 15). The court rejected= =20 the FCC=0F's finding that incumbent local exchange carriers could avoid=20 unbundling and resale mandates for their digital subscriber line offerings = if=20 they provided those services through a separate affiliate. =0F"This court case really highlighted the point that the FCC doesn=0F't ha= ve the=20 ability to come up with, on its own, a new regulatory structure covering=20 broadband services,=0F" Mr. Tauke said. Mr. Tauke said the Freedom and Broadband Deployment Act drafted last year b= y=20 Reps. W.J. (Billy) Tauzin (R., La.) and John Dingell (D., Mich.) would have= =20 provided a =0F"little bit=0F" of the regulatory reform sought by Verizon. = But Mr.=20 Tauke said he hoped lawmakers would =0F"look at it in somewhat broader term= s=0F"=20 this time around. Mr. Tauke suggested that this type of broadband legislation had become=20 Verizon=0F's top priority and that its push for legislation to allow Bells = to=20 offer interLATA (local access and transport area) data services was becomin= g=20 less so. Asked if interLATA data relief was still the most important legislative iss= ue=20 to Verizon, Mr. Tauke said, =0F"It certainly would have been two years ago.= Is=20 that the most important thing now? It=0F's certainly important. . .But of = equal=20 importance, if not more importance, is getting some clarity on the broadban= d=20 world.=0F" Verizon still is pushing for legislation to change the existing reciprocal= =20 compensation regime. Edward D. Young III, SVP-federal government relations= ,=20 said payments to compensate competitive local exchange carriers for=20 terminating calls to Internet service providers ran Verizon about $1 billio= n=20 a year. Although the FCC has been promising to act on the reciprocal compensation= =20 issue, Congress may need to step in, Mr. Young said. =0F"The FCC is still= =20 trying to work through the issue, but obviously it=0F's a different dynamic= =0F"=20 given the change in chairmen from William E. Kennard to Michael K. Powell, = he=20 added. Mr. Tauke said it was =0F"shameful=0F" that the FCC hadn=0F't resolved the = issue. =0F" Two years ago they knew there was a problem, but they didn=0F't have the co= urage=20 to preempt the states,=0F" he said. =0F"They could see the problems coming= , but=20 they thought it would work itself out.=0F" Joan H. Smith, chairwoman of the National Association of Regulatory Utility= =20 Commissioners=0F' telecommunications committee and a member of the Oregon P= ublic=20 Utility Commission, said she was =0F"puzzled=0F" by the bid to preempt stat= e=20 regulators in a new broadband regulatory regime. =0F"We don=0F't regulate= =20 broadband=0F" services, she told TR. =0F"Our biggest issue at the state le= vel is=20 promoting broadband [deployment], not regulating it.=0F" Utah Bill Would Halt Plan To Merge Consumer Agencies Legislators in Utah have passed a measure to repeal a year-old law that wou= ld=20 have folded together two state agencies that represent utility customer=20 interests before the Public Service Commission. Absent the repeal measure,= =20 the legislation passed in 2000 would have combined the Committee of Consume= r=20 Services and the Division of Public Utilities, effective July 1. The new= =20 entity would have been called the Office of Public Advocate. House Majority Whip David Ure (R.), who sponsored last year=0F's restructur= ing=20 legislation, also was behind the bill to repeal it. The legislative staff= =20 said he=0F'd decided that the time wasn=0F't right to overhaul the state=0F= 's utility=20 regulatory system. The repeal measure sped through the Utah Legislature la= st=20 week, progressing from its first House reading through passage by both hous= es=20 in just two days. Rep. Ure rejected alternative proposals for re-structuring the state=0F's= =20 regulatory agencies, settling for a straight repeal of last year=0F's=20 legislation. One proposal would have expanded the PSC=0F's membership, the= =20 legislative staff told TR. Another version that circulated between the end of last year=0F's legislati= ve=20 session and the beginning of this year=0F's would have merged the PSC and t= he=20 Division of Public Utilities. =20 The staff said Rep. Ure pulled those drafts after deciding that the state= =0F's=20 regulatory structure shouldn=0F't be altered in the midst of the current en= ergy=20 crisis. The Division of Public Utilities is charged with representing the public=20 interest before the PSC and ensuring that all utility customers have access= =20 to safe, reliable service at reasonable prices. The Committee of Consumer= =20 Services represents residential, small- business, and agricultural consumer= s=20 before the PSC. Some parties had expressed concern that merging the two=20 entities would decrease the amount of information available for PSC decisio= n=20 making. Consumer group opposition last year persuaded Gov. Michael O. Leavitt (R.) = to=20 call for a review of the law after the legislative session ended in March. = =20 He allowed the bill to become law last year without signing it. Reps. Cannon, Eshoo Unveil Internet Privacy Measure Reps. Chris Cannon (R., Utah) and Anna G. Eshoo (D., Calif.) have introduce= d=20 a bill to require operators of commercial Web sites that collect personally= =20 identifiable information to explain to site visitors what information is=20 collected, how it will be used, and who is collecting it. The proposed=20 Consumer Internet Privacy Act (HR 237) would authorize the Federal Trade=20 Commission to assess civil penalties of up to $22,000 per violation, or a= =20 total of $500,000 against a particular violator. Rep. Cannon said the bill was a good starting point for addressing Internet= =20 privacy, a topic that many observers see as the top Internet-related issue = in=20 the 107th Congress. =0F"We are going to rely heavily on the marketplace to help define how to= =20 implement the guidelines established in this bill=0F's language, just as th= e=20 market has commendably worked with government officials to develop other=20 standards and seals for privacy,=0F" Rep. Cannon said. Rep. Eshoo, who said consumers shouldn=0F't have to =0F"reveal their life s= tory=20 every time they surf the Web,=0F" said their privacy must be protected with= out=20 impeding the free flow of information on the Internet. =0F"This legislatio= n=20 achieves that goal=0F-the bill doesn=0F't regulate the Internet; it empower= s the=20 consumer,=0F" Silicon Valley Democrat Eshoo said last week. The measure also would require Web site operators to give users an=20 opportunity to limit the use and disclosure of their personal information f= or=20 marketing purposes in a =0F"clear,=0F" =0F"conspicuous,=0F" and easily exec= uted manner,=20 the legislators said in a press release. Appeals Court Says FCC Erred in Rejecting U S WEST Bid for =0F`Nondominant= =0F'=20 Regulation A federal appeals court agrees with former U S WEST Communications, Inc. (n= ow=20 Qwest Corp.) that the FCC erred by focusing on the company=0F's market shar= e=20 when considering its request to be freed from =0F"dominant=0F"-carrier regu= lation=20 of certain services. The U.S. Court of Appeals in Washington last week remanded to the FCC a 199= 9=20 order rejecting a U S WEST request to forbear from applying such regulation= =20 to the company=0F's special-access and high-capacity dedicated transport=20 offerings in the Phoenix and Seattle metropolitan statistical areas (MSAs).= =20 In the 1999 order, the FCC said U S WEST could refile its request for relie= f=20 under a separate deregulatory regime it had set up to allow incumbent telco= s=20 to seek pricing flexibility for some services (TR, Nov. 29, 1999). Chief Judge Harry Edwards wrote the Jan. 23 decision in AT&T Corp. v.=20 FCC(consolidated cases beginning at 99-1535). He was joined by Judges Davi= d=20 Sentelle and A. Raymond Randolph. =20 The court found that the FCC failed to conduct its review of U S WEST=0F's= =20 request in compliance with section 10 of the Telecommunications Act of 1996= ,=20 which directs the FCC to forbear from applying regulations deemed no longer= =20 necessary. The court explained that the FCC=0F's order =0F"rests solely on the view th= at,=20 because U S WEST offered no reliable data on market share, the petition for= =20 forbearance failed to make a prima facie showing that sufficient competitio= n=20 existed to satisfy section 10.=0F" But in relying so heavily on market-share data, the FCC =0F"departed from i= ts=20 traditional nondominance analysis without explanation,=0F" the court said. = The=20 FCC=0F's decision to rely on that data =0F"may well be reasonable, but unti= l the=20 Commission has adequately explained the basis for this conclusion, it has n= ot=20 discharged its statutory obligation under the Administrative Procedure Act,= =0F"=20 the court said. In the past, the FCC had =0F"gone so far as to view market share as irrelev= ant=20 where there was other evidence that a carrier lacked market power,=0F" the = court=20 said. =0F"Were this the first time the FCC was asked to consider whether a carrie= r was=20 dominant in a given market, the explanation provided by the Commission in t= he=20 forbearance order may well have been accurate,=0F" it said. =0F"But it is = not the=20 first time that the Commission has addressed this issue.=0F" The court said it might be =0F"reasonable=0F" for the FCC to demand a showi= ng on=20 market share in every inquiry on dominant regulation. But it is =0F"not=20 reasonable for the Commission to announce such a policy without providing a= =20 satisfactory explanation for embarking on this course when it has not=20 followed such a policy in the past,=0F" it said. Court Nixes IXCs=0F' Claims As was apparent during oral arguments (TR, Dec. 4, 2000), the court was=20 unconvinced by the arguments of AT&T and WorldCom, Inc., which had challeng= ed=20 the order to the extent that it granted U S WEST pricing flexibility for so= me=20 services. In the forbearance order, the FCC stated that it granted the relief request= ed=20 =0F"to the extent that the pricing flexibility order establishes a framewor= k=20 pursuant to which [Bell operating company] petitioners may obtain relief by= =20 demonstrating satisfaction of the competitive triggers adopted in that orde= r.=0F" The court rejected the AT&T and WorldCom petitions to overturn the pricing= =20 flexibility =0F"relief,=0F" saying their argument =0F"borders on being disi= ngenuous.=0F" =0F"When the forbearance order is read in its entirety, it is absolutely cl= ear=20 that U S WEST was granted no relief whatsoever,=0F" the court said. =0F"U = S WEST=20 sought forbearance, and it was categorically denied.=0F" The FCC simply = =0F" reminded=0F" U S WEST that it was eligible to apply for pricing flexibility= =20 under the regime for reviewing such requests, the court said.=20 The court added, however, that the FCC couldn=0F't use its pricing flexibil= ity=20 rules as a substitute for its statutory mandate to consider requests for=20 forbearance. =0F"Congress has established section 10 as a viable and independent means o= f=20 seeking forbearance,=0F" the court said. =0F"The Commission has no authori= ty to=20 sweep it away by mere reference to another, very different, regulatory=20 mechanism.=0F" The FCC=0F's Enforcement Bureau has issued a monetary forfeiture... The FCC=0F's Enforcement Bureau has issued a monetary forfeitureof $5,000= =20 against Carmelita T. Gossard (d/b/a AA Beep) for operating a paging system = in=20 Cudjoe Key, Fla., without Commission authorization. The forfeiture order w= as=20 released Jan. 22 in file no. EB-00-TS-044. FCC Gives Bells =0F`Blueprint=0F' In OK of SWBT=0F's InterLATA Bid The FCC=0F's authorization for Southwestern Bell Telephone Co. to offer=20 interLATA (local access and transport area) services in Kansas and Oklahoma= =20 could offer insights to other Bell companies planning their own interLATA= =20 service bids=0F-especially for rural states. In granting SWBT=0F's applica= tion,=20 the FCC marked some clear guideposts it will use for evaluating future bids= ,=20 including issues relating to late-filed data and other procedural matters. In an order adopted unanimously Jan. 19 and released Jan. 22 in Common=20 Carrier docket 00-217, the FCC doubled the number of states in which Bell= =20 companies are permitted to provide in-region interLATA services. In an=20 unprecedented move, the FCC delayed the effectiveness of its decision for 4= 3=20 days. Under section 271 of the Telecommunications Act of 1996, the FCC must=20 determine that a Bell company has met a 14-point =0F"checklist=0F" of=20 market-opening mandates in a given state before authorizing it to provide= =20 interLATA services there. The FCC must consult with the U.S. Department of= =20 Justice and the relevant state commission before granting such an applicati= on. The FCC said it imposed the 43-day delay because it had based its approval,= =20 in part, on UNE (unbundled network element) rates that SWBT changed after= =20 submitting its application. Competitors had argued that the new rates=20 shouldn=0F't be considered when evaluating SWBT=0F's application. At the t= ime, the=20 FCC said it wasn=0F't sure =0F"what reliance, if any,=0F" it would place on= the new=20 rates. In a Jan. 19 statement, then-FCC Chairman William E. Kennard said the=20 original rates were =0F"not acceptable=0F" and praised SWBT for voluntarily= =20 reducing them. But it may not be so easy in the future for Bell companies = to=20 amend their interLATA service applications. In last week=0F's order, the F= CC=20 said =0F"it would be rare for other parties to meet the high bar [for accep= ting=20 the late-filed rates] set here in other applications.=0F" Then-Commissioner Michael K. Powell objected to the 43-day delay and=20 cautioned that Bell companies =0F"risk rejection if they file evidence afte= r the=20 due date for initial comments.=0F" Mr. Kennard said the FCC =0F"must ensur= e that a=20 pattern of last-minute rate reductions or other changes in [section] 271=20 applications does not develop in the future.=0F" In justifying the inclusion of the new rates in its consideration of SWBT= =0F's=20 application, the FCC cited its authority to waive its own procedural rules = in=20 cases where doing so will serve the public interest. It said that =0F"a nu= mber=20 of circumstances=0F" supported its waiver of the =0F"complete-as-filed=0F" = doctrine,=20 including the fact that the rate changes =0F"were limited in nature.=0F" The FCC indicated it wouldn=0F't accept certain other types of data filed a= fter=20 Bell companies submit interLATA service applications, such as =0F"more comp= lex=20 rate revisions.=0F" It also indicated that it wouldn=0F't consider late-fi= led =0F" measures designed to achieve nondiscriminatory performance in the applicant= =0F's=20 provision of service to competitive [local exchange carriers], since it is= =20 difficult to determine the actual effect of such changes on performance in= =20 advance.=0F" The FCC=0F's Kansas-Oklahoma order also offers guidance for regulators in o= ther=20 rural states. It encourages rural states to =0F"pool their resources=0F" a= nd=20 conduct multistate reviews of Bell companies=0F' compliance with the sectio= n 271=20 checklist, when appropriate. It said the =0F"general approach=0F" of the K= ansas=20 and Oklahoma commissions could be =0F"used as a model=0F" for future applic= ations. Financial analysts last week saw the FCC=0F's approval as a boon for Bells = in=20 other states, particularly rural ones. =0F"While these markets are relativ= ely=20 small, Oklahoma at $220 million and Kansas at $170 million, their approval= =20 signals a positive trend for future approval, particularly with the=20 appointment of Michael Powell as the new FCC chairman,=0F" said USB Warburg= LLC. The FCC=0F's action represents the first successful multistate application= =0F-and=20 the first time a single Bell company has gained FCC approval in more than o= ne=20 state in its service territory. SBC last summer gained FCC approval to off= er=20 interLATA services in Texas (TR, July 3, 2000). Evidence from Other States Accepted The FCC also offered clues about how it would view future applications that= =20 rely on a Bell company=0F's performance in one state to show its compliance= with=20 the section 271 mandates in another state. There were no independent=20 third-party tests of SWBT=0F's operation support systems (OSSs) in Kansas a= nd=20 Oklahoma, but the company did provide third-party verification that those= =20 systems were the same as the OSSs used in Texas. The FCC said that such an approach was appropriate, given that the Texas=20 proceeding served as =0F"a precursor and a model=0F" for the proceedings in= Kansas=20 and Oklahoma. The FCC also was clear about the types of issues it would recognize in=20 opponents=0F' filings on future interLATA applications. It noted that the= =20 statutory 90-day review period was designed as a =0F"fast-track, narrowly= =20 focused adjudication=0F" process. It said that such proceedings are =0F" inappropriate forums for the consideration of industry-wide local competiti= on=20 questions of general applicability.=0F" If SWBT fails to continue to comply with any of the requirements under=20 section 271, the FCC can hold the telco liable for up to $45 million annual= ly=20 in Kansas and $44 million annually in Oklahoma. SWBT must meet a series of= =20 anti-=0F"backsliding=0F" and performance-measurement requirements or it cou= ld face=20 fines or other legal action, the FCC said. International Service OKs Granted The Telecommunications Division of the FCC=0F's International Bureau last w= eek=20 also granted SWBT authorization under section 214 of the Communications Act= =20 of 1934, as amended, to provide international services for calls originatin= g=20 in Kansas and Oklahoma. In file ITC-214-20001130-00713, the division said= =20 SWBT=0F's long-distance subsidiary, Southwestern Bell Long Distance, would = be=20 subject to =0F"international dominant carrier regulation=0F" on three route= s where=20 SWBT has an affiliation with the foreign-market carriers. The three routes are those between the U.S. and Belgium, Denmark, and South= =20 Africa. It will be subject to nondominant carrier regulation on routes=20 between the U.S. and Canada, the Czech Republic, France, Germany, Great=20 Britain, Lithuania, the Netherlands, Norway, and Switzerland. FCC Rethinks Limitations On Carriers=0F' Use of EELs As it promised to do last year, the FCC has begun reexamining its policy=20 limiting how requesting carriers can use enhanced extended links (EELs)=0F- combinations of unbundled loops and transport purchased from incumbent loca= l=20 exchange carriers. The FCC previously ruled that requesting carriers can= =0F't=20 use EELs to provide exchange access services exclusively. The FCC had imposed that prohibition in response to incumbent local exchang= e=20 carriers=0F' fears that competitors could use EELS to avoid paying special= =20 access charges (TR, Sept. 20, 1999). The Commission later extended the=20 prohibition and promised to revisit the issue early this year (TR, June 12,= =20 2000). In a Jan. 24 public notice seeking comments on the issue (Common Carrier=20 docket 96-98), the FCC asked if the exchange access and local exchange=20 markets were =0F"so interrelated from an economic and technological perspec= tive=20 that a finding that a network element meets the =0F`impair=0F' standard und= er=20 section 251(d)(2) of the [Telecommunications Act of 1996] for the local=20 exchange market would itself entitle competitors to use that network elemen= t=20 solely or primarily in the exchange access market.=0F" The =0F"impair=0F" standard requires the FCC to evaluate whether the failur= e to=20 unbundle each network element would impair competitors=0F' ability to provi= de=20 service. The FCC asked whether the local exchange and exchange access markets are = =0F" economically and technically distinct.=0F" If the markets are distinct, do= es=20 lack of access to loop-transport combinations impair requesting carriers=0F= '=20 ability to provide special access services? the FCC asked. It asked about the availability of =0F"alternative elements=0F" aside from = those=20 offered by the incumbents. It asked whether it should treat special access= =20 and private line services as a single market. The FCC also sought comment on the nature of the special access and private= =20 line markets for business and residential end-users. =0F"In some markets,= =20 particularly those markets serving high-volume business customers, it may b= e=20 practical and economical for carriers to compete using self-provisioned=20 facilities,=0F" the FCC said. But in residential and small-business market= s =0F" the delay and cost associated with self-provisioning will preclude carriers= =20 from serving that market without access to unbundled network elements.=0F" The FCC also asked whether requesting carriers should be permitted to combi= ne=20 unbundled network elements with tariffed access services purchased from=20 incumbents. That kind of commingling is now prohibited by FCC rules. =0F"Specifically, if a requesting carrier converts special access circuits = to=20 combinations of unbundled network elements, we ask parties to comment on=20 whether such circuits may remain connected to any existing access service= =20 circuits without regard to the nature of the traffic carried over the acces= s=20 circuits,=0F" it said. Comments on the public notice are due 30 days after its publication in the= =20 Federal Register; replies are due 45 days after publication. Pole Attachment, TELRIC Rates To Be Challenged in High Court The U.S. Supreme Court has agreed to hear two cases involving lengthy=20 disputes over FCC rules. One case stems from a challenge of the FCC=0F's= =20 methodology for setting rates for interconnection and unbundled network=20 elements (UNEs). In a separate case, the court will consider whether the= =20 agency has authority to regulate the rates utility companies charge wireles= s=20 and cable TV service providers for attaching equipment to their utility pol= es. Oral arguments in the cases haven=0F't been scheduled yet. As she has done= in a=20 number of other telecom-related cases, Justice Sandra Day O=0F'Connor recus= ed=20 herself from the court=0F's deliberations. In the first case, a federal appeals court had overturned the FCC=0F's use = of=20 TELRIC (total-element long-run incremental cost) pricing rules for setting= =20 rates for interconnection and UNEs (TR, July 24, 2000). The high court said it would focus on the following questions: =20 (1)Whether the TELRIC methodology is unlawful under section 252(d)(1) of th= e=20 Telecommunications Act of 1996,=20 (2)Whether the Act or the =0F"takings clause=0F" of the Fifth Amendment to = the U.S.=20 Constitution requires incorporation of an incumbent local exchange carrier= =0F's=20 (ILEC=0F's) historical costs in its UNE rates, and=20 (3)Whether section 251(c) (3) of the Act prohibits regulators from requirin= g=20 that ILECs combine certain previously uncombined network elements at the=20 request of a new market entrant.=20 The consolidated cases beginning with Verizon Communications, Inc., v. FCC = et=20 al.(no. 00-511) came from the U.S. Court of Appeals for the Eighth Circuit= =20 (St. Louis). In what many incumbent local exchange carriers (ILECs)=20 considered a victory, the Eighth Circuit last year overturned the FCC=0F's= =20 TELRIC pricing rules. But the court didn=0F't go so far as to agree with I= LECs=20 that rates for interconnection and UNEs must be based on historic costs. In the second case, the Supreme Court will consider whether the =0F"pole=20 attachment=0F" provisions of the Communications Act of 1934, as amended, ap= ply=20 to cable TV facilities that also are used to provide high-speed Internet=20 access and to equipment used to provide wireless services. The U.S. Court of Appeals for the 11th Circuit (Atlanta) had held that the= =20 FCC didn=0F't have authority to regulate the rates utilities can charge for= =20 facilities that Internet or wireless service providers attach to their pole= s=20 (TR, April 17, 2000). The pole attachment provisions apply only to cable T= V=20 and wireline telephone services, the appeals court ruled. The Supreme Cour= t=20 has consolidated the various appeals of the 11th Circuit decision under=20 National Cable TV Association, Inc., v. Gulf Power Co. et al.(case no.=20 00-832).=20 Supreme Court Again Refuses To Hear State Immunity Cases The U.S. Supreme Court has refused to review an appeals court ruling that= =20 denied state regulators=0F' claims of immunity from federal lawsuits regard= ing=20 carrier interconnection. The interconnection provisions are included in th= e=20 Telecommunications Act of 1996. The 11th Amendment to the U.S. Constitution grants states immunity from=20 federal lawsuits, but a 1908 Supreme Court decision, Ex parte Young,created= =20 an exception for lawsuits seeking to prevent an ongoing violation of federa= l=20 law by state officials. The high court=0F's action last week left in place a ruling by the U.S. Cou= rt of=20 Appeals for the Seventh Circuit (Chicago) that the Ex parte Young exception= =20 applies to lawsuits involving carrier interconnection proceedings. This isn=0F't the first time the Supreme Court has refused to take on such = a=20 case. But it is the first time it=0F's been confronted by state immunity c= laims=20 extending not just to arbitration and approval of carrier interconnection= =20 agreements but also to (1)enforcement of such pacts and (2)review of =0F" statements of generally available terms=0F" (SGATs), according to a Wiscons= in=20 Public Service Commission official. In the case the Supreme Court rejected last week, the Wisconsin PSC and the= =20 Illinois Commerce Commission separately had sought review of a decision by= =20 the Seventh Circuit (TR, July 31, 2000). The circuit court had ruled that= =20 the commissions=0F' actions regarding interconnection agreements, SGATs, an= d=20 enforcement of agreements weren=0F't immune from federal court review. Last fall the Supreme Court refused to hear a case that arose in the Sixth= =20 Circuit and involved the Michigan Public Service Commission (TR, Oct. 9,=20 2000). The Michigan case didn=0F't cover an SGAT review or enforcement of = an=20 interconnection agreement. In addition to the Sixth and Seventh circuits, the 10th and=0F-most recentl= y=0F-the=20 Fifth circuits have ruled against state immunity claims in interconnection= =20 cases (TR, June 26, 2000; and Jan. 22). The Supreme Court is less likely t= o=20 review cases when there is agreement among the various circuit courts that= =20 have dealt with the issues involved. The FCC recently stepped in to preempt the Virginia Corporation Commission= =0F's=20 authority to arbitrate and approve interconnection agreements because the= =20 state regulators had =0F"failed to act=0F" (TR, Jan. 22). The Virginia commission had cited fears that its actions would be deemed=20 subject to federal court review. In the aftermath of the Supreme Court=0F'= s=20 refusal last week to consider state claims of immunity for their=20 interconnection enforcement actions, one state commission source suggested= =20 that other states might decide to follow Virginia=0F's path. As she has done in other telecom-related cases, Supreme Court Justice Sandr= a=20 Day O=0F'Connor recused herself from deliberations in last week=0F's decisi= on not=20 to review the Seventh Circuit=0F's ruling. =0F'Net-Based Directory Publishers Can Access LEC Data, FCC Says The FCC has expanded the category of competitors entitled to access local= =20 exchange carriers=0F' (LECs=0F') subscriber listing information. LECs now = must=20 provide Internet-based directory publishers with nondiscriminatory access t= o=20 those databases. The Commission said the new rules would promote competiti= on=20 in the directory service market. The FCC declined to restrict the manner in which Internet directory=20 publishers may display and provide access to the subscriber information the= y=20 receive from LECs. Under section 222(e) of the Telecommunications Act of= =20 1996, carriers that maintain subscriber list information must provide that= =20 information on a nondiscriminatory basis to publishers of directories =0F"i= n any=20 format.=0F" =20 In an order released last week in Common Carrier docket 99-273, the FCC sai= d=20 Congress didn=0F't intend to restrict the kinds of directories that could b= e=20 published using subscriber list information obtained under section 222. =20 Internet databases =0F"clearly fall within the broad category of =0F`direct= ories in=20 any format,=0F'=0F" the FCC added. The FCC also clarified some of its rules regarding competitive local exchan= ge=20 carriers and other competing directory assistance (DA) service providers th= at=20 have nondiscriminatory access to incumbent LECs=0F' databases under section= =20 251(b)(3) of the Act. =20 It said competing DA providers must offer a telecom service=0F-which could= =20 include termination of directory assistance calls=0F-in order to qualify fo= r=20 database access under section 251. The FCC refused to limit the manner in which a DA provider may use the=20 incumbent LECs=0F' subscriber information. It said that neither competitiv= e nor=20 incumbent LECs are subject to such limits on their use of subscriber=20 information.=20 LECs aren=0F't required to provide nondiscriminatory access to their nonloc= al=20 directory listings, =0F"since third parties have the same opportunity [as t= he=20 LECs] to secure the information directly,=0F" the FCC noted. However, if a= LEC=20 is providing its national DA information to any other DA provider, it must= =20 make the same information available to competing DA providers without=20 discrimination. The FCC declined to set a pricing structure for DA information but said sta= te=20 regulators weren=0F't precluded from doing so. =0F" Analysts See Lucent Plan Leading To Profitability, But Not Growth Lucent Technologies, Inc.=0F's =0F"seven-point restructuring=0F" plan event= ually=20 should bring the company back to profitability, but some analysts doubt tha= t=20 its approach will increase growth in the remaining core businesses. =20 In the short term, however, Lucent=0F-which has posted a $1 billion operati= ng=20 loss for its 2001 first fiscal quarter that ended Dec. 31, 2000=0F-will con= tinue=20 to see additional losses, financial analysts predict. Lucent last week announced that it would cut costs by more than $2 billion= =20 and increase its working capital by about $2 billion. Additionally, J.P.= =20 Morgan Chase & Co. and Solomon Smith Barney, Inc., have arranged new $4.5= =20 billion, 365-day term credit facilities =0F"in order to ensure that Lucent= =0F's=20 cash-flow needs are adequately met,=0F" Lucent said. The bankers requested that Lucent use its assets to secure the credit=20 facilities, Moody=0F's Investors Service noted. =0F"The fact that the bank= s sought=20 security sends a signal that the bank group is concerned about credit=20 quality,=0F" Moody=0F's said in a statement. Consequently, Moody=0F's lowered Lucent=0F's long-term debt rating from =0F= "A3=0F" to =0F" Baa1.=0F" It will continue to review of Lucent=0F's long-term rating as we= ll as=20 Lucent=0F's Prime-2 short-term rating, Moody=0F's said. =0F"The downgrade of the long-term debt reflects concerns that Lucent=0F's= =20 operating problems and restructuring may go deeper than we originally=20 expected,=0F" Moody=0F's said. =0F"The review will continue to focus on the company=0F's ability to addres= s gaps=20 in its product offering, enhance its internal controls, improve its cost=20 structure and manufacturing efficiency, and accelerate revenue growth witho= ut=20 resorting to excessively aggressive vendor financing,=0F" Moody=0F's added = (TR,=20 Dec. 25, 2000). Focus Turns To Global Incumbents Henry B. Schacht, Lucent=0F's chairman and chief executive officer, told=20 investors last week that the company=0F's seven-point =0F"transition=0F" pl= an includes=20 the redeployment of resources toward incumbent and international service=20 providers and the adoption of a more =0F"targeted approach=0F" to the troub= led=20 competitive local exchange carrier (CLEC) market (TR, Oct. 16, 2000). This new approach exposes Lucent to less risk, =0F"at least from a credit p= oint=20 of view,=0F" according to one Wall Street analyst. The analyst, who reques= ted=20 anonymity to avoid conflict with clients, said Mr. Schacht=0F's targeted=20 approach to CLECs will decrease Lucent=0F's chances of getting stuck with u= npaid=20 bills from CLECs. By focusing on incumbent and international carriers, Lucent will lessen its= =20 reliance on =0F"aggressive vendor financing,=0F" the analyst said. Incumbe= nts=20 typically don=0F't need vendor financing, he said. On the other hand, Lucent=0F's decreased activity in the manufacturing sect= or=0F- through its spin-off of Avaya, Inc., and planned spin-off of Agere Systems,= =20 Inc.=0F-might decrease the company=0F's ability to pay back loans if the ma= rket for=20 its products continues to slow, the analyst said. =0F"To the degree that a company is diversified, the revenue stream of=20 profitable units helps balance the losses of less successful units,=0F" he= =20 said. Lucent will have most of its =0F"eggs in one basket,=0F" the analyst= added. Lucent immediately began laying off workers following its Jan. 24=20 restructuring announcement. It unveiled a workforce reduction of 16,000=20 employees, which includes what it described as a =0F"transfer=0F" of 6,000 = jobs to=20 outside contractors upon the sale of its Columbus, Ohio, and Oklahoma City= =20 facilities. A Lucent source has told TR, however, that the company is targeting as many= =20 as 20,000 positions for elimination this year. The 6,000 employees in=20 Oklahoma and Ohio should be included in the workforce reduction estimate, t= he=20 source said, because there=0F's no guarantee those workers will be rehired = by=20 contractors. =20 Lucent will lose another 16,500 workers when the microelectronics group is= =20 spun off into Agere, the source noted. Although the company likely will terminate more workers than it=0F's willin= g to=20 acknowledge publicly at this point, the layoffs are needed for Lucent to=20 regain its position as a top contender in global communications equipment= =20 markets, said TR=0F's source, who is familiar with Lucent personnel managem= ent=20 operations. Lucent=0F's human resources department is searching for =0F"dead weight=0F"= in its=20 workforce=0F-long-time employees who may not be suitable for Lucent=0F's ne= w focus=20 on high-growth markets, the source said. At the same time, Lucent =0F"will continue to hire people with appropriate = job=20 skills=0F" to enhance the company=0F's capabilities =0F"in profitable, high= -growth=20 markets,=0F" Mr. Schacht said. =0F"The planned reductions will cover a range of business groups and geogra= phic=20 regions,=0F" Mr. Schacht said. =0F"But the majority of them will come from= =20 eliminating duplication in marketing, sales, and corporate functions, pruni= ng=20 of the product portfolio, and reduced volume in certain manufacturing=20 locations.=0F"=20 Merrill Lynch & Co. analyst Michael E. Ching said Lucent=0F's workforce=20 reduction and restructuring charges were larger than he expected. =20 =0F"These changes should help the company return to profitability, but we= =20 believe it likely will be several quarters before we see a meaningful=20 improvement in gross margin,=0F" Mr. Ching said in a research note. =20 =0F"Also, the changes do not address the issue of weak revenue growth in [L= ucent=0F' s] core businesses,=0F" he added. =0F"With a slower improvement in gross margin, and weak revenue growth over= the=20 next several quarters, we are lowering our fiscal 2001 revenue forecast fro= m=20 $32.0 billion to $30.8 billion and increasing our loss per share estimate,= =0F"=20 Mr. Ching reported. Bear, Stearns & Co., forecast that Lucent would lose 9 cents per share in t= he=20 second quarter and 22 cents in fiscal 2001, and earn 33 cents per share in= =20 fiscal 2002. Court Says WorldCom Tariff Trumps Service Pact with ICOM The U.S. Court of Appeals for the Second Circuit (New York) has affirmed a= =20 lower court=0F's decision to dismiss a breach-of-contract lawsuit filed by = ICOM,=20 Inc., against WorldCom, Inc. In a Jan. 22 decision, the appeals court uphe= ld=20 the U.S. District Court for the Eastern District of New York=0F's ruling th= at=20 the claim was barred by the =0F"filed-rate=0F" doctrine and preempted by th= e=20 federal Communications Act of 1934. Under the filed-rate doctrine, a carrier=0F's tariffed rates take precedenc= e=20 over other agreements with customers. Section 203 of the Act states that= =20 when carriers file a tariff for a given service, they can=0F't extend any = =0F" privileges,=0F" charges, or =0F"practices affecting such charges=0F" other = than those=20 stated in the filed tariff.=20 ICOM filed a lawsuit in 1999 alleging that WorldCom had missed a contractua= l=20 deadline for installing six high-speed DS3 circuits. ICOM asserted that=20 WorldCom=0F's inaction caused ICOM to be unable to perform its obligations = under=20 contracts it had signed with third parties. ICOM said its contract with= =20 WorldCom specified damages WorldCom must pay in the event of a breach of=20 contract. In an opinion written by Judge Robert D. Sack and joined by Judges Sonia=20 Sotomayor and Robert A. Katzmann, the appeals court panel found that the=20 contract was unenforceable. =20 Enforcing the contract would =0F"impermissibly modify=0F" the terms of Worl= dCom=0F's=20 tariff for such services. The opinion was filed in ICOM Holding, Inc., v.= =20 MCI WorldCom, Inc. (case no. 00-7660). Judge Sack noted that the Supreme Court=0F's 1998 decision in American Tele= phone=20 & Telegraph Co. v. Central Office Telephone, Inc.,made it clear that the=20 filed-rate doctrine extends to tariff terms beyond the rates for the=20 services. =20 The doctrine bars not only state law claims =0F"that pertain to the price o= f=20 telecommunications services subject to an FCC filing, but also state law=20 claims that concern various nonprice aspects,=0F" Judge Sack said. Long Distance Revenues Head North, FCC Reports Revenues in the long distance industry climbed to $108 billion in 1999, up= =20 from 1998=0F's $105 billion, according to a report from the FCC last week. = The=20 report, Statistics of the Long Distance Telecommunications Industry,=20 highlights financial and market statistics in the long distance services=20 industry and provides data on residential customers=0F' long distance calli= ng=20 patterns. =20 It shows that long distance carriers accounted for more than $99 billion of= =20 the 1999 revenue total, and local telephone companies accounted for the=20 remaining $9 billion. The report is available by calling 202/857-3800 or b= y=20 visiting http://www.fcc.gov/ccb/stats. Telefonica, Portugal Telecom Foresee Brazilian Consolidation Telefonica SA and Portugal Telecom SGPS SA are determined to lead what they= =20 say is the =0F"inevitable consolidation=0F" of the Brazilian wireless indus= try. =20 The former rivals have decided to combine their Brazilian mobile telephony= =20 assets into a $10 billion joint venture that would be the country=0F's larg= est=20 wireless service provider. The companies called their joint venture =0F"the natural consolidator=0F" i= n the=20 Brazilian wireless market, suggesting that it would use its deep pockets an= d=20 strong market position to buy smaller operators. The joint venture would= =20 have 9.3 million subscribers and 94 million =0F"pops=0F" (potential custome= rs). =20 The companies didn=0F't say when they expected to complete the transaction,= =20 which requires the approval of Brazil=0F's telecom regulator, Anatel. The Portuguese and Spanish carriers would get equal ownership and control o= f=20 the unnamed venture, which would be managed by the carriers=0F' wireless=20 subsidiaries, Telefonica Moviles SA and PT Moveis. The venture would inclu= de=20 Telefonica=0F's stakes in Tele Sudeste Celular Participacoes SA, Celular CR= T=20 Participacoes SA, and Tele Leste Celular Participacoes SA. Portugal Telecom would contribute its shares of Celular CRT Participacoes a= nd=20 Telesp Celular Participacoes SA. Once Portual Telecom completed its=20 acquisition of Global Telecom SA, it would contribute those assets to the= =20 venture (TR, Jan. 22). Portugal Telecom=0F's Brazilian assets are worth $3= .8=20 billion and Telefonica=0F's are valued at $4.8 billion, Credit Suisse First= =20 Boston Corp. estimates. Because its assets are worth less, Portugal Teleco= m=20 is expected to contribute cash to the venture. As part of the arrangement, Telefonica has agreed to increase its ownership= =20 of Portugal Telecom to 10% from 5%. The companies didn=0F't say how much= =20 Telefonica would pay for the additional 5%. Brazil=0F's wireless industry is considered ripe for consolidation. Telebr= as,=20 the government-owned monopoly, was dismantled in 1998, and 16 operators=20 received wireless licenses. The government was scheduled to sell nine new= =20 licenses in three auctions starting Tuesday, Jan. 30, although a court=20 challenge may delay the bidding (see separate story). Some analysts think the Brazilian government=0F's goal is to allow enough= =20 consolidation to produce about three large telecom service providers. =0F"= This=20 should assure an economically sound environment for the survivors while at= =20 the same time making sure that consumers do not overpay for telecom=20 services,=0F" Credit Suisse First Boston said. Losses in Handset Operations Spur Ericsson To Exit Business Telefon AB L.M. Ericsson decided to exit the mobile phone manufacturing=20 business after that part of its operations reported yet another disappointi= ng=20 quarter. =0F"The results in our mobile phones business, while in line with= =20 expectations, remain unsatisfactory,=0F" said Kurt Hellstrom, president and= =20 chief executive officer of the Swedish company. Last year, Ericsson increased its handset sales 38%, to 43.3 million units,= =20 but the business unit reported a $1.7 billion loss. =0F"The losses are cau= sed=20 by delivery failure from key suppliers and an inadequate product mix in the= =20 entry-level market,=0F" Mr. Hellstrom said in a statement. Ericsson=0F's solution is to transfer the business to Singapore-based=20 Flextronics International Ltd. On April 1, Flextronics will take over=20 Ericsson handset factories in Brazil, Malaysia, Sweden, the United Kingdom,= =20 and Virginia. Ericsson=0F's China operations will be unaffected. Flextronics will manufacture Ericsson-designed handsets under a =0F"strateg= ic=20 alliance=0F" between the two companies. The workforce in Ericsson=0F's han= dset=20 division will decline from 16,800 to 7,000. Ericsson will transfer 4,200= =20 workers to Flextronics; the remainder will be laid off or transferred to=20 other units. Merrill Lynch & Co. analyst Adnaan Ahmad said he expected the outsourcing= =20 arrangement to result in a =0F"difficult transition.=0F" The arrangement i= s =0F"good=20 news from a supply-chain management perspective,=0F" Mr. Ahmad said in a re= port. =0F"However, in our view, it does not solve the underlying issues with rega= rd to=20 [Ericsson=0F's] reading the end-market segments,=0F" he said. Merrill Lync= h=20 downgraded its long-term rating on Ericsson shares from =0F"buy=0F" to =0F"= accumulate.=0F" CRTC Nixes Vancouver Bid For Fiber-Deployment Fees The Canadian Radio-television and Telecom-munications Commission has resolv= ed=20 a dispute between the city of Vancouver, British Columbia, and Ledcor=20 Industries Ltd. Vancouver claimed the company had begun deploying a fiber= =20 optic network without its permission. The commission emphasized that its= =20 decision addressed this particular dispute and didn=0F't set a precedent fo= r=20 resolving similar disputes in the future. In decision no. 2001-23, the CRTC granted Ledcor permission to =0F"construc= t,=20 maintain, and operate=0F" fiber optic transmission lines in 18 street cross= ings=20 and said that most of the compensation Vancouver had sought in connection= =20 with the project was =0F"not required or appropriate.=0F"=20 Vancouver had sought a =0F"variety of onetime and ongoing causal costs=0F" = stemming=20 from the =0F"presence or placement of telecommunications plant on its stree= ts,=0F"=20 the commission said. =0F"Vancouver proposed that it recover all costs caus= ally=20 incurred. . .as a result of the use and occupation of its public property b= y=20 carriers.=0F" =20 Ledcor in March 1999 asked the agency for relief from Vancouver=0F's =0F" unacceptable=0F" terms and conditions. It claimed that the city wouldn=0F'= t=20 approve the project, despite the Canadian Telecommunications Act=0F's=20 requirement that a municipality grant =0F"access to the street crossings an= d=20 other municipal property=0F" on terms acceptable to carriers. =20 In its 1999 filing, Ledcor asked the commission to issue an interim order s= o=20 that it, its subsidiary Worldwide Fiber Ltd., and its carrier customers cou= ld=20 continue the project pending a final decision. In October 1999, the=20 commission issued an interim order, under which Ledcor, Bell Canada, Inc.,= =20 and Call-Net Enterprises, Inc., were each to pay $1 to the city =0F"as a=20 condition of access.=0F" =20 In last week=0F's decision, the CRTC agreed with the city that Ledcor shoul= d pay=20 fees relating to =0F"plan approval and inspection=0F" and ordered the compa= ny to=20 pay $7,613 in these and related costs. However, it said that most of the= =20 other fees levied on Ledcor by Vancouver=0F-such as annual =0F"land=0F" cha= rges based=20 on the value of land adjacent to the facilities=0F-were unacceptable. It emphasized that the decision applied only to this dispute and not to=20 future cases involving similar circumstances. =0F"The Commission is not, i= n=20 this decision, prescribing terms and conditions related to the future=20 construction by Ledcor, or any other carrier, of transmission lines in=20 Vancouver or elsewhere,=0F" it said. =0F"The Commission is not persuaded t= hat it=20 is appropriate for it to adopt any particular model or standard agreement t= o=20 serve as a starting point for discussions between municipalities and=20 carriers.=0F" Brazil, France Face Setback In Awarding Wireless Licenses Telecom regulators in Brazil and France are facing setbacks in their attemp= ts=20 to award licenses for wireless services. Brazilian officials are seeking t= o=20 overturn a court challenge, while prospective licensees in France have=20 dropped out of the running. In Brazil, telecom regulator Anatel has postponed its scheduled Jan. 30=20 auction of three wireless licenses in the wake of a court injunction blocki= ng=20 the sale. Anatel said it would reschedule the auction for Feb. 5 or 6 if it could=20 persuade a court on Jan. 29 to overturn the injunction, which a Sao Paulo= =20 court issued last week. That court said the rules governing the bidding=20 process were illegal. Anatel has scheduled additional auction rounds to se= ll=20 three licenses each for Feb. 20 and March 13. In France, regulators=0F' plans to award four licenses for third-generation= (3G)=20 services ran into trouble when at least two prospective bidders, French=20 utility Suez Lyonnaise des Eaux and Telefonica SA of Spain, dropped out. = =20 There was growing speculation that French wireless carrier Bouygues Telecom= =20 also would withdraw. Bids are due Jan. 31. Also last week, Denmark awarded second-generation wireless licenses to=20 Mobilix A/S and Telia A/S. The National Telecom Agency had received=20 applications from four bidders for the 900 megahertz (MHz) band licenses,= =20 which were issued in a comparative process known as a beauty contest. Included in the binding terms of the licenses are the prices and products t= o=20 be offered, and the terms for interconnection with other carriers. Meanwhile, Dutch regulators have decided to allocate additional 3G licenses= =20 by auction, with the aim of awarding the licenses by October. The licenses= =20 will cover 3G services in the 1900=0F-1980 MHz, 2010=0F-2025 MHz, and 2110= =0F-2170 MHz=20 bands. The Dutch government raised 5.9 million Dutch guilders ($2.5 billion) last= =20 year when it auctioned five 3G licenses (TR, July 31, 2000). Wireless Industry Seeks Changes In Antenna-Collocation Agreement Two wireless industry trade groups are seeking changes in a draft agreement= =20 designed to streamline the review of antenna collocations on historic sites= . =20 The industry groups say the changes are needed to ensure that the pact=20 accomplishes its goal. But a historic preservation group says the agreemen= t=20 would result in harm to historic properties. The agreement was drafted, pursuant to the National Historic Preservation A= ct=20 (NHPA), by the FCC, the Advisory Council on Historic Preservation (ACHP), a= nd=20 a telecommunications working group that includes state historic preservatio= n=20 officers, federal officials, and wireless industry representatives (TR, Nov= .=20 27, 2000). The FCC said it expected to take action on a final agreement on= =20 or about Jan. 29. The pact restricts the conditions under which state or tribal historic=20 preservation officers would review antennas for their potential effect on= =20 historic properties or sites. Wireless industry officials say they hope 75= %=20 to 85% of new antenna applications would be freed from the review process. CTIA Attacks Agreement As drafted, the agreement =0F"does not streamline the regulatory process fo= r=20 collocations,=0F" the Cellular Telecommunications & Internet Associationsai= d in=20 comments filed at the FCC last week. Instead, it =0F"threatens to actually= =20 impede collocation.=0F" CTIA noted that under current FCC rules, licensees are responsible for=20 determining whether an antenna would affect a historic property. =0F"Howev= er,=20 under the proposed [national programmatic agreement], any person, whether= =20 qualified or not, at any time can allege at the FCC that the proposed=20 collocation has an adverse effect on historic properties,=0F" prompting a r= eview=20 before further construction can proceed, CTIA said. =0F"Such a provision undermines the FCC=0F's efforts to streamline the coll= ocation=20 process. It also fails to recognize that the effects of collocations on=20 historic properties are categorically minimal, and unlikely to raise histor= ic=20 preservation issues not already addressed in the proposed=0F" national=20 programmatic agreement. CTIA said that only in =0F"well-defined and limited circumstances,=0F" such= as a=20 substantial increase in the size of an antenna, should a collocated facilit= y=20 be subject to review. Otherwise, the burden should be on ACHP and historic= =20 preservation officers to prove that an antenna will harm a historic propert= y,=20 CTIA argued. In addition, the trade group said the FCC should ensure that future=20 environmental assessments are processed in accordance with the Commission= =0F's=20 own rules. CTIA said decisions by the Wireless Telecommunications Bureau = =0F" could be interpreted to suggest that licensees take steps required by neith= er=20 the Commission=0F's rules nor the NHPA.=0F" In its comments, the Personal Communications Industry Associationsaid that= =20 while it strongly supported the aim of the programmatic agreement, =0F"some= =20 necessary amendments=0F" would ensure that the pact would =0F"truly benefit= all=20 parties and advance the common goals of achieving the rapid build-out of th= e=20 nation=0F's indispensable telecommunications network while at the same time= =20 protecting the nation=0F's invaluable historic resources.=0F" PCIA said the draft agreement on which the FCC sought comments =0F"preserve= s=20 much of the substance=0F" of an earlier version of the pact that was approv= ed by=20 the telecom working group. But provisions added in the latest draft differ= =20 from =0F"the intent of the parties=0F' previous agreements=0F" and =0F"requ= ire=20 clarification, correction, or modification,=0F" it said. Among the amendments PCIA suggested were changing the effective date of the= =20 agreement to the date it is published; it proposed March 1 unless an earlie= r=20 date is possible. It also suggested changes in language that it says would= =20 limit which entities could mount antennas on towers. And it wants to clari= fy=20 that compliance with the agreement constitutes compliance with the NHPA=0F'= s and=20 the ACHP=0F's rules. The Jefferson County, Colo., Historical Commissionalso opposed the=20 programmatic agreement but for different reasons. It said the pact would= =20 weaken the NHPA and the National Environmental Preservation Act. It said t= he=20 collocation of antennas should not be permitted without environmental=20 assessments. The draft agreement =0F"places the wireless industry above the law that pro= tects=20 structures and American citizens that use them,=0F" the historical commissi= on=20 added. The Telecommunications Industry Association has published... The Telecommunications Industry Association has publishedan interim standar= d=20 that defines the messaging required to support Phase II =0F"enhanced 911=0F= " (E911)=20 systems. The standard is called TIA/EIA/IS-J-STD-036. Carriers, Others See Problems In FCC=0F's ID-Number Proposal=20 Carriers and broadcasters gave a lukewarm reception to the FCC=0F's plan to= =20 require each regulated entity to use a unique identifying number on certain= =20 filings. Many carriers and others said the planned system was duplicative = of=20 existing registration programs and suggested ways to simplify the FCC=0F's= =20 process for tracking regulatory filings. The FCC had proposed making mandatory a previously voluntary system under= =20 which anyone doing business with the agency would use a 10-digit FCC=20 registration number (FRN) obtained from the Commission Registration System.= =20 In a notice of proposed rulemaking released in Managing Director docket=20 00-205 last December, the FCC suggested that the FRN be required on all=20 regulatory fee payments, waiver petitions, auction payments, and other=20 filings and submissions (TR, Dec. 4, 2000). Parties would be responsible f= or=20 maintaining the accuracy of the information in the Commission Registration= =20 System database. In comments filed on the proposal last week, many carriers said they=20 supported the FCC=0F's goal of efficiently tracking filings and fees but=20 disagreed with just how the plan should be implemented. Parties already use a taxpayer identification number (TIN) on many of their= =20 FCC filings, including those on which the Commission has suggested using th= e=20 FRN, Verizon Wireless said. =0F"The need for another =0F`unique identifyin= g=20 number=0F' is unclear,=0F" it said. The confidentiality of TINs is important, Verizon said, =0F"but this factor= does=20 not appear crucial since, as the Commission says, the information in [the= =20 Commission Registration System] is for Commission use only and will not be= =20 published or distributed.=0F" Cingular Wireless LLC suggested instead that the FCC do away with its use o= f=20 TINs when it institutes the mandatory FRN system. It said that financial a= nd=20 personal information can be revealed and =0F"a person=0F's =0F`identity=0F'= can be =0F` stolen=0F' if his or her TIN=0F" is obtained. It also criticized the FCC f= or the=20 lax security it gave parties=0F' TINs. =0F"Inadvertently filed copies cont= aining=20 TIN information have been discovered in the Commission=0F's public referenc= e=20 room on more than one occasion,=0F" Cingular said. =20 It recommended that the FCC assign FRNs only to parties that request one,= =20 rather than having the Commission assign FRNs as it issues bills or other= =20 notifications. The latter approach could =0F"result in duplicative FRNs by= =20 large business entities who control numerous applicants and licensees,=0F" = it=20 added. The Walt Disney Co. had similar reservations about how the FRNs would be=20 assigned. It said that under the voluntary FRN system, when a parent compa= ny=20 made a joint filing that included regulatory fees for more than one=20 subsidiary, only the FRN of the parent company was associated with the=20 payments and the FRNs of the subsidiaries appeared to be unused by the syst= em. This can lead to the misperception that the subsidiaries still owe the fees= ,=20 Disney said. =0F"The Commission=0F's filing systems should be able to prop= erly=20 credit payments made on behalf of a licensee that is a subsidiary of anothe= r=20 entity, regardless of the source of payment,=0F" it added. Qwest Communications International, Inc., criticized the =0F"unforgiving ma= nner=20 in which the Commission proposes to implement its FRN proposal.=0F" The FC= C had=20 suggested that it would reject filings that fail to include an FRN where on= e=20 is required, which could result in the filing=0F's dismissal or the FCC=0F'= s=20 refusal to accept an application. Qwest said such an approach was =0F"overly harsh=0F" and suggested that the= FCC =0F" modify its proposed rules to allow filing parties a minimal period of time= =20 (e.g., five calendar days) to correct a filing or application that lacks an= =20 FRN.=0F"=20 The National Exchange Carrier Association, Inc., said that it submits filin= gs=20 on behalf of more than 1,200 carriers and that it was concerned about the F= CC=20 suggesting that one entity could obtain multiple FRNs. =0F"The Commission= =20 should make clear that, as authorized filing agent for its various=20 tariff-participating members, NECA will submit its own FRN with each tariff= =20 filing requiring a fee payment, but that submission of FRNs for each=20 participating carrier in NECA=0F's tariff is not necessary,=0F" NECA said. If the FCC allows single entities to obtain multiple FRNs =0F"it should, at= a=20 minimum, establish a system to link related entities,=0F" NECA said. =20 Broadcasters already are required to register separately for four different= =20 FCC systems, the National Association of Broadcasters said. The FCC should= =0F" step back and assess its electronic filing and database systems on a holist= ic=20 level,=0F" NAB said. =0F"Although each bureau has developed software progr= ams to=20 accommodate their particular needs, there is no mechanism by which the=20 systems are cross-referenced.=0F" The FCC should explore ways to =0F"centr= alize=0F"=20 its identification process, NAB concluded. Building Owners, Carriers Spar over FCC Proposal To Block Service, Extend B= an=20 on Exclusive Pacts As the FCC considers another slate of proposals designed to help carriers= =20 obtain access to multitenant structures, building owners and competitive=20 telecom service providers are escalating the battle they=0F've been fightin= g for=20 the last several years. The issue this time around is whether the FCC should take steps specificall= y=20 targeting multitenant residential buildings. The agency previously has=20 limited the scope of its actions to commercial buildings. The FCC recently adopted rules in Wireless Telecommunications docket 99-217= =20 designed to help competitive local exchange carriers (CLECs) obtain access = to=20 multitenant structures. Among other things, the Commission barred exclusiv= e=20 contracts between telecom service providers and owners of multitenant=20 commercial buildings (TR, Oct. 16, 2000). When it adopted those rules, the FCC suggested that it would need to take= =20 more steps. It issued a further notice of proposed rulemaking (NPRM) askin= g=20 whether it should (1) extend its ban on exclusive contracts to apply to=20 multitenant residential buildings and (2) bar incumbent local exchange=20 carriers (ILECs) from serving buildings where the owner prevents CLEC acces= s. In its comments filed last week, the Real Access Alliance, which represents= =20 building owners, said the FCC already had concluded that it lacked authorit= y=20 to =0F"regulate the real estate industry.=0F" But in the further NPRM, the FCC asks whether it can =0F"achieve the same g= oal=20 through the draconian measure of ordering telecommunications providers to c= ut=20 off service in buildings whose owners do not comply with the Commission=0F'= s=20 wishes,=0F" it said. =0F"Whether the Commission regulates building owners directly=0F-as propose= d in the=20 original notice of proposed rulemaking in this docket=0F-or indirectly, as= =20 proposed in the [further notice], makes no difference because the FCC lacks= =20 jurisdiction over building-access agreements,=0F" the alliance said. =0F"Agreements for building access are agreements for the use of real estat= e=20 and, therefore, outside the Commission=0F's purview, even over carriers,=0F= " it=20 said. Enforcement of =0F`Best Practices=0F' Questioned The Smart Buildings Policy Project, which represents telecom carriers and= =20 equipment manufacturers that support building-access policies, said buildin= g=20 owners continue to delay the entry of competitive telecom carriers. It=20 advised the FCC not to rely on the model agreements and =0F"best practices= =0F"=20 promoted by building owners. =0F"Reasonable access terms and conditions are meaningless if access can be= =20 denied entirely, or if access can be delayed for months or years,=0F" the= =20 project said. =0F"These model terms and conditions are entirely unenforcea= ble=20 without a Commission requirement for granting access.=0F" The group said it was particularly concerned about the =0F"increasing=20 phenomenon=0F" of building owners making direct investments in building-foc= used=20 CLECs (BLECs). =0F"The resulting symbiotic financial relationship motivate= s the=20 [multitenant building] owner to promote its affiliated BLEC within the=20 building,=0F" it said. The FCC should =0F"directly prohibit=0F" building o= wners from =0F" unreasonably discriminating among facilities-based carriers,=0F" it said. AT&T Corp. called for a nondiscriminatory access rule allowing a CLEC to = =0F" institute proceedings that, if successful, could result in an order=20 prohibiting a LEC from providing telecommunications services=0F" to any bui= lding=20 that refuses to allow =0F"reasonable, nondiscriminatory access to competing= =20 carriers.=0F" The FCC has the authority under sections 201 and 205 of the Communications= =20 Act of 1934 to stop LECs from serving buildings whose owners engage in=20 discriminatory practices, AT&T said. =0F"The fact that such regulations ha= ve an=20 indirect effect on [building] owners=0F-namely, in encouraging them to prov= ide=20 their tenants with the telephony choices they deserve=0F-does not divest th= e=20 Commission of jurisdiction,=0F" it said. In joint comments, Carolina BroadBand, Inc., RCN Telecom Services, Inc., an= d=20 Utilicom Networks LLC complained that the =0F"entrenched incumbent local=20 exchange carriers and incumbent cable [TV] providers frequently misuse thei= r=20 established positions to block competition through such means as exclusive= =20 contracts with [building] owners and managers.=0F" They noted that the FCC=0F's further rulemaking notice had said the record = didn=0F' t provide a sufficient basis upon which to decide whether barring exclusive= =20 contracts in the residential market would be beneficial or detrimental to= =20 growth. =0F"There are many competitive obstacles raised by such exclusive= =20 arrangements, not the least of which is that the ultimate captive tenant mu= st=20 wait until the expiration of the contract before obtaining the superior=20 services of another provider,=0F" they said. Cox Communications, Inc., cited barriers it encounters when trying to gain= =20 access to buildings, including =0F"monetary demands=0F" from building owner= s and =0F" onerous nonfinancial terms and conditions.=0F" It urged the FCC to adopt a= =0F" simple rule that prevents any incumbent from obtaining access to a=20 [multitenant building] on terms more favorable than those available to any= =20 other carrier.=0F" BLEC Sees Residential, Commercial Differences BLEC CoServ LLC said the FCC=0F's =0F"reservation about extending the ban o= n=20 exclusive arrangements from the commercial to the residential market is=20 warranted.=0F" Residential leases are much shorter than business leases, a= nd=20 relocation costs are lower for residences, it said. Residential customers,= =20 therefore, have a =0F"greater degree of flexibility in mitigating (or simpl= y=20 avoiding) any limits=0F" a building owner may put in place with exclusive= =20 telecom service agreements, it concluded. Cypress Communications, Inc., an Atlanta-based BLEC, said the FCC should ba= r=20 ILECs from signing discriminatory access arrangements with building owners.= =0F" Such a rule is necessary because ILECs have market power and, therefore,=20 possess an advantage over CLECs,=0F" it said. A nondiscrimination requirement applied to CLECs is =0F"unnecessary,=0F" Cy= press=20 said, because they =0F"lack market power, and building owners do not have a= n=20 incentive to discriminate on the CLECs=0F' behalf.=0F" The FCC shouldn=0F't keep LECs from serving multi-tenant buildings whose ow= ners=20 refuse to deal with other LECs on a nondiscriminatory basis, said BellSouth= =20 Corp. Such a rule would be =0F"constitutionally suspect,=0F" =0F"unnecessa= ry,=0F" and =0F" ill-considered,=0F" it said. The rule would be =0F"too severe in consequen= ce in=20 that it affects the very health, safety, and livelihood of innocent LEC=20 customers,=0F" BellSouth said. Verizon Communications, Inc.=0F's telephone companies asked the FCC to bar = all=20 exclusive access arrangements between carriers and multitenant building=20 owners. But it should not constrain =0F"exclusive or preferential marketin= g=20 arrangements, which are pro-competitive,=0F" they say. Such arrangements = =0F" afford customers an additional source of information on the availability of= =20 services and products and an additional sales outlet, without any reduction= =20 in the many outlets they already have,=0F" the Verizon telcos said. SBC Communications, Inc.=0F's telcos also backed extending the ban on exclu= sive=20 access arrangements to cover residential buildings but opposed any effort t= o=20 limit marketing agreements. They also opposed broadening the definition of= =20 right-of-way, which would be =0F"unworkable=0F" and =0F"inconsistent=0F" wi= th state law=20 and the Communications Act of 1934, they said. The Independent Cable & Telecommunications Association said =0F"limited-ter= m=20 exclusive=0F" contracts between multichannel video programming distributors= and=20 owners of residential buildings =0F"can and do function as a pro-competitiv= e=20 force in that marketplace.=0F" ICTA also opposed extending the FCC=0F's rules governing the disposition of= =20 cable TV =0F"home-run=0F" wiring to include providers of telecom services. = Those=20 rules currently cover providers of video services. In joint comments, the Edison Electric Institute and the United Telecom=20 Council disagreed with the FCC=0F's premise that utility rights-of-way coul= d be=20 construed to include =0F"in-building facilities, such as riser conduits, th= at=20 are owned or controlled by a utility.=0F" =0F"Any access right conferred upon cable and telecommunications providers = by=20 section 224 must remain subordinate to the rights held by utilities, such= =20 that a utility=0F's ability voluntarily to provide access to an area and ob= tain=20 compensation for doing so is a prerequisite to utility ownership or control= =0F"=20 under section 224, they said. The General Services Administration, commenting on behalf of the consumer= =20 interests of federal executive agencies, didn=0F't weigh in with specific= =20 recommendations. But it described problems its agencies have experienced i= n=20 trying to order service from CLECs, including problems caused by building= =20 owners and ILECs that delayed service provisioning. The Telecommunications Research and Action Center asked the FCC to prohibit= =20 telecom service providers from signing exclusive contracts with owners of= =20 multitenant residential buildings. It also asked the FCC to revise its cab= le=20 TV inside-wiring rules to give tenants a broader choice of advanced service= =20 providers. TRAC said building owners shouldn=0F't be permitted to determine which tele= com=20 carrier may acquire =0F"home-run=0F" wiring. =0F"Should the owner fail to = allow=20 alternative providers to compete for subscribers, dwellers are stuck with t= he=20 incumbent,=0F" it said. Missouri Lawmakers Seek To Oust Three PSC Members Missouri state Rep. Dennis Bonner (D.) and Sen. Ronnie DePasco (D.) are=20 trying to oust three Public Service Commissioners who voted to allow Missou= ri=20 Gas Energy to raise its rates by 44% before the PSC held a hearing on the= =20 matter. The rate change is an interim increase, subject to refunds if a PSC staff= =20 audit determines that the company made =0F"imprudent decisions=0F" in its p= urchases=20 of natural gas, the commission said in a press release announcing its Jan. = 23=20 action allowing the rate hike. The three commissioners who voted in favor of the rate increase are Connie= =20 Murray (R.), M. Dianne Drainer (R.), and Chairwoman Sheila Lumpe (D.). Rep= .=20 Bonner and Sen. DePasco aren=0F't trying to remove Commissioners Kelvin Sim= mons=20 (D.) and Robert G. Schemenauer (D.), who voted against the rate hike. Mr. Bonner filed a resolution (HCR 9) in the House of Representatives last= =20 week that would declare the commissioners=0F' seats vacant as a result of t= heir =0F" violation of state law.=0F" The resolution was introduced Jan. 24; it had = its=20 second reading in the House Jan. 25 but wasn=0F't at that time scheduled fo= r a=20 hearing or a vote. Rep. Bonner told TR that Sen. DePasco was planning to= =20 file an identical resolution in the Senate late last week. The 44% rate hike was =0F"ridiculous,=0F" Rep. Bonner said. =0F"People in = my district=20 can=0F't afford to pay that.=0F" He added, however, that he =0F"would have= been happy=20 if [the commissioners] would have held a hearing.=0F" He said he and Sen.= =20 DePasco had warned the commissioners that they would try to expel anyone wh= o=20 approved the rate hike without holding a public hearing first. FCC Says ATU Must Refund $2.7M For Misallocating Costs The FCC has ordered an Alaskan local exchange carrier to refund GCI=20 Communications, Inc., $2.7 million in damages plus interest, to make up for= =20 having improperly allocated certain costs to the interstate jurisdiction fo= r=20 separations purposes. Local exchange carriers must jurisdictionally separa= te=20 costs related to facilities that are used for both interstate and intrastat= e=20 services, so that federal and state regulators can associate the costs with= =20 revenues from the appropriate jurisdiction. The FCC said Alaska Communications Systems, Inc. (d/b/a ATU=20 Telecommunications) had wrongly allocated to the interstate jurisdiction th= e=20 traffic-sensitive costs of carrying Internet-bound calls. The FCC also sai= d=20 ATU unlawfully exceeded its allowed rate of return on its investment to=20 provide interstate access services during the 1997=0F-1998 monitoring perio= d. =20 The FCC ordered ATU to revise its tariffs and monitoring reports to reflect= =20 the fact that the FCC considers ISP-bound traffic to be intrastate in natur= e=20 for separations purposes. The FCC also found that ATU improperly calculated =0F"dial-equipment minute= s=0F"=20 (DEM) for interoffice calls during that same monitoring period. =0F"By=20 allocating ISP traffic costs to the interstate jurisdiction for separations= =20 purposes, and by counting one DEM rather than two DEMs for each minute of= =20 interoffice calls, ATU erroneously inflated its interstate cost base,=0F" t= he=20 FCC said in an order released last week in Enforcement file MD-016. GCI also had complained that (1) ATU=0F's tariffs were unjust and unreasona= ble,=20 in violation of section 201(b) of the Communications Act of 1934, because= =20 they permitted ATU to exceed its prescribed rate of return; and that (2) by= =20 assigning Internet-bound traffic costs to the interstate jurisdiction, ATU= =20 unjustly and unreasonably imposed charges on GCI for a service to which it= =20 did not subscribe. The FCC dismissed those two complaints, saying they wer= e =0F" moot=0F" and based on the same facts as the complaints on which it ruled in= GCI=0F' s favor. The FCC said that assigning the costs of Internet-bound traffic to the=20 intrastate jurisdiction for separations purposes was =0F"a legal requiremen= t=0F"=20 under rules it established in a 1983 order regarding MTS (message telephone= =20 service) and WATS market structure. It noted that it had affirmed that leg= al=20 requirement in a series of orders, most recently in its =0F"first access ch= arge=20 reform=0F" order in Common Carrier docket 99-249 (TR, June 5, 2000). ATU h= ad=20 argued that the FCC had only =0F"expressed a preference=0F" for assigning I= SP costs=20 that way. =0F`C,=0F' =0F`F,=0F' Block Reauction Nets Record $16.8B; Large Carrier Par= ticipation May=20 Be Contested The record $16.8 billion that the FCC netted in its reauction of 422 =0F"C= =0F" and =0F" F=0F" block PCS (personal communications service) licenses fell within the = range=20 most financial and industry analysts expected. But some analysts said the= =20 prices for licenses in the largest market=0F-New York City=0F-were higher t= han=20 expected. Meanwhile, with the sale now over, at least one unsuccessful participant=20 plans to challenge the results before the FCC=0F-and possibly in court. At= =20 issue are set-aside rules for small businesses that allow them to form=20 alliances with bigger carriers. =20 Another legal uncertainty involves the last remaining court challenge of=20 bankrupt NextWave Telecom, Inc., whose reclaimed licenses were among those= =20 sold at the auction. The FCC reclaimed the licenses when NextWave failed t= o=20 meet its payment obligations for them. Some analysts say they don=0F't exp= ect=20 the legal challenges to succeed. When the reauction concluded after the 101st round on Friday, Jan. 26,=20 Verizon Wireless, bidding as Cellco Partnership, finished on top, offering= =20 $8.7 billion for 113 licenses, including two in New York City and Boston an= d=20 one each in Los Angeles, Chicago, San Francisco, Philadelphia, and=20 Washington. The 113 licenses cover 150 million =0F"pops=0F" (potential cus= tomers). Finishing second was Alaska Native Wireless LLC, which is 39.9%-owned by AT= &T=20 Wireless Services, Inc. It submitted bids of $2.8 billion for 44 licenses,= =20 including one each in New York City and Los Angeles. Salmon PCS LLC=0F-in which Cingular Wireless LLC holds an 85% equity stake= =0F- finished with $2.3 billion in bids for 79 licenses, including one each in L= os=20 Angeles, Dallas, Atlanta, and Boston. DCC PCS, Inc., a subsidiary of Dobson Communications Corp., finished fourth= =20 with $545 million in bids for 14 licenses. Cook Inlet/VS GSM V P, an=20 affiliate of VoiceStream Wireless Corp., was fifth with $506 million in bid= s=20 for 22 licenses. A VoiceStream subsidiary, VoiceStream PCS BTA, finished= =20 next with $482 million in bids for 19 licenses. Among the major carriers that dropped out of the auction before it ended we= re=20 ALLTEL Communications, Inc., and subsidiaries of Nextel Communications, Inc= .,=20 and Sprint PCS. SVC BidCo L.P., however, which is 80%-owned by Sprint PCS= ,=20 won five licenses for $281 million. Thirty-five of the 87 bidders that originally qualified for the reauction= =20 were still eligible to bid in the final round. Of those 35 bidders, 32=20 qualified as entrepreneurs in the sale, which began Dec. 12, 2000. The $16= .8=20 billion raised was a record for the FCC in a single auction. The amount=20 reflects bidding credits allotted to small businesses. The previous record= =20 was the $9.2 billion netted in a C block auction (TR, May 13, 1996). DE Rules under Fire The FCC=0F's set-aside rules for small businesses, also known as =0F"design= ated=20 entities=0F" (DEs), have drawn controversy since before the reauction began= and=20 are expected to remain a contentious issue. The day before the sale began, one DE, Allegheny Communications, Inc., aske= d=20 the U.S. Court of Appeals in Washington to block the reauction, saying the= =20 FCC had failed to review the ownership of bidders classified as DEs to ensu= re=20 they were qualified entrepreneurs (TR, Dec. 18, 2000). Allegheny, which qualified as a very small business, cited AT&T Wireless=0F= '=20 interest in Alaska Native Wireless and Cingular Wireless=0F' stake in Salmo= n=20 PCS. It said that the rules allowed large corporations to bid through =0F"= shell=20 entities=0F" for licenses reserved for entrepreneurs. Of the 422 licenses = on=20 the block in the reauction, 170 were reserved for qualified DEs, while 252= =20 were open to all bidders. The 422 licenses covered 195 markets.=20 The appeals court denied Allegheny=0F's request. Allegheny ended up droppi= ng=20 out of the reauction during the bidding. The FCC defended its DE rules, saying they enable small businesses to raise= =20 enough capital to participate in spectrum auctions while ensuring they are= =20 controlled by entrepreneurs. It conducts ownership analyses of winning=20 auction bidders before granting licenses it said. Last week an attorney for Allegheny said it planned to challenge the=20 reauction results, at least at the FCC. =0F"We don=0F't think there=0F's a= ny question=20 sham bidders have hurt true entrepreneurs,=0F" attorney Dana Frix told TR. = He=20 said Allegheny was working with an economist to =0F"assess the damage and w= hat=20 the available remedies are.=0F" DEs and the big players they partnered with defended their auction alliance= s,=20 telling TR they were simply following the FCC=0F's rules. =0F"From our perspective, we have complied in every respect with these rule= s,=0F"=20 said George D. Crowley Jr., chairman and chief executive officer of Salmon= =20 PCS. While Cingular has an 85% equity stake in Salmon, Mr. Crowley stresse= d=20 that Crowley Digital Wireless LLC, which he also heads, controls Salmon=0F'= s=20 management and operations. =0F"The 79 licenses will be used by Salmon,=0F" Mr. Crowley, a cellular ind= ustry=20 veteran, said. He added, however, that Salmon would have the right to use= =20 Cingular=0F's name and might establish roaming and operations agreements wi= th=20 the large carrier. Ritch Blasi, a spokesman for AT&T Wireless, said his company believed it wa= s=20 in a strong position in the event of any legal action. =0F"We think we fol= lowed=20 the rules according to the FCC,=0F" he said. AT&T Wireless plans to contri= bute=20 $2.6 billion toward the $2.8 billion purchase price of the licenses,=20 according to a news release. In the release, Rosemarie Maher, president and CEO of Doyon Ltd., another= =20 Alaska Native Wireless partner, said the licenses won in the reauction woul= d=20 help the company provide phone service to American Indian and rural=20 communities. Officials at Leap Wireless International, Inc., another DE that had=20 criticized the alliances with large carriers, said they wanted to focus now= =20 on building out networks to use the licenses they won. Leap won 22 license= s=20 for $350 million, including those in Columbus, Ohio; Providence, R.I.; and= =20 Houston and San Antonio. =0F"Our goal now is to look at what we have and see how we can move forward= ,=0F"=20 Harvey P. White, Leap=0F's chairman and chief executive officer, told TR. Some industry observers expect regulatory or legal challenges to the auctio= n=20 results to fail. =0F"They=0F're highly likely to be challenged in court an= d [the=20 challenges are] highly unlikely to be successful,=0F" said Rudy Baca, an an= alyst=20 at The Precursor Group in Washington. The other legal cloud hanging over the licenses involves NextWave=0F's chal= lenge=20 of the cancellation of its licenses. Oral arguments on its appeal in the= =20 D.C. Circuit are scheduled for March 15. The FCC has conditioned the award= =20 of those licenses in the reauction on the outcome of NextWave=0F's court ca= se. The other licenses sold in the reauction were reclaimed from other bankrupt= =20 carriers, returned, or unsold at previous auctions. Analysts, Industry Assess Results Meanwhile, industry analysts and officials were assessing the reauction=20 results. Mr. Baca said the proceed totals were about what he expected,=20 adding that the winning bids =0F"are not out of line.=0F" Most financial a= nalysts=20 had forecast that the sale would bring in from $11 billion to $20 billion. The bids were closely watched=0F-not only to see how much would be deposite= d in=20 the U.S. Treasury but to see how the bids compared with the $4.7 billion=20 NextWave had pledged for its C block licenses in 1996. Knox Bricken, an analyst with the Yankee Group in Boston, said she was=20 surprised at the bids for the New York City licenses. =0F"We didn=0F't exp= ect=20 prices to be that high for those licenses,=0F" she said, adding Verizon Wir= eless=20 would be hard-pressed to realize a positive return on its investment in tha= t=20 market. Jeffrey Nelson, a Verizon Wireless spokesman, declined to comment on the=20 auction results, citing the Commission=0F's anticollusion rules. But David= =20 Frail, a spokesman for Verizon Wireless=0F' parent, Verizon Communications,= =20 Inc., said the parent would lend the wireless unit $8.8 billion to pay for= =20 the licenses. Verizon Wireless bid $2.0 billion for each New York City license. Alaska= =20 Native Wireless won its license there with a bid of $1.4 billion. Ms. Bricken said the New York City bids rivaled the huge bids seen in last= =20 year=0F's third-generation (3G) spectrum auctions in the United Kingdom and= =20 Germany, which raised more than $80 billion (TR, May 1, 2000; and Aug. 21 a= nd=20 28, 2000). Before the reauction began, analysts had predicted that bidding would be mo= re=20 controlled as a result of the common belief that bidders overpaid in those= =20 foreign auctions. Thomas E. Wheeler, president and CEO of the Cellular Telecommunications &= =20 Internet Association, praised congressional leaders and former FCC Chairman= =20 William E. Kennard for =0F"standing up=0F" to NextWave=0F's attempts to win= back its=20 licenses through legislative channels. =0F"This is a $16 billion victory f= or=20 taxpayers,=0F" Mr. Wheeler said. Pa. ALJ Slams Verizon Plan To Avoid Full Structural Split An administrative law judge has recommended that the Pennsylvania Public=20 Utility Commission develop its own plan for Verizon Pennsylvania, Inc., to= =20 split up its wholesale and retail operations. In his recommendation to the= =20 PUC, the ALJ criticized Verizon=0F's =0F"alternative=0F" plan for not going= far enough=20 to separate the company=0F's business functions and for being too full of h= oles=20 to implement. In 1999 the PUC ordered the retail-wholesale split as part of a =0F"global= =20 order=0F" settling a number of proceedings on issues ranging from reciproca= l=20 compensation to universal service (TR, Aug. 30, 1999). Also last year,=20 Verizon proposed a plan that would allow it to avoid a complete split of it= s=20 company by separating the business functions but keeping the company=20 structurally intact (TR, July 3, 2000). Administrative Law Judge Wayne L. Weismandel last week recommended giving= =20 Verizon a year to create separately operating retail and wholesale=20 affiliates. Under his recommendation, the two affiliates would be required= =20 to maintain separate books, records, staffs, and officers. The retail=20 affiliate would not be permitted to obtain financing =0F"that would permit = a=20 creditor, upon default, to have recourse to the assets of the Verizon=20 Pennsylvania, Inc., wholesale affiliate.=0F" Under the plan, the two affil= iates=20 would be required to conduct transactions =0F"on an arm=0F's-length basis.= =0F" The ALJ said that Verizon=0F's alternative plan didn=0F't propose a true=20 wholesale-retail separation, but rather a =0F"line-of-business split. . .th= at=20 does not mitigate the anti competitive dominant market power Verizon=20 currently exercises as a result of its base of legacy monopoly customers.= =0F" =20 He also blasted the telco for not supplying cost analysis or data to suppor= t=20 many of its conclusions. =0F"Due to Verizon=0F's failure to comply with the commission=0F's orders i= n this=20 proceeding, the commission is left with no choice but to direct structural= =20 separation of specific elements as the commission deems appropriate,=0F" A= LJ=20 Weismandel said. Competitors=0F' Plans Criticized, Too Competitors, including AT&T Corp. and WorldCom Corp., had submitted their o= wn=20 proposals on how the PUC should structure the split. Although the ALJ said= =20 he found aspects of the competitors=0F' proposals =0F"intriguing,=0F" he di= dn=0F't have=20 kind words for them. He said the competitors=0F' proposals weren=0F't bols= tered by=20 cost studies or analyses either. The judge identified several =0F"policy issues=0F" that the PUC must =0F"in= vestigate=0F"=20 as it considers how to implement the Verizon split: (1) how Verizon could= =20 continue to serve as customers=0F' =0F"carrier of last resort=0F"; (2) whet= her the=20 Verizon retail affiliate should be required to have =0F"significant=0F" ind= ependent=20 minority stakeholders, as competitors had proposed; and (3) how to conduct= =20 the =0F"migration=0F" of Verizon=0F's customers to its retail affiliate or = to=20 competitors. Carriers Back Simplified Transfers Of International Authorizations Several carriers say they generally support the FCC=0F's proposals to strea= mline=20 procedures governing pro forma assignments and transfers of international= =20 service authorizations, although they also suggest further modifications of= =20 the rules. But one major provider is asking the FCC to continue requiring foreign=20 affiliates of carriers receiving such authorizations to settle traffic with= =20 U.S. carriers at or below settlement rate =0F"benchmarks.=0F" Parties offered their views in comments filed at the FCC last week in=20 response to an International docket 00-231 notice of proposed rulemaking (T= R,=20 Dec. 4, 2000). To ease the regulatory burden on international carriers, the FCC had propos= ed=20 to make its procedures for international service authorizations granted und= er=20 section 214 of the Communications Act more like those it uses for assignmen= t=20 and transfer of control of commercial mobile radio service (CMRS) licenses. The FCC also tentatively had concluded that it no longer needed to require= =20 carriers to comply with its international settlement rate benchmarks as a= =20 condition of granting them section 214 authorizations to provide=20 facilities-based international private line services. It had proposed to stop requiring dominant international carriers to seek= =20 prior agency approval before discontinuing service on a route, =0F"except w= here=20 a carrier possesses market power for international service in the U.S.=0F" In its comments on the FCC=0F's rulemaking proposal, WorldCom, Inc., said i= t=20 supported streamlining and harmonizing the Commission=0F's rules. But it a= sked=20 the agency to retain the benchmark condition for facilities-based service t= o=20 affiliated markets until Jan. 1, 2003. =20 That=0F's the last of several deadlines for U.S. carriers to settle traffic= with=20 foreign carriers at or below the applicable benchmark rate; the FCC=0F's=20 benchmark order had set different deadlines for various groups of countries= . =0F"The incentive for unlawful one-way bypass remains a serious issue,=0F" = WorldCom=20 said. =0F"By removing this condition, the Commission would make it easier = than=20 ever for a dominant foreign carrier to circumvent unlawfully the settlement= =20 rate benchmarks.=0F" It added that it would be difficult for the Commissio= n to=20 detect evasion by carriers without the mandate. Verizon Communications, Inc.=0F's international carrier affiliates backed t= he=20 streamlining proposals. =0F"In an increasingly competitive environment,=20 simplification and streamlining of outdated rules are essential to assure= =20 that U.S. carriers are able to compete in the world market,=0F" Verizon sai= d. It suggested the FCC go further and streamline other rules affecting=20 international service authorizations as well. It urged elimination of the= =20 following requirements:=20 (1) Prior notification for affiliation with non-dominant foreign carriers,= =20 (2) Identification of interlocking directorates with foreign carriers,=20 (3) Quarterly international traffic reports required under section 43.61 of= =20 the Commission=0F's rules, and=20 (4) Amendments of international authorizations when a Bell company receives= =20 FCC authorization to provide in-region interLATA (local access and transpor= t=20 area) service in a particular state. Verizon Wireless supported changing the rules concerning pro forma=20 assignments and also asked the FCC to eliminate the quarterly reporting=20 requirements mandated by section 43.61(c). Cingular Wireless LLC also backed making section 214 application procedures= =20 more like those used for CMRS licenses. It also said the Commission should= =20 (1) authorize certain non=0F-wholly owned subsidiaries and partnerships to= =20 provide service using their parent=0F's authorization and (2) eliminate sec= tion=20 43.61 reporting requirements for CMRS providers. Personnel Newly named FCC Chairman Michael K. Powell has named Marsha J. MacBride chi= ef=20 of staff. Ms. MacBride was a legal adviser to Commissioner Powell and=20 director of the FCC=0F's task force on the year 2000 conversion before beco= ming=20 a vice president at The Walt Disney Co. Mr. Powell also named an interim= =20 transition team within the agency. Jane E. Mago, deputy chief of the=20 Enforcement Bureau, will manage the agency=0F's legal functions, overseeing= the=20 Office of General Counsel. David H. Fiske, deputy director of the FCC=0F's= =20 Office of Media Relations, will oversee that office. Paul A. Jackson,=20 special assistant to the chairman, will be responsible for overseeing the F= CC=0F' s Office of Legislative and Intergovernmental affairs. =20 Mimi Simoneaux has rejoined House Energy and Commerce Committee Chairman W.= J.=20 (Billy) Tauzin (R., La.) as the top administrative aide in his personal=20 office. She previously worked in VeriSign, Inc.=0F's government affairs=20 office. Ms. Simoneaux was legislative director to Rep. Tauzin when he was= =20 chairman of the telecommunications, trade, and consumer protection=20 subcommittee. The Louisiana Public Service Commission has elected Commissioner James M.= =20 Field (R.) its new chairman. Commissioner Jack A. (Jay) Blossman Jr. (R.)= =20 was elected vice chairman. Mr. Field joined the PSC in 1996, and his curre= nt=20 term ends Dec. 31, 2006. Mr. Blossman became a commissioner in 1997, and h= is=20 term expires Dec. 31, 2002. Gov. Michael F. Easley (D.) has appointed Lorenz Joiner to the North Caroli= na=20 Utilities Commission. He will serve the remaining six months of William=20 Pittman=0F's term; Mr. Pittman has resigned to join a law firm in Raleigh. = Mr.=20 Joyner was a special deputy attorney general at the state Department of=20 Justice. Bruce Simpson was named chief executive officer at AppGenesys, Inc., a San= =20 Jose, Calif., manufacturer of Internet infrastructure-management platforms.= =20 He was president at the Netcare Managed Services Division of Lucent=20 Technologies, Inc. Sonera Corp. of Finland reported that Bjorn Gustavsson, president and CEO o= f=20 Sonera SmartTrust Ltd., died Jan. 21 under =0F"tragic circumstances.=0F" A= ntti=20 Vasara, deputy CEO, was named acting CEO. Sonera has named Aimo Olkkonen president and chief executive officer of=20 Sonera Holding B.V. of the Netherlands. He was Sonera=0F's senior VP-corpo= rate=20 development. Etienne Fouques is the new president of Alcatel SA=0F's carrier networking= =20 group. He also was elected to the French telecom equipment manufacturer=0F= 's=20 executive committee. Mr. Fouques was president of the company=0F's switchi= ng=20 and routing division. He succeeds Pearse Flynn, who has left =0F"to pursue= =20 other opportunities,=0F" Alcatel said. QUALCOMM, Inc., has named James A. Clifford senior vice president of QUALCO= MM=20 CDMA (code-division multiple-access) Technologies, the company=0F's integra= ted=20 circuits and system software unit. He was VP. =20 The National Telephone Cooperative Association has promoted Marlee Norton= =20 from director-international and domestic program development to vice=20 president-international programs. Barbara Ritter has been promoted from=20 director-human resources to vice president-human resources. Ron Precourt,= =20 who had been manager-education, is now director-training and development. = =20 Eleanor Baird, who had been manager-meetings, is now director-meetings. An= d=20 at NTCA=0F's Foundation for Rural Service, Sara Gilligan has been promoted = from=20 project assistant to program coordinator. The Cellular Telecommunications & Internet Association has hired Bruce Cox = as=20 vice president-regulatory policy and law and promoted Robert Roche to the= =20 post of VP-policy and research. Mr. Cox was VP-congressional and regulator= y=20 affairs at AT&T Corp. Mr. Roche was CTIA=0F's assistant vice president-pol= icy=20 and research and has headed the trade group=0F's research department since = 1993. BellSouth Corp. has named Barry Boniface vice president-corporate=20 development. He was executive VP-network and product management at Cypress= =20 Communications, Inc. He succeeds Keith Cowan, who last year was named chie= f=20 planning and development officer.=20 Cortlandt L. Freeman has been named vice president-corporate communications= =20 at Touch America, the Montana Power Co.=0F's broadband telecom subsidiary. = He=20 was director of that unit.=20 LG InfoComm U.S.A., Inc., a provider of communications networks, has hired= =20 Chris Yi as vice president-marketing and product management. He was genera= l=20 manager of LGIC Korea. Jonas Neihardt, vice president-federal government affairs for QUALCOMM, Inc= .,=20 is heading the wireless technology company=0F's Washington office. Mr. Nei= hardt=20 succeeds Kevin Kelley, who is a senior advisor-commercial relationships to= =20 QUALCOMM CEO Irwin Mark Jacobs.=20 Jerome de Vitry has been named chief operating officer at Completel Europe= =20 N.V., a provider of local phone and Internet access services to businesses = in=20 western Europe. He=0F's president at Completel France. SPEEDCOM Wireless Corp., a Sarasota, Fla.=0F-based fixed wireless products= =20 maker, has named Larry Watkins chief technology officer. Mr. Watkins=20 previously was senior director-engineering at LCC International, Inc. Phil Bond is leaving the Information Technology Industry Council to be=20 director-federal public policy in Hewlett Packard Co.=0F's Washington offic= e. =20 Mr. Bond has been ITI=0F's senior vice president-government affairs for the= past=20 three years.=20 Verizon Communications, Inc., has named Wajeeha H. Aziz director-operations= =20 in the western New York region. She was senior manager-centralized=20 installation and maintenance operations. Verizon named Tarita Y. Miller=20 director-operations in the midstate New York region. She was manager-area= =20 operations in Queens, N.Y. Daniel Mattoon is joining the government affairs and public relations firm= =20 co-founded by Democratic strategists John and Anthony J. Podesta in 1988. = =20 With Mr. Mattoon=0F's arrival, the lobbying firm now headed by Tony Podesta= and=20 known as Podesta.com will become Podesta/Mattoon. Mr. Mattoon, who has bee= n=20 on a sabbatical from his post as vice president-congressional affairs at=20 BellSouth Corp., was deputy chairman of the National Republican Congression= al=20 Committee for the 2000 election cycle. More recently he was a member of th= e=20 FCC =0F"transition advisory team=0F" for the Bush administration (TR, Jan. = 15).=20 Regulatory & Government Affairs The FCC has changed the deadlines for comments on its most recent order aim= ed=20 at conserving telephone numbers (TR, Dec. 11, 2000). The new deadlines for= =20 comments and replies are Feb. 14 and March 7, respectively. They should=20 refer to Common Carrier dockets 99-200 and 96-98. In the order, the FCC=20 established the administrative procedures it would use in conducting=20 nationwide 1,000-number block pooling. It also issued a rulemaking notice= =20 proposing, among other things, to charge carriers for the numbers they use. Comments on the FCC=0F's notice of proposed rulemaking concerning the alloc= ation=20 of third-generation (3G) wireless frequencies are due Feb. 22, and replies= =20 are due March 9 in Engineering and Technology docket 00-258 (TR, Jan. 8). Comment deadlines have been set on an FCC proposal to reallocate 27 megaher= tz=20 of spectrum transferred from federal government to private use. The FCC=0F= 's=20 notice of proposed rulemaking was adopted last November in Engineering and= =20 Technology docket 00-221 (TR, Nov. 27, 2000). Comments are due Feb. 22 and= =20 replies March 26. The Land Mobile Telecommunications Council has asked for= =20 an additional 60 days for comments and 30 days to file replies. The FCC al= so=20 is encouraging interested parties to file comments in response to a notice = of=20 proposed rulemaking issued by the National Telecommunications and Informati= on=20 Administration, on reimbursement rules governing federal users that are=20 relocated to other bands (TR, Jan. 22). The FCC has set the deadlines for commenting on the MAG (multiassociation= =20 group) proposal for overhauling the interstate access and universal service= =20 support mechanisms for local exchange carriers subject to rate-of-return=20 regulation. It released a notice of proposed rulemaking on the matter=20 earlier this month in Common Carrier dockets 00-256 (MAG plan), 96-45=20 (universal service), 98-77 (access charge reform), and 98-166 (rate-of-retu= rn=20 prescription) (TR, Jan. 8, p. 25). But the comment due dates weren=0F't se= t=20 until the rulemaking notice appeared in the Federal Register last week. =20 Comments and replies are due Feb. 26 and March 12, respectively. Comments = on=20 those aspects of the proposal that would increase or modify data reporting= =20 requirements are due to the Office of Management and Budget by March 26. The FCC has set the schedule for parties wishing to comment on the=20 recommendations of a federal-state joint board regarding the Rural Task=20 Force=0F's plan for reforming the universal service support mechanism (TR, = Jan.=20 15). Comments are due Feb. 26, and replies are due March 12. They should= =20 refer to Common Carrier docket 96-45. The FCC had asked for input on wheth= er=20 and how it should implement the RTF plan, which includes continuing to use = =0F" book costs=0F" to calculate =0F"high cost=0F" support for rural telcos. The FCC has set comment deadlines for a further notice of proposed rulemaki= ng=20 related to its decision to allow terrestrial wireless systems to operate in= =20 the Ku-band (TR, Dec. 4, 2000). Comments are due March 12 and replies Marc= h=20 26 in Engineering and Technology docket 98-206. Qwest Corp. has asked the FCC for a modification of its LATA (local access= =20 and transport area) boundary definitions to enable it to provide expanded= =20 local calling services between certain exchanges in Colorado. The=20 modifications would allow it to comply with a Colorado Public Utilities=20 Commission order directing it to provide two-way, nonoptional extended area= =20 services between the Fairplay and Bailey exchanges, the Fairplay and Decker= s=20 exchanges, and the Bailey and Woodland Park exchanges. The Colorado PUC sa= id=20 that those exchanges shared government, civic, education, and health=20 resources. =20 The FCC=0F's Wireless Telecommunications Bureau says it won=0F't initiate a= =20 proceeding to amend its rules to allocate channel 200 (87.9 megahertz) for= =20 the operation of an Emergency Radio Data System (ERDS). Federal Signal Cor= p.=20 requested such action in a petition for rulemaking filed in 1999. The bure= au=20 said ERDS needs could be addressed by existing radio services. It said it= =20 would incorporate the record that had developed since Federal Signal=0F's= =20 request into a separate proceeding on Intelligent Transportation Services= =20 (ITS)/Dedicated Short Range Communications (DSRC). The Commission has=20 allocated 75 MHz of spectrum for DSRC-based ITS operations (TR, Oct. 25,=20 1999). USA Media Group LLC has withdrawn its petition asking the FCC to preempt th= e=20 Truckee Donner Public Utility District in California. The cable TV system= =20 operator had objected to the utility district=0F's refusal to let it overla= sh=20 fiber optic cable on the district=0F's utility poles (TR, Dec. 25, 2000, p.= =20 38). The company cited =0F"changed circumstances unanticipated at the time= of=20 filing.=0F" The FCC terminated the Cable Services docket 00-252 proceeding= and=20 closed the comment period, which would have ended Jan. 29 for comments and= =20 Feb. 13 for replies. The FCC has agreed to preempt the Virginia State Corporation Commission in= =20 disputes over interconnection agreements between (1) Verizon Virginia, Inc.= ,=20 and Cox Virginia Telecom, Inc., and (2) Verizon and AT&T Communications of= =20 Virginia, Inc. The FCC recently granted a similar request by WorldCom, Inc= .=20 (TR, Jan. 22, p. 39). Cox and AT&T had asked the FCC to act on the matter= =20 after the Virginia commission refused to arbitrate the terms of the parties= =0F'=20 interconnection agreements. The Virginia commission had said it was=20 concerned that arbitrating the dispute would be deemed a waiver of its=20 immunity under the 11th Amendment to the U.S. Constitution. The FCC agreed= =20 to arbitrate the disputes in orders released last week in Common Carrier=20 dockets 00-249 and 00-251. The FCC has agreed to allocate the 33=0F-36 gigahertz band on a =0F"primary= basis=0F"=20 to the federal government for the use of fixed-satellite services for=20 military purposes. The Commission said it was acting on a request from the= =20 National Telecommunications and Information Administration. The reallocati= on=20 is =0F"essential to fulfill requirements for federal government space syste= ms to=20 perform satisfactorily,=0F" the Commission said. The order was approved Fr= iday,=20 Jan. 19, and released Friday, Jan. 26. Commissioner Harold W.=20 Furchtgott-Roth dissented because the FCC did not first seek comments on NT= IA=0F' s request. The FCC had cited =0F"national security=0F" concerns. Then-Ch= airman=20 William E. Kennard didn=0F't participate in the final consideration of the = item. South Slope Cooperative Telephone Co., Amana Colonies Telephone Co., and=20 Heartland Telecommunications Co. have asked the FCC=0F's Common Carrier Bur= eau=20 for a waiver of its definition of =0F"average schedule company.=0F" The co= mpanies=20 asked for the waiver as it relates to the Commission=0F's =0F"all-or-nothin= g=0F" rules=20 in section 69.605(c). A waiver would enable South Slope to purchase 1,500= =20 access lines now operated by Amana and Heartland under a price-cap=20 mechanism. South Slope plans to operate the acquired access lines under a= n=20 average-schedule formula, as it does its other exchanges. In a petition=20 submitted in CC docket 96-45, South Slope said granting the waiver would=20 enable it to complete the acquisition of the exchanges and would result in= =20 larger local calling areas for ratepayers. =20 The Federal Trade Commission says it will change several premerger filing= =20 requirements of the Hart-Scott-Rodino (HSR) antitrust law, including=20 increasing from $15 million to $50 million the transaction value threshold= =20 for merging companies to notify the FTC. The changes, which go into effect= =20 Feb. 1, include a new tiered fee structure, which requires merging companie= s=20 to pay $45,000 for transactions valued at less than $100 million, $125,000= =20 for transactions valued between $100 million and $500 million, and $280,000= =20 for transactions valued at $500 million or more. Former President Bill=20 Clinton signed off on the changes Dec. 21, 2000. A complete listing of the= =20 new rules is available on the FTC=0F's Web site at http://www.ftc.gov.=20 The naming of Michael K. Powell to be FCC chairman drew praise from key U.S= .=20 lawmakers last week. Senate Commerce, Science, and Transportation Committe= e=20 Chairman John McCain (R., Ariz.) believes Mr. Powell will make =0F"an=20 exceptional chairman,=0F" his spokeswoman said. House Energy and Commerce= =20 Committee Chairman W.J. (Billy) Tauzin (R., La.) called the move one of=20 President Bush=0F's =0F"best and most exciting selections for his new=20 administration.=0F" And new House telecommunications subcommittee Chairman= Fred=20 Upton (R., Mich.) said Mr. Powell was his =0F"first and only choice=0F" to = be FCC=20 chairman. The Minnesota House Commerce Committee has scheduled a Jan. 29 hearing on= =20 Gov. Jesse Ventura=0F's (Ind.) telecom legislative proposals, which include= =20 imposing a telecom excise tax to subsidize service in =0F"high-cost=0F" and= =20 unserved areas of the state. Among the efforts the excise tax would fund a= re=20 the deployment of high-speed services and creation of a $100 million=20 revolving loan fund to help competitive carriers roll out services. The=20 Minnesota Association for Rural Telecommunications says Gov. Ventura=0F's= =20 proposals would lead to =0F"drastically higher rates and stalled technologi= cal=20 advancements.=0F" The group of independent telcos objects to the governor= =0F's=20 proposals for reducing intrastate access charges. They plan to work for=20 alternative legislation that they say would benefit =0F"the entire state=0F= "=20 without causing =0F"economic havoc in rural communities=0F" or =0F"rate sho= ck.=0F" Canada and Mexico have agreed to open their satellite service markets to=20 competitors from each others=0F' countries, the Canadian Embassy in Mexico = has=20 announced. The two nations recently signed protocols for mobile and fixed= =20 satellite services, which would establish technical standards and condition= s=20 for domestic satellite communications providers that want to provide servic= e=20 in the other country. Further details are not yet available. Industry News Correction: The phone number listed in the Jan. 8 edition of TR for the Fe= b.=20 4=0F-6 Emerging Issues Policy Forum in Florida was incorrect. For informat= ion=20 about the forum, call 252/394-3145 or visit http://netcommworks/events.html= . =20 The Center for Public Utilities at New Mexico State University is planning = a=20 conference covering current issues challenging the utility industry. The= =20 March 25=0F-28 event will be held in Santa Fe. Call 505/646-4876. The =0F"IntelligentCities 2001: Metropolitan Networks=0F" conference will = be held=20 April 30=0F-May 2 in Chantilly, Va. Call 781/762-6279 or visit=20 http://www.hhevents.com. The International Telecommunications Society will hold its Asia-Pacific=20 Regional Conference July 5=0F-7 in Hong Kong. Visit http://www.its2001.ust= .hk=20 for more information. Proxim, Inc., a Sunnyvale, Calif.=0F-based developer of wireless networks, = has=20 agreed to acquire Alameda, Calif.=0F-based Netopia, Inc., a developer of=20 broadband Internet equipment, for $223 million in stock. The transaction i= s=20 expected to close late in the first quarter or early in the second quarter.= =20 Under the deal, each share of Netopia common stock will be converted into 0= .3=20 shares of Proxim common stock. The Hartcourt Companies, Inc., plans to acquire a 51% stake in Elephant Tal= k=20 Network Services Ltd., a Hong Kong=0F-based long distance telecom service= =20 provider. ETNS, which also owns a 15-city fiber optic network in Eastern= =20 China through a joint venture with China Handao Group, said it will roll ou= t=20 collocation and broadband network connectivity services next month. =20 Hartcourt, a Los Angeles holding and development group, didn=0F't disclose= =20 financial terms.=20 World Wide Wireless Communications, Inc., of Oakland, Calif., says that it= =20 intends to negotiate a joint venture agreement with UBC Global Net, which= =20 holds MMDS (multipoint multichannel distribution service) licenses in the= =20 Philippines. The joint venture would use the MMDS frequencies to offer=20 wireless Internet service. 360networks, Inc., a Vancouver, Canada, =0F"carriers=0F' carrier,=0F" has f= iled a=20 shelf registration statement with the U.S. Securities and Exchange Commissi= on=20 for a potential offering of up to $3 billion in =0F"debt securities, prefer= red=20 shares, subordinate voting shares, warrants, stock purchase contracts, and= =20 stock purchase units.=0F" It said it soon would file a prospectus with=20 respective commissions in Canada. It intends to use the proceeds for gener= al=20 corporate purposes and possible acquisitions.=20 Nextel Communications, Inc., has completed the sale of $1.25 billion in=20 senior notes to private investors. Nextel, of Reston, Va., intends to use= =20 the funds for network expansion, acquisition of spectrum, strategic=20 investments, and other corporate needs. Time Warner Telecom, Inc., tested the troubled stock market by selling 6.5= =20 million new shares in a public offering. The Littleton, Colo.=0F-based=20 competitive local exchange carrier sold the shares for $74.44 each to raise= =20 $483.8 million. Time Warner Telecom also raised $400 million through the= =20 private placement of senior notes. Funds from both transactions will help= =20 repay a $700 million bridge loan that Time Warner Telecom used to buy the= =20 assets of GST Telecommunications, Inc., out of bankruptcy (TR, Sept. 18,=20 2000). QUALCOMM, Inc., is having second thoughts about plans for an initial public= =20 offering (IPO) of shares in its semiconductor business. In announcing its= =20 quarterly financial results, the San Diego=0F-based company said it was =0F= " evaluating the need for and the timing of an IPO=0F" because of =0F"uncerta= inties=20 in the financial markets.=0F" QUALCOMM has been planning to spin off its= =20 semiconductor division and sell 10% of the unit in an IPO (TR, July 31,=20 2000). Even if it doesn=0F't proceed with the IPO, QUALCOMM still intends = to=20 complete the spin-off, which is designed to eliminate conflicts of interest= =20 between the semiconductor business and other QUALCOMM operations. London-based Europe*Star, a joint venture of Alcatel Space and Loral Space = &=20 Communications, has launched satellite communications service in southern= =20 Africa. The company said it expects that =0F"ongoing deregulation of the= =20 telecommunications sector=0F" will increase demand for communications syste= ms in=20 this region. Europe*Star now provides service in Botswana, Lesotho, Namibi= a,=20 Mozambique, South Africa, and Zimbabwe. Its regional office is in Cape Tow= n,=20 South Africa. Verizon=0F-Vodafone Assets The FCC=0F's Wireless Telecommunications Bureau is seeking comments on whet= her=20 to extend the deadline for a trust that holds certain wireless assets of=20 Verizon Communications, Inc., and Vodafone AirTouch plc to divest the Chica= go=20 and Cincinnati assets. The trust was formed to dispose of overlapping asse= ts=20 when Bell Atlantic Corp. and GTE Corp. (which merged to form Verizon) and= =20 Vodafone AirTouch combined to form Verizon Wireless place the wireless asse= ts=20 =0F"in trust for the purposes of divestiture=0F" (TR, April 3, 2000; and Ju= ly 3,=20 2000, notes). Joseph J. Simons, the trustee, on Jan. 12 asked the FCC to extend the=20 divestiture deadline, which was Feb. 26, for an additional 180 days. =20 Comments are due Feb. 2, and replies are due Feb. 7. DT Acquisitions The European Union has warned the U.S. against blocking Deutsche Telekom AG= =0F's=20 planned acquisition of VoiceStream Wireless Corp. and Powertel, Inc. The EU filed documents with the FCC promising to challenge any FCC action t= o=20 block the acquisitions. An EU spokesman told TR that opponents to the=20 proposed transactions=0F-such as Sen. Ernest F. Hollings (D., S.C.) and oth= er=20 congressional leaders=0F-are leading the U.S. toward violations of the Gene= ral=20 Agreement on Tariffs and Trade and World Trade Organization obligations. What=0F's Ahead. . . JANUARY 29=0F-Feb. 1=0F-The annual COMNET conference and expo is held in Washington= . For=20 more information, go to http://www.comnetexpo.com. 30=0F-Comments are due to the FCC on Verizon New England=0F's revised appli= cation=20 to provide in-region interLATA (local access and transport area) services i= n=20 Massachusetts (TR, 1/22/01 p.12). Replies are due Feb. 28. The=20 Massachusetts Department of Telecommunications and Energy has until Feb. 6 = to=20 submit its recommendation to the FCC. The Department of Justice must file= =20 its recommendation by Feb. 21. Staff at the Common Carrier Bureau will be= =20 available for ex parte discussions about the proceeding between Jan. 30 and= =20 Feb. 23. 30=0F-AeA, the former American Electronics Association, holds a press brief= ing=20 in Washington to present its top technology priorities for 2001. For more= =20 information, go to http://www.aeanet.org. 30=0F-The initial meeting of the FCC=0F's advisory committee on the 2003 Wo= rld=20 Radiocommunication Conference is held in the Commis-sion=0F's meeting room. 31=0F-The National Telecommunications and Information Administration holds = a=20 public meeting to discuss the results of ultrawideband system testing. For= =20 more information, call Paul Roosa in NTIA=0F's Office of Spectrum Managemen= t at=20 202/482-1559. FEBRUARY 1=0F-Comments are due to the FCC=0F's Wireless Telecommunications Bureau on= two=20 requests for waivers of the FCC=0F's construction rules governing 900 megah= ertz=20 band licensees (TR, 1/22/01 p.36). Replies are due Feb. 8. Comments on FC= I=20 900, Inc.=0F's request should reference DA 01-121, and comments on Neo-worl= d=20 License Holdings, Inc.=0F's request should reference DA 01-122. 2=0F-The National Telecommunications and Information Administration holds a= =20 workshop in Washington to discuss the 2001 Technology Opportunities Program= . =20 It will hold similar workshops in Denver on Feb. 6 and in St. Louis on Feb.= =20 8. Registration information can be found on NTIA=0F's Web site: =20 http://www.ntia. doc.gov. 5=0F-The U.S. Court of Appeals in Washington will hear oral arguments in=20 National Exchange Carrier Association, Inc., v. FCC (case no. 00-1055). NE= CA=20 is challenging the FCC=0F's December 1999 decision rejecting NECA=0F's prop= osed=20 modifications to the 1999 =0F"average-schedule=0F" Universal Service Fund f= ormula=20 (TR, 10/9/00 p.36). 7=0F-UNITED KINGDOM: Comments are due to the United Kingdom=0F's Office of= =20 Telecommunications on whether to impose additional conditions on Cable &=20 Wireless plc=0F's operator license for certain international routes (TR, 1/= 15/01=20 p.32). 8=0F-The FCC holds a meeting. 8=0F-Section 275 of the Telecommunications Act prohibits Bell operating=20 companies from providing alarm monitoring services until this date (TR,=20 11/17/97 p.7). The Act grandfa-thered alarm monitoring operations existing = as=20 of Nov. 30, 1995. 13=0F-The FCC=0F's Wireless Telecommunications Bureau holds an auction of e= ight=20 700-megahertz band licenses that weren=0F't bought at the =0F"guard-band=0F= " auction=20 (TR, 10/16/00 p.38). 15=0F-NEW JERSEY: Deadline for Verizon New Jersey, Inc., to file a new=20 alternative rate regulation plan with state regulators (TR, 1/8/01 p.23). 16=0F-Comments are due to the FCC=0F's Wireless Telecommunications Bureau o= n=20 applications to transfer wireless licenses from Price Communications Corp. = to=20 Cellco Partnership (d/b/a Verizon Wireless). Replies are due Feb. 26 in=20 Wireless Telecommunications docket 01-8. Comments should reference DA 01-1= 20. 19=0F-CALIFORNIA: Comments are due to the Public Utilities Commission on C= ap=20 Gemini Ernst & Young=0F's reports on Pacific Bell=0F's operation support sy= stems=20 (OSSs). The commission plans to issue a draft decision on the reports Apri= l=20 6 and a final decision May 24 (TR, 12/25/00 p.4) 20=0F-Comments are due to the FCC=0F's Wireless Telecommunications Bureau o= n=20 applications to swap licenses filed by Cingular Wireless LLC and VoiceStrea= m=20 Wireless Corp. (TR, 1/22/01 p.36). Replies are due March 2. They should= =20 reference Wireless Telecommunications docket 01-10 and DA 01-135. 20=0F-22=0F-The Consortium for School Networking holds a tele-com and Inter= net=20 conference in Washington. For more information, call 202/624-1740 or go to= =20 http://www.k12schoolnetworking.org. 25=0F-28=0F-The National Association of Regulatory Utility Commissioners ho= lds its=20 winter committee meetings in Washington, D.C. For more information, call= =20 202/898-2214. Falling Credit Ratings Create Costly Obstacle for Carriers Many telecom companies these days are groaning under the weight of excessiv= e=20 debt they accumulated while building networks, acquiring other companies, a= nd=20 trying to enter new markets. Determining whether they can pay those and=20 future debts is the job of credit-rating agencies like Moody=0F's Investors= =20 Service. Robert Ray, a senior vice president in the telecom, technology, and media= =20 group at Moody=0F's, tells TR that some of the biggest names in telecom, li= ke=20 AT&T Corp., are in danger of losing top credit ratings and having to pay mo= re=20 interest in their next round of funding. An edited transcript of our=20 interview with Mr. Ray follows. TR: What does Moody=0F's do? What=0F's your role? Ray: I=0F'm lead analyst for a number of high-visibility companies in medi= a,=20 technology, and telecommunications. I=0F'm responsible not only for assign= ing=20 ratings to companies but also for monitoring those ratings as companies=0F'= =20 business prospects ebb and flow to make sure that our ratings, once assigne= d,=20 continue to be accurate. In case we=0F're no longer comfortable with the rating, it=0F's my responsi= bility=20 to make a recommendation to change the rating of a company. TR: The news about telecom debt levels has been gloomy [see separate=20 story]. What=0F's your perspective on the financial health of the telecom= =20 sector? Ray: There have been a number of defaults and bankruptcies, particularly= =20 among the CLECs [competitive local exchange carriers]. There are a number = of=20 companies that have tried to enter the market. Not all the business plans= =20 were fully funded. As both the equity and the debt markets have become more restricted,=20 companies that didn=0F't have a fully funded business plan=0F-that didn=0F'= t have=20 enough money on hand or committed money from their bank group to cover thei= r=20 cash needs over the next 12 to 18 months=0F-have found themselves in liquid= ity=20 crunches relatively quickly. TR: On the equity side, a lot of analysts were surprised by what happened = in=20 the telecom sector. Is there a similar sense on the credit and debt side= =20 that investors and their advisers were caught by surprise? Ray: In the high-yield area many of the companies had relatively low ratin= gs=0F- single-B or Caa. Those ratings don=0F't necessarily anticipate a certainty= of=20 default, but they do reflect a high degree of risk. Even on the investment-grade side, however, we=0F've seen some surprising= =20 developments=0F-not so much in terms of direction, but in terms of speed=0F= - primarily in the pricing environment for long distance services from=20 companies such as AT&T and WorldCom [Inc.] =20 We were aware that those prices were going to come under pressure as the Ba= by=20 Bells began to get permission to offer long distance service in their home= =20 markets, as usage moved from wireline to wireless [service], and as usage= =20 began moving from traditional circuit-switched networks to Internet-deliver= ed=20 voice. While we knew there were a lot of pressures that were going to bring pricin= g=20 down in that market, the degree of the falloff was a bit of a surprise even= =20 to us. As a result, the large long distance carriers have had to scale bac= k=20 their expectations for profitability in the voice business. TR: And as a consequence, their credit ratings have come under downward=20 pressure. Ray: Yes, AT&T has had its long-term rating lowered from A1 to A2, and tha= t=20 rating remains on review. Certainly the pressures from the voice business= =20 were part of that. But AT&T is also in the process of breaking itself up= =20 into three separate businesses. The review is not only focusing on some of= =20 the risks that we=0F've talked about, but also the financial structure that= each=20 of these businesses will have going forward. We=0F've changed the outlook on Sprint [Corp.] from stable to negative. =20 WorldCom retains an A3 rating and a stable outlook. While they=0F've had s= ome=20 pressure like the other players, they had a little more flexibility, under= =20 the current rating, to absorb some of those pressures. TR: How big a deal is it to these companies to have their credit rating go= =20 down a step? What effect does that have on their day-to-day business? Ray: On the day-to-day business it has relatively limited impact. To the= =20 extent that they would be issuing new debt, a lower credit rating normally= =20 would result in a higher interest rate. The most critical rating for AT&T is its short-term rating of Prime-1. If= =20 they didn=0F't have a Prime-1 rating, they=0F'd be severely limited in thei= r=20 ability to sell commercial paper to the money market funds. [Securities an= d=20 Exchange Commission rules limit the amount money market funds can invest in= =20 companies that don=0F't have top-tier commercial paper ratings, like Prime-= 1,=20 from at least two rating agencies. =0F-Ed.] For a company whose commercial paper outstanding has been between $15 billi= on=20 and $20 billion, that could result in a significant increase in AT&T=0F's= =20 funding costs. They would have to seek out, for the most part, a different= =20 group of investors. TR: Is AT&T=0F's Prime-1 rating under review? Ray: Yes, it is. Both the A2 long-term rating and our Prime-1 short-term= =20 rating are on review for possible downgrade. TR: Can you give me an example of what the cost of money might be to AT&T= =20 through a money market fund v. the next-best alternative? Ray: The money market funds would just be one of a number of investors who= =20 would be buying AT&T=0F's commercial paper. So don=0F't get too caught up = in their=20 being the only source. TR: Percentagewise, though, how much better is commercial paper than the= =20 next-best alternative? Ray: They would certainly have to pay higher rates. To the extent that th= ey=20 were reliant on the money market funds for a substantial part of their=20 commercial paper issuance, those funds would have to be replaced by investo= rs=20 who are less constrained by the rating. You can find those investors, but= =20 they are obviously looking at a lower rating for a higher pricing. So it= =0F's=20 hard to speculate on specifically what any one company might have to pay. TR: It depends on the day of the week, I=0F'm sure. Ray: And it also depends on the size of the program, the market=0F's view = of=20 how safe the investment is, how comfortable investors are with the company= =0F's=20 prospects, and how much similar paper there is. A telecom issuer is not only competing against a full range of issuers goin= g=20 into the market; it=0F's also competing against other telecom companies for= =20 access to the market. Most investors set limits on how much they=0F're wil= ling=20 to expose themselves to any particular industry. Once they feel they have= =20 enough exposure to the telecom industry, they=0F're going to be less intere= sted=20 in putting that next dollar into telecoms rather than some other opportunit= y. The other thing we=0F've seen in the last couple of years is there=0F's bee= n=20 tremendous need in the telecom industry for financing as companies have bui= lt=20 out their networks. CLECs have been building networks. A number of long= =20 distance networks have been built here in the United States. Wireless=20 networks are being built. There are also international networks, not only= =20 connecting countries but also within Europe and within Asia=0F-both wirelin= e and=20 wireless. In the U.S. market alone, there was over $70 billion worth of media and=20 telecom debt in the first 11 months of 2000, compared to about $55 billion = in=20 1999. That=0F's just the straight debt market, not including equities or= =20 convertible debts. TR: How do you determine a company=0F's rating? Ray: We look at the business risks of a company. We try to understand=20 exactly what business they=0F're in, their competitive position, and their= =20 strengths and weaknesses. We also try to get a good understanding of=20 management and what their appetites may be for business and financial risk. We rate virtually all major companies in virtually every industry. We also= =20 have a solid understanding of the industry broadly and where any particular= =20 company fits in terms of its cost structure, market share, management=20 direction, and strategic focus. We also, obviously, do some statistical analysis. Since we=0F're fixed-inc= ome=20 analysts, we=0F're focused more on ensuring that debt obligations get paid = and=20 trying to assess the probability that all obligations will be paid in full = in=20 a timely manner. A fixed-income investor doesn=0F't necessarily have the upside that an equi= ty=20 holder does. A fixed-income holder has one of two results if he buys a=20 security at issuance and holds it to maturity: He either gets paid or he= =20 doesn=0F't. Even if the company=0F's been fabulously successful, he just gets his inter= est=20 on a regular basis and the principal at maturity. If the company just=20 struggles through and barely makes it, he=0F's in the same situation. So t= here=0F' s not much upside on straight debt if you=0F're a buy-and-hold investor. As fixed-income analysts, our key measures are the company=0F's ability to= =20 generate free cash. That=0F's cash after meeting all fixed obligations, li= ke=20 interest and dividends. We also look at their ability to finance their=20 capital spending requirements and their cash-generating capability relative= =20 to their debt load. If you look at two companies that are basically in the same industry and th= at=20 have similar sizes and market positions=0F-with neither one possessing any= =20 particular competitive advantage in terms of new products=0F-the one that h= as=20 the stronger cash generation relative to its debt obligations would have a= =20 higher rating. Probably the most difficult part of our business is making sure that we are= =20 consistent in applying our ratings. I want to make sure my strongest compa= ny=20 has the highest rating and my weakest company has the lowest rating. It=0F's also important to make sure that what I call an A1, an A2, or a Baa= 3 is=20 equivalent to the ratings of anyone else in the corporate finance area,=20 whether they=0F're covering auto companies or coal mines. TR: How much of your time is spent talking to management and trying to=20 figure out their plans? What happens during these talks? Ray: A large part of our analytical meetings with companies is spent tryin= g=20 to understand their strategy, their philosophy, and their appetite for=20 business and financial risk, and looking at what the company has done in th= e=20 past and how successful they=0F've been in meeting goals that they=0F've se= t for=20 themselves. We look at their plans relative to others in the industry and try to make= =20 sure the strategy and the objectives they=0F've set are reasonable and=20 achievable. The discussion, quite frankly, in the average meeting tends to= =20 be more about the companies=0F' products and business mix. It=0F's often beneficial having a long-standing relationship with a company= =0F's=20 management. You develop a sense of comfort regarding management=0F's abili= ty to=20 forecast the risks they face, to come up with plans to address those risks,= =20 and to develop financial models that are achievable. TR: It must be an expensive prospect for a company to get its rating=20 lowered, and it also may be a bit of an embarrassment. How do they react t= o=20 the possibility of a downgrade? Ray: We try to have a pretty good ongoing dialogue with a company so that = it=0F' s not a matter of calling them up one day and saying, =0F"Oh, by the way, w= e=0F're=20 putting you on review for a downgrade.=0F" To the extent that we develop a= reas=20 of concern, we like to bring them to the company=0F's attention=0F-both in = our=20 direct face-to-face meetings and in regular ongoing dialogue over the phone= . Obviously no company is ever pleased to be put on review for a downgrade. = =20 Our objective, quite frankly, is to make sure that they understand and=20 appreciate the position we=0F've taken and that they know why we=0F're doin= g what=20 we=0F're doing. Even though they ultimately may disagree with the action, at least we want = to=20 make sure that they understand the logic behind the steps we take. And we= =20 give them a chance to share with us their view as to why some of our concer= ns=20 may be less severe from their perspective. TR: Do you have any advice for telecom executives, investors, or=20 regulators? What needs to happen for the sector to climb out of its slump? Ray: For the long distance companies, it=0F's a matter of continuing to ge= t=20 their costs in line as best they can, knowing that their revenue is going t= o=20 continue to be under a lot of pressure for the foreseeable future. In the wireless segment, the key things are the ability of the wireless=20 players to build out their networks at a reasonable cost and to attract=20 high-value customers=0F-not only for voice but also for the emerging wirele= ss=20 data markets=0F-while maintaining cost structures that will allow them to= =20 continue to be profitable. There are more national wireless carriers now, and we expect that developme= nt=20 will put pressure on pricing. We don=0F't anticipate that it=0F's going to= be as=20 dramatic as the pressure we=0F've seen recently in the voice wireline secto= r. =20 But the more competitors you have and the broader their coverage, the great= er=20 the risk of continued pricing declines. TR: We haven=0F't talked much about the Bell companies=0F-the ILECs [incum= bent=20 local exchange carriers]. What=0F's your outlook for that sector? Ray: One argument that Moody=0F's has been making in support of them for a= long=20 time is that they have direct contact with their customers, and they=0F're = also=20 the ones with the line into the house. Our ratings on the ILECs are=20 certainly the highest we have in the telecom area. They are, by and large,= a=20 strong group of competitors who=0F've demonstrated better stability in thei= r=20 customer base and revenue mix than the long distance carriers have. TR: Does the prospect of greater regulatory oversight figure into your=20 calculations regarding the Bells? Ray: There=0F's a lot of regulatory oversight. As they seek to get approv= al=20 [to provide in-region interLATA (local access and transport area) service],= =20 that process has taken a bit longer than we would=0F've expected. We=20 anticipated that once the first state and the second state fell, other stat= es=20 would follow relatively rapidly. Telecom Sector=0F's Dubious Debts Create Drag on Financial Markets The rumblings began in Europe. The Bank of England issued warnings, follow= ed=20 by the Bank of France. The major credit-rating agencies=0F-Standard & Poor= =0F's,=20 Moody=0F's Investors Service, and Fitch ICBA=0F-issued ominous reports. On= the one=20 hand they sounded alarm bells, while on the other they said, =0F"Don=0F't p= anic.=0F" The reason for the caution flags is the level of questionable debt among=20 telecom companies. Pessimists fear that so many obligations will go unpaid= =20 that the telecom industry single-handedly will tip the economies of several= =20 countries into recession=0F-as the U.S. real estate industry did in the 198= 0s=20 when it built too much on borrowed funds before toppling like a rotten tree= . Even optimists admit that telecom debt is already a drag on the economy. I= t=0F' s dampening the profits of banks and rippling through related sectors leavi= ng=20 experts to wonder how much more bad debt will ooze from the telecom industr= y,=20 and how many defaults the economy can absorb. =0F`Fears Are Overdone=0F' By some estimates, telecom service providers have borrowed $322 billion ove= r=20 the past three years, including bonds and bank loans. Analysts generally= =20 divide that debt into two sectors. The bigger group has been generated by= =20 large carriers like AT&T Corp., British Telecommunications plc, and France= =20 Telecom SA. If one of those companies went under, it would be a=20 catastrophe. But analysts don=0F't think that=0F's likely. They=0F're more concerned about smaller service providers, like competitive= =20 local exchange carriers (CLECs). Fortunately, those carriers aren=0F't tho= ught=20 to carry enough debt to bring down a major bank, let alone an entire indust= ry=20 or an economy. =0F"At this stage, Moody=0F's is not forecasting defaults by major telecoms= ,=0F" Moody=0F' s Investors service says in a recent report. =0F"On the other hand, defaul= ts by=20 more marginal operators cannot be excluded. However, if a bank is not=20 massively exposed to such borrowers, its credit strength should not be=20 structurally hurt, let alone the fundamentals of the banking system.=0F" Fitch ICBA issued a similar statement. =0F"Large, profitable, and creditwo= rthy=0F"=20 telecom operators are responsible for the bulk of the debt load, Fitch says= . =20 =0F"Exposure to the riskier, alternative operator sector is, in relative te= rms,=20 modest.=0F" =0F"Fears of a banking crisis are overdone, in our view,=0F" says Morgan St= anley=20 Dean Witter analysts Richard Crehan and Graham Secker in a report on Europe= an=20 telecom debt. =0F"The vast majority=0F-about 90%=0F-of the debt raised in = the last 18=20 months is investment grade and unlikely to default. . .While the amount of= =20 loans made to the telecom sector in Europe is unprecedented, we do not thin= k=20 the telecom debt issue will sink financial markets.=0F" Those assessments don=0F't mean there won=0F't be pain for the telecom comp= anies=20 and their lenders on both sides of the Atlantic. The danger for banks is= =20 that their books will look uglier, their profits will sink, and their stock= =20 prices will tank. Bank of America Corp. and First Union Corp., for example, recently missed= =20 their profit goals, partly because of larger-than-expected loan-loss=20 provisions. Disappointed Wall Street analysts downgraded both companies, a= nd=20 their stocks slid. While those developments don=0F't constitute a bank =0F= " crisis,=0F" banks aren=0F't benefiting from their association with languish= ing=20 telecom companies. Telecom isn=0F't the only industry causing banks to spew red ink, says Cred= it=20 Suisse First Boston Corp. analyst Rosalind Looby. Movie theater companies,= =0F" dotcoms,=0F" and California electric utilities are doing their part, too. = =20 =0F"We are in the midst of a broader deterioration in commercial credit qua= lity=20 driven by loose lending standards adopted in the mid-1990s,=0F" Ms. Looby= =20 comments in a recent report. Banks traditionally were reluctant to fund money-losing companies. They=20 changed tacks during the dotcom frenzy on Wall Street. If they lent money = to=20 a young company, some bankers reasoned, that company might hire them for=20 other financial services. The risks were greater, but the prospects for=20 future revenue were tempting. That was before those young companies fell on hard times. CLECs=0F-one of = the=20 harder-hit sectors in the current economic slowdown=0F-have $8.2 billion in= loan=20 commitments from U.S. banks, Credit Suisse First Boston estimates. Skittis= h=20 banks have ways of dumping risky clients, but the process can be expensive,= =20 Ms. Looby says. =0F"Bankers attempting to sell any marginal CLEC credit into the distressed= loan=20 market today are likely to leave 20% to 25% of the loan=0F's face value on = the=20 table,=0F" she continues. =0F"CLEC-related losses could be material for ba= nks=20 attempting to downsize their exposure in this area.=0F" For now, however, many bankers are choosing to sit tight. =0F"I=0F'm not s= eeing a=20 lot of sales into the distressed loan market,=0F" says Robert H. Johnson,= =20 managing director-loan syndications for First Union Securities, Inc. Banke= rs=20 =0F"are not excited=0F" about holding onto some of the riskier telecom loan= s, but=20 they=0F're also not ready to take the financial hit that results from a =0F= " distressed=0F" sale, he says. Furthermore, bankers remain confident that they=0F'll collect the entire am= ount=20 on telecom loans, even in the worst cases, Mr. Johnson says. First Union,= =20 for example, still expects full repayment of its loans to two bankrupt CLEC= s=0F- ICG Communications, Inc., and NorthPoint Communications Group, Inc. =20 Bankruptcy courts often find ways of restructuring debt that enables banks = to=20 emerge unscathed, Mr. Johnson says. Meanwhile, the telecom industry appears to be recovering, Mr. Johnson notes= . =20 =0F"While there still may be more bankruptcies, the perspective in the bank= ing=20 industry is that things have bottomed out,=0F" he says. =0F"I believe we= =0F're at the=20 bottom.=0F" Recovery Could Be Stymied Debt-market analysts at Bear, Stearns & Co. are less sanguine. The debt=20 market appears to have regained its footing, Bear Stearns analysts say, but= =20 the recovery could be stymied by fear, uncertainty, and market failures. = =0F" The telecom sector remains prone to headline risk,=0F" they say, suggesting= that=20 the struggling market won=0F't be able to absorb bad news. Debt markets are especially vulnerable in Europe, where large carriers are= =20 selling =0F"noncore=0F" assets and holding initial public offerings (IPOs) = of stock=20 to raise badly needed funds, Bear Stearns notes. Those funds will help=20 carriers reduce their debts and pay for expensive new wireless networks. B= ut=20 what if nobody is willing to buy the assets or invest in the IPOs? Many analysts view France Telecom=0F's IPO of its wireless subsidiary, Oran= ge=20 plc, as a crucial test of Europe=0F's capital markets. If stock-market=20 investors don=0F't support that IPO, analysts fear that the budding recover= y=20 will wilt. =0F"IPOs and noncore disposals must succeed,=0F" Messrs. Crehan and Secker = of=20 Morgan Stanley declare. =0F"The situation has reached an impasse. Telecom= =20 companies need to spend more=0F-on network build-out and upgrades=0F-to rea= lize a=20 return on their original investment. But financial markets are reluctant t= o=20 risk even more money.=0F" =0F"If the European equity markets do not support [IPOs], necessary=20 capital-raising steps could be delayed, refocusing investors and the rating= =20 agencies on credit ratings,=0F" Bear Stearns says. =0F"Delayed plans might= force=20 the international telecom giants to turn to the banks at a time when the=20 banks are more closely scrutinizing their loan portfolios.=0F" Vendors Become Lenders The type of lending that seems to worry analysts most is vendor financing, = in=20 which equipment vendors give carriers loans in exchange for guaranteed=20 equipment orders. Vendor financing was much less common before last April,= =20 when the stock market still was the best source of funding for telecom=20 companies. When stock market investors closed their doors, many telecom companies went= =20 to the bond market. When bonds dried up, they visited banks. Rejected by= =20 banks, many carriers turned to vendors. Analysts are nervous because vendors sometimes aren=0F't qualified to judge= =20 creditworthiness and administer loan programs. But the vendors are eager t= o=20 snag customers. =0F"Offering financing has quickly developed into a compet= itive=20 weapon by equipment manufacturers keen to take market share,=0F" Messrs. Cr= ehan=20 and Secker explain. =0F"The aggressive expansion of vendor financing has raised fears that equi= pment=20 manufacturers could suffer like the banks should there be widespread=20 default,=0F" Messrs. Crehan and Secker said. =0F"Arguably, the equipment= =20 manufacturers are more exposed to this risk since, by definition, vendor=20 financing is lending to companies that the banks and financial markets have= =20 refused.=0F" Vendor financing worries already have stung some manufacturers. Lucent=20 Technologies, Inc., for example, recently increased its provision for bad= =20 debts to $500 million from $250 million, damaging its financial standing in= =20 the process (TR, Dec. 25, 2000). Vendor financing defaults won=0F't hurt only vendors, analysts say, but als= o=20 could cause equipment manufacturers to turn around and default on their=20 lenders=0F-not a positive development in a year when Standard & Poor=0F's a= lready=20 expects an increase in defaults by debt-laden telecom companies. =0F-Tom Leithauser Conn. Draft Decision Would Let SNET Drop Cable TV Business The Connecticut Department of Public Utility Control has proposed letting= =20 Southern New England Telephone Co. (SNET) and its video service subsidiary,= =20 SNET Personal Vision, Inc., stop providing cable TV services in the state. SNET, a subsidiary of SBC Communications, Inc., had told the department tha= t=20 its hybrid fiber/coaxial cable (HFC) cable TV network was unsuitable for=20 ubiquitous, full-service telephony and that the video-only deployment of th= e=20 HFC network was commercially impracticable (TR, Aug. 14, 2000). A draft department decision says the agency lacks the statutory authority t= o=20 require that SNET continue providing service. It says the department also= =20 lacks the authority to force the transfer of SNET=0F's cable TV franchise o= r=20 video assets to another company, as Connecticut Telephone & Communications= =20 Systems, Inc., had requested last fall (TR, Sept. 25, 2000). Written exceptions to the draft decision are due Jan. 26 in docket 00-08-14= . =20 The department will hold a Feb. 5 hearing, if one is requested, and plans t= o=20 issue a final decision Feb. 14. In 1999 the department modified the terms of SNET=0F's franchise, which=20 originally required the company to serve the entire state by September 2007= . =20 The recent draft decision says that transferring SNET=0F's modified franchi= se=20 agreement to Connecticut Tel would violate the state=0F's =0F"level playing= field=20 requirements.=0F" But the draft does encourage SNET to cooperate with Connecticut Tel and any= =20 other party interested in using its network, or parts of its network, to=20 provide competitive cable TV or other services. Executive Briefings Advanced Services =0F- The FCC gives data CLECs a major win by clarifying= =20 ILECs=0F' =0F"line-splitting=0F" duties and finding that ILECs must offer l= ine-sharing=20 over fiber loops. (Page 3) Bush=0F's =0F`E-rate=0F' Plan =0F- President Bush=0F's package of education= legislative=20 proposals draws criticism from policymakers who helped draft and implement= =20 the =0F"E-rate=0F" telecom discount program. It=0F's also sparking concern= among=20 schools and libraries that have participated and benefited from the program= . =20 (Page 4) 700 MHz Band Auction =0F- Large wireless carriers once again ask the FCC to= =20 postpone the scheduled auction of spectrum in the 700 MHz band, citing a ho= st=20 of familiar concerns that they say could dampen enthusiasm for bidding on t= he=20 frequencies. But rural carriers and TV broadcasters urge the Commission to= =20 begin the auction March 6, as scheduled. (Page 5) 700 MHz Band Relocation =0F- The FCC takes additional steps to help spur th= e=20 relocation of incumbent TV broadcasters from the 700 MHz band in order to= =20 make way for wireless carriers. But it won=0F't force incumbents to clear = the=20 frequencies=0F-at least not yet. (Page 6) Scarce Spectrum =0F- Spectrum issues will top the wireless industry=0F's Wa= shington=20 agenda this year, says CTIA President and CEO Tom Wheeler. He wants the FC= C=20 to lift the spectrum cap while a high-level effort to identify and allocate= =0F" 3G=0F" frequencies proceeds. (Page 8) Spectrum Cap =0F- The FCC reexamines whether to lift the cap on how much=20 spectrum wireless carriers may hold in any one market. It also explores if= =20 it should eliminate its cellular cross-interest rule. (Page 9) Internet Privacy =0F- Reps. Chris Cannon and Anna G. Eshoo introduce a bill= to=20 require operators of commercial Web sites that collect personally=20 identifiable information to explain to site visitors what type of informati= on=20 is collected, how it will be used, and who is collecting it. (Page 11) Infrastructure Tax-Credit Bill =0F- Key lawmakers who control the congressi= onal=20 purse strings revive a push to extend tax credits to carriers that deploy= =20 high-speed Internet facilities. They=0F've also asked President Bush to in= clude=20 the measure in his initial budget submission to Congress. (Page 11) New Approach to Broadband Regs? =0F- The =0F"time is ripe=0F" for legislati= on creating=20 a new regulatory regime for broadband services and networks, similar to the= =20 regime that governs the wireless industry, according to executives at=20 Verizon. (Page 12) =0F`Dominant=0F' Regulation =0F- A federal appeals court agrees with the fo= rmer U S=20 WEST that the FCC erred in focusing on the company=0F's market share when= =20 considering its request to be freed from =0F"dominant=0F"-carrier regulatio= n of=20 certain services. (Page 14) InterLATA Bid Approval =0F- The FCC=0F's authorization of SWBT to offer int= erLATA=20 services in Kansas and Oklahoma may offer insights to other Bell companies= =20 planning their own interLATA bids. (Page 15) Limits on EELs =0F- As it promised to do last year, the FCC begins reexamin= ing=20 its policy barring carriers from using enhanced extended links exclusively = to=20 provide access services. (Page 16) Directory Assistance Rules =0F- The FCC expands the category of competitors= =20 entitled to access local exchange carriers=0F' subscriber listing informati= on. =20 LECs now must provide Internet-based directory publishers with=20 nondiscriminatory access to those databases. (Page 17) TELRIC Rates and Pole Attachments =0F- The Supreme Court agrees to hear two= =20 cases involving disputes over FCC rules. One challenges the FCC=0F's=20 methodology for setting rates for interconnection and UNEs. In a separate= =20 case, the court will consider whether the agency has authority to regulate= =20 the pole attachment rates for wireless and cable TV service providers. (Pa= ge=20 17) State Immunity =0F- The Supreme Court again refuses to review an appeals co= urt=20 finding that state regulators are subject to federal lawsuits regarding=20 carrier interconnection. (Page 18) =0F'Net =0F`Filtering=0F' =0F- The FCC wants advice on how to implement the= Children=0F's=20 Internet Protection Act of 2000, which requires schools and libraries that= =20 receive =0F"E-rate=0F" discounts to use =0F"filtering=0F" technology preven= ting minors=20 from accessing =0F"harmful=0F" material over the =0F'Net. (Page 20) =20 Lucent Restructuring =0F- Wall Street analysts see Lucent=0F's restructurin= g as a=20 way to restore profitability but doubt that the plan will increase growth. = =20 Lucent=0F's bankers extend a new loan but ask for security, suggesting they= are=20 less certain than before of Lucent=0F's creditworthiness. (Page 21) Brazilian Wireless Consolidation =0F- Telefonica and Portugal Telecom are= =20 determined to lead what they say is the =0F"inevitable consolidation=0F" of= the=20 Brazilian wireless industry. The former rivals will combine their Brazilia= n=20 mobile telephony assets into a $10 billion joint venture that will be the= =20 country=0F's largest wireless service provider. (Page 23) Handset Outsourcing =0F- Ericsson decides to exit the mobile phone manufact= uring=20 business after that part of its operations turns in yet another disappointi= ng=20 quarter. =0F"The results in our mobile phones business, while in line with= =20 expectations, remain unsatisfactory,=0F" says Kurt Hellstrom, president and= CEO=20 of the Swedish company. (Page 23) Vancouver Rights-of-way =0F- Canadian regulator CRTC settles a dispute betw= een=20 the city of Vancouver and Ledcor Industries. The commission says a number = of=20 city-imposed project fees as unreasonable and paves the way for completion = of=20 the network deployment. (Page 24) Wireless Licenses =0F- Telecom regulators in Brazil and France face setback= s in=20 their attempts to award licenses for wireless services. (Page 24) Antenna Collocations =0F- Two wireless industry trade groups seek revisions= of a=20 draft agreement designed to streamline the review of antenna collocations= =20 under the National Historic Preservation Act. The groups say the changes a= re=20 needed to ensure that the pact accomplishes its goal. (Page 25) Building Access =0F- Building owners and competitive telecom service provid= ers,=20 escalating the battle they=0F've been waging for the last few years, shift = their=20 focus to multitenant residential buildings. (Page 27) Jurisdictional Cost Allocation =0F- The FCC orders Alaskan telco ATU to pay= an=20 interexchange carrier $2.7 million in damages to make up for improperly=20 assigning to the interstate jurisdiction the traffic-sensitive costs of=20 carrying Internet-bound traffic. (Page 29) =0F`C,=0F' =0F`F=0F' Block Reauction =0F- The FCC nets a record $16.8 billi= on in its=20 reauction of 422 =0F"C=0F" and =0F"F=0F" block PCS licenses=0F-an amount wi= thin the range=20 expected by most financial and industry analysts. Meanwhile, at least one= =20 participant is planning on challenging the results before the FCC=0F-and=20 possibly in court. (Page 30) Verizon Wholesale-Retail Split =0F- An administrative law judge recommends = that=20 the Pennsylvania PUC develop its own plan for Verizon to split its wholesal= e=20 and retail operations within one year. The ALJ also criticizes Verizon=0F'= s =0F" alternative=0F" plan for not going far enough. (Page 32) International Service Authorizations =0F- The FCC generally wins support fo= r its=20 proposals to streamline procedures governing pro forma assignments and=20 transfers of international service authorizations. (Page 32) Falling Credit Ratings =0F- Many telecom companies these days are groaning = under=20 the weight of excessive debt that they accumulated while building networks,= =20 acquiring other companies, and trying to enter new markets. Determining=20 whether they can pay those and future debts is the job of telecom analysts= =20 like Robert Ray of Moody=0F's Investors Service. (Page 39) Telecom=0F's Iffy Debts =0F- On the one hand analysts are sounding alarm be= lls,=20 while on the other they=0F're saying, =0F"Don=0F't panic.=0F" The reason f= or the caution=20 flags is the level of questionable debt at telecom companies. (Page 40) Copyright 2001, Telecommunications Reports International, Inc. All rights= =20 reserved.

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Subject: Telecommunications Reports -- 01/29/01 Sender: trhtml-owner@maui.tr.com Recipients: [] File: dasovich-j/all_documents/8681. ===================================== =20 Telecommunications Reports - January 29, 2001 FCC Expands ILEC Line-Sharing Mandates To Fiber Loops, Confirms=20 Line-Splitting Duty Critics Worry White House =0F`E-rate=0F' Proposal May Reduce Funding, Disco= urage=20 Participation FCC Gears Up To Enforce E-rate =0F'Net-Filter Mandate Large Carriers Want 700 MHz Auction Postponed, But Small Providers,=20 Broadcasters Oppose Delay FCC Takes Additional Steps To Help Clear 700 MHz Band The FCC=0F's Enforcement Bureau is a proposing a monetary forfeiture... Easing Spectrum Crunch Tops CTIA=0F's 2001 Lobbying Agenda Nextel Communications, Inc., has agreed to purchase specialized mobile=20 radio... Commission Examines Merits Of Lifting CMRS Spectrum Cap Bookham Technology plc, an Oxfordshire, England=0F-based... Appellate Court Upholds Nextel Tower Permit Finance Panel Senators Back Broadband Service Tax Credits Verizon Wants Law Changing Approach to Broadband Regs Utah Bill Would Halt Plan To Merge Consumer Agencies Reps. Cannon, Eshoo Unveil Internet Privacy Measure Appeals Court Says FCC Erred in Rejecting U S WEST Bid for =0F`Nondominant= =0F'=20 Regulation The FCC=0F's Enforcement Bureau has issued a monetary forfeiture... FCC Gives Bells =0F`Blueprint=0F' In OK of SWBT=0F's InterLATA Bid FCC Rethinks Limitations On Carriers=0F' Use of EELs Pole Attachment, TELRIC Rates To Be Challenged in High Court Supreme Court Again Refuses To Hear State Immunity Cases =0F'Net-Based Directory Publishers Can Access LEC Data, FCC Says Analysts See Lucent Plan Leading To Profitability, But Not Growth Court Says WorldCom Tariff Trumps Service Pact with ICOM Long Distance Revenues Head North, FCC Reports Telefonica, Portugal Telecom Foresee Brazilian Consolidation Losses in Handset Operations Spur Ericsson To Exit Business CRTC Nixes Vancouver Bid For Fiber-Deployment Fees Brazil, France Face Setback In Awarding Wireless Licenses Wireless Industry Seeks Changes In Antenna-Collocation Agreement The Telecommunications Industry Association has published... Carriers, Others See Problems In FCC=0F's ID-Number Proposal=20 Building Owners, Carriers Spar over FCC Proposal To Block Service, Extend B= an=20 on Exclusive Pacts Missouri Lawmakers Seek To Oust Three PSC Members FCC Says ATU Must Refund $2.7M For Misallocating Costs =0F`C,=0F' =0F`F,=0F' Block Reauction Nets Record $16.8B; Large Carrier Par= ticipation May=20 Be Contested Pa. ALJ Slams Verizon Plan To Avoid Full Structural Split Carriers Back Simplified Transfers Of International Authorizations Personnel Regulatory & Government Affairs Industry News Verizon=0F-Vodafone Assets DT Acquisitions What=0F's Ahead. . . Falling Credit Ratings Create Costly Obstacle for Carriers Telecom Sector=0F's Dubious Debts Create Drag on Financial Markets Conn. Draft Decision Would Let SNET Drop Cable TV Business Executive Briefings FCC Expands ILEC Line-Sharing Mandates To Fiber Loops, Confirms=20 Line-Splitting Duty The FCC has given data CLECs (competitive local exchange carriers) a major= =20 win by expanding incum-bent local exchange carriers=0F' =0F"line-sharing=0F= " and =0F" line-splitting=0F" duties. The FCC tinkered with its rules governing those= =20 duties in an order and further notice of proposed rulemaking released in=20 Common Carrier dockets 96-98 and 98-147. The order addressed petitions for= =20 reconsideration and clarification of a previous order on line sharing (TR,= =20 Nov. 22, 1999). Line sharing is the requirement that incumbent local exchange carriers=20 (ILECs) allow competitors to offer high-speed service over the high-frequen= cy=20 portion of a loop, while the ILEC continues to offer voice service over the= =20 low-frequency portion. In the order adopted Jan. 19, the FCC said ILECs must provide line sharing= =20 over the entire loop even if they=0F've deployed fiber in the loop to suppl= ement=20 or replace the original copper line. The order was one of many actions tha= t=20 the FCC took on the last day of Chairman William E. Kennard=0F's tenure but= that=20 were not immediately available, eventually trickling out of the Commission= =20 last week. Rhythms NetConnections, Inc., had filed a petition for clarification with t= he=20 FCC, complaining that some ILECs were contending they didn=0F't have to unb= undle=20 fiber portions of the loop when those portions were used to provide xDSL=20 (digital subscriber line) services. =0F"In the absence of this clarification, a competitive LEC might undertake= to=20 collocate a DSLAM [digital subscriber line access multiplexer] in an=20 incumbent=0F's central office to provide line-shared xDSL services to custo= mers,=20 only to be told by the incumbent that it was migrating those customers to= =20 fiber-fed facilities,=0F" the FCC said. In that case, the CLEC would have = to=20 collocate another DSLAM in a remote terminal to continue offering line-shar= ed=20 services to the same customers. =0F"All indications are that fiber deployment by incumbent LECs is increasi= ng=20 and that collocation by competitive LECs at remote terminals is likely to b= e=20 costly, time-consuming, and often unavailable,=0F" the FCC said. The FCC says ILECs must allow for =0F"line splitting,=0F" so competitors th= at offer=20 voice service using the unbundled network element platform can provide=0F-o= r=20 partner with another data CLEC to provide=0F-DSL service on those same line= s. =0F"Incumbent LECs are required to make all necessary network modifications= to=20 facilitate line splitting, including providing nondiscriminatory access to= =20 [operation support systems] necessary for preordering, ordering,=20 provisioning, maintenance and repair, and billing for loops used in=20 line-splitting arrangements,=0F" the FCC said. The FCC =0F"strongly urged=0F" ILECs and CLECs to =0F"work together to deve= lop=20 processes and systems to support competing carriers=0F' ordering and=20 provisioning of unbundled loops and switching necessary for line splitting.= =0F" The FCC, however, denied a related petition for clarification filed by AT&T= =20 Corp. It had asked the FCC to require ILECs to make their xDSL services=20 available to customers even if they obtain voice service from competing=20 carriers using the ILECs=0F' lines. AT&T was worried that customers wouldn= =0F't=20 switch their voice service to a competitor if that change would eliminate= =20 their ability to get DSL services. =0F"Although the line-sharing order obligates incumbent LECs to make the=20 high-frequency portion of the loop separately available to competing carrie= rs=20 on loops where incumbent LECs provide voice service, it does not require th= at=20 they provide xDSL service when they are no longer the voice provider,=0F" t= he=20 FCC said. =0F"To the extent that AT&T believes that specific incumbent behavior const= rains=20 competition in a manner inconsistent with the Commission=0F's line-sharing = rules=20 and/or the [Communications Act of 1934, as amended] itself, we encourage AT= &T=20 to pursue enforcement action,=0F" it said. The FCC also denied requests from Bell Atlantic Corp. (now Verizon=20 Communications, Inc.). It had asked the FCC to (1) reconsider the=20 requirement that ILECs refusing to condition a loop for the provision of DS= L=20 service demonstrate to the relevant state commission that conditioning that= =20 loop would degrade voice services and(2) permit a line-sharing deployment= =20 schedule other than the one it adopted. Rhythms applauded the FCC=0F's decision. =0F"By expanding the definition o= f line=20 sharing to include fiber loops and ensuring our ability to use consumers=0F= '=20 existing voice lines for data services, we can bring the benefits of the mo= st=20 robust broadband service offerings to consumers,=0F" said Jeffrey Blumenfel= d,=20 chief legal officer and general counsel for Rhythms. During a press briefing last week (see separate story), Thomas J. Tauke,=20 senior vice president-public policy and external affairs at Verizon=20 Communications, Inc., criticized the FCC=0F's decision, specifically the=20 provisions requiring line splitting. The FCC =0F"didn=0F't address how thi= s is to=20 be done,=0F" he said. Jonathan Lee, vice president-regulatory affairs at the Competitive=20 Telecommunications Association, said the order was an =0F"unmitigated win= =0F" for=20 data CLECs. But he said the FCC=0F's decision not to grant AT&T=0F's petit= ion for=20 clarification was =0F"regrettable.=0F" Residential consumers who have DSL available only from the ILEC won=0F't be= able=20 to switch their voice service without losing their DSL service, he said. M= r.=20 Lee compared the ILECs=0F' =0F"tying=0F" of voice and DSL service to Micros= oft Corp.=0F's=20 practice of linking its Internet Explorer Web browser with its Windows=20 operating system. The ILEC practice =0F"could run afoul of antitrust laws,= =0F" he=20 said. Critics Worry White House =0F`E-rate=0F' Proposal May Reduce Funding, Disco= urage=20 Participation The education reform package that President Bush sent to Congress last week= =20 is drawing criticism from policy-makers who helped draft and implement the = =0F" E-rate=0F" telecom discount program. It=0F's also sparking concern among s= chools=20 and libraries that have participated in the program and benefited from it. They=0F're worried that the president=0F's E-rate proposal, if adopted in i= ts=20 current =0F"blueprint=0F" form, would discourage certain schools from apply= ing for=20 discounts on telecom and Internet services and internal connections. In th= e=20 long run, they fear that the president=0F's proposal would lead to decrease= d=20 funding for the program, which currently stands at $2.25 billion a year. The main problem, these critics say, is that shifting administration of the= =20 program to the Department of Education, as President Bush has said he inten= ds=20 to do, would render E-rate funding dependent on congressional=20 appropriations. In its current form under the FCC=0F's oversight, the prog= ram=20 is funded by universal service contributions assessed from telecom carriers= . The technology part of the president=0F's education reform initiative unvei= led=20 last week calls for combining the E-rate with several Department of Educati= on=20 programs to form one =0F"performance-based technology grant program.=0F" T= hen, it=20 says, funding for that program would be disbursed =0F"by formula=0F" to sta= tes=20 through block grants. The aim is to streamline the many =0F"duplicative technology programs=0F" i= nto one=20 education grant plan, the Bush administration says. Such streamlining woul= d=20 go a long way toward reducing the E-rate program=0F's =0F"burdensome paperw= ork=0F"=20 requirements and adding more flexibility to those program, the proposal say= s. =0F"Flexibility will be increased by allowing funds to be used for purposes= that=20 include software purchases and development, wiring and technology=20 infrastructure, and teacher training in the use of technology,=0F" it state= s. =20 It also would permit E-rate recipients to use federal funds to pay for=20 Internet filtering software, which is being mandated for the first time thi= s=20 year by the Children=0F's Internet Protection Support Act of 2000 (TR, Jan.= 22). But key U.S. lawmakers and education officials aren=0F't prepared to embrac= e the=20 plan yet. They say more details are needed from the Bush administration on= =20 several issues, including how the E-rate program would be funded and what= =20 formula would be used to distribute money among the states. Jeff Burnett, director-government relations at the National Association of= =20 Independent Schools, says the language of the proposal is cloudy when it=20 comes to whether the program would be supported by the Universal Service=20 Fund, as it is now, or by general tax revenues. =0F"That=0F's a huge quest= ion=20 mark, and we are highly nervous about it because it does appear that it wou= ld=20 become part of the Department of Education=0F's budget,=0F" he says. Mr. Burnett says making the E-rate dependent on general tax revenues could = =0F" destabilize=0F" its funding and discourage some private and parochial schoo= ls=20 from applying for telecom discounts. =0F"It would go from where it is now,= a=20 pretty stable $2.25 billion per year, to where you would have arguments eve= ry=20 year in Congress over how much money it would get.=0F" Plus, he says, E-rate funds =0F"no longer would be string-free=0F" if they = were to=20 be allocated by the federal government. Moving the program to the Departme= nt=20 of Education could discourage religious schools from participating because = of=20 potential =0F"church-state problems,=0F" he says, referring to the First Am= endment=20 to the U.S. Constitution, which prohibits congressional establishment of an= =20 official religion. And some states may be restricted by their state=20 constitutions from providing federally funded educational services to priva= te=20 and religious schools, he adds. Former FCC Chairman Reed E. Hundt, who oversaw the implementation of the=20 E-rate program back in 1996, fears that the end result could be the =0F"kil= ling=20 of the program altogether=0F" or a =0F"chopping of it down from a significa= nt=20 program to an insignificant one.=0F" =20 Having the Education Department oversee the E-rate program would remove=20 stability from the program, Mr. Hundt stressed. =0F"Where are they going t= o=20 find 2, 3, or 4 billion dollars in the general [tax revenues] to pay for it= ?=0F"=20 he asked. =0F"The bigger [telecom service] providers probably would be hap= py,=20 but the [support] would be reduced,=0F" Mr. Hundt told TR last week. He also rejected the administration=0F's claims that consolidating the educ= ation=20 technology programs would reduce applicants=0F' paperwork and filing=20 requirements. =0F"Moving it to the Department of Education is not a way to= =20 simplify paperwork,=0F" Mr. Hundt said. =0F"Nothing is simpler than the wa= y it=0F's=20 done now. These forms don=0F't even go to the government; they go to a=20 privately run trust fund,=0F" he added. A source who works with schools on fine-tuning their E-rate applications=20 foresees a =0F"food fight at the state level=0F" if the Bush administration= =20 institutes a block-grant program. =0F"There won=0F't be the same spirit of= =20 cooperation among the schools and libraries that there is today,=0F" the so= urce=20 says. =0F"Instead, they=0F'll see each other as competition.=0F" A library official said that even if the E-rate program remained part of th= e=20 USF, expanding its scope to include software purchases and teacher training= =20 could give telecom carriers grounds for a legal challenge of the assessment= s=20 made on their revenues. =0F"If the money is to come from the service provi= der,=20 then the program must directly relate back to the services that they=20 provide. I could see someone challenging the software and teacher-training= =20 aspects,=0F" the source says. Snowe, Rockefeller Are Skeptical The program has received an icy response from two U.S. senators who were=20 among the original sponsors of the legislation that added the E-rate=20 provisions to the Telecommunications Act of 1996: Republican Olympia J.=20 Snowe (Maine) and Democrat John D. Rockefeller IV (W.Va.). In a statement issued soon after the Bush education proposal was released= =20 Jan. 23, Sen. Rockefeller vowed to =0F"aggressively fight=0F" the E-rate as= pects of=20 the proposal. It would be a =0F"grave mistake=0F" to fold the E-rate into = a block=20 grant program with the Education Department technology programs, Sen.=20 Rockefeller said. =0F"Under the Bush block-grant approach, local schools would have less=20 flexibility, not more,=0F" Sen. Rockefeller said. =0F"Private and parochia= l=20 schools would have to negotiate with state education agencies and worry abo= ut=20 entanglements of federal regulations. Most importantly, the secure funding= =20 for the E-rate and investments in technology would be jeopardized,=0F" he s= aid. Sen. Snowe also worries about turning the E-rate into a block-grant program= . =20 Among other things, she says, such a proposal could deter private and=20 parochial schools from participating in the program. =20 =0F"We plan to work with President Bush and our colleagues in the Congress = to=20 ensure that the current program is protected, as we don=0F't support any ef= forts=20 that would undermine its goals,=0F" a Snowe aide told TR. =20 New House telecommunications subcommittee Chairman Fred Upton (R., Mich.) h= as=20 told President Bush in a letter that he plans to hold several hearings this= =20 year on =0F"aspects of your proposal that fall under the subcommittee=0F's= =20 jurisdiction,=0F" including the E-rate plan. Rep. Upton has asked the Bush administration to focus on broadband service= =20 deployment, =0F"particularly as it relates to how increased access to high-= speed=20 data services in our homes and schools could vastly improve educational=20 opportunities.=0F" Numerous calls to the White House seeking comment weren= =0F't=20 returned before TR=0F's Friday afternoon news deadline. FCC Gears Up To Enforce E-rate =0F'Net-Filter Mandate The FCC wants advice on how to implement the Children=0F's Internet Protect= ion=20 Act of 2000 (CIPA), which requires schools and libraries that receive =0F" E-rate=0F" discounts for Internet services and internal connections to use = =0F" filtering=0F" technology that prevents minors from accessing =0F"harmful=0F= " material=20 over the =0F'Net. The FCC has suggested that recipients certify compliance with the CIPA on= =20 forms they must file when applying for E-rate discounts on telecom services= ,=20 Internet services, and internal connections. Under the CIPA, the =0F"Internet safety technology=0F" must filter out =0F"= visual=20 depictions=0F" of =0F"obscene=0F" material or =0F"child pornography,=0F" ev= en when adults=20 are using the computers. Schools and libraries are required to bar access = to=20 visual depictions that are =0F"harmful to minors=0F" only when minors are u= sing the=20 computers. The law requires E-rate recipients to certify each program year that they a= re=20 complying with the filtering mandate and that they monitor the operation of= =20 the filtering technology while the computers are in use. The law allows an= =20 administrator to disable the filtering technology while the computer is bei= ng=20 used by an adult =0F"for bona fide research or other lawful purpose.=0F" Schools and libraries have one year to adopt an Internet safety policy; in= =20 the first year after the effective date of the law, they either must certif= y=20 that they have such a policy or that they are developing one. The law also allows schools and libraries to seek a waiver from the FCC=20 during the law=0F's second year, if state or local procurement rules or=20 competitive bidding requirements have prevented them from implementing an= =20 Internet safety policy. The FCC=0F's further notice of proposed rulemaking released last week in Co= mmon=20 Carrier docket 96-45 proposes that E-rate recipients this year certify eith= er=20 that they have complied with all relevant provisions of the CIPA or that th= e=20 CIPA requirements don=0F't apply. The certifications would appear on their= =0F" receipt of confirmation=0F" forms (FCC Form 486). The CIPA doesn=0F't require schools and libraries that use E-rate funds onl= y for=20 telecom services=0F-and not for Internet access or internal connections=0F-= to=20 install the filtering technology. The FCC proposes that in future years recipients include their compliance= =20 certifications on FCC Form 471, which is used to describe the services to b= e=20 funded. It asks how to implement the =0F"remedial=0F" provisions of the CI= PA,=20 which detail ways an applicant can correct its noncompliance or=20 noncertification. Comments are due 15 days after publication of the=20 rulemaking notice in the Federal Register; replies are due 30 days later. The American Library Association has announced plans to challenge the=20 constitutionality of the CIPA (TR, Jan. 22), whose Internet-filtering=20 requirements extend to other federal programs that subsidize schools=0F' an= d=20 libraries=0F' purchases of computers and Internet access. The ALA, which notes that the CIPA takes effect April 20, has launched a We= b=20 site where it will post information about its activities regarding the CIPA= =20 (http://www.ala.org/cipa). Meanwhile, President Bush last week announced a proposal for modifying the= =20 E-rate program, including reducing the paperwork demands on applicants (see= =20 separate story). Large Carriers Want 700 MHz Auction Postponed, But Small Providers,=20 Broadcasters Oppose Delay Large wireless carriers are once again asking the FCC to postpone the=20 scheduled auction of licenses for the 700 megahertz band, citing a host of= =20 familiar concerns that they say could dampen enthusiasm for bidding on the= =20 frequencies. But rural carriers and TV broadcasters are urging the Commission to begin t= he=20 auction March 6, as scheduled, noting that the sale already has been=20 postponed three times. They say that large carriers have had plenty of tim= e=20 to prepare for the auction and that further delays would be unfair to them. They offered their views in comments filed with the FCC last week in respon= se=20 to a request by Verizon Wireless to delay the sale until September (TR, Jan= .=20 22). Several large carriers that supported the request asked for an even= =20 longer postponement. Supporters of postponement cited the presence of broadcasters in the spectr= um=20 and the need to negotiate band-clearing agreements as evidence to support= =20 their cause (see separate story). Most of their arguments echoed those of= =20 Verizon Wireless. TV broadcasters don=0F't have to evacuate the spectrum (channels 60=0F-69) = as part=20 of the transition to digital TV until 2006 at the earliest. But wireless= =20 carriers, citing the uncertainty about when the frequencies slated to be=20 auctioned will be available for use, have asked the FCC and Congress to for= ce=20 the broadcasters out early. In addition to the presence of the broadcasters, other reasons the large=20 carriers said the auction should be delayed included concerns that (1)a=20 reauction of =0F"C=0F" and =0F"F=0F" block PCS (personal communications ser= vice) licenses=20 hadn=0F't finished in time for carriers to assess their spectrum needs in t= he=20 700 MHz auction (see separate story), (2)companies need more time to prepar= e=20 for package bidding rules that will be used for the first time in the aucti= on=20 (TR, July 10, 2000), and (3)a high-level effort to identify and allocate=20 frequencies for third-generation (3G) services will affect carriers=0F' int= erest=20 in the 700 MHz band (see separate story). The Cellular Telecommunications & Internet Associationsaid carriers=20 interested in participating in the 700 MHz band auction wouldn=0F't have ti= me to=20 assess their bidding strategies and spectrum needs and form alliances becau= se=20 the C and F block reauction concluded last week, after the comments were=20 filed. In addition, the Commission=0F's anticollusion rules limit contact= =20 between bidders, CTIA noted. CTIA added that prospective 700 MHz band bidders wouldn=0F't have time to= =20 negotiate the band-clearing agreements the FCC is encouraging. And it cite= d=20 carriers=0F' need to prepare for package-bidding rules. In the end, the sa= me=20 factors that led the FCC to delay the auction last year still exist, CTIA= =20 said. AT&T Wireless Services, Inc.,asked the FCC to delay the auction until March= =20 2002. Such a move =0F"will give incumbents, prospective bidders, and the= =20 Commission an opportunity to resolve much of the uncertainty associated wit= h=20 this band,=0F" the carrier said. AT&T Wireless also said more time was nee= ded=20 to assess whether recent FCC actions designed to speed broadcasters=0F'=20 transition to digital TV would accomplish their goals. It suggested that the FCC schedule the auction of channels 60=0F-69 in=20 conjunction with a sale of channels 52=0F-59, which the FCC is statutorily= =20 required to license by September 2002. Cingular Wireless LLCasked the FCC to delay the auction until at least 60 t= o=20 90 days after it acts on all =0F"long form=0F" applications filed by winnin= g=20 bidders in the C and F block reauction. It also suggested that FCC=20 coordinate the timing of licensing channels 60=0F-69 and channels 52=0F-59. Nextel Communications, Inc.,wants the auction delayed until November. That= =20 move would give carriers time to assess the spectrum-allocation decisions= =20 made under the 3G initiative, Nextel said. Although the 30 MHz of commerci= al=20 spectrum in the 700 MHz band is not under consideration as part of that=20 effort, the frequencies are considered ideally suited for such advanced=20 services. Telephone and Data Systems, Inc.,filing on behalf of itself and its United= =20 States Cellular Corp.subsidiary, supported a delay until September or later= =20 if several other related proceedings aren=0F't completed. A postponement is =0F"essential=0F" for smaller and midsize companies that = need=20 time to assess 700 MHz market valuations, to locate funding sources, and to= =20 prepare for the package-bidding methodology, TDS said. =0F"In July of 2000, the Commission postponed this very auction for precise= ly=20 these same reasons, a decision strongly supported by the wireless industry,= =0F"=20 said Motorola, Inc.=0F"The logic of that postponement should apply with equ= al=20 force to the present request by Verizon.=0F" It added =0F"that forcing carriers to engage in competitive bidding for spe= ctrum=20 without adequate preparation will itself create a market distortion both in= =20 the actual process and in the rapidly evolving mobile marketplace.=0F" The Association of Public-Safety Communications Officials-Internationalsaid= =20 it backed a postponement =0F"to the extent that such a delay may facilitate= the=20 ultimate clearing of television broadcasters from the 700 MHz band. . .Any= =20 effort that facilitates band-clearing on channels 60=0F-69 is likely to ben= efit=20 public safety agencies waiting to use the 700 MHz band.=0F" Spectrum Exchange Group LLCsought a delay of two to six months, saying such= =20 an action would strike =0F"the appropriate balance between the needs of the= =20 bidders and incumbent broadcasters to establish a band-clearing agreement,= =20 and the urgency of putting this valuable spectrum to its best use.=0F" Ronald M. Harstad and Michael H. Rothkopfof Rutgers University and Aleksand= ar=20 Pekecof Duke University also argued for a delay, citing the 3G initiative,= =20 the need to negotiate band-clearing agreements, and the introduction of=20 package bidding. Rural Carriers, Broadcasters Object But a group representing rural carriers urged the FCC to hold the auction a= s=20 scheduled. =0F"The Commission should not establish auction deadlines that= =20 comport with the business plans of any private company,=0F" the Rural=20 Telecommunications Groupsaid. =0F"And, stripped to its essence, Verizon ur= ges=20 the Commission to delay the 700 MHz [band] auction merely for Verizon=0F's= =20 business convenience.=0F" Delaying the sale would benefit Verizon Wireless at the expense of=20 competitors that skipped the C and F block reauction with the expectation o= f=20 bidding in the 700 MHz band sale, the group said. It added that it opposed= =20 any linkage between the 700 MHz band auction and the initiative to allocate= =20 3G spectrum. =0F"This informal daisy chain between auctions=0F-and between auctions and = other=20 allocation proceedings=0F-can only serve to advantage the largest carriers = who=20 seek to participate seriatim in each and every auction,=0F" it said. Paxson Communications Corp.,the largest incumbent broadcaster in channels 6= 0=0F- 69, also asked the FCC to reject the postponement request. Further delay = =0F"is=20 unfair to incumbent broadcasters who are seeking to get past the auction an= d=20 determine the future availability of this spectrum for both their digital a= nd=20 analog operations,=0F" it said. The broadcaster added that wireless carriers had plenty of time to prepare= =20 for the sale. And it noted that the FCC already had missed a September 200= 0=20 statutory deadline for depositing proceeds from the sale into the U.S.=20 Treasury. Equity Broadcasting Corp.said it supported Paxson=0F's comments. =0F"Further delay will slow the digital transition, violate congressional= =20 directive, and will not benefit potential bidders for the spectrum,=0F" agr= eed=20 Shop At Home Network.=0F"Moreover, Verizon=0F's arguments that a further de= lay will=20 benefit it and other potential auction participants are specious at best.= =0F" FCC Takes Additional Steps To Help Clear 700 MHz Band The FCC has taken additional steps to help spur the relocation of incumbent= =20 TV broadcasters from the 700 megahertz band in order to make way for wirele= ss=20 carriers. But it said it wouldn=0F't force the incumbents to clear the=20 frequencies=0F-at least not yet. In a third report and order released last week, the Commission said it had= =20 decided to allow the private sector to determine what band-clearing=20 mechanisms best suited the needs of broadcasters and wireless carriers. Specifically, the FCC has decided not to impose cost-sharing rules, cost=20 caps, or cost-recovery guidelines at this time on the relocation of incumbe= nt=20 broadcasters. Last year the agency asked whether it should impose such rul= es=20 (TR, June 26 and July 10, 2000). =0F`Secondary Auctions=0F' Touted The FCC also will leave it up to industry to decide if =0F"secondary auctio= ns=0F"=20 should be organized to facilitate band-clearing agreements before the=20 auction, which is scheduled to begin March 6. The FCC earlier asked for=20 comments on whether it had the authority to conduct such auctions. In the order released last week, the FCC reiterated its view of the benefit= s=20 of such auctions, saying they =0F"have potential to offer both broadcasters= and=20 new entrants additional opportunities to reduce the potential transaction= =20 costs of negotiating with each other directly after the auction.=0F" As part of their transition to digital TV (DTV), broadcasters don=0F't have= to=20 leave the 700 MHz band (channels 60=0F-69) until 2006 at the earliest. The= y may=20 stay longer if less than 85% of households in their markets have access to= =20 DTV signals. That timetable has created uncertainty among wireless carrier= s=20 about how much to bid=0F-or whether to bid at all=0F-on the spectrum when i= t is=20 auctioned. Wireless carriers have asked the FCC to force TV broadcasters out of the=20 spectrum before they are required to leave (TR, Aug. 21, 2000). For their= =20 part, broadcasters have fought such band-clearing mandates and instead have= =20 urged the FCC to address larger issues related to the DTV transition,=20 especially digital =0F"must-carry=0F" cable TV rights. The FCC recently took several actions that it said would facilitate=20 broadcasters=0F' transition to DTV, including those dealing with must-carry= =20 rights. In its 700 MHz band order, the FCC said it wanted to give voluntary=20 mechanisms a chance in clearing the frequencies for wireless services. =0F= "We=20 believe that voluntary agreements between broadcasters and licensees should= =20 result in the effective clearing of the 700 MHz band,=0F" it said. =0F"How= ever, we=20 will revisit this issue in the future if we find it necessary.=0F" The FCC=0F's latest action builds upon the policies it adopted last year to= =20 provide guidance to broadcasters and carriers regarding the regulatory=20 treatment of private band-clearing agreements. For example, the agency extended to three-way agreements a general =0F" rebuttable presumption=0F" adopted last year for bilateral pacts. The=20 presumption is that such agreements are in the public interest. The FCC also provided guidance on interference issues arising from relocati= on=20 agreements that involve moving a broadcaster to a channel below channel 59.= =20 And it has streamlined the review of band-clearing agreements and affirmed= =20 that it expeditiously will process band-clearing agreements. It also=20 clarified that voluntary agreements to temporarily relocate licensees into= =20 channels 52=0F-58 would be permitted. Commissioner Gloria Tristani dissented in part from the report and order. = In=20 a statement, she said she opposed the decision to extend the rebuttable=20 presumption to three-way agreements. She expressed concern that such=20 agreements would result in a loss of TV service for viewers and said she=20 wanted to consider band-clearing agreements case by case. =0F"As I have stated previously, my ultimate concern is that the presumptio= n in=20 favor of band clearing reflects a diminishing regard for the public value o= f=20 free, over-the-air television services,=0F" Commissioner Tristani said. She also took exception with the FCC=0F's statement that it might revisit i= ssues=20 surrounding the mandatory relocation of broadcasters. =0F"I remain convinc= ed=20 that such action would contravene the statute=0F" establishing broadcasters= =0F' DTV=20 transition, she said. The FCC=0F's order was adopted Jan. 18 in Wireless Telecommunications docke= t=20 99-168, Cable Services docket 98-120, and Mass Media docket 00-39. A news= =20 release on the action and the text of the document were released Jan. 23. Kennard Requests Hard Stand In a related development, former FCC Chairman William E. Kennard has asked= =20 Congress to take a hard stand against broadcasters in their transition to= =20 DTV. Writing Jan. 19 to Sen. Ernest F. Hollings (D., S.C.), Mr. Kennard=20 suggested that Congress set a firm deadline of Dec. 31, 2006, for TV=20 broadcasters in channels 52=0F-69 to relocate. =20 He also proposed that broadcasters using channels 2=0F-51 after that date b= e=20 charged an escalating fee to encourage them to clear the spectrum. Writing Jan. 26 to Senate Commerce, Science, and Transportation Committee= =20 Chairman John McCain (R., Ariz.), Lyle Gallagher, president of the=20 Association of Public-Safety Communications Officials-International,=20 expressed support for Mr. Kennard=0F's proposals to help clear the 700 MHz = band. At the very least, steps should be taken to clear channels 60=0F-69, Mr.=20 Gallagher said. Public safety agencies urgently need access to 24 MHz of= =20 spectrum in the 700 MHz band that the FCC has reallocated for their use, he= =20 said, but much of it is occupied by broadcasters. =0F"By making the Dec. 31, 2006, date firm for channels 60=0F-69, state and= local=20 governments throughout the nation could plan on spectrum being available no= =20 later than Jan. 1, 2007, and could proceed with necessary funding, frequenc= y=20 planning, design, and construction for new radio systems,=0F" he added. = =0F"APCO=20 also supports adoption of legislative and regulatory provisions that may=20 allow for clearing of channels 60=0F-69 even prior to 2006.=0F" The FCC=0F's Enforcement Bureau is a proposing a monetary forfeiture... The FCC=0F's Enforcement Bureau is a proposing a monetary forfeitureof $5,0= 00=20 against Verizon Southwest, Inc., for operating a paging station in Juno,=20 Texas, without Commission authorization. Verizon told the agency that it= =20 operated the station without authorization between Nov. 1, 1998, and Feb. 7= ,=20 2000. The bureau released a notice of apparent liability for forfeiture=20 against Verizon Jan. 25 in file no. EB-00-TS-212. Easing Spectrum Crunch Tops CTIA=0F's 2001 Lobbying Agenda Spectrum issues will top the wireless industry=0F's Washington agenda for t= his=20 year, according to Cellular Telecommunications & Internet Association=20 President and Chief Executive Officer Thomas E. Wheeler. A scarcity in=20 frequencies is hurting U.S. carriers=0F' competitiveness with their foreign= =20 counterparts and thwarting development of the wireless Internet, he said. Mr. Wheeler urged the FCC to lift the cap on how much spectrum a carrier ma= y=20 hold in any one market while a high-level effort to identify and allocate= =20 frequencies for third-generation (3G) services proceeded. Such a move woul= d=20 ease the spectrum crunch, he reasoned. At a briefing for reporters last week, he said the Bush administration had= =20 its work cut out for it in collaborating with the FCC to find suitable band= s=20 for 3G use. U.S. Seen Falling Behind =0F"God bless the Clinton administration for starting the spectrum policy r= eview=20 process, but [it] couldn=0F't bring it to fruition, and it now falls to the= Bush=20 administration to deal with the really hard parts and to make decisions,=0F= " Mr.=20 Wheeler said. =0F"Those decisions will probably take time. We can=0F't afford time. It= =0F's what=20 we don=0F't have. Japan and Europe are already building the [networks whil= e] we=0F' re still trying to figure out where we should get it,=0F" he added. Then-President Clinton launched the 3G initiative by executive memorandum i= n=20 October 2000 (TR, Oct. 16, Nov. 6, and Nov. 20, 2000; and Jan. 8 and 22). = =20 The memorandum calls for the FCC to license the spectrum by Sept. 30, 2002,= =20 after a collaborative effort led by the FCC and the Commerce Department=0F'= s=20 National Telecommunications & Information Administration. But a key obstacle is that the bands being examined most closely for 3G=20 applications already are occupied by military, commercial, and educational= =20 users. Mr. Wheeler said that the time it would take to allocate 3G spectrum made i= t=20 even more important for the FCC to lift the spectrum cap immediately. The= =20 FCC asked for comments on the issue last week (see separate story). He said he had =0F"some very profitable discussions=0F" with Bush transitio= n team=20 officials on spectrum issues, although he wouldn=0F't elaborate. He also s= aid=20 he was pleased that Donald L. Evans stressed the importance of allocating 3= G=20 spectrum in his Senate confirmation hearing for secretary of commerce earli= er=20 this month (TR, Jan. 8). Mr. Wheeler said another key issue for the coming year was finding ways to= =20 use wireless technologies to bridge the =0F"digital divide.=0F" He stresse= d that=20 the gap wouldn=0F't =0F"be bridged by just pumping more money into existing= subsidy=20 programs,=0F" although he said changes in the universal service program wer= e=20 needed. On other issues, Mr. Wheeler said CTIA also hoped there would be=20 congressional or FCC action on Internet privacy, =0F"calling-party-pays=0F"= billing=20 arrangements, and reciprocal compensation. Regarding privacy, he said the= =20 trade group had gotten a positive response from members of Congress and=20 regulators to its proposed principles for location-information services (TR= ,=20 Oct. 30 and Nov. 27, 2000). Mr. Wheeler defended the industry=0F's claims regarding the safety of mobil= e=20 phones. A new book by George L. Carlo, a scientist who led a seven-year, $= 27=20 million industry-funded initiative to study the issue, says the wireless=20 industry has downplayed evidence that the phones can cause illness (TR, Dec= .=20 25, 2000). The book is particularly critical of Mr. Wheeler. The industry= =20 also has suffered recent setbacks in pending court cases that claim mobile= =20 phones are dangerous to humans (TR, Jan. 22). =0F"I don=0F't think that the issue is George Carlo or Tom Wheeler or CTIA,= =0F" Mr.=20 Wheeler said. =0F"The whole issue is, What=0F's the science? . . .We=0F've= supported=20 independent science and will continue to support independent science.=0F" As for litigation, he said that lawsuits alleging a link between exposure t= o=20 radio frequency emissions and health effects such as cancer had been=20 dismissed in the past. Nextel Communications, Inc., has agreed to purchase specialized mobile=20 radio... Nextel Communications, Inc., has agreed to purchase specialized mobile=20 radio(SMR) licenses from Arch Wireless, Inc., for $175 million and invest $= 75=20 million in the paging carrier. In exchange, Nextel will receive a new seri= es=20 of Arch preferred stock. The two companies also will explore ways to=20 collaborate on marketing. Arch said it didn=0F't expect to need the SMR=20 spectrum because of upgrades to its two-way messaging network. Nextel said= =20 the transition would give it about 20 megahertz of SMR spectrum in the 800= =20 and 900 MHz bands in 52 of the top 100 U.S. markets. Commission Examines Merits Of Lifting CMRS Spectrum Cap The FCC is reexamining whether to lift its cap on the amount of spectrum=20 wireless carriers may hold in any one market. The Commission also is=20 considering whether it should eliminate its cellular cross-interest rule. In a notice of proposed rulemaking released last week, the FCC asked for=20 comments on whether the spectrum cap should be retained, modified, or=20 eliminated to comply with the public-interest standard set forth in section= =20 11 of the Communications Act, as amended. Specifically, the agency is soliciting views on whether =0F"meaningful econ= omic=20 competition=0F" in the commercial mobile radio service (CMRS) market has=20 rendered spectrum aggregation limits, including the cellular cross-interest= =20 rule, unnecessary. Under the agency=0F's rules, carriers aren=0F't allowed to hold more than 4= 5=20 megahertz of spectrum in urban markets and 55 MHz in rural markets. The=20 cellular cross-interest rule restricts an entity=0F's ownership interest in= =20 cellular carriers operating in the same market. The FCC wants to know=20 whether those limits are still needed to prevent harmful concentration of= =20 spectrum holdings or ensure opportunities for new players to enter the mark= et. The Commission is asking for comments on what constitutes =0F"meaningful=20 economic competition=0F" under section 11 and how competitive conditions ha= ve=20 changed since it last reviewed the restrictions in 1999. In the largest metropolitan areas, where seven in 10 Americans live, at lea= st=20 five mobile telephone carriers are offering service, the agency noted last= =20 week. As a result, it said, prices are declining, coverage areas are=20 expanding, and new service packages are being offered. It wants to know if= =20 there are public-interest reasons for maintaining the cap regardless of suc= h=20 competitive developments. Large wireless carriers have lobbied the FCC to lift the cap, saying it has= =20 thwarted the U.S. wireless industry=0F's deployment of third-generation (3G= )=20 services, placing it at a disadvantage with foreign competitors. Some=20 smaller carriers, however, have asked the FCC to retain the cap, saying it= =0F's=20 needed to ensure that they remain competitive against their larger=20 counterparts. In a broad review of the cap conducted in 1999, the FCC decided to retain t= he=20 restriction, although it eased the limit in rural markets (TR, Sept. 20,=20 1999). At the time, it concluded that the cap was a safeguard against=20 excessive concentration in the CMRS market, preserving competition and the= =20 consumer benefits it had produced. It also determined in 1999 that the=20 cellular cross-interest restriction was necessary to protect competition. = =20 The agency eased the rules somewhat, however, permitting some degree of=20 cross-interest. In November 2000, the FCC denied two petitions for reconsideration of its= =20 1999 decision but said it would reexamine the cap as part of its 2000=20 biennial review (TR, Nov. 13, 2000). The notice of proposed rulemaking,=20 adopted Jan. 19 and released Jan. 23 in Wireless Telecommunications docket= =20 01-14, stems from that review. Comments are due 60 days after the notice= =0F's=20 publication in the Federal Register, and replies are due 30 days after that= . In a separate statement, Commissioner Harold W. Furchtgott-Roth said that h= e=20 supported the rulemaking notice but that he tentatively would have conclude= d=20 that the cap should be lifted. =0F"The use of a spectrum cap is a drastic regulatory remedy that continues= to=20 search for a corresponding competitive ill,=0F" he said. =0F"I have grown= =20 impatient with the Commission=0F's repeated reexaminations of these issues= =20 without substantial alterations in our policy approach.=0F" Industry Praises Review Thomas E. Wheeler, president and chief executive officer of the Cellular=20 Telecommunications & Internet Association, said that lifting the cap was=20 crucial while a high-level effort to identify and allocate 3G bands winds= =20 through the regulatory process (see separate story). Mr. Wheeler told reporters at a luncheon last week that such access to=20 additional spectrum was necessary for the U.S. to maintain its leadership i= n=20 the development of the Internet as it moves to wireless devices. Japan and European countries have moved more quickly to allocate frequencie= s=20 for 3G services, setting aside twice as much spectrum as the U.S. has, he= =20 said. The Personal Communications Industry Association, however, has said the cap= =20 is necessary to give smaller carriers a chance to enter the CMRS market. Mr. Wheeler noted that newly named FCC Chairman Michael K. Powell had said = he=20 would favor lifting the spectrum cap. =0F"Clearly in some of the opinions = that=20 he=0F's written in the spectrum proceeding, he=0F's asked the question, Why= should=20 this continue?=0F" Mr. Wheeler said. =0F"We=0F're hopeful.=0F" Then-Commissioner Powell voted to retain the cap in November 2000 but said = he=20 tended to agree with Commissioner Furchtgott-Roth=0F's conclusion that the = cap =0F" has outlived its usefulness.=0F" Notice Explores Alternatives In its rulemaking notice, the FCC seeks comments on alternatives to lifting= =20 the spectrum cap entirely or leaving it untouched. For example, it asks=20 whether it should apply the cap only to spectrum used for voice services. = It=20 also asks whether it should retain the cap in markets where there is less= =20 competition and eliminate it in other markets where more carriers are=20 offering service. The FCC also solicits opinions on whether to treat already-licensed spectru= m=20 differently from frequencies licensed in the future. =0F"As a general matt= er,=20 we believe that newly available CMRS-suitable spectrum either should be=20 excluded from the spectrum cap, or, if it is included, that the cap should = be=20 adjusted accordingly,=0F" the Commission said. The FCC also wants opinions on how eliminating or relaxing the cap would=20 affect its authority to review license-transfer requests under section 310(= d)=20 of the Act. If it makes such changes to the cap, it wants to know whether = it=20 could or should =0F"incorporate other methods=0F" into its license-transfer= review=20 to prevent consolidations =0F"that would eliminate the benefits brought by= =20 competition.=0F" It also seeks comments on whether removing the cap would place more of a=20 burden on the FCC and industry in the review of license transfers. If the Commission decides to keep the spectrum cap for now, it wants to kno= w=20 what further market developments could make the cap unnecessary and whether= =20 it should set a =0F"sunset=0F" date for the restrictions. Regarding the cellular cross-interest rule, the FCC asked whether the=20 restriction was still necessary to prevent cellular carriers from merging i= n=20 markets where there is little or no other competition. Bookham Technology plc, an Oxfordshire, England=0F-based... Bookham Technology plc, an Oxfordshire, England=0F-basedoptical=20 network-components manufacturer, has signed a =0F"multimillion-dollar=0F" c= ontract=20 to provide wavelength division multiplexing equipment to Fujitsu=20 Telecommunications Europe Ltd. Bookham agreed to deliver up to 10,000=20 bidirectional transceiver modules per month to Fujitsu Telecom, a unit of= =20 Fujitsu Ltd. Japan. Fujitsu will use the components in SONET (synchronous= =20 optical network), fiber-to-the-curb, and other telecom network-access=20 equipment deployments. =20 Appellate Court Upholds Nextel Tower Permit A Pennsylvania state court has upheld a local zoning board=0F's decision to= let=20 Nextel Communications, Inc., build a communications tower under a special= =20 exemption provision for radio transmitters. Residents opposing the tower h= ad=20 argued that the entire 150-foot structure didn=0F't qualify as a transmitte= r. The opinion, written by Commonwealth Court President Judge Joseph T. Doyle,= =20 affirmed a trial court decision that upheld the action of the Newlin Townsh= ip=20 Zoning Board. The township=0F's zoning ordinance limits the types of buildings that can b= e=20 constructed but allows the board to grant a special exemption to authorize= =20 the construction of a =0F"radio or television transmitter.=0F" But the ord= inance=20 doesn=0F't define radio transmitter. The residents asserted that the =0F"radio transmitter component of the faci= lity=20 is but a minor element=0F" and said the tower =0F"falls far outside any com= monly=20 understood definition of radio transmitter.=0F" They argued that because t= he=20 tower didn=0F't fit into that or any other category, the zoning ordinance d= idn=0F't=20 permit it to be constructed within the township. Judge Doyle ruled that the record supported the board=0F's decision. The ju= dge=20 noted that testimony by a Nextel engineer demonstrated that the tower was a= n=20 integral part of the facility. He concluded that the =0F"entire system ope= rates=20 together in order to transmit the necessary information for the cellular=20 network to function.=0F" Senior Judge William J. Lederer and Judge Bonnie B. Leadbetter joined Judge= =20 Doyle=0F's opinion in Robert and Loren Pearson v. Zoning Hearing Board of N= ewlin=20 Township and Nextel Communications of the Mid Atlantic, Inc. (case no. 3182= ). Finance Panel Senators Back Broadband Service Tax Credits Former New York Sen. Daniel Patrick Moynihan (D.) may have retired, but his= =20 push to extend tax credits to carriers that deploy high-speed Internet=20 facilities is being revived by key Democrats and Republicans who control th= e=20 congressional purse strings. Its proponents also have asked President Bush= =20 to include the measure in his initial budget submission to Congress. On Jan. 23, Sen. John D. Rockefeller IV (D., W.Va.) led a bipartisan group = of=20 more than 30 U.S. senators=0F-including freshman Hillary Rodham Clinton (D.= ,=20 N.Y.), who won the seat left vacant by Sen. Moynihan=0F-to introduce the=20 Broadband Internet Access Act (S 88). A companion bill is expected to be= =20 introduced in the House Ways and Means Committee this week by committee=20 members Philip English (R., Pa.) and Robert T. Matsui (D., Calif.) The Senate bill is a slightly altered version of Sen. Moynihan=0F's legisla= tion=20 of the same name, which almost cleared the Senate last fall as part of the = =0F" New Markets=0F" tax-break package (TR, June 12 and Oct. 2, 2000). =20 =0F"This bill represents my commitment to making sure that no community is = left=20 behind in the technology revolution,=0F" Sen. Rockefeller said in a stateme= nt. =20 The bill =0F"will ensure that communities everywhere, whether rural or urba= n,=20 will have the tools necessary to compete in the global economy,=0F" he=20 continued. Added Sen. John F. Kerry (D., Mass.), a co-sponsor: =0F"Too man= y=20 businesses are shying away from areas where broadband access is either too= =20 expensive or unavailable, and underserved areas are put at a tremendous=20 disadvantage.=0F" Like the Moynihan plan, the new bill would provide a tax credit equal to 10= %=20 of a carrier=0F's investment in equipment used to provide =0F"current-gener= ation=20 broadband=0F" services to business or residential customers in rural and=20 low-income areas. It defines current-generation broadband services as=20 services that can transmit at least 1.5 megabits per second downstream (to= =20 the subscriber) and at least 200 kilobits per second upstream (from the=20 subscriber). Carriers also could claim a tax credit equal to 20% of a carrier=0F's inves= tment=20 in equipment used to deploy =0F"next-generation=0F" broadband services to = =0F"all=20 residential customers,=0F" according to Sen. Rockefeller. His bill defines= =20 next-generation services as those able to transmit at least 22 Mbps=20 downstream and at least 5 Mbps upstream. A Rockefeller aide said the=20 upstream transmission requirements were lower than those in last year=0F's = bill=20 because lawmakers =0F"didn=0F't want to cut out any potentially good broadb= and=20 suppliers, like wireless and satellite providers.=0F" Because the measure would amend the Internal Revenue Code of 1986, it has= =20 been referred to the Senate Finance Committee, where several of its members= =20 are co-sponsors, including Sens. Rockefeller and Kerry, Minority Leader=20 Thomas A. Daschle (D., S.D.), Finance Committee ranking Democrat Max Baucus= =20 (Mont.), Orrin G. Hatch (R., Utah), Olympia J. Snowe (R., Maine), Blanche L= .=20 Lincoln (D., Ark.), and Kent Conrad (D., N.D.). =0F"It is crucial that we act quickly,=0F" the lawmakers said in a Jan. 22 = letter=20 to President Bush. =0F"A number of other nations, including China, Japan,= =20 Sweden, and Singapore, are moving aggressively to surpass the U.S. in=20 broadband infrastructure over the next five years.=0F" The proposed Broadband Internet Access Act =0F"is a truly bipartisan measur= e,=0F"=20 they told the president. =0F"Clearly, such support indicates a general=20 recognition of the need to extend a high-speed information system to all=20 Americans. This legislation provides the vehicle for delivering such a=20 system, and we hope you will support it in your upcoming budget proposal,= =0F"=20 they said. The support of Republicans Hatch and Snowe is important because they give t= he=20 bill much-needed bipartisan support on the Finance Committee, something it= =20 didn=0F't have last session, the Rockefeller aide said. =0F"We=0F're hopef= ul=0F" that=20 new Finance Committee Chairman Charles E. Grassley (R., Iowa) will allow th= e=20 measure to come up for a committee vote. Calls to Sen. Grassley=0F's offic= e=20 were not returned by TR=0F's deadline. Meanwhile, one day later, Sen. Kerry introduced a portion of the broadband= =20 tax-credit bill as a separate, stand-alone measure. His bill, S 150, would= =20 authorize a tax credit equal to 10% of a carrier=0F's investment in equipme= nt=20 used to provide current-generation broadband services to underserved areas.= =20 But it wouldn=0F't provide tax credits for investments to deliver those ser= vices=20 to rural areas, nor would it provide added tax credits for delivering=20 next-generation services. A Kerry aide said the senator crafted the separate bill to attract more=20 attention to the lack of high-speed deployment to low-income communities. = =0F" That=0F's the area he=0F's most concerned with,=0F" the aide told TR.=20 Verizon Wants Law Changing Approach to Broadband Regs The =0F"time is ripe=0F" for legislation creating a new regulatory regime f= or=20 broadband services and networks, similar to the regime that governs the=20 wireless industry, according to Verizon Communications, Inc. Such an=20 approach would entail =0F"no economic regulation and minimal rules,=0F" and= states=20 would be preempted from regulating broadband services. Meeting with reporters in Washington Jan. 25, Verizon executives said recen= t=20 court decisions had made it more important for Congress to develop a new=20 regime for such services. Thomas J. Tauke, Verizon senior vice president-federal government relations= ,=20 said representatives of incumbent telephone companies, cable TV providers,= =20 and telecom equipment providers had discussed with each other the need for= =20 new broadband legislation. =0F"There has been no organized effort=0F" by the industry segments to coor= dinate=20 lobbying efforts, Mr. Tauke said. =0F"But it=0F's fair to say there=0F's b= een a lot=20 of discussion among the players.=0F" Recent court decisions on the appropriate regulatory regime for cable modem= =20 services (TR, April 17, May 22, and June 26, 2000) have troubled the cable = TV=20 industry by suggesting that they could be considered telecom services, Mr.= =20 Tauke said. He also cited the recent federal appeals court decision overturning the FCC= =0F's=20 regime for advanced services affiliates (TR, Jan. 15). The court rejected= =20 the FCC=0F's finding that incumbent local exchange carriers could avoid=20 unbundling and resale mandates for their digital subscriber line offerings = if=20 they provided those services through a separate affiliate. =0F"This court case really highlighted the point that the FCC doesn=0F't ha= ve the=20 ability to come up with, on its own, a new regulatory structure covering=20 broadband services,=0F" Mr. Tauke said. Mr. Tauke said the Freedom and Broadband Deployment Act drafted last year b= y=20 Reps. W.J. (Billy) Tauzin (R., La.) and John Dingell (D., Mich.) would have= =20 provided a =0F"little bit=0F" of the regulatory reform sought by Verizon. = But Mr.=20 Tauke said he hoped lawmakers would =0F"look at it in somewhat broader term= s=0F"=20 this time around. Mr. Tauke suggested that this type of broadband legislation had become=20 Verizon=0F's top priority and that its push for legislation to allow Bells = to=20 offer interLATA (local access and transport area) data services was becomin= g=20 less so. Asked if interLATA data relief was still the most important legislative iss= ue=20 to Verizon, Mr. Tauke said, =0F"It certainly would have been two years ago.= Is=20 that the most important thing now? It=0F's certainly important. . .But of = equal=20 importance, if not more importance, is getting some clarity on the broadban= d=20 world.=0F" Verizon still is pushing for legislation to change the existing reciprocal= =20 compensation regime. Edward D. Young III, SVP-federal government relations= ,=20 said payments to compensate competitive local exchange carriers for=20 terminating calls to Internet service providers ran Verizon about $1 billio= n=20 a year. Although the FCC has been promising to act on the reciprocal compensation= =20 issue, Congress may need to step in, Mr. Young said. =0F"The FCC is still= =20 trying to work through the issue, but obviously it=0F's a different dynamic= =0F"=20 given the change in chairmen from William E. Kennard to Michael K. Powell, = he=20 added. Mr. Tauke said it was =0F"shameful=0F" that the FCC hadn=0F't resolved the = issue. =0F" Two years ago they knew there was a problem, but they didn=0F't have the co= urage=20 to preempt the states,=0F" he said. =0F"They could see the problems coming= , but=20 they thought it would work itself out.=0F" Joan H. Smith, chairwoman of the National Association of Regulatory Utility= =20 Commissioners=0F' telecommunications committee and a member of the Oregon P= ublic=20 Utility Commission, said she was =0F"puzzled=0F" by the bid to preempt stat= e=20 regulators in a new broadband regulatory regime. =0F"We don=0F't regulate= =20 broadband=0F" services, she told TR. =0F"Our biggest issue at the state le= vel is=20 promoting broadband [deployment], not regulating it.=0F" Utah Bill Would Halt Plan To Merge Consumer Agencies Legislators in Utah have passed a measure to repeal a year-old law that wou= ld=20 have folded together two state agencies that represent utility customer=20 interests before the Public Service Commission. Absent the repeal measure,= =20 the legislation passed in 2000 would have combined the Committee of Consume= r=20 Services and the Division of Public Utilities, effective July 1. The new= =20 entity would have been called the Office of Public Advocate. House Majority Whip David Ure (R.), who sponsored last year=0F's restructur= ing=20 legislation, also was behind the bill to repeal it. The legislative staff= =20 said he=0F'd decided that the time wasn=0F't right to overhaul the state=0F= 's utility=20 regulatory system. The repeal measure sped through the Utah Legislature la= st=20 week, progressing from its first House reading through passage by both hous= es=20 in just two days. Rep. Ure rejected alternative proposals for re-structuring the state=0F's= =20 regulatory agencies, settling for a straight repeal of last year=0F's=20 legislation. One proposal would have expanded the PSC=0F's membership, the= =20 legislative staff told TR. Another version that circulated between the end of last year=0F's legislati= ve=20 session and the beginning of this year=0F's would have merged the PSC and t= he=20 Division of Public Utilities. =20 The staff said Rep. Ure pulled those drafts after deciding that the state= =0F's=20 regulatory structure shouldn=0F't be altered in the midst of the current en= ergy=20 crisis. The Division of Public Utilities is charged with representing the public=20 interest before the PSC and ensuring that all utility customers have access= =20 to safe, reliable service at reasonable prices. The Committee of Consumer= =20 Services represents residential, small- business, and agricultural consumer= s=20 before the PSC. Some parties had expressed concern that merging the two=20 entities would decrease the amount of information available for PSC decisio= n=20 making. Consumer group opposition last year persuaded Gov. Michael O. Leavitt (R.) = to=20 call for a review of the law after the legislative session ended in March. = =20 He allowed the bill to become law last year without signing it. Reps. Cannon, Eshoo Unveil Internet Privacy Measure Reps. Chris Cannon (R., Utah) and Anna G. Eshoo (D., Calif.) have introduce= d=20 a bill to require operators of commercial Web sites that collect personally= =20 identifiable information to explain to site visitors what information is=20 collected, how it will be used, and who is collecting it. The proposed=20 Consumer Internet Privacy Act (HR 237) would authorize the Federal Trade=20 Commission to assess civil penalties of up to $22,000 per violation, or a= =20 total of $500,000 against a particular violator. Rep. Cannon said the bill was a good starting point for addressing Internet= =20 privacy, a topic that many observers see as the top Internet-related issue = in=20 the 107th Congress. =0F"We are going to rely heavily on the marketplace to help define how to= =20 implement the guidelines established in this bill=0F's language, just as th= e=20 market has commendably worked with government officials to develop other=20 standards and seals for privacy,=0F" Rep. Cannon said. Rep. Eshoo, who said consumers shouldn=0F't have to =0F"reveal their life s= tory=20 every time they surf the Web,=0F" said their privacy must be protected with= out=20 impeding the free flow of information on the Internet. =0F"This legislatio= n=20 achieves that goal=0F-the bill doesn=0F't regulate the Internet; it empower= s the=20 consumer,=0F" Silicon Valley Democrat Eshoo said last week. The measure also would require Web site operators to give users an=20 opportunity to limit the use and disclosure of their personal information f= or=20 marketing purposes in a =0F"clear,=0F" =0F"conspicuous,=0F" and easily exec= uted manner,=20 the legislators said in a press release. Appeals Court Says FCC Erred in Rejecting U S WEST Bid for =0F`Nondominant= =0F'=20 Regulation A federal appeals court agrees with former U S WEST Communications, Inc. (n= ow=20 Qwest Corp.) that the FCC erred by focusing on the company=0F's market shar= e=20 when considering its request to be freed from =0F"dominant=0F"-carrier regu= lation=20 of certain services. The U.S. Court of Appeals in Washington last week remanded to the FCC a 199= 9=20 order rejecting a U S WEST request to forbear from applying such regulation= =20 to the company=0F's special-access and high-capacity dedicated transport=20 offerings in the Phoenix and Seattle metropolitan statistical areas (MSAs).= =20 In the 1999 order, the FCC said U S WEST could refile its request for relie= f=20 under a separate deregulatory regime it had set up to allow incumbent telco= s=20 to seek pricing flexibility for some services (TR, Nov. 29, 1999). Chief Judge Harry Edwards wrote the Jan. 23 decision in AT&T Corp. v.=20 FCC(consolidated cases beginning at 99-1535). He was joined by Judges Davi= d=20 Sentelle and A. Raymond Randolph. =20 The court found that the FCC failed to conduct its review of U S WEST=0F's= =20 request in compliance with section 10 of the Telecommunications Act of 1996= ,=20 which directs the FCC to forbear from applying regulations deemed no longer= =20 necessary. The court explained that the FCC=0F's order =0F"rests solely on the view th= at,=20 because U S WEST offered no reliable data on market share, the petition for= =20 forbearance failed to make a prima facie showing that sufficient competitio= n=20 existed to satisfy section 10.=0F" But in relying so heavily on market-share data, the FCC =0F"departed from i= ts=20 traditional nondominance analysis without explanation,=0F" the court said. = The=20 FCC=0F's decision to rely on that data =0F"may well be reasonable, but unti= l the=20 Commission has adequately explained the basis for this conclusion, it has n= ot=20 discharged its statutory obligation under the Administrative Procedure Act,= =0F"=20 the court said. In the past, the FCC had =0F"gone so far as to view market share as irrelev= ant=20 where there was other evidence that a carrier lacked market power,=0F" the = court=20 said. =0F"Were this the first time the FCC was asked to consider whether a carrie= r was=20 dominant in a given market, the explanation provided by the Commission in t= he=20 forbearance order may well have been accurate,=0F" it said. =0F"But it is = not the=20 first time that the Commission has addressed this issue.=0F" The court said it might be =0F"reasonable=0F" for the FCC to demand a showi= ng on=20 market share in every inquiry on dominant regulation. But it is =0F"not=20 reasonable for the Commission to announce such a policy without providing a= =20 satisfactory explanation for embarking on this course when it has not=20 followed such a policy in the past,=0F" it said. Court Nixes IXCs=0F' Claims As was apparent during oral arguments (TR, Dec. 4, 2000), the court was=20 unconvinced by the arguments of AT&T and WorldCom, Inc., which had challeng= ed=20 the order to the extent that it granted U S WEST pricing flexibility for so= me=20 services. In the forbearance order, the FCC stated that it granted the relief request= ed=20 =0F"to the extent that the pricing flexibility order establishes a framewor= k=20 pursuant to which [Bell operating company] petitioners may obtain relief by= =20 demonstrating satisfaction of the competitive triggers adopted in that orde= r.=0F" The court rejected the AT&T and WorldCom petitions to overturn the pricing= =20 flexibility =0F"relief,=0F" saying their argument =0F"borders on being disi= ngenuous.=0F" =0F"When the forbearance order is read in its entirety, it is absolutely cl= ear=20 that U S WEST was granted no relief whatsoever,=0F" the court said. =0F"U = S WEST=20 sought forbearance, and it was categorically denied.=0F" The FCC simply = =0F" reminded=0F" U S WEST that it was eligible to apply for pricing flexibility= =20 under the regime for reviewing such requests, the court said.=20 The court added, however, that the FCC couldn=0F't use its pricing flexibil= ity=20 rules as a substitute for its statutory mandate to consider requests for=20 forbearance. =0F"Congress has established section 10 as a viable and independent means o= f=20 seeking forbearance,=0F" the court said. =0F"The Commission has no authori= ty to=20 sweep it away by mere reference to another, very different, regulatory=20 mechanism.=0F" The FCC=0F's Enforcement Bureau has issued a monetary forfeiture... The FCC=0F's Enforcement Bureau has issued a monetary forfeitureof $5,000= =20 against Carmelita T. Gossard (d/b/a AA Beep) for operating a paging system = in=20 Cudjoe Key, Fla., without Commission authorization. The forfeiture order w= as=20 released Jan. 22 in file no. EB-00-TS-044. FCC Gives Bells =0F`Blueprint=0F' In OK of SWBT=0F's InterLATA Bid The FCC=0F's authorization for Southwestern Bell Telephone Co. to offer=20 interLATA (local access and transport area) services in Kansas and Oklahoma= =20 could offer insights to other Bell companies planning their own interLATA= =20 service bids=0F-especially for rural states. In granting SWBT=0F's applica= tion,=20 the FCC marked some clear guideposts it will use for evaluating future bids= ,=20 including issues relating to late-filed data and other procedural matters. In an order adopted unanimously Jan. 19 and released Jan. 22 in Common=20 Carrier docket 00-217, the FCC doubled the number of states in which Bell= =20 companies are permitted to provide in-region interLATA services. In an=20 unprecedented move, the FCC delayed the effectiveness of its decision for 4= 3=20 days. Under section 271 of the Telecommunications Act of 1996, the FCC must=20 determine that a Bell company has met a 14-point =0F"checklist=0F" of=20 market-opening mandates in a given state before authorizing it to provide= =20 interLATA services there. The FCC must consult with the U.S. Department of= =20 Justice and the relevant state commission before granting such an applicati= on. The FCC said it imposed the 43-day delay because it had based its approval,= =20 in part, on UNE (unbundled network element) rates that SWBT changed after= =20 submitting its application. Competitors had argued that the new rates=20 shouldn=0F't be considered when evaluating SWBT=0F's application. At the t= ime, the=20 FCC said it wasn=0F't sure =0F"what reliance, if any,=0F" it would place on= the new=20 rates. In a Jan. 19 statement, then-FCC Chairman William E. Kennard said the=20 original rates were =0F"not acceptable=0F" and praised SWBT for voluntarily= =20 reducing them. But it may not be so easy in the future for Bell companies = to=20 amend their interLATA service applications. In last week=0F's order, the F= CC=20 said =0F"it would be rare for other parties to meet the high bar [for accep= ting=20 the late-filed rates] set here in other applications.=0F" Then-Commissioner Michael K. Powell objected to the 43-day delay and=20 cautioned that Bell companies =0F"risk rejection if they file evidence afte= r the=20 due date for initial comments.=0F" Mr. Kennard said the FCC =0F"must ensur= e that a=20 pattern of last-minute rate reductions or other changes in [section] 271=20 applications does not develop in the future.=0F" In justifying the inclusion of the new rates in its consideration of SWBT= =0F's=20 application, the FCC cited its authority to waive its own procedural rules = in=20 cases where doing so will serve the public interest. It said that =0F"a nu= mber=20 of circumstances=0F" supported its waiver of the =0F"complete-as-filed=0F" = doctrine,=20 including the fact that the rate changes =0F"were limited in nature.=0F" The FCC indicated it wouldn=0F't accept certain other types of data filed a= fter=20 Bell companies submit interLATA service applications, such as =0F"more comp= lex=20 rate revisions.=0F" It also indicated that it wouldn=0F't consider late-fi= led =0F" measures designed to achieve nondiscriminatory performance in the applicant= =0F's=20 provision of service to competitive [local exchange carriers], since it is= =20 difficult to determine the actual effect of such changes on performance in= =20 advance.=0F" The FCC=0F's Kansas-Oklahoma order also offers guidance for regulators in o= ther=20 rural states. It encourages rural states to =0F"pool their resources=0F" a= nd=20 conduct multistate reviews of Bell companies=0F' compliance with the sectio= n 271=20 checklist, when appropriate. It said the =0F"general approach=0F" of the K= ansas=20 and Oklahoma commissions could be =0F"used as a model=0F" for future applic= ations. Financial analysts last week saw the FCC=0F's approval as a boon for Bells = in=20 other states, particularly rural ones. =0F"While these markets are relativ= ely=20 small, Oklahoma at $220 million and Kansas at $170 million, their approval= =20 signals a positive trend for future approval, particularly with the=20 appointment of Michael Powell as the new FCC chairman,=0F" said USB Warburg= LLC. The FCC=0F's action represents the first successful multistate application= =0F-and=20 the first time a single Bell company has gained FCC approval in more than o= ne=20 state in its service territory. SBC last summer gained FCC approval to off= er=20 interLATA services in Texas (TR, July 3, 2000). Evidence from Other States Accepted The FCC also offered clues about how it would view future applications that= =20 rely on a Bell company=0F's performance in one state to show its compliance= with=20 the section 271 mandates in another state. There were no independent=20 third-party tests of SWBT=0F's operation support systems (OSSs) in Kansas a= nd=20 Oklahoma, but the company did provide third-party verification that those= =20 systems were the same as the OSSs used in Texas. The FCC said that such an approach was appropriate, given that the Texas=20 proceeding served as =0F"a precursor and a model=0F" for the proceedings in= Kansas=20 and Oklahoma. The FCC also was clear about the types of issues it would recognize in=20 opponents=0F' filings on future interLATA applications. It noted that the= =20 statutory 90-day review period was designed as a =0F"fast-track, narrowly= =20 focused adjudication=0F" process. It said that such proceedings are =0F" inappropriate forums for the consideration of industry-wide local competiti= on=20 questions of general applicability.=0F" If SWBT fails to continue to comply with any of the requirements under=20 section 271, the FCC can hold the telco liable for up to $45 million annual= ly=20 in Kansas and $44 million annually in Oklahoma. SWBT must meet a series of= =20 anti-=0F"backsliding=0F" and performance-measurement requirements or it cou= ld face=20 fines or other legal action, the FCC said. International Service OKs Granted The Telecommunications Division of the FCC=0F's International Bureau last w= eek=20 also granted SWBT authorization under section 214 of the Communications Act= =20 of 1934, as amended, to provide international services for calls originatin= g=20 in Kansas and Oklahoma. In file ITC-214-20001130-00713, the division said= =20 SWBT=0F's long-distance subsidiary, Southwestern Bell Long Distance, would = be=20 subject to =0F"international dominant carrier regulation=0F" on three route= s where=20 SWBT has an affiliation with the foreign-market carriers. The three routes are those between the U.S. and Belgium, Denmark, and South= =20 Africa. It will be subject to nondominant carrier regulation on routes=20 between the U.S. and Canada, the Czech Republic, France, Germany, Great=20 Britain, Lithuania, the Netherlands, Norway, and Switzerland. FCC Rethinks Limitations On Carriers=0F' Use of EELs As it promised to do last year, the FCC has begun reexamining its policy=20 limiting how requesting carriers can use enhanced extended links (EELs)=0F- combinations of unbundled loops and transport purchased from incumbent loca= l=20 exchange carriers. The FCC previously ruled that requesting carriers can= =0F't=20 use EELs to provide exchange access services exclusively. The FCC had imposed that prohibition in response to incumbent local exchang= e=20 carriers=0F' fears that competitors could use EELS to avoid paying special= =20 access charges (TR, Sept. 20, 1999). The Commission later extended the=20 prohibition and promised to revisit the issue early this year (TR, June 12,= =20 2000). In a Jan. 24 public notice seeking comments on the issue (Common Carrier=20 docket 96-98), the FCC asked if the exchange access and local exchange=20 markets were =0F"so interrelated from an economic and technological perspec= tive=20 that a finding that a network element meets the =0F`impair=0F' standard und= er=20 section 251(d)(2) of the [Telecommunications Act of 1996] for the local=20 exchange market would itself entitle competitors to use that network elemen= t=20 solely or primarily in the exchange access market.=0F" The =0F"impair=0F" standard requires the FCC to evaluate whether the failur= e to=20 unbundle each network element would impair competitors=0F' ability to provi= de=20 service. The FCC asked whether the local exchange and exchange access markets are = =0F" economically and technically distinct.=0F" If the markets are distinct, do= es=20 lack of access to loop-transport combinations impair requesting carriers=0F= '=20 ability to provide special access services? the FCC asked. It asked about the availability of =0F"alternative elements=0F" aside from = those=20 offered by the incumbents. It asked whether it should treat special access= =20 and private line services as a single market. The FCC also sought comment on the nature of the special access and private= =20 line markets for business and residential end-users. =0F"In some markets,= =20 particularly those markets serving high-volume business customers, it may b= e=20 practical and economical for carriers to compete using self-provisioned=20 facilities,=0F" the FCC said. But in residential and small-business market= s =0F" the delay and cost associated with self-provisioning will preclude carriers= =20 from serving that market without access to unbundled network elements.=0F" The FCC also asked whether requesting carriers should be permitted to combi= ne=20 unbundled network elements with tariffed access services purchased from=20 incumbents. That kind of commingling is now prohibited by FCC rules. =0F"Specifically, if a requesting carrier converts special access circuits = to=20 combinations of unbundled network elements, we ask parties to comment on=20 whether such circuits may remain connected to any existing access service= =20 circuits without regard to the nature of the traffic carried over the acces= s=20 circuits,=0F" it said. Comments on the public notice are due 30 days after its publication in the= =20 Federal Register; replies are due 45 days after publication. Pole Attachment, TELRIC Rates To Be Challenged in High Court The U.S. Supreme Court has agreed to hear two cases involving lengthy=20 disputes over FCC rules. One case stems from a challenge of the FCC=0F's= =20 methodology for setting rates for interconnection and unbundled network=20 elements (UNEs). In a separate case, the court will consider whether the= =20 agency has authority to regulate the rates utility companies charge wireles= s=20 and cable TV service providers for attaching equipment to their utility pol= es. Oral arguments in the cases haven=0F't been scheduled yet. As she has done= in a=20 number of other telecom-related cases, Justice Sandra Day O=0F'Connor recus= ed=20 herself from the court=0F's deliberations. In the first case, a federal appeals court had overturned the FCC=0F's use = of=20 TELRIC (total-element long-run incremental cost) pricing rules for setting= =20 rates for interconnection and UNEs (TR, July 24, 2000). The high court said it would focus on the following questions: =20 (1)Whether the TELRIC methodology is unlawful under section 252(d)(1) of th= e=20 Telecommunications Act of 1996,=20 (2)Whether the Act or the =0F"takings clause=0F" of the Fifth Amendment to = the U.S.=20 Constitution requires incorporation of an incumbent local exchange carrier= =0F's=20 (ILEC=0F's) historical costs in its UNE rates, and=20 (3)Whether section 251(c) (3) of the Act prohibits regulators from requirin= g=20 that ILECs combine certain previously uncombined network elements at the=20 request of a new market entrant.=20 The consolidated cases beginning with Verizon Communications, Inc., v. FCC = et=20 al.(no. 00-511) came from the U.S. Court of Appeals for the Eighth Circuit= =20 (St. Louis). In what many incumbent local exchange carriers (ILECs)=20 considered a victory, the Eighth Circuit last year overturned the FCC=0F's= =20 TELRIC pricing rules. But the court didn=0F't go so far as to agree with I= LECs=20 that rates for interconnection and UNEs must be based on historic costs. In the second case, the Supreme Court will consider whether the =0F"pole=20 attachment=0F" provisions of the Communications Act of 1934, as amended, ap= ply=20 to cable TV facilities that also are used to provide high-speed Internet=20 access and to equipment used to provide wireless services. The U.S. Court of Appeals for the 11th Circuit (Atlanta) had held that the= =20 FCC didn=0F't have authority to regulate the rates utilities can charge for= =20 facilities that Internet or wireless service providers attach to their pole= s=20 (TR, April 17, 2000). The pole attachment provisions apply only to cable T= V=20 and wireline telephone services, the appeals court ruled. The Supreme Cour= t=20 has consolidated the various appeals of the 11th Circuit decision under=20 National Cable TV Association, Inc., v. Gulf Power Co. et al.(case no.=20 00-832).=20 Supreme Court Again Refuses To Hear State Immunity Cases The U.S. Supreme Court has refused to review an appeals court ruling that= =20 denied state regulators=0F' claims of immunity from federal lawsuits regard= ing=20 carrier interconnection. The interconnection provisions are included in th= e=20 Telecommunications Act of 1996. The 11th Amendment to the U.S. Constitution grants states immunity from=20 federal lawsuits, but a 1908 Supreme Court decision, Ex parte Young,created= =20 an exception for lawsuits seeking to prevent an ongoing violation of federa= l=20 law by state officials. The high court=0F's action last week left in place a ruling by the U.S. Cou= rt of=20 Appeals for the Seventh Circuit (Chicago) that the Ex parte Young exception= =20 applies to lawsuits involving carrier interconnection proceedings. This isn=0F't the first time the Supreme Court has refused to take on such = a=20 case. But it is the first time it=0F's been confronted by state immunity c= laims=20 extending not just to arbitration and approval of carrier interconnection= =20 agreements but also to (1)enforcement of such pacts and (2)review of =0F" statements of generally available terms=0F" (SGATs), according to a Wiscons= in=20 Public Service Commission official. In the case the Supreme Court rejected last week, the Wisconsin PSC and the= =20 Illinois Commerce Commission separately had sought review of a decision by= =20 the Seventh Circuit (TR, July 31, 2000). The circuit court had ruled that= =20 the commissions=0F' actions regarding interconnection agreements, SGATs, an= d=20 enforcement of agreements weren=0F't immune from federal court review. Last fall the Supreme Court refused to hear a case that arose in the Sixth= =20 Circuit and involved the Michigan Public Service Commission (TR, Oct. 9,=20 2000). The Michigan case didn=0F't cover an SGAT review or enforcement of = an=20 interconnection agreement. In addition to the Sixth and Seventh circuits, the 10th and=0F-most recentl= y=0F-the=20 Fifth circuits have ruled against state immunity claims in interconnection= =20 cases (TR, June 26, 2000; and Jan. 22). The Supreme Court is less likely t= o=20 review cases when there is agreement among the various circuit courts that= =20 have dealt with the issues involved. The FCC recently stepped in to preempt the Virginia Corporation Commission= =0F's=20 authority to arbitrate and approve interconnection agreements because the= =20 state regulators had =0F"failed to act=0F" (TR, Jan. 22). The Virginia commission had cited fears that its actions would be deemed=20 subject to federal court review. In the aftermath of the Supreme Court=0F'= s=20 refusal last week to consider state claims of immunity for their=20 interconnection enforcement actions, one state commission source suggested= =20 that other states might decide to follow Virginia=0F's path. As she has done in other telecom-related cases, Supreme Court Justice Sandr= a=20 Day O=0F'Connor recused herself from deliberations in last week=0F's decisi= on not=20 to review the Seventh Circuit=0F's ruling. =0F'Net-Based Directory Publishers Can Access LEC Data, FCC Says The FCC has expanded the category of competitors entitled to access local= =20 exchange carriers=0F' (LECs=0F') subscriber listing information. LECs now = must=20 provide Internet-based directory publishers with nondiscriminatory access t= o=20 those databases. The Commission said the new rules would promote competiti= on=20 in the directory service market. The FCC declined to restrict the manner in which Internet directory=20 publishers may display and provide access to the subscriber information the= y=20 receive from LECs. Under section 222(e) of the Telecommunications Act of= =20 1996, carriers that maintain subscriber list information must provide that= =20 information on a nondiscriminatory basis to publishers of directories =0F"i= n any=20 format.=0F" =20 In an order released last week in Common Carrier docket 99-273, the FCC sai= d=20 Congress didn=0F't intend to restrict the kinds of directories that could b= e=20 published using subscriber list information obtained under section 222. =20 Internet databases =0F"clearly fall within the broad category of =0F`direct= ories in=20 any format,=0F'=0F" the FCC added. The FCC also clarified some of its rules regarding competitive local exchan= ge=20 carriers and other competing directory assistance (DA) service providers th= at=20 have nondiscriminatory access to incumbent LECs=0F' databases under section= =20 251(b)(3) of the Act. =20 It said competing DA providers must offer a telecom service=0F-which could= =20 include termination of directory assistance calls=0F-in order to qualify fo= r=20 database access under section 251. The FCC refused to limit the manner in which a DA provider may use the=20 incumbent LECs=0F' subscriber information. It said that neither competitiv= e nor=20 incumbent LECs are subject to such limits on their use of subscriber=20 information.=20 LECs aren=0F't required to provide nondiscriminatory access to their nonloc= al=20 directory listings, =0F"since third parties have the same opportunity [as t= he=20 LECs] to secure the information directly,=0F" the FCC noted. However, if a= LEC=20 is providing its national DA information to any other DA provider, it must= =20 make the same information available to competing DA providers without=20 discrimination. The FCC declined to set a pricing structure for DA information but said sta= te=20 regulators weren=0F't precluded from doing so. =0F" Analysts See Lucent Plan Leading To Profitability, But Not Growth Lucent Technologies, Inc.=0F's =0F"seven-point restructuring=0F" plan event= ually=20 should bring the company back to profitability, but some analysts doubt tha= t=20 its approach will increase growth in the remaining core businesses. =20 In the short term, however, Lucent=0F-which has posted a $1 billion operati= ng=20 loss for its 2001 first fiscal quarter that ended Dec. 31, 2000=0F-will con= tinue=20 to see additional losses, financial analysts predict. Lucent last week announced that it would cut costs by more than $2 billion= =20 and increase its working capital by about $2 billion. Additionally, J.P.= =20 Morgan Chase & Co. and Solomon Smith Barney, Inc., have arranged new $4.5= =20 billion, 365-day term credit facilities =0F"in order to ensure that Lucent= =0F's=20 cash-flow needs are adequately met,=0F" Lucent said. The bankers requested that Lucent use its assets to secure the credit=20 facilities, Moody=0F's Investors Service noted. =0F"The fact that the bank= s sought=20 security sends a signal that the bank group is concerned about credit=20 quality,=0F" Moody=0F's said in a statement. Consequently, Moody=0F's lowered Lucent=0F's long-term debt rating from =0F= "A3=0F" to =0F" Baa1.=0F" It will continue to review of Lucent=0F's long-term rating as we= ll as=20 Lucent=0F's Prime-2 short-term rating, Moody=0F's said. =0F"The downgrade of the long-term debt reflects concerns that Lucent=0F's= =20 operating problems and restructuring may go deeper than we originally=20 expected,=0F" Moody=0F's said. =0F"The review will continue to focus on the company=0F's ability to addres= s gaps=20 in its product offering, enhance its internal controls, improve its cost=20 structure and manufacturing efficiency, and accelerate revenue growth witho= ut=20 resorting to excessively aggressive vendor financing,=0F" Moody=0F's added = (TR,=20 Dec. 25, 2000). Focus Turns To Global Incumbents Henry B. Schacht, Lucent=0F's chairman and chief executive officer, told=20 investors last week that the company=0F's seven-point =0F"transition=0F" pl= an includes=20 the redeployment of resources toward incumbent and international service=20 providers and the adoption of a more =0F"targeted approach=0F" to the troub= led=20 competitive local exchange carrier (CLEC) market (TR, Oct. 16, 2000). This new approach exposes Lucent to less risk, =0F"at least from a credit p= oint=20 of view,=0F" according to one Wall Street analyst. The analyst, who reques= ted=20 anonymity to avoid conflict with clients, said Mr. Schacht=0F's targeted=20 approach to CLECs will decrease Lucent=0F's chances of getting stuck with u= npaid=20 bills from CLECs. By focusing on incumbent and international carriers, Lucent will lessen its= =20 reliance on =0F"aggressive vendor financing,=0F" the analyst said. Incumbe= nts=20 typically don=0F't need vendor financing, he said. On the other hand, Lucent=0F's decreased activity in the manufacturing sect= or=0F- through its spin-off of Avaya, Inc., and planned spin-off of Agere Systems,= =20 Inc.=0F-might decrease the company=0F's ability to pay back loans if the ma= rket for=20 its products continues to slow, the analyst said. =0F"To the degree that a company is diversified, the revenue stream of=20 profitable units helps balance the losses of less successful units,=0F" he= =20 said. Lucent will have most of its =0F"eggs in one basket,=0F" the analyst= added. Lucent immediately began laying off workers following its Jan. 24=20 restructuring announcement. It unveiled a workforce reduction of 16,000=20 employees, which includes what it described as a =0F"transfer=0F" of 6,000 = jobs to=20 outside contractors upon the sale of its Columbus, Ohio, and Oklahoma City= =20 facilities. A Lucent source has told TR, however, that the company is targeting as many= =20 as 20,000 positions for elimination this year. The 6,000 employees in=20 Oklahoma and Ohio should be included in the workforce reduction estimate, t= he=20 source said, because there=0F's no guarantee those workers will be rehired = by=20 contractors. =20 Lucent will lose another 16,500 workers when the microelectronics group is= =20 spun off into Agere, the source noted. Although the company likely will terminate more workers than it=0F's willin= g to=20 acknowledge publicly at this point, the layoffs are needed for Lucent to=20 regain its position as a top contender in global communications equipment= =20 markets, said TR=0F's source, who is familiar with Lucent personnel managem= ent=20 operations. Lucent=0F's human resources department is searching for =0F"dead weight=0F"= in its=20 workforce=0F-long-time employees who may not be suitable for Lucent=0F's ne= w focus=20 on high-growth markets, the source said. At the same time, Lucent =0F"will continue to hire people with appropriate = job=20 skills=0F" to enhance the company=0F's capabilities =0F"in profitable, high= -growth=20 markets,=0F" Mr. Schacht said. =0F"The planned reductions will cover a range of business groups and geogra= phic=20 regions,=0F" Mr. Schacht said. =0F"But the majority of them will come from= =20 eliminating duplication in marketing, sales, and corporate functions, pruni= ng=20 of the product portfolio, and reduced volume in certain manufacturing=20 locations.=0F"=20 Merrill Lynch & Co. analyst Michael E. Ching said Lucent=0F's workforce=20 reduction and restructuring charges were larger than he expected. =20 =0F"These changes should help the company return to profitability, but we= =20 believe it likely will be several quarters before we see a meaningful=20 improvement in gross margin,=0F" Mr. Ching said in a research note. =20 =0F"Also, the changes do not address the issue of weak revenue growth in [L= ucent=0F' s] core businesses,=0F" he added. =0F"With a slower improvement in gross margin, and weak revenue growth over= the=20 next several quarters, we are lowering our fiscal 2001 revenue forecast fro= m=20 $32.0 billion to $30.8 billion and increasing our loss per share estimate,= =0F"=20 Mr. Ching reported. Bear, Stearns & Co., forecast that Lucent would lose 9 cents per share in t= he=20 second quarter and 22 cents in fiscal 2001, and earn 33 cents per share in= =20 fiscal 2002. Court Says WorldCom Tariff Trumps Service Pact with ICOM The U.S. Court of Appeals for the Second Circuit (New York) has affirmed a= =20 lower court=0F's decision to dismiss a breach-of-contract lawsuit filed by = ICOM,=20 Inc., against WorldCom, Inc. In a Jan. 22 decision, the appeals court uphe= ld=20 the U.S. District Court for the Eastern District of New York=0F's ruling th= at=20 the claim was barred by the =0F"filed-rate=0F" doctrine and preempted by th= e=20 federal Communications Act of 1934. Under the filed-rate doctrine, a carrier=0F's tariffed rates take precedenc= e=20 over other agreements with customers. Section 203 of the Act states that= =20 when carriers file a tariff for a given service, they can=0F't extend any = =0F" privileges,=0F" charges, or =0F"practices affecting such charges=0F" other = than those=20 stated in the filed tariff.=20 ICOM filed a lawsuit in 1999 alleging that WorldCom had missed a contractua= l=20 deadline for installing six high-speed DS3 circuits. ICOM asserted that=20 WorldCom=0F's inaction caused ICOM to be unable to perform its obligations = under=20 contracts it had signed with third parties. ICOM said its contract with= =20 WorldCom specified damages WorldCom must pay in the event of a breach of=20 contract. In an opinion written by Judge Robert D. Sack and joined by Judges Sonia=20 Sotomayor and Robert A. Katzmann, the appeals court panel found that the=20 contract was unenforceable. =20 Enforcing the contract would =0F"impermissibly modify=0F" the terms of Worl= dCom=0F's=20 tariff for such services. The opinion was filed in ICOM Holding, Inc., v.= =20 MCI WorldCom, Inc. (case no. 00-7660). Judge Sack noted that the Supreme Court=0F's 1998 decision in American Tele= phone=20 & Telegraph Co. v. Central Office Telephone, Inc.,made it clear that the=20 filed-rate doctrine extends to tariff terms beyond the rates for the=20 services. =20 The doctrine bars not only state law claims =0F"that pertain to the price o= f=20 telecommunications services subject to an FCC filing, but also state law=20 claims that concern various nonprice aspects,=0F" Judge Sack said. Long Distance Revenues Head North, FCC Reports Revenues in the long distance industry climbed to $108 billion in 1999, up= =20 from 1998=0F's $105 billion, according to a report from the FCC last week. = The=20 report, Statistics of the Long Distance Telecommunications Industry,=20 highlights financial and market statistics in the long distance services=20 industry and provides data on residential customers=0F' long distance calli= ng=20 patterns. =20 It shows that long distance carriers accounted for more than $99 billion of= =20 the 1999 revenue total, and local telephone companies accounted for the=20 remaining $9 billion. The report is available by calling 202/857-3800 or b= y=20 visiting http://www.fcc.gov/ccb/stats. Telefonica, Portugal Telecom Foresee Brazilian Consolidation Telefonica SA and Portugal Telecom SGPS SA are determined to lead what they= =20 say is the =0F"inevitable consolidation=0F" of the Brazilian wireless indus= try. =20 The former rivals have decided to combine their Brazilian mobile telephony= =20 assets into a $10 billion joint venture that would be the country=0F's larg= est=20 wireless service provider. The companies called their joint venture =0F"the natural consolidator=0F" i= n the=20 Brazilian wireless market, suggesting that it would use its deep pockets an= d=20 strong market position to buy smaller operators. The joint venture would= =20 have 9.3 million subscribers and 94 million =0F"pops=0F" (potential custome= rs). =20 The companies didn=0F't say when they expected to complete the transaction,= =20 which requires the approval of Brazil=0F's telecom regulator, Anatel. The Portuguese and Spanish carriers would get equal ownership and control o= f=20 the unnamed venture, which would be managed by the carriers=0F' wireless=20 subsidiaries, Telefonica Moviles SA and PT Moveis. The venture would inclu= de=20 Telefonica=0F's stakes in Tele Sudeste Celular Participacoes SA, Celular CR= T=20 Participacoes SA, and Tele Leste Celular Participacoes SA. Portugal Telecom would contribute its shares of Celular CRT Participacoes a= nd=20 Telesp Celular Participacoes SA. Once Portual Telecom completed its=20 acquisition of Global Telecom SA, it would contribute those assets to the= =20 venture (TR, Jan. 22). Portugal Telecom=0F's Brazilian assets are worth $3= .8=20 billion and Telefonica=0F's are valued at $4.8 billion, Credit Suisse First= =20 Boston Corp. estimates. Because its assets are worth less, Portugal Teleco= m=20 is expected to contribute cash to the venture. As part of the arrangement, Telefonica has agreed to increase its ownership= =20 of Portugal Telecom to 10% from 5%. The companies didn=0F't say how much= =20 Telefonica would pay for the additional 5%. Brazil=0F's wireless industry is considered ripe for consolidation. Telebr= as,=20 the government-owned monopoly, was dismantled in 1998, and 16 operators=20 received wireless licenses. The government was scheduled to sell nine new= =20 licenses in three auctions starting Tuesday, Jan. 30, although a court=20 challenge may delay the bidding (see separate story). Some analysts think the Brazilian government=0F's goal is to allow enough= =20 consolidation to produce about three large telecom service providers. =0F"= This=20 should assure an economically sound environment for the survivors while at= =20 the same time making sure that consumers do not overpay for telecom=20 services,=0F" Credit Suisse First Boston said. Losses in Handset Operations Spur Ericsson To Exit Business Telefon AB L.M. Ericsson decided to exit the mobile phone manufacturing=20 business after that part of its operations reported yet another disappointi= ng=20 quarter. =0F"The results in our mobile phones business, while in line with= =20 expectations, remain unsatisfactory,=0F" said Kurt Hellstrom, president and= =20 chief executive officer of the Swedish company. Last year, Ericsson increased its handset sales 38%, to 43.3 million units,= =20 but the business unit reported a $1.7 billion loss. =0F"The losses are cau= sed=20 by delivery failure from key suppliers and an inadequate product mix in the= =20 entry-level market,=0F" Mr. Hellstrom said in a statement. Ericsson=0F's solution is to transfer the business to Singapore-based=20 Flextronics International Ltd. On April 1, Flextronics will take over=20 Ericsson handset factories in Brazil, Malaysia, Sweden, the United Kingdom,= =20 and Virginia. Ericsson=0F's China operations will be unaffected. Flextronics will manufacture Ericsson-designed handsets under a =0F"strateg= ic=20 alliance=0F" between the two companies. The workforce in Ericsson=0F's han= dset=20 division will decline from 16,800 to 7,000. Ericsson will transfer 4,200= =20 workers to Flextronics; the remainder will be laid off or transferred to=20 other units. Merrill Lynch & Co. analyst Adnaan Ahmad said he expected the outsourcing= =20 arrangement to result in a =0F"difficult transition.=0F" The arrangement i= s =0F"good=20 news from a supply-chain management perspective,=0F" Mr. Ahmad said in a re= port. =0F"However, in our view, it does not solve the underlying issues with rega= rd to=20 [Ericsson=0F's] reading the end-market segments,=0F" he said. Merrill Lync= h=20 downgraded its long-term rating on Ericsson shares from =0F"buy=0F" to =0F"= accumulate.=0F" CRTC Nixes Vancouver Bid For Fiber-Deployment Fees The Canadian Radio-television and Telecom-munications Commission has resolv= ed=20 a dispute between the city of Vancouver, British Columbia, and Ledcor=20 Industries Ltd. Vancouver claimed the company had begun deploying a fiber= =20 optic network without its permission. The commission emphasized that its= =20 decision addressed this particular dispute and didn=0F't set a precedent fo= r=20 resolving similar disputes in the future. In decision no. 2001-23, the CRTC granted Ledcor permission to =0F"construc= t,=20 maintain, and operate=0F" fiber optic transmission lines in 18 street cross= ings=20 and said that most of the compensation Vancouver had sought in connection= =20 with the project was =0F"not required or appropriate.=0F"=20 Vancouver had sought a =0F"variety of onetime and ongoing causal costs=0F" = stemming=20 from the =0F"presence or placement of telecommunications plant on its stree= ts,=0F"=20 the commission said. =0F"Vancouver proposed that it recover all costs caus= ally=20 incurred. . .as a result of the use and occupation of its public property b= y=20 carriers.=0F" =20 Ledcor in March 1999 asked the agency for relief from Vancouver=0F's =0F" unacceptable=0F" terms and conditions. It claimed that the city wouldn=0F'= t=20 approve the project, despite the Canadian Telecommunications Act=0F's=20 requirement that a municipality grant =0F"access to the street crossings an= d=20 other municipal property=0F" on terms acceptable to carriers. =20 In its 1999 filing, Ledcor asked the commission to issue an interim order s= o=20 that it, its subsidiary Worldwide Fiber Ltd., and its carrier customers cou= ld=20 continue the project pending a final decision. In October 1999, the=20 commission issued an interim order, under which Ledcor, Bell Canada, Inc.,= =20 and Call-Net Enterprises, Inc., were each to pay $1 to the city =0F"as a=20 condition of access.=0F" =20 In last week=0F's decision, the CRTC agreed with the city that Ledcor shoul= d pay=20 fees relating to =0F"plan approval and inspection=0F" and ordered the compa= ny to=20 pay $7,613 in these and related costs. However, it said that most of the= =20 other fees levied on Ledcor by Vancouver=0F-such as annual =0F"land=0F" cha= rges based=20 on the value of land adjacent to the facilities=0F-were unacceptable. It emphasized that the decision applied only to this dispute and not to=20 future cases involving similar circumstances. =0F"The Commission is not, i= n=20 this decision, prescribing terms and conditions related to the future=20 construction by Ledcor, or any other carrier, of transmission lines in=20 Vancouver or elsewhere,=0F" it said. =0F"The Commission is not persuaded t= hat it=20 is appropriate for it to adopt any particular model or standard agreement t= o=20 serve as a starting point for discussions between municipalities and=20 carriers.=0F" Brazil, France Face Setback In Awarding Wireless Licenses Telecom regulators in Brazil and France are facing setbacks in their attemp= ts=20 to award licenses for wireless services. Brazilian officials are seeking t= o=20 overturn a court challenge, while prospective licensees in France have=20 dropped out of the running. In Brazil, telecom regulator Anatel has postponed its scheduled Jan. 30=20 auction of three wireless licenses in the wake of a court injunction blocki= ng=20 the sale. Anatel said it would reschedule the auction for Feb. 5 or 6 if it could=20 persuade a court on Jan. 29 to overturn the injunction, which a Sao Paulo= =20 court issued last week. That court said the rules governing the bidding=20 process were illegal. Anatel has scheduled additional auction rounds to se= ll=20 three licenses each for Feb. 20 and March 13. In France, regulators=0F' plans to award four licenses for third-generation= (3G)=20 services ran into trouble when at least two prospective bidders, French=20 utility Suez Lyonnaise des Eaux and Telefonica SA of Spain, dropped out. = =20 There was growing speculation that French wireless carrier Bouygues Telecom= =20 also would withdraw. Bids are due Jan. 31. Also last week, Denmark awarded second-generation wireless licenses to=20 Mobilix A/S and Telia A/S. The National Telecom Agency had received=20 applications from four bidders for the 900 megahertz (MHz) band licenses,= =20 which were issued in a comparative process known as a beauty contest. Included in the binding terms of the licenses are the prices and products t= o=20 be offered, and the terms for interconnection with other carriers. Meanwhile, Dutch regulators have decided to allocate additional 3G licenses= =20 by auction, with the aim of awarding the licenses by October. The licenses= =20 will cover 3G services in the 1900=0F-1980 MHz, 2010=0F-2025 MHz, and 2110= =0F-2170 MHz=20 bands. The Dutch government raised 5.9 million Dutch guilders ($2.5 billion) last= =20 year when it auctioned five 3G licenses (TR, July 31, 2000). Wireless Industry Seeks Changes In Antenna-Collocation Agreement Two wireless industry trade groups are seeking changes in a draft agreement= =20 designed to streamline the review of antenna collocations on historic sites= . =20 The industry groups say the changes are needed to ensure that the pact=20 accomplishes its goal. But a historic preservation group says the agreemen= t=20 would result in harm to historic properties. The agreement was drafted, pursuant to the National Historic Preservation A= ct=20 (NHPA), by the FCC, the Advisory Council on Historic Preservation (ACHP), a= nd=20 a telecommunications working group that includes state historic preservatio= n=20 officers, federal officials, and wireless industry representatives (TR, Nov= .=20 27, 2000). The FCC said it expected to take action on a final agreement on= =20 or about Jan. 29. The pact restricts the conditions under which state or tribal historic=20 preservation officers would review antennas for their potential effect on= =20 historic properties or sites. Wireless industry officials say they hope 75= %=20 to 85% of new antenna applications would be freed from the review process. CTIA Attacks Agreement As drafted, the agreement =0F"does not streamline the regulatory process fo= r=20 collocations,=0F" the Cellular Telecommunications & Internet Associationsai= d in=20 comments filed at the FCC last week. Instead, it =0F"threatens to actually= =20 impede collocation.=0F" CTIA noted that under current FCC rules, licensees are responsible for=20 determining whether an antenna would affect a historic property. =0F"Howev= er,=20 under the proposed [national programmatic agreement], any person, whether= =20 qualified or not, at any time can allege at the FCC that the proposed=20 collocation has an adverse effect on historic properties,=0F" prompting a r= eview=20 before further construction can proceed, CTIA said. =0F"Such a provision undermines the FCC=0F's efforts to streamline the coll= ocation=20 process. It also fails to recognize that the effects of collocations on=20 historic properties are categorically minimal, and unlikely to raise histor= ic=20 preservation issues not already addressed in the proposed=0F" national=20 programmatic agreement. CTIA said that only in =0F"well-defined and limited circumstances,=0F" such= as a=20 substantial increase in the size of an antenna, should a collocated facilit= y=20 be subject to review. Otherwise, the burden should be on ACHP and historic= =20 preservation officers to prove that an antenna will harm a historic propert= y,=20 CTIA argued. In addition, the trade group said the FCC should ensure that future=20 environmental assessments are processed in accordance with the Commission= =0F's=20 own rules. CTIA said decisions by the Wireless Telecommunications Bureau = =0F" could be interpreted to suggest that licensees take steps required by neith= er=20 the Commission=0F's rules nor the NHPA.=0F" In its comments, the Personal Communications Industry Associationsaid that= =20 while it strongly supported the aim of the programmatic agreement, =0F"some= =20 necessary amendments=0F" would ensure that the pact would =0F"truly benefit= all=20 parties and advance the common goals of achieving the rapid build-out of th= e=20 nation=0F's indispensable telecommunications network while at the same time= =20 protecting the nation=0F's invaluable historic resources.=0F" PCIA said the draft agreement on which the FCC sought comments =0F"preserve= s=20 much of the substance=0F" of an earlier version of the pact that was approv= ed by=20 the telecom working group. But provisions added in the latest draft differ= =20 from =0F"the intent of the parties=0F' previous agreements=0F" and =0F"requ= ire=20 clarification, correction, or modification,=0F" it said. Among the amendments PCIA suggested were changing the effective date of the= =20 agreement to the date it is published; it proposed March 1 unless an earlie= r=20 date is possible. It also suggested changes in language that it says would= =20 limit which entities could mount antennas on towers. And it wants to clari= fy=20 that compliance with the agreement constitutes compliance with the NHPA=0F'= s and=20 the ACHP=0F's rules. The Jefferson County, Colo., Historical Commissionalso opposed the=20 programmatic agreement but for different reasons. It said the pact would= =20 weaken the NHPA and the National Environmental Preservation Act. It said t= he=20 collocation of antennas should not be permitted without environmental=20 assessments. The draft agreement =0F"places the wireless industry above the law that pro= tects=20 structures and American citizens that use them,=0F" the historical commissi= on=20 added. The Telecommunications Industry Association has published... The Telecommunications Industry Association has publishedan interim standar= d=20 that defines the messaging required to support Phase II =0F"enhanced 911=0F= " (E911)=20 systems. The standard is called TIA/EIA/IS-J-STD-036. Carriers, Others See Problems In FCC=0F's ID-Number Proposal=20 Carriers and broadcasters gave a lukewarm reception to the FCC=0F's plan to= =20 require each regulated entity to use a unique identifying number on certain= =20 filings. Many carriers and others said the planned system was duplicative = of=20 existing registration programs and suggested ways to simplify the FCC=0F's= =20 process for tracking regulatory filings. The FCC had proposed making mandatory a previously voluntary system under= =20 which anyone doing business with the agency would use a 10-digit FCC=20 registration number (FRN) obtained from the Commission Registration System.= =20 In a notice of proposed rulemaking released in Managing Director docket=20 00-205 last December, the FCC suggested that the FRN be required on all=20 regulatory fee payments, waiver petitions, auction payments, and other=20 filings and submissions (TR, Dec. 4, 2000). Parties would be responsible f= or=20 maintaining the accuracy of the information in the Commission Registration= =20 System database. In comments filed on the proposal last week, many carriers said they=20 supported the FCC=0F's goal of efficiently tracking filings and fees but=20 disagreed with just how the plan should be implemented. Parties already use a taxpayer identification number (TIN) on many of their= =20 FCC filings, including those on which the Commission has suggested using th= e=20 FRN, Verizon Wireless said. =0F"The need for another =0F`unique identifyin= g=20 number=0F' is unclear,=0F" it said. The confidentiality of TINs is important, Verizon said, =0F"but this factor= does=20 not appear crucial since, as the Commission says, the information in [the= =20 Commission Registration System] is for Commission use only and will not be= =20 published or distributed.=0F" Cingular Wireless LLC suggested instead that the FCC do away with its use o= f=20 TINs when it institutes the mandatory FRN system. It said that financial a= nd=20 personal information can be revealed and =0F"a person=0F's =0F`identity=0F'= can be =0F` stolen=0F' if his or her TIN=0F" is obtained. It also criticized the FCC f= or the=20 lax security it gave parties=0F' TINs. =0F"Inadvertently filed copies cont= aining=20 TIN information have been discovered in the Commission=0F's public referenc= e=20 room on more than one occasion,=0F" Cingular said. =20 It recommended that the FCC assign FRNs only to parties that request one,= =20 rather than having the Commission assign FRNs as it issues bills or other= =20 notifications. The latter approach could =0F"result in duplicative FRNs by= =20 large business entities who control numerous applicants and licensees,=0F" = it=20 added. The Walt Disney Co. had similar reservations about how the FRNs would be=20 assigned. It said that under the voluntary FRN system, when a parent compa= ny=20 made a joint filing that included regulatory fees for more than one=20 subsidiary, only the FRN of the parent company was associated with the=20 payments and the FRNs of the subsidiaries appeared to be unused by the syst= em. This can lead to the misperception that the subsidiaries still owe the fees= ,=20 Disney said. =0F"The Commission=0F's filing systems should be able to prop= erly=20 credit payments made on behalf of a licensee that is a subsidiary of anothe= r=20 entity, regardless of the source of payment,=0F" it added. Qwest Communications International, Inc., criticized the =0F"unforgiving ma= nner=20 in which the Commission proposes to implement its FRN proposal.=0F" The FC= C had=20 suggested that it would reject filings that fail to include an FRN where on= e=20 is required, which could result in the filing=0F's dismissal or the FCC=0F'= s=20 refusal to accept an application. Qwest said such an approach was =0F"overly harsh=0F" and suggested that the= FCC =0F" modify its proposed rules to allow filing parties a minimal period of time= =20 (e.g., five calendar days) to correct a filing or application that lacks an= =20 FRN.=0F"=20 The National Exchange Carrier Association, Inc., said that it submits filin= gs=20 on behalf of more than 1,200 carriers and that it was concerned about the F= CC=20 suggesting that one entity could obtain multiple FRNs. =0F"The Commission= =20 should make clear that, as authorized filing agent for its various=20 tariff-participating members, NECA will submit its own FRN with each tariff= =20 filing requiring a fee payment, but that submission of FRNs for each=20 participating carrier in NECA=0F's tariff is not necessary,=0F" NECA said. If the FCC allows single entities to obtain multiple FRNs =0F"it should, at= a=20 minimum, establish a system to link related entities,=0F" NECA said. =20 Broadcasters already are required to register separately for four different= =20 FCC systems, the National Association of Broadcasters said. The FCC should= =0F" step back and assess its electronic filing and database systems on a holist= ic=20 level,=0F" NAB said. =0F"Although each bureau has developed software progr= ams to=20 accommodate their particular needs, there is no mechanism by which the=20 systems are cross-referenced.=0F" The FCC should explore ways to =0F"centr= alize=0F"=20 its identification process, NAB concluded. Building Owners, Carriers Spar over FCC Proposal To Block Service, Extend B= an=20 on Exclusive Pacts As the FCC considers another slate of proposals designed to help carriers= =20 obtain access to multitenant structures, building owners and competitive=20 telecom service providers are escalating the battle they=0F've been fightin= g for=20 the last several years. The issue this time around is whether the FCC should take steps specificall= y=20 targeting multitenant residential buildings. The agency previously has=20 limited the scope of its actions to commercial buildings. The FCC recently adopted rules in Wireless Telecommunications docket 99-217= =20 designed to help competitive local exchange carriers (CLECs) obtain access = to=20 multitenant structures. Among other things, the Commission barred exclusiv= e=20 contracts between telecom service providers and owners of multitenant=20 commercial buildings (TR, Oct. 16, 2000). When it adopted those rules, the FCC suggested that it would need to take= =20 more steps. It issued a further notice of proposed rulemaking (NPRM) askin= g=20 whether it should (1) extend its ban on exclusive contracts to apply to=20 multitenant residential buildings and (2) bar incumbent local exchange=20 carriers (ILECs) from serving buildings where the owner prevents CLEC acces= s. In its comments filed last week, the Real Access Alliance, which represents= =20 building owners, said the FCC already had concluded that it lacked authorit= y=20 to =0F"regulate the real estate industry.=0F" But in the further NPRM, the FCC asks whether it can =0F"achieve the same g= oal=20 through the draconian measure of ordering telecommunications providers to c= ut=20 off service in buildings whose owners do not comply with the Commission=0F'= s=20 wishes,=0F" it said. =0F"Whether the Commission regulates building owners directly=0F-as propose= d in the=20 original notice of proposed rulemaking in this docket=0F-or indirectly, as= =20 proposed in the [further notice], makes no difference because the FCC lacks= =20 jurisdiction over building-access agreements,=0F" the alliance said. =0F"Agreements for building access are agreements for the use of real estat= e=20 and, therefore, outside the Commission=0F's purview, even over carriers,=0F= " it=20 said. Enforcement of =0F`Best Practices=0F' Questioned The Smart Buildings Policy Project, which represents telecom carriers and= =20 equipment manufacturers that support building-access policies, said buildin= g=20 owners continue to delay the entry of competitive telecom carriers. It=20 advised the FCC not to rely on the model agreements and =0F"best practices= =0F"=20 promoted by building owners. =0F"Reasonable access terms and conditions are meaningless if access can be= =20 denied entirely, or if access can be delayed for months or years,=0F" the= =20 project said. =0F"These model terms and conditions are entirely unenforcea= ble=20 without a Commission requirement for granting access.=0F" The group said it was particularly concerned about the =0F"increasing=20 phenomenon=0F" of building owners making direct investments in building-foc= used=20 CLECs (BLECs). =0F"The resulting symbiotic financial relationship motivate= s the=20 [multitenant building] owner to promote its affiliated BLEC within the=20 building,=0F" it said. The FCC should =0F"directly prohibit=0F" building o= wners from =0F" unreasonably discriminating among facilities-based carriers,=0F" it said. AT&T Corp. called for a nondiscriminatory access rule allowing a CLEC to = =0F" institute proceedings that, if successful, could result in an order=20 prohibiting a LEC from providing telecommunications services=0F" to any bui= lding=20 that refuses to allow =0F"reasonable, nondiscriminatory access to competing= =20 carriers.=0F" The FCC has the authority under sections 201 and 205 of the Communications= =20 Act of 1934 to stop LECs from serving buildings whose owners engage in=20 discriminatory practices, AT&T said. =0F"The fact that such regulations ha= ve an=20 indirect effect on [building] owners=0F-namely, in encouraging them to prov= ide=20 their tenants with the telephony choices they deserve=0F-does not divest th= e=20 Commission of jurisdiction,=0F" it said. In joint comments, Carolina BroadBand, Inc., RCN Telecom Services, Inc., an= d=20 Utilicom Networks LLC complained that the =0F"entrenched incumbent local=20 exchange carriers and incumbent cable [TV] providers frequently misuse thei= r=20 established positions to block competition through such means as exclusive= =20 contracts with [building] owners and managers.=0F" They noted that the FCC=0F's further rulemaking notice had said the record = didn=0F' t provide a sufficient basis upon which to decide whether barring exclusive= =20 contracts in the residential market would be beneficial or detrimental to= =20 growth. =0F"There are many competitive obstacles raised by such exclusive= =20 arrangements, not the least of which is that the ultimate captive tenant mu= st=20 wait until the expiration of the contract before obtaining the superior=20 services of another provider,=0F" they said. Cox Communications, Inc., cited barriers it encounters when trying to gain= =20 access to buildings, including =0F"monetary demands=0F" from building owner= s and =0F" onerous nonfinancial terms and conditions.=0F" It urged the FCC to adopt a= =0F" simple rule that prevents any incumbent from obtaining access to a=20 [multitenant building] on terms more favorable than those available to any= =20 other carrier.=0F" BLEC Sees Residential, Commercial Differences BLEC CoServ LLC said the FCC=0F's =0F"reservation about extending the ban o= n=20 exclusive arrangements from the commercial to the residential market is=20 warranted.=0F" Residential leases are much shorter than business leases, a= nd=20 relocation costs are lower for residences, it said. Residential customers,= =20 therefore, have a =0F"greater degree of flexibility in mitigating (or simpl= y=20 avoiding) any limits=0F" a building owner may put in place with exclusive= =20 telecom service agreements, it concluded. Cypress Communications, Inc., an Atlanta-based BLEC, said the FCC should ba= r=20 ILECs from signing discriminatory access arrangements with building owners.= =0F" Such a rule is necessary because ILECs have market power and, therefore,=20 possess an advantage over CLECs,=0F" it said. A nondiscrimination requirement applied to CLECs is =0F"unnecessary,=0F" Cy= press=20 said, because they =0F"lack market power, and building owners do not have a= n=20 incentive to discriminate on the CLECs=0F' behalf.=0F" The FCC shouldn=0F't keep LECs from serving multi-tenant buildings whose ow= ners=20 refuse to deal with other LECs on a nondiscriminatory basis, said BellSouth= =20 Corp. Such a rule would be =0F"constitutionally suspect,=0F" =0F"unnecessa= ry,=0F" and =0F" ill-considered,=0F" it said. The rule would be =0F"too severe in consequen= ce in=20 that it affects the very health, safety, and livelihood of innocent LEC=20 customers,=0F" BellSouth said. Verizon Communications, Inc.=0F's telephone companies asked the FCC to bar = all=20 exclusive access arrangements between carriers and multitenant building=20 owners. But it should not constrain =0F"exclusive or preferential marketin= g=20 arrangements, which are pro-competitive,=0F" they say. Such arrangements = =0F" afford customers an additional source of information on the availability of= =20 services and products and an additional sales outlet, without any reduction= =20 in the many outlets they already have,=0F" the Verizon telcos said. SBC Communications, Inc.=0F's telcos also backed extending the ban on exclu= sive=20 access arrangements to cover residential buildings but opposed any effort t= o=20 limit marketing agreements. They also opposed broadening the definition of= =20 right-of-way, which would be =0F"unworkable=0F" and =0F"inconsistent=0F" wi= th state law=20 and the Communications Act of 1934, they said. The Independent Cable & Telecommunications Association said =0F"limited-ter= m=20 exclusive=0F" contracts between multichannel video programming distributors= and=20 owners of residential buildings =0F"can and do function as a pro-competitiv= e=20 force in that marketplace.=0F" ICTA also opposed extending the FCC=0F's rules governing the disposition of= =20 cable TV =0F"home-run=0F" wiring to include providers of telecom services. = Those=20 rules currently cover providers of video services. In joint comments, the Edison Electric Institute and the United Telecom=20 Council disagreed with the FCC=0F's premise that utility rights-of-way coul= d be=20 construed to include =0F"in-building facilities, such as riser conduits, th= at=20 are owned or controlled by a utility.=0F" =0F"Any access right conferred upon cable and telecommunications providers = by=20 section 224 must remain subordinate to the rights held by utilities, such= =20 that a utility=0F's ability voluntarily to provide access to an area and ob= tain=20 compensation for doing so is a prerequisite to utility ownership or control= =0F"=20 under section 224, they said. The General Services Administration, commenting on behalf of the consumer= =20 interests of federal executive agencies, didn=0F't weigh in with specific= =20 recommendations. But it described problems its agencies have experienced i= n=20 trying to order service from CLECs, including problems caused by building= =20 owners and ILECs that delayed service provisioning. The Telecommunications Research and Action Center asked the FCC to prohibit= =20 telecom service providers from signing exclusive contracts with owners of= =20 multitenant residential buildings. It also asked the FCC to revise its cab= le=20 TV inside-wiring rules to give tenants a broader choice of advanced service= =20 providers. TRAC said building owners shouldn=0F't be permitted to determine which tele= com=20 carrier may acquire =0F"home-run=0F" wiring. =0F"Should the owner fail to = allow=20 alternative providers to compete for subscribers, dwellers are stuck with t= he=20 incumbent,=0F" it said. Missouri Lawmakers Seek To Oust Three PSC Members Missouri state Rep. Dennis Bonner (D.) and Sen. Ronnie DePasco (D.) are=20 trying to oust three Public Service Commissioners who voted to allow Missou= ri=20 Gas Energy to raise its rates by 44% before the PSC held a hearing on the= =20 matter. The rate change is an interim increase, subject to refunds if a PSC staff= =20 audit determines that the company made =0F"imprudent decisions=0F" in its p= urchases=20 of natural gas, the commission said in a press release announcing its Jan. = 23=20 action allowing the rate hike. The three commissioners who voted in favor of the rate increase are Connie= =20 Murray (R.), M. Dianne Drainer (R.), and Chairwoman Sheila Lumpe (D.). Rep= .=20 Bonner and Sen. DePasco aren=0F't trying to remove Commissioners Kelvin Sim= mons=20 (D.) and Robert G. Schemenauer (D.), who voted against the rate hike. Mr. Bonner filed a resolution (HCR 9) in the House of Representatives last= =20 week that would declare the commissioners=0F' seats vacant as a result of t= heir =0F" violation of state law.=0F" The resolution was introduced Jan. 24; it had = its=20 second reading in the House Jan. 25 but wasn=0F't at that time scheduled fo= r a=20 hearing or a vote. Rep. Bonner told TR that Sen. DePasco was planning to= =20 file an identical resolution in the Senate late last week. The 44% rate hike was =0F"ridiculous,=0F" Rep. Bonner said. =0F"People in = my district=20 can=0F't afford to pay that.=0F" He added, however, that he =0F"would have= been happy=20 if [the commissioners] would have held a hearing.=0F" He said he and Sen.= =20 DePasco had warned the commissioners that they would try to expel anyone wh= o=20 approved the rate hike without holding a public hearing first. FCC Says ATU Must Refund $2.7M For Misallocating Costs The FCC has ordered an Alaskan local exchange carrier to refund GCI=20 Communications, Inc., $2.7 million in damages plus interest, to make up for= =20 having improperly allocated certain costs to the interstate jurisdiction fo= r=20 separations purposes. Local exchange carriers must jurisdictionally separa= te=20 costs related to facilities that are used for both interstate and intrastat= e=20 services, so that federal and state regulators can associate the costs with= =20 revenues from the appropriate jurisdiction. The FCC said Alaska Communications Systems, Inc. (d/b/a ATU=20 Telecommunications) had wrongly allocated to the interstate jurisdiction th= e=20 traffic-sensitive costs of carrying Internet-bound calls. The FCC also sai= d=20 ATU unlawfully exceeded its allowed rate of return on its investment to=20 provide interstate access services during the 1997=0F-1998 monitoring perio= d. =20 The FCC ordered ATU to revise its tariffs and monitoring reports to reflect= =20 the fact that the FCC considers ISP-bound traffic to be intrastate in natur= e=20 for separations purposes. The FCC also found that ATU improperly calculated =0F"dial-equipment minute= s=0F"=20 (DEM) for interoffice calls during that same monitoring period. =0F"By=20 allocating ISP traffic costs to the interstate jurisdiction for separations= =20 purposes, and by counting one DEM rather than two DEMs for each minute of= =20 interoffice calls, ATU erroneously inflated its interstate cost base,=0F" t= he=20 FCC said in an order released last week in Enforcement file MD-016. GCI also had complained that (1) ATU=0F's tariffs were unjust and unreasona= ble,=20 in violation of section 201(b) of the Communications Act of 1934, because= =20 they permitted ATU to exceed its prescribed rate of return; and that (2) by= =20 assigning Internet-bound traffic costs to the interstate jurisdiction, ATU= =20 unjustly and unreasonably imposed charges on GCI for a service to which it= =20 did not subscribe. The FCC dismissed those two complaints, saying they wer= e =0F" moot=0F" and based on the same facts as the complaints on which it ruled in= GCI=0F' s favor. The FCC said that assigning the costs of Internet-bound traffic to the=20 intrastate jurisdiction for separations purposes was =0F"a legal requiremen= t=0F"=20 under rules it established in a 1983 order regarding MTS (message telephone= =20 service) and WATS market structure. It noted that it had affirmed that leg= al=20 requirement in a series of orders, most recently in its =0F"first access ch= arge=20 reform=0F" order in Common Carrier docket 99-249 (TR, June 5, 2000). ATU h= ad=20 argued that the FCC had only =0F"expressed a preference=0F" for assigning I= SP costs=20 that way. =0F`C,=0F' =0F`F,=0F' Block Reauction Nets Record $16.8B; Large Carrier Par= ticipation May=20 Be Contested The record $16.8 billion that the FCC netted in its reauction of 422 =0F"C= =0F" and =0F" F=0F" block PCS (personal communications service) licenses fell within the = range=20 most financial and industry analysts expected. But some analysts said the= =20 prices for licenses in the largest market=0F-New York City=0F-were higher t= han=20 expected. Meanwhile, with the sale now over, at least one unsuccessful participant=20 plans to challenge the results before the FCC=0F-and possibly in court. At= =20 issue are set-aside rules for small businesses that allow them to form=20 alliances with bigger carriers. =20 Another legal uncertainty involves the last remaining court challenge of=20 bankrupt NextWave Telecom, Inc., whose reclaimed licenses were among those= =20 sold at the auction. The FCC reclaimed the licenses when NextWave failed t= o=20 meet its payment obligations for them. Some analysts say they don=0F't exp= ect=20 the legal challenges to succeed. When the reauction concluded after the 101st round on Friday, Jan. 26,=20 Verizon Wireless, bidding as Cellco Partnership, finished on top, offering= =20 $8.7 billion for 113 licenses, including two in New York City and Boston an= d=20 one each in Los Angeles, Chicago, San Francisco, Philadelphia, and=20 Washington. The 113 licenses cover 150 million =0F"pops=0F" (potential cus= tomers). Finishing second was Alaska Native Wireless LLC, which is 39.9%-owned by AT= &T=20 Wireless Services, Inc. It submitted bids of $2.8 billion for 44 licenses,= =20 including one each in New York City and Los Angeles. Salmon PCS LLC=0F-in which Cingular Wireless LLC holds an 85% equity stake= =0F- finished with $2.3 billion in bids for 79 licenses, including one each in L= os=20 Angeles, Dallas, Atlanta, and Boston. DCC PCS, Inc., a subsidiary of Dobson Communications Corp., finished fourth= =20 with $545 million in bids for 14 licenses. Cook Inlet/VS GSM V P, an=20 affiliate of VoiceStream Wireless Corp., was fifth with $506 million in bid= s=20 for 22 licenses. A VoiceStream subsidiary, VoiceStream PCS BTA, finished= =20 next with $482 million in bids for 19 licenses. Among the major carriers that dropped out of the auction before it ended we= re=20 ALLTEL Communications, Inc., and subsidiaries of Nextel Communications, Inc= .,=20 and Sprint PCS. SVC BidCo L.P., however, which is 80%-owned by Sprint PCS= ,=20 won five licenses for $281 million. Thirty-five of the 87 bidders that originally qualified for the reauction= =20 were still eligible to bid in the final round. Of those 35 bidders, 32=20 qualified as entrepreneurs in the sale, which began Dec. 12, 2000. The $16= .8=20 billion raised was a record for the FCC in a single auction. The amount=20 reflects bidding credits allotted to small businesses. The previous record= =20 was the $9.2 billion netted in a C block auction (TR, May 13, 1996). DE Rules under Fire The FCC=0F's set-aside rules for small businesses, also known as =0F"design= ated=20 entities=0F" (DEs), have drawn controversy since before the reauction began= and=20 are expected to remain a contentious issue. The day before the sale began, one DE, Allegheny Communications, Inc., aske= d=20 the U.S. Court of Appeals in Washington to block the reauction, saying the= =20 FCC had failed to review the ownership of bidders classified as DEs to ensu= re=20 they were qualified entrepreneurs (TR, Dec. 18, 2000). Allegheny, which qualified as a very small business, cited AT&T Wireless=0F= '=20 interest in Alaska Native Wireless and Cingular Wireless=0F' stake in Salmo= n=20 PCS. It said that the rules allowed large corporations to bid through =0F"= shell=20 entities=0F" for licenses reserved for entrepreneurs. Of the 422 licenses = on=20 the block in the reauction, 170 were reserved for qualified DEs, while 252= =20 were open to all bidders. The 422 licenses covered 195 markets.=20 The appeals court denied Allegheny=0F's request. Allegheny ended up droppi= ng=20 out of the reauction during the bidding. The FCC defended its DE rules, saying they enable small businesses to raise= =20 enough capital to participate in spectrum auctions while ensuring they are= =20 controlled by entrepreneurs. It conducts ownership analyses of winning=20 auction bidders before granting licenses it said. Last week an attorney for Allegheny said it planned to challenge the=20 reauction results, at least at the FCC. =0F"We don=0F't think there=0F's a= ny question=20 sham bidders have hurt true entrepreneurs,=0F" attorney Dana Frix told TR. = He=20 said Allegheny was working with an economist to =0F"assess the damage and w= hat=20 the available remedies are.=0F" DEs and the big players they partnered with defended their auction alliance= s,=20 telling TR they were simply following the FCC=0F's rules. =0F"From our perspective, we have complied in every respect with these rule= s,=0F"=20 said George D. Crowley Jr., chairman and chief executive officer of Salmon= =20 PCS. While Cingular has an 85% equity stake in Salmon, Mr. Crowley stresse= d=20 that Crowley Digital Wireless LLC, which he also heads, controls Salmon=0F'= s=20 management and operations. =0F"The 79 licenses will be used by Salmon,=0F" Mr. Crowley, a cellular ind= ustry=20 veteran, said. He added, however, that Salmon would have the right to use= =20 Cingular=0F's name and might establish roaming and operations agreements wi= th=20 the large carrier. Ritch Blasi, a spokesman for AT&T Wireless, said his company believed it wa= s=20 in a strong position in the event of any legal action. =0F"We think we fol= lowed=20 the rules according to the FCC,=0F" he said. AT&T Wireless plans to contri= bute=20 $2.6 billion toward the $2.8 billion purchase price of the licenses,=20 according to a news release. In the release, Rosemarie Maher, president and CEO of Doyon Ltd., another= =20 Alaska Native Wireless partner, said the licenses won in the reauction woul= d=20 help the company provide phone service to American Indian and rural=20 communities. Officials at Leap Wireless International, Inc., another DE that had=20 criticized the alliances with large carriers, said they wanted to focus now= =20 on building out networks to use the licenses they won. Leap won 22 license= s=20 for $350 million, including those in Columbus, Ohio; Providence, R.I.; and= =20 Houston and San Antonio. =0F"Our goal now is to look at what we have and see how we can move forward= ,=0F"=20 Harvey P. White, Leap=0F's chairman and chief executive officer, told TR. Some industry observers expect regulatory or legal challenges to the auctio= n=20 results to fail. =0F"They=0F're highly likely to be challenged in court an= d [the=20 challenges are] highly unlikely to be successful,=0F" said Rudy Baca, an an= alyst=20 at The Precursor Group in Washington. The other legal cloud hanging over the licenses involves NextWave=0F's chal= lenge=20 of the cancellation of its licenses. Oral arguments on its appeal in the= =20 D.C. Circuit are scheduled for March 15. The FCC has conditioned the award= =20 of those licenses in the reauction on the outcome of NextWave=0F's court ca= se. The other licenses sold in the reauction were reclaimed from other bankrupt= =20 carriers, returned, or unsold at previous auctions. Analysts, Industry Assess Results Meanwhile, industry analysts and officials were assessing the reauction=20 results. Mr. Baca said the proceed totals were about what he expected,=20 adding that the winning bids =0F"are not out of line.=0F" Most financial a= nalysts=20 had forecast that the sale would bring in from $11 billion to $20 billion. The bids were closely watched=0F-not only to see how much would be deposite= d in=20 the U.S. Treasury but to see how the bids compared with the $4.7 billion=20 NextWave had pledged for its C block licenses in 1996. Knox Bricken, an analyst with the Yankee Group in Boston, said she was=20 surprised at the bids for the New York City licenses. =0F"We didn=0F't exp= ect=20 prices to be that high for those licenses,=0F" she said, adding Verizon Wir= eless=20 would be hard-pressed to realize a positive return on its investment in tha= t=20 market. Jeffrey Nelson, a Verizon Wireless spokesman, declined to comment on the=20 auction results, citing the Commission=0F's anticollusion rules. But David= =20 Frail, a spokesman for Verizon Wireless=0F' parent, Verizon Communications,= =20 Inc., said the parent would lend the wireless unit $8.8 billion to pay for= =20 the licenses. Verizon Wireless bid $2.0 billion for each New York City license. Alaska= =20 Native Wireless won its license there with a bid of $1.4 billion. Ms. Bricken said the New York City bids rivaled the huge bids seen in last= =20 year=0F's third-generation (3G) spectrum auctions in the United Kingdom and= =20 Germany, which raised more than $80 billion (TR, May 1, 2000; and Aug. 21 a= nd=20 28, 2000). Before the reauction began, analysts had predicted that bidding would be mo= re=20 controlled as a result of the common belief that bidders overpaid in those= =20 foreign auctions. Thomas E. Wheeler, president and CEO of the Cellular Telecommunications &= =20 Internet Association, praised congressional leaders and former FCC Chairman= =20 William E. Kennard for =0F"standing up=0F" to NextWave=0F's attempts to win= back its=20 licenses through legislative channels. =0F"This is a $16 billion victory f= or=20 taxpayers,=0F" Mr. Wheeler said. Pa. ALJ Slams Verizon Plan To Avoid Full Structural Split An administrative law judge has recommended that the Pennsylvania Public=20 Utility Commission develop its own plan for Verizon Pennsylvania, Inc., to= =20 split up its wholesale and retail operations. In his recommendation to the= =20 PUC, the ALJ criticized Verizon=0F's =0F"alternative=0F" plan for not going= far enough=20 to separate the company=0F's business functions and for being too full of h= oles=20 to implement. In 1999 the PUC ordered the retail-wholesale split as part of a =0F"global= =20 order=0F" settling a number of proceedings on issues ranging from reciproca= l=20 compensation to universal service (TR, Aug. 30, 1999). Also last year,=20 Verizon proposed a plan that would allow it to avoid a complete split of it= s=20 company by separating the business functions but keeping the company=20 structurally intact (TR, July 3, 2000). Administrative Law Judge Wayne L. Weismandel last week recommended giving= =20 Verizon a year to create separately operating retail and wholesale=20 affiliates. Under his recommendation, the two affiliates would be required= =20 to maintain separate books, records, staffs, and officers. The retail=20 affiliate would not be permitted to obtain financing =0F"that would permit = a=20 creditor, upon default, to have recourse to the assets of the Verizon=20 Pennsylvania, Inc., wholesale affiliate.=0F" Under the plan, the two affil= iates=20 would be required to conduct transactions =0F"on an arm=0F's-length basis.= =0F" The ALJ said that Verizon=0F's alternative plan didn=0F't propose a true=20 wholesale-retail separation, but rather a =0F"line-of-business split. . .th= at=20 does not mitigate the anti competitive dominant market power Verizon=20 currently exercises as a result of its base of legacy monopoly customers.= =0F" =20 He also blasted the telco for not supplying cost analysis or data to suppor= t=20 many of its conclusions. =0F"Due to Verizon=0F's failure to comply with the commission=0F's orders i= n this=20 proceeding, the commission is left with no choice but to direct structural= =20 separation of specific elements as the commission deems appropriate,=0F" A= LJ=20 Weismandel said. Competitors=0F' Plans Criticized, Too Competitors, including AT&T Corp. and WorldCom Corp., had submitted their o= wn=20 proposals on how the PUC should structure the split. Although the ALJ said= =20 he found aspects of the competitors=0F' proposals =0F"intriguing,=0F" he di= dn=0F't have=20 kind words for them. He said the competitors=0F' proposals weren=0F't bols= tered by=20 cost studies or analyses either. The judge identified several =0F"policy issues=0F" that the PUC must =0F"in= vestigate=0F"=20 as it considers how to implement the Verizon split: (1) how Verizon could= =20 continue to serve as customers=0F' =0F"carrier of last resort=0F"; (2) whet= her the=20 Verizon retail affiliate should be required to have =0F"significant=0F" ind= ependent=20 minority stakeholders, as competitors had proposed; and (3) how to conduct= =20 the =0F"migration=0F" of Verizon=0F's customers to its retail affiliate or = to=20 competitors. Carriers Back Simplified Transfers Of International Authorizations Several carriers say they generally support the FCC=0F's proposals to strea= mline=20 procedures governing pro forma assignments and transfers of international= =20 service authorizations, although they also suggest further modifications of= =20 the rules. But one major provider is asking the FCC to continue requiring foreign=20 affiliates of carriers receiving such authorizations to settle traffic with= =20 U.S. carriers at or below settlement rate =0F"benchmarks.=0F" Parties offered their views in comments filed at the FCC last week in=20 response to an International docket 00-231 notice of proposed rulemaking (T= R,=20 Dec. 4, 2000). To ease the regulatory burden on international carriers, the FCC had propos= ed=20 to make its procedures for international service authorizations granted und= er=20 section 214 of the Communications Act more like those it uses for assignmen= t=20 and transfer of control of commercial mobile radio service (CMRS) licenses. The FCC also tentatively had concluded that it no longer needed to require= =20 carriers to comply with its international settlement rate benchmarks as a= =20 condition of granting them section 214 authorizations to provide=20 facilities-based international private line services. It had proposed to stop requiring dominant international carriers to seek= =20 prior agency approval before discontinuing service on a route, =0F"except w= here=20 a carrier possesses market power for international service in the U.S.=0F" In its comments on the FCC=0F's rulemaking proposal, WorldCom, Inc., said i= t=20 supported streamlining and harmonizing the Commission=0F's rules. But it a= sked=20 the agency to retain the benchmark condition for facilities-based service t= o=20 affiliated markets until Jan. 1, 2003. =20 That=0F's the last of several deadlines for U.S. carriers to settle traffic= with=20 foreign carriers at or below the applicable benchmark rate; the FCC=0F's=20 benchmark order had set different deadlines for various groups of countries= . =0F"The incentive for unlawful one-way bypass remains a serious issue,=0F" = WorldCom=20 said. =0F"By removing this condition, the Commission would make it easier = than=20 ever for a dominant foreign carrier to circumvent unlawfully the settlement= =20 rate benchmarks.=0F" It added that it would be difficult for the Commissio= n to=20 detect evasion by carriers without the mandate. Verizon Communications, Inc.=0F's international carrier affiliates backed t= he=20 streamlining proposals. =0F"In an increasingly competitive environment,=20 simplification and streamlining of outdated rules are essential to assure= =20 that U.S. carriers are able to compete in the world market,=0F" Verizon sai= d. It suggested the FCC go further and streamline other rules affecting=20 international service authorizations as well. It urged elimination of the= =20 following requirements:=20 (1) Prior notification for affiliation with non-dominant foreign carriers,= =20 (2) Identification of interlocking directorates with foreign carriers,=20 (3) Quarterly international traffic reports required under section 43.61 of= =20 the Commission=0F's rules, and=20 (4) Amendments of international authorizations when a Bell company receives= =20 FCC authorization to provide in-region interLATA (local access and transpor= t=20 area) service in a particular state. Verizon Wireless supported changing the rules concerning pro forma=20 assignments and also asked the FCC to eliminate the quarterly reporting=20 requirements mandated by section 43.61(c). Cingular Wireless LLC also backed making section 214 application procedures= =20 more like those used for CMRS licenses. It also said the Commission should= =20 (1) authorize certain non=0F-wholly owned subsidiaries and partnerships to= =20 provide service using their parent=0F's authorization and (2) eliminate sec= tion=20 43.61 reporting requirements for CMRS providers. Personnel Newly named FCC Chairman Michael K. Powell has named Marsha J. MacBride chi= ef=20 of staff. Ms. MacBride was a legal adviser to Commissioner Powell and=20 director of the FCC=0F's task force on the year 2000 conversion before beco= ming=20 a vice president at The Walt Disney Co. Mr. Powell also named an interim= =20 transition team within the agency. Jane E. Mago, deputy chief of the=20 Enforcement Bureau, will manage the agency=0F's legal functions, overseeing= the=20 Office of General Counsel. David H. Fiske, deputy director of the FCC=0F's= =20 Office of Media Relations, will oversee that office. Paul A. Jackson,=20 special assistant to the chairman, will be responsible for overseeing the F= CC=0F' s Office of Legislative and Intergovernmental affairs. =20 Mimi Simoneaux has rejoined House Energy and Commerce Committee Chairman W.= J.=20 (Billy) Tauzin (R., La.) as the top administrative aide in his personal=20 office. She previously worked in VeriSign, Inc.=0F's government affairs=20 office. Ms. Simoneaux was legislative director to Rep. Tauzin when he was= =20 chairman of the telecommunications, trade, and consumer protection=20 subcommittee. The Louisiana Public Service Commission has elected Commissioner James M.= =20 Field (R.) its new chairman. Commissioner Jack A. (Jay) Blossman Jr. (R.)= =20 was elected vice chairman. Mr. Field joined the PSC in 1996, and his curre= nt=20 term ends Dec. 31, 2006. Mr. Blossman became a commissioner in 1997, and h= is=20 term expires Dec. 31, 2002. Gov. Michael F. Easley (D.) has appointed Lorenz Joiner to the North Caroli= na=20 Utilities Commission. He will serve the remaining six months of William=20 Pittman=0F's term; Mr. Pittman has resigned to join a law firm in Raleigh. = Mr.=20 Joyner was a special deputy attorney general at the state Department of=20 Justice. Bruce Simpson was named chief executive officer at AppGenesys, Inc., a San= =20 Jose, Calif., manufacturer of Internet infrastructure-management platforms.= =20 He was president at the Netcare Managed Services Division of Lucent=20 Technologies, Inc. Sonera Corp. of Finland reported that Bjorn Gustavsson, president and CEO o= f=20 Sonera SmartTrust Ltd., died Jan. 21 under =0F"tragic circumstances.=0F" A= ntti=20 Vasara, deputy CEO, was named acting CEO. Sonera has named Aimo Olkkonen president and chief executive officer of=20 Sonera Holding B.V. of the Netherlands. He was Sonera=0F's senior VP-corpo= rate=20 development. Etienne Fouques is the new president of Alcatel SA=0F's carrier networking= =20 group. He also was elected to the French telecom equipment manufacturer=0F= 's=20 executive committee. Mr. Fouques was president of the company=0F's switchi= ng=20 and routing division. He succeeds Pearse Flynn, who has left =0F"to pursue= =20 other opportunities,=0F" Alcatel said. QUALCOMM, Inc., has named James A. Clifford senior vice president of QUALCO= MM=20 CDMA (code-division multiple-access) Technologies, the company=0F's integra= ted=20 circuits and system software unit. He was VP. =20 The National Telephone Cooperative Association has promoted Marlee Norton= =20 from director-international and domestic program development to vice=20 president-international programs. Barbara Ritter has been promoted from=20 director-human resources to vice president-human resources. Ron Precourt,= =20 who had been manager-education, is now director-training and development. = =20 Eleanor Baird, who had been manager-meetings, is now director-meetings. An= d=20 at NTCA=0F's Foundation for Rural Service, Sara Gilligan has been promoted = from=20 project assistant to program coordinator. The Cellular Telecommunications & Internet Association has hired Bruce Cox = as=20 vice president-regulatory policy and law and promoted Robert Roche to the= =20 post of VP-policy and research. Mr. Cox was VP-congressional and regulator= y=20 affairs at AT&T Corp. Mr. Roche was CTIA=0F's assistant vice president-pol= icy=20 and research and has headed the trade group=0F's research department since = 1993. BellSouth Corp. has named Barry Boniface vice president-corporate=20 development. He was executive VP-network and product management at Cypress= =20 Communications, Inc. He succeeds Keith Cowan, who last year was named chie= f=20 planning and development officer.=20 Cortlandt L. Freeman has been named vice president-corporate communications= =20 at Touch America, the Montana Power Co.=0F's broadband telecom subsidiary. = He=20 was director of that unit.=20 LG InfoComm U.S.A., Inc., a provider of communications networks, has hired= =20 Chris Yi as vice president-marketing and product management. He was genera= l=20 manager of LGIC Korea. Jonas Neihardt, vice president-federal government affairs for QUALCOMM, Inc= .,=20 is heading the wireless technology company=0F's Washington office. Mr. Nei= hardt=20 succeeds Kevin Kelley, who is a senior advisor-commercial relationships to= =20 QUALCOMM CEO Irwin Mark Jacobs.=20 Jerome de Vitry has been named chief operating officer at Completel Europe= =20 N.V., a provider of local phone and Internet access services to businesses = in=20 western Europe. He=0F's president at Completel France. SPEEDCOM Wireless Corp., a Sarasota, Fla.=0F-based fixed wireless products= =20 maker, has named Larry Watkins chief technology officer. Mr. Watkins=20 previously was senior director-engineering at LCC International, Inc. Phil Bond is leaving the Information Technology Industry Council to be=20 director-federal public policy in Hewlett Packard Co.=0F's Washington offic= e. =20 Mr. Bond has been ITI=0F's senior vice president-government affairs for the= past=20 three years.=20 Verizon Communications, Inc., has named Wajeeha H. Aziz director-operations= =20 in the western New York region. She was senior manager-centralized=20 installation and maintenance operations. Verizon named Tarita Y. Miller=20 director-operations in the midstate New York region. She was manager-area= =20 operations in Queens, N.Y. Daniel Mattoon is joining the government affairs and public relations firm= =20 co-founded by Democratic strategists John and Anthony J. Podesta in 1988. = =20 With Mr. Mattoon=0F's arrival, the lobbying firm now headed by Tony Podesta= and=20 known as Podesta.com will become Podesta/Mattoon. Mr. Mattoon, who has bee= n=20 on a sabbatical from his post as vice president-congressional affairs at=20 BellSouth Corp., was deputy chairman of the National Republican Congression= al=20 Committee for the 2000 election cycle. More recently he was a member of th= e=20 FCC =0F"transition advisory team=0F" for the Bush administration (TR, Jan. = 15).=20 Regulatory & Government Affairs The FCC has changed the deadlines for comments on its most recent order aim= ed=20 at conserving telephone numbers (TR, Dec. 11, 2000). The new deadlines for= =20 comments and replies are Feb. 14 and March 7, respectively. They should=20 refer to Common Carrier dockets 99-200 and 96-98. In the order, the FCC=20 established the administrative procedures it would use in conducting=20 nationwide 1,000-number block pooling. It also issued a rulemaking notice= =20 proposing, among other things, to charge carriers for the numbers they use. Comments on the FCC=0F's notice of proposed rulemaking concerning the alloc= ation=20 of third-generation (3G) wireless frequencies are due Feb. 22, and replies= =20 are due March 9 in Engineering and Technology docket 00-258 (TR, Jan. 8). Comment deadlines have been set on an FCC proposal to reallocate 27 megaher= tz=20 of spectrum transferred from federal government to private use. The FCC=0F= 's=20 notice of proposed rulemaking was adopted last November in Engineering and= =20 Technology docket 00-221 (TR, Nov. 27, 2000). Comments are due Feb. 22 and= =20 replies March 26. The Land Mobile Telecommunications Council has asked for= =20 an additional 60 days for comments and 30 days to file replies. The FCC al= so=20 is encouraging interested parties to file comments in response to a notice = of=20 proposed rulemaking issued by the National Telecommunications and Informati= on=20 Administration, on reimbursement rules governing federal users that are=20 relocated to other bands (TR, Jan. 22). The FCC has set the deadlines for commenting on the MAG (multiassociation= =20 group) proposal for overhauling the interstate access and universal service= =20 support mechanisms for local exchange carriers subject to rate-of-return=20 regulation. It released a notice of proposed rulemaking on the matter=20 earlier this month in Common Carrier dockets 00-256 (MAG plan), 96-45=20 (universal service), 98-77 (access charge reform), and 98-166 (rate-of-retu= rn=20 prescription) (TR, Jan. 8, p. 25). But the comment due dates weren=0F't se= t=20 until the rulemaking notice appeared in the Federal Register last week. =20 Comments and replies are due Feb. 26 and March 12, respectively. Comments = on=20 those aspects of the proposal that would increase or modify data reporting= =20 requirements are due to the Office of Management and Budget by March 26. The FCC has set the schedule for parties wishing to comment on the=20 recommendations of a federal-state joint board regarding the Rural Task=20 Force=0F's plan for reforming the universal service support mechanism (TR, = Jan.=20 15). Comments are due Feb. 26, and replies are due March 12. They should= =20 refer to Common Carrier docket 96-45. The FCC had asked for input on wheth= er=20 and how it should implement the RTF plan, which includes continuing to use = =0F" book costs=0F" to calculate =0F"high cost=0F" support for rural telcos. The FCC has set comment deadlines for a further notice of proposed rulemaki= ng=20 related to its decision to allow terrestrial wireless systems to operate in= =20 the Ku-band (TR, Dec. 4, 2000). Comments are due March 12 and replies Marc= h=20 26 in Engineering and Technology docket 98-206. Qwest Corp. has asked the FCC for a modification of its LATA (local access= =20 and transport area) boundary definitions to enable it to provide expanded= =20 local calling services between certain exchanges in Colorado. The=20 modifications would allow it to comply with a Colorado Public Utilities=20 Commission order directing it to provide two-way, nonoptional extended area= =20 services between the Fairplay and Bailey exchanges, the Fairplay and Decker= s=20 exchanges, and the Bailey and Woodland Park exchanges. The Colorado PUC sa= id=20 that those exchanges shared government, civic, education, and health=20 resources. =20 The FCC=0F's Wireless Telecommunications Bureau says it won=0F't initiate a= =20 proceeding to amend its rules to allocate channel 200 (87.9 megahertz) for= =20 the operation of an Emergency Radio Data System (ERDS). Federal Signal Cor= p.=20 requested such action in a petition for rulemaking filed in 1999. The bure= au=20 said ERDS needs could be addressed by existing radio services. It said it= =20 would incorporate the record that had developed since Federal Signal=0F's= =20 request into a separate proceeding on Intelligent Transportation Services= =20 (ITS)/Dedicated Short Range Communications (DSRC). The Commission has=20 allocated 75 MHz of spectrum for DSRC-based ITS operations (TR, Oct. 25,=20 1999). USA Media Group LLC has withdrawn its petition asking the FCC to preempt th= e=20 Truckee Donner Public Utility District in California. The cable TV system= =20 operator had objected to the utility district=0F's refusal to let it overla= sh=20 fiber optic cable on the district=0F's utility poles (TR, Dec. 25, 2000, p.= =20 38). The company cited =0F"changed circumstances unanticipated at the time= of=20 filing.=0F" The FCC terminated the Cable Services docket 00-252 proceeding= and=20 closed the comment period, which would have ended Jan. 29 for comments and= =20 Feb. 13 for replies. The FCC has agreed to preempt the Virginia State Corporation Commission in= =20 disputes over interconnection agreements between (1) Verizon Virginia, Inc.= ,=20 and Cox Virginia Telecom, Inc., and (2) Verizon and AT&T Communications of= =20 Virginia, Inc. The FCC recently granted a similar request by WorldCom, Inc= .=20 (TR, Jan. 22, p. 39). Cox and AT&T had asked the FCC to act on the matter= =20 after the Virginia commission refused to arbitrate the terms of the parties= =0F'=20 interconnection agreements. The Virginia commission had said it was=20 concerned that arbitrating the dispute would be deemed a waiver of its=20 immunity under the 11th Amendment to the U.S. Constitution. The FCC agreed= =20 to arbitrate the disputes in orders released last week in Common Carrier=20 dockets 00-249 and 00-251. The FCC has agreed to allocate the 33=0F-36 gigahertz band on a =0F"primary= basis=0F"=20 to the federal government for the use of fixed-satellite services for=20 military purposes. The Commission said it was acting on a request from the= =20 National Telecommunications and Information Administration. The reallocati= on=20 is =0F"essential to fulfill requirements for federal government space syste= ms to=20 perform satisfactorily,=0F" the Commission said. The order was approved Fr= iday,=20 Jan. 19, and released Friday, Jan. 26. Commissioner Harold W.=20 Furchtgott-Roth dissented because the FCC did not first seek comments on NT= IA=0F' s request. The FCC had cited =0F"national security=0F" concerns. Then-Ch= airman=20 William E. Kennard didn=0F't participate in the final consideration of the = item. South Slope Cooperative Telephone Co., Amana Colonies Telephone Co., and=20 Heartland Telecommunications Co. have asked the FCC=0F's Common Carrier Bur= eau=20 for a waiver of its definition of =0F"average schedule company.=0F" The co= mpanies=20 asked for the waiver as it relates to the Commission=0F's =0F"all-or-nothin= g=0F" rules=20 in section 69.605(c). A waiver would enable South Slope to purchase 1,500= =20 access lines now operated by Amana and Heartland under a price-cap=20 mechanism. South Slope plans to operate the acquired access lines under a= n=20 average-schedule formula, as it does its other exchanges. In a petition=20 submitted in CC docket 96-45, South Slope said granting the waiver would=20 enable it to complete the acquisition of the exchanges and would result in= =20 larger local calling areas for ratepayers. =20 The Federal Trade Commission says it will change several premerger filing= =20 requirements of the Hart-Scott-Rodino (HSR) antitrust law, including=20 increasing from $15 million to $50 million the transaction value threshold= =20 for merging companies to notify the FTC. The changes, which go into effect= =20 Feb. 1, include a new tiered fee structure, which requires merging companie= s=20 to pay $45,000 for transactions valued at less than $100 million, $125,000= =20 for transactions valued between $100 million and $500 million, and $280,000= =20 for transactions valued at $500 million or more. Former President Bill=20 Clinton signed off on the changes Dec. 21, 2000. A complete listing of the= =20 new rules is available on the FTC=0F's Web site at http://www.ftc.gov.=20 The naming of Michael K. Powell to be FCC chairman drew praise from key U.S= .=20 lawmakers last week. Senate Commerce, Science, and Transportation Committe= e=20 Chairman John McCain (R., Ariz.) believes Mr. Powell will make =0F"an=20 exceptional chairman,=0F" his spokeswoman said. House Energy and Commerce= =20 Committee Chairman W.J. (Billy) Tauzin (R., La.) called the move one of=20 President Bush=0F's =0F"best and most exciting selections for his new=20 administration.=0F" And new House telecommunications subcommittee Chairman= Fred=20 Upton (R., Mich.) said Mr. Powell was his =0F"first and only choice=0F" to = be FCC=20 chairman. The Minnesota House Commerce Committee has scheduled a Jan. 29 hearing on= =20 Gov. Jesse Ventura=0F's (Ind.) telecom legislative proposals, which include= =20 imposing a telecom excise tax to subsidize service in =0F"high-cost=0F" and= =20 unserved areas of the state. Among the efforts the excise tax would fund a= re=20 the deployment of high-speed services and creation of a $100 million=20 revolving loan fund to help competitive carriers roll out services. The=20 Minnesota Association for Rural Telecommunications says Gov. Ventura=0F's= =20 proposals would lead to =0F"drastically higher rates and stalled technologi= cal=20 advancements.=0F" The group of independent telcos objects to the governor= =0F's=20 proposals for reducing intrastate access charges. They plan to work for=20 alternative legislation that they say would benefit =0F"the entire state=0F= "=20 without causing =0F"economic havoc in rural communities=0F" or =0F"rate sho= ck.=0F" Canada and Mexico have agreed to open their satellite service markets to=20 competitors from each others=0F' countries, the Canadian Embassy in Mexico = has=20 announced. The two nations recently signed protocols for mobile and fixed= =20 satellite services, which would establish technical standards and condition= s=20 for domestic satellite communications providers that want to provide servic= e=20 in the other country. Further details are not yet available. Industry News Correction: The phone number listed in the Jan. 8 edition of TR for the Fe= b.=20 4=0F-6 Emerging Issues Policy Forum in Florida was incorrect. For informat= ion=20 about the forum, call 252/394-3145 or visit http://netcommworks/events.html= . =20 The Center for Public Utilities at New Mexico State University is planning = a=20 conference covering current issues challenging the utility industry. The= =20 March 25=0F-28 event will be held in Santa Fe. Call 505/646-4876. The =0F"IntelligentCities 2001: Metropolitan Networks=0F" conference will = be held=20 April 30=0F-May 2 in Chantilly, Va. Call 781/762-6279 or visit=20 http://www.hhevents.com. The International Telecommunications Society will hold its Asia-Pacific=20 Regional Conference July 5=0F-7 in Hong Kong. Visit http://www.its2001.ust= .hk=20 for more information. Proxim, Inc., a Sunnyvale, Calif.=0F-based developer of wireless networks, = has=20 agreed to acquire Alameda, Calif.=0F-based Netopia, Inc., a developer of=20 broadband Internet equipment, for $223 million in stock. The transaction i= s=20 expected to close late in the first quarter or early in the second quarter.= =20 Under the deal, each share of Netopia common stock will be converted into 0= .3=20 shares of Proxim common stock. The Hartcourt Companies, Inc., plans to acquire a 51% stake in Elephant Tal= k=20 Network Services Ltd., a Hong Kong=0F-based long distance telecom service= =20 provider. ETNS, which also owns a 15-city fiber optic network in Eastern= =20 China through a joint venture with China Handao Group, said it will roll ou= t=20 collocation and broadband network connectivity services next month. =20 Hartcourt, a Los Angeles holding and development group, didn=0F't disclose= =20 financial terms.=20 World Wide Wireless Communications, Inc., of Oakland, Calif., says that it= =20 intends to negotiate a joint venture agreement with UBC Global Net, which= =20 holds MMDS (multipoint multichannel distribution service) licenses in the= =20 Philippines. The joint venture would use the MMDS frequencies to offer=20 wireless Internet service. 360networks, Inc., a Vancouver, Canada, =0F"carriers=0F' carrier,=0F" has f= iled a=20 shelf registration statement with the U.S. Securities and Exchange Commissi= on=20 for a potential offering of up to $3 billion in =0F"debt securities, prefer= red=20 shares, subordinate voting shares, warrants, stock purchase contracts, and= =20 stock purchase units.=0F" It said it soon would file a prospectus with=20 respective commissions in Canada. It intends to use the proceeds for gener= al=20 corporate purposes and possible acquisitions.=20 Nextel Communications, Inc., has completed the sale of $1.25 billion in=20 senior notes to private investors. Nextel, of Reston, Va., intends to use= =20 the funds for network expansion, acquisition of spectrum, strategic=20 investments, and other corporate needs. Time Warner Telecom, Inc., tested the troubled stock market by selling 6.5= =20 million new shares in a public offering. The Littleton, Colo.=0F-based=20 competitive local exchange carrier sold the shares for $74.44 each to raise= =20 $483.8 million. Time Warner Telecom also raised $400 million through the= =20 private placement of senior notes. Funds from both transactions will help= =20 repay a $700 million bridge loan that Time Warner Telecom used to buy the= =20 assets of GST Telecommunications, Inc., out of bankruptcy (TR, Sept. 18,=20 2000). QUALCOMM, Inc., is having second thoughts about plans for an initial public= =20 offering (IPO) of shares in its semiconductor business. In announcing its= =20 quarterly financial results, the San Diego=0F-based company said it was =0F= " evaluating the need for and the timing of an IPO=0F" because of =0F"uncerta= inties=20 in the financial markets.=0F" QUALCOMM has been planning to spin off its= =20 semiconductor division and sell 10% of the unit in an IPO (TR, July 31,=20 2000). Even if it doesn=0F't proceed with the IPO, QUALCOMM still intends = to=20 complete the spin-off, which is designed to eliminate conflicts of interest= =20 between the semiconductor business and other QUALCOMM operations. London-based Europe*Star, a joint venture of Alcatel Space and Loral Space = &=20 Communications, has launched satellite communications service in southern= =20 Africa. The company said it expects that =0F"ongoing deregulation of the= =20 telecommunications sector=0F" will increase demand for communications syste= ms in=20 this region. Europe*Star now provides service in Botswana, Lesotho, Namibi= a,=20 Mozambique, South Africa, and Zimbabwe. Its regional office is in Cape Tow= n,=20 South Africa. Verizon=0F-Vodafone Assets The FCC=0F's Wireless Telecommunications Bureau is seeking comments on whet= her=20 to extend the deadline for a trust that holds certain wireless assets of=20 Verizon Communications, Inc., and Vodafone AirTouch plc to divest the Chica= go=20 and Cincinnati assets. The trust was formed to dispose of overlapping asse= ts=20 when Bell Atlantic Corp. and GTE Corp. (which merged to form Verizon) and= =20 Vodafone AirTouch combined to form Verizon Wireless place the wireless asse= ts=20 =0F"in trust for the purposes of divestiture=0F" (TR, April 3, 2000; and Ju= ly 3,=20 2000, notes). Joseph J. Simons, the trustee, on Jan. 12 asked the FCC to extend the=20 divestiture deadline, which was Feb. 26, for an additional 180 days. =20 Comments are due Feb. 2, and replies are due Feb. 7. DT Acquisitions The European Union has warned the U.S. against blocking Deutsche Telekom AG= =0F's=20 planned acquisition of VoiceStream Wireless Corp. and Powertel, Inc. The EU filed documents with the FCC promising to challenge any FCC action t= o=20 block the acquisitions. An EU spokesman told TR that opponents to the=20 proposed transactions=0F-such as Sen. Ernest F. Hollings (D., S.C.) and oth= er=20 congressional leaders=0F-are leading the U.S. toward violations of the Gene= ral=20 Agreement on Tariffs and Trade and World Trade Organization obligations. What=0F's Ahead. . . JANUARY 29=0F-Feb. 1=0F-The annual COMNET conference and expo is held in Washington= . For=20 more information, go to http://www.comnetexpo.com. 30=0F-Comments are due to the FCC on Verizon New England=0F's revised appli= cation=20 to provide in-region interLATA (local access and transport area) services i= n=20 Massachusetts (TR, 1/22/01 p.12). Replies are due Feb. 28. The=20 Massachusetts Department of Telecommunications and Energy has until Feb. 6 = to=20 submit its recommendation to the FCC. The Department of Justice must file= =20 its recommendation by Feb. 21. Staff at the Common Carrier Bureau will be= =20 available for ex parte discussions about the proceeding between Jan. 30 and= =20 Feb. 23. 30=0F-AeA, the former American Electronics Association, holds a press brief= ing=20 in Washington to present its top technology priorities for 2001. For more= =20 information, go to http://www.aeanet.org. 30=0F-The initial meeting of the FCC=0F's advisory committee on the 2003 Wo= rld=20 Radiocommunication Conference is held in the Commis-sion=0F's meeting room. 31=0F-The National Telecommunications and Information Administration holds = a=20 public meeting to discuss the results of ultrawideband system testing. For= =20 more information, call Paul Roosa in NTIA=0F's Office of Spectrum Managemen= t at=20 202/482-1559. FEBRUARY 1=0F-Comments are due to the FCC=0F's Wireless Telecommunications Bureau on= two=20 requests for waivers of the FCC=0F's construction rules governing 900 megah= ertz=20 band licensees (TR, 1/22/01 p.36). Replies are due Feb. 8. Comments on FC= I=20 900, Inc.=0F's request should reference DA 01-121, and comments on Neo-worl= d=20 License Holdings, Inc.=0F's request should reference DA 01-122. 2=0F-The National Telecommunications and Information Administration holds a= =20 workshop in Washington to discuss the 2001 Technology Opportunities Program= . =20 It will hold similar workshops in Denver on Feb. 6 and in St. Louis on Feb.= =20 8. Registration information can be found on NTIA=0F's Web site: =20 http://www.ntia. doc.gov. 5=0F-The U.S. Court of Appeals in Washington will hear oral arguments in=20 National Exchange Carrier Association, Inc., v. FCC (case no. 00-1055). NE= CA=20 is challenging the FCC=0F's December 1999 decision rejecting NECA=0F's prop= osed=20 modifications to the 1999 =0F"average-schedule=0F" Universal Service Fund f= ormula=20 (TR, 10/9/00 p.36). 7=0F-UNITED KINGDOM: Comments are due to the United Kingdom=0F's Office of= =20 Telecommunications on whether to impose additional conditions on Cable &=20 Wireless plc=0F's operator license for certain international routes (TR, 1/= 15/01=20 p.32). 8=0F-The FCC holds a meeting. 8=0F-Section 275 of the Telecommunications Act prohibits Bell operating=20 companies from providing alarm monitoring services until this date (TR,=20 11/17/97 p.7). The Act grandfa-thered alarm monitoring operations existing = as=20 of Nov. 30, 1995. 13=0F-The FCC=0F's Wireless Telecommunications Bureau holds an auction of e= ight=20 700-megahertz band licenses that weren=0F't bought at the =0F"guard-band=0F= " auction=20 (TR, 10/16/00 p.38). 15=0F-NEW JERSEY: Deadline for Verizon New Jersey, Inc., to file a new=20 alternative rate regulation plan with state regulators (TR, 1/8/01 p.23). 16=0F-Comments are due to the FCC=0F's Wireless Telecommunications Bureau o= n=20 applications to transfer wireless licenses from Price Communications Corp. = to=20 Cellco Partnership (d/b/a Verizon Wireless). Replies are due Feb. 26 in=20 Wireless Telecommunications docket 01-8. Comments should reference DA 01-1= 20. 19=0F-CALIFORNIA: Comments are due to the Public Utilities Commission on C= ap=20 Gemini Ernst & Young=0F's reports on Pacific Bell=0F's operation support sy= stems=20 (OSSs). The commission plans to issue a draft decision on the reports Apri= l=20 6 and a final decision May 24 (TR, 12/25/00 p.4) 20=0F-Comments are due to the FCC=0F's Wireless Telecommunications Bureau o= n=20 applications to swap licenses filed by Cingular Wireless LLC and VoiceStrea= m=20 Wireless Corp. (TR, 1/22/01 p.36). Replies are due March 2. They should= =20 reference Wireless Telecommunications docket 01-10 and DA 01-135. 20=0F-22=0F-The Consortium for School Networking holds a tele-com and Inter= net=20 conference in Washington. For more information, call 202/624-1740 or go to= =20 http://www.k12schoolnetworking.org. 25=0F-28=0F-The National Association of Regulatory Utility Commissioners ho= lds its=20 winter committee meetings in Washington, D.C. For more information, call= =20 202/898-2214. Falling Credit Ratings Create Costly Obstacle for Carriers Many telecom companies these days are groaning under the weight of excessiv= e=20 debt they accumulated while building networks, acquiring other companies, a= nd=20 trying to enter new markets. Determining whether they can pay those and=20 future debts is the job of credit-rating agencies like Moody=0F's Investors= =20 Service. Robert Ray, a senior vice president in the telecom, technology, and media= =20 group at Moody=0F's, tells TR that some of the biggest names in telecom, li= ke=20 AT&T Corp., are in danger of losing top credit ratings and having to pay mo= re=20 interest in their next round of funding. An edited transcript of our=20 interview with Mr. Ray follows. TR: What does Moody=0F's do? What=0F's your role? Ray: I=0F'm lead analyst for a number of high-visibility companies in medi= a,=20 technology, and telecommunications. I=0F'm responsible not only for assign= ing=20 ratings to companies but also for monitoring those ratings as companies=0F'= =20 business prospects ebb and flow to make sure that our ratings, once assigne= d,=20 continue to be accurate. In case we=0F're no longer comfortable with the rating, it=0F's my responsi= bility=20 to make a recommendation to change the rating of a company. TR: The news about telecom debt levels has been gloomy [see separate=20 story]. What=0F's your perspective on the financial health of the telecom= =20 sector? Ray: There have been a number of defaults and bankruptcies, particularly= =20 among the CLECs [competitive local exchange carriers]. There are a number = of=20 companies that have tried to enter the market. Not all the business plans= =20 were fully funded. As both the equity and the debt markets have become more restricted,=20 companies that didn=0F't have a fully funded business plan=0F-that didn=0F'= t have=20 enough money on hand or committed money from their bank group to cover thei= r=20 cash needs over the next 12 to 18 months=0F-have found themselves in liquid= ity=20 crunches relatively quickly. TR: On the equity side, a lot of analysts were surprised by what happened = in=20 the telecom sector. Is there a similar sense on the credit and debt side= =20 that investors and their advisers were caught by surprise? Ray: In the high-yield area many of the companies had relatively low ratin= gs=0F- single-B or Caa. Those ratings don=0F't necessarily anticipate a certainty= of=20 default, but they do reflect a high degree of risk. Even on the investment-grade side, however, we=0F've seen some surprising= =20 developments=0F-not so much in terms of direction, but in terms of speed=0F= - primarily in the pricing environment for long distance services from=20 companies such as AT&T and WorldCom [Inc.] =20 We were aware that those prices were going to come under pressure as the Ba= by=20 Bells began to get permission to offer long distance service in their home= =20 markets, as usage moved from wireline to wireless [service], and as usage= =20 began moving from traditional circuit-switched networks to Internet-deliver= ed=20 voice. While we knew there were a lot of pressures that were going to bring pricin= g=20 down in that market, the degree of the falloff was a bit of a surprise even= =20 to us. As a result, the large long distance carriers have had to scale bac= k=20 their expectations for profitability in the voice business. TR: And as a consequence, their credit ratings have come under downward=20 pressure. Ray: Yes, AT&T has had its long-term rating lowered from A1 to A2, and tha= t=20 rating remains on review. Certainly the pressures from the voice business= =20 were part of that. But AT&T is also in the process of breaking itself up= =20 into three separate businesses. The review is not only focusing on some of= =20 the risks that we=0F've talked about, but also the financial structure that= each=20 of these businesses will have going forward. We=0F've changed the outlook on Sprint [Corp.] from stable to negative. =20 WorldCom retains an A3 rating and a stable outlook. While they=0F've had s= ome=20 pressure like the other players, they had a little more flexibility, under= =20 the current rating, to absorb some of those pressures. TR: How big a deal is it to these companies to have their credit rating go= =20 down a step? What effect does that have on their day-to-day business? Ray: On the day-to-day business it has relatively limited impact. To the= =20 extent that they would be issuing new debt, a lower credit rating normally= =20 would result in a higher interest rate. The most critical rating for AT&T is its short-term rating of Prime-1. If= =20 they didn=0F't have a Prime-1 rating, they=0F'd be severely limited in thei= r=20 ability to sell commercial paper to the money market funds. [Securities an= d=20 Exchange Commission rules limit the amount money market funds can invest in= =20 companies that don=0F't have top-tier commercial paper ratings, like Prime-= 1,=20 from at least two rating agencies. =0F-Ed.] For a company whose commercial paper outstanding has been between $15 billi= on=20 and $20 billion, that could result in a significant increase in AT&T=0F's= =20 funding costs. They would have to seek out, for the most part, a different= =20 group of investors. TR: Is AT&T=0F's Prime-1 rating under review? Ray: Yes, it is. Both the A2 long-term rating and our Prime-1 short-term= =20 rating are on review for possible downgrade. TR: Can you give me an example of what the cost of money might be to AT&T= =20 through a money market fund v. the next-best alternative? Ray: The money market funds would just be one of a number of investors who= =20 would be buying AT&T=0F's commercial paper. So don=0F't get too caught up = in their=20 being the only source. TR: Percentagewise, though, how much better is commercial paper than the= =20 next-best alternative? Ray: They would certainly have to pay higher rates. To the extent that th= ey=20 were reliant on the money market funds for a substantial part of their=20 commercial paper issuance, those funds would have to be replaced by investo= rs=20 who are less constrained by the rating. You can find those investors, but= =20 they are obviously looking at a lower rating for a higher pricing. So it= =0F's=20 hard to speculate on specifically what any one company might have to pay. TR: It depends on the day of the week, I=0F'm sure. Ray: And it also depends on the size of the program, the market=0F's view = of=20 how safe the investment is, how comfortable investors are with the company= =0F's=20 prospects, and how much similar paper there is. A telecom issuer is not only competing against a full range of issuers goin= g=20 into the market; it=0F's also competing against other telecom companies for= =20 access to the market. Most investors set limits on how much they=0F're wil= ling=20 to expose themselves to any particular industry. Once they feel they have= =20 enough exposure to the telecom industry, they=0F're going to be less intere= sted=20 in putting that next dollar into telecoms rather than some other opportunit= y. The other thing we=0F've seen in the last couple of years is there=0F's bee= n=20 tremendous need in the telecom industry for financing as companies have bui= lt=20 out their networks. CLECs have been building networks. A number of long= =20 distance networks have been built here in the United States. Wireless=20 networks are being built. There are also international networks, not only= =20 connecting countries but also within Europe and within Asia=0F-both wirelin= e and=20 wireless. In the U.S. market alone, there was over $70 billion worth of media and=20 telecom debt in the first 11 months of 2000, compared to about $55 billion = in=20 1999. That=0F's just the straight debt market, not including equities or= =20 convertible debts. TR: How do you determine a company=0F's rating? Ray: We look at the business risks of a company. We try to understand=20 exactly what business they=0F're in, their competitive position, and their= =20 strengths and weaknesses. We also try to get a good understanding of=20 management and what their appetites may be for business and financial risk. We rate virtually all major companies in virtually every industry. We also= =20 have a solid understanding of the industry broadly and where any particular= =20 company fits in terms of its cost structure, market share, management=20 direction, and strategic focus. We also, obviously, do some statistical analysis. Since we=0F're fixed-inc= ome=20 analysts, we=0F're focused more on ensuring that debt obligations get paid = and=20 trying to assess the probability that all obligations will be paid in full = in=20 a timely manner. A fixed-income investor doesn=0F't necessarily have the upside that an equi= ty=20 holder does. A fixed-income holder has one of two results if he buys a=20 security at issuance and holds it to maturity: He either gets paid or he= =20 doesn=0F't. Even if the company=0F's been fabulously successful, he just gets his inter= est=20 on a regular basis and the principal at maturity. If the company just=20 struggles through and barely makes it, he=0F's in the same situation. So t= here=0F' s not much upside on straight debt if you=0F're a buy-and-hold investor. As fixed-income analysts, our key measures are the company=0F's ability to= =20 generate free cash. That=0F's cash after meeting all fixed obligations, li= ke=20 interest and dividends. We also look at their ability to finance their=20 capital spending requirements and their cash-generating capability relative= =20 to their debt load. If you look at two companies that are basically in the same industry and th= at=20 have similar sizes and market positions=0F-with neither one possessing any= =20 particular competitive advantage in terms of new products=0F-the one that h= as=20 the stronger cash generation relative to its debt obligations would have a= =20 higher rating. Probably the most difficult part of our business is making sure that we are= =20 consistent in applying our ratings. I want to make sure my strongest compa= ny=20 has the highest rating and my weakest company has the lowest rating. It=0F's also important to make sure that what I call an A1, an A2, or a Baa= 3 is=20 equivalent to the ratings of anyone else in the corporate finance area,=20 whether they=0F're covering auto companies or coal mines. TR: How much of your time is spent talking to management and trying to=20 figure out their plans? What happens during these talks? Ray: A large part of our analytical meetings with companies is spent tryin= g=20 to understand their strategy, their philosophy, and their appetite for=20 business and financial risk, and looking at what the company has done in th= e=20 past and how successful they=0F've been in meeting goals that they=0F've se= t for=20 themselves. We look at their plans relative to others in the industry and try to make= =20 sure the strategy and the objectives they=0F've set are reasonable and=20 achievable. The discussion, quite frankly, in the average meeting tends to= =20 be more about the companies=0F' products and business mix. It=0F's often beneficial having a long-standing relationship with a company= =0F's=20 management. You develop a sense of comfort regarding management=0F's abili= ty to=20 forecast the risks they face, to come up with plans to address those risks,= =20 and to develop financial models that are achievable. TR: It must be an expensive prospect for a company to get its rating=20 lowered, and it also may be a bit of an embarrassment. How do they react t= o=20 the possibility of a downgrade? Ray: We try to have a pretty good ongoing dialogue with a company so that = it=0F' s not a matter of calling them up one day and saying, =0F"Oh, by the way, w= e=0F're=20 putting you on review for a downgrade.=0F" To the extent that we develop a= reas=20 of concern, we like to bring them to the company=0F's attention=0F-both in = our=20 direct face-to-face meetings and in regular ongoing dialogue over the phone= . Obviously no company is ever pleased to be put on review for a downgrade. = =20 Our objective, quite frankly, is to make sure that they understand and=20 appreciate the position we=0F've taken and that they know why we=0F're doin= g what=20 we=0F're doing. Even though they ultimately may disagree with the action, at least we want = to=20 make sure that they understand the logic behind the steps we take. And we= =20 give them a chance to share with us their view as to why some of our concer= ns=20 may be less severe from their perspective. TR: Do you have any advice for telecom executives, investors, or=20 regulators? What needs to happen for the sector to climb out of its slump? Ray: For the long distance companies, it=0F's a matter of continuing to ge= t=20 their costs in line as best they can, knowing that their revenue is going t= o=20 continue to be under a lot of pressure for the foreseeable future. In the wireless segment, the key things are the ability of the wireless=20 players to build out their networks at a reasonable cost and to attract=20 high-value customers=0F-not only for voice but also for the emerging wirele= ss=20 data markets=0F-while maintaining cost structures that will allow them to= =20 continue to be profitable. There are more national wireless carriers now, and we expect that developme= nt=20 will put pressure on pricing. We don=0F't anticipate that it=0F's going to= be as=20 dramatic as the pressure we=0F've seen recently in the voice wireline secto= r. =20 But the more competitors you have and the broader their coverage, the great= er=20 the risk of continued pricing declines. TR: We haven=0F't talked much about the Bell companies=0F-the ILECs [incum= bent=20 local exchange carriers]. What=0F's your outlook for that sector? Ray: One argument that Moody=0F's has been making in support of them for a= long=20 time is that they have direct contact with their customers, and they=0F're = also=20 the ones with the line into the house. Our ratings on the ILECs are=20 certainly the highest we have in the telecom area. They are, by and large,= a=20 strong group of competitors who=0F've demonstrated better stability in thei= r=20 customer base and revenue mix than the long distance carriers have. TR: Does the prospect of greater regulatory oversight figure into your=20 calculations regarding the Bells? Ray: There=0F's a lot of regulatory oversight. As they seek to get approv= al=20 [to provide in-region interLATA (local access and transport area) service],= =20 that process has taken a bit longer than we would=0F've expected. We=20 anticipated that once the first state and the second state fell, other stat= es=20 would follow relatively rapidly. Telecom Sector=0F's Dubious Debts Create Drag on Financial Markets The rumblings began in Europe. The Bank of England issued warnings, follow= ed=20 by the Bank of France. The major credit-rating agencies=0F-Standard & Poor= =0F's,=20 Moody=0F's Investors Service, and Fitch ICBA=0F-issued ominous reports. On= the one=20 hand they sounded alarm bells, while on the other they said, =0F"Don=0F't p= anic.=0F" The reason for the caution flags is the level of questionable debt among=20 telecom companies. Pessimists fear that so many obligations will go unpaid= =20 that the telecom industry single-handedly will tip the economies of several= =20 countries into recession=0F-as the U.S. real estate industry did in the 198= 0s=20 when it built too much on borrowed funds before toppling like a rotten tree= . Even optimists admit that telecom debt is already a drag on the economy. I= t=0F' s dampening the profits of banks and rippling through related sectors leavi= ng=20 experts to wonder how much more bad debt will ooze from the telecom industr= y,=20 and how many defaults the economy can absorb. =0F`Fears Are Overdone=0F' By some estimates, telecom service providers have borrowed $322 billion ove= r=20 the past three years, including bonds and bank loans. Analysts generally= =20 divide that debt into two sectors. The bigger group has been generated by= =20 large carriers like AT&T Corp., British Telecommunications plc, and France= =20 Telecom SA. If one of those companies went under, it would be a=20 catastrophe. But analysts don=0F't think that=0F's likely. They=0F're more concerned about smaller service providers, like competitive= =20 local exchange carriers (CLECs). Fortunately, those carriers aren=0F't tho= ught=20 to carry enough debt to bring down a major bank, let alone an entire indust= ry=20 or an economy. =0F"At this stage, Moody=0F's is not forecasting defaults by major telecoms= ,=0F" Moody=0F' s Investors service says in a recent report. =0F"On the other hand, defaul= ts by=20 more marginal operators cannot be excluded. However, if a bank is not=20 massively exposed to such borrowers, its credit strength should not be=20 structurally hurt, let alone the fundamentals of the banking system.=0F" Fitch ICBA issued a similar statement. =0F"Large, profitable, and creditwo= rthy=0F"=20 telecom operators are responsible for the bulk of the debt load, Fitch says= . =20 =0F"Exposure to the riskier, alternative operator sector is, in relative te= rms,=20 modest.=0F" =0F"Fears of a banking crisis are overdone, in our view,=0F" says Morgan St= anley=20 Dean Witter analysts Richard Crehan and Graham Secker in a report on Europe= an=20 telecom debt. =0F"The vast majority=0F-about 90%=0F-of the debt raised in = the last 18=20 months is investment grade and unlikely to default. . .While the amount of= =20 loans made to the telecom sector in Europe is unprecedented, we do not thin= k=20 the telecom debt issue will sink financial markets.=0F" Those assessments don=0F't mean there won=0F't be pain for the telecom comp= anies=20 and their lenders on both sides of the Atlantic. The danger for banks is= =20 that their books will look uglier, their profits will sink, and their stock= =20 prices will tank. Bank of America Corp. and First Union Corp., for example, recently missed= =20 their profit goals, partly because of larger-than-expected loan-loss=20 provisions. Disappointed Wall Street analysts downgraded both companies, a= nd=20 their stocks slid. While those developments don=0F't constitute a bank =0F= " crisis,=0F" banks aren=0F't benefiting from their association with languish= ing=20 telecom companies. Telecom isn=0F't the only industry causing banks to spew red ink, says Cred= it=20 Suisse First Boston Corp. analyst Rosalind Looby. Movie theater companies,= =0F" dotcoms,=0F" and California electric utilities are doing their part, too. = =20 =0F"We are in the midst of a broader deterioration in commercial credit qua= lity=20 driven by loose lending standards adopted in the mid-1990s,=0F" Ms. Looby= =20 comments in a recent report. Banks traditionally were reluctant to fund money-losing companies. They=20 changed tacks during the dotcom frenzy on Wall Street. If they lent money = to=20 a young company, some bankers reasoned, that company might hire them for=20 other financial services. The risks were greater, but the prospects for=20 future revenue were tempting. That was before those young companies fell on hard times. CLECs=0F-one of = the=20 harder-hit sectors in the current economic slowdown=0F-have $8.2 billion in= loan=20 commitments from U.S. banks, Credit Suisse First Boston estimates. Skittis= h=20 banks have ways of dumping risky clients, but the process can be expensive,= =20 Ms. Looby says. =0F"Bankers attempting to sell any marginal CLEC credit into the distressed= loan=20 market today are likely to leave 20% to 25% of the loan=0F's face value on = the=20 table,=0F" she continues. =0F"CLEC-related losses could be material for ba= nks=20 attempting to downsize their exposure in this area.=0F" For now, however, many bankers are choosing to sit tight. =0F"I=0F'm not s= eeing a=20 lot of sales into the distressed loan market,=0F" says Robert H. Johnson,= =20 managing director-loan syndications for First Union Securities, Inc. Banke= rs=20 =0F"are not excited=0F" about holding onto some of the riskier telecom loan= s, but=20 they=0F're also not ready to take the financial hit that results from a =0F= " distressed=0F" sale, he says. Furthermore, bankers remain confident that they=0F'll collect the entire am= ount=20 on telecom loans, even in the worst cases, Mr. Johnson says. First Union,= =20 for example, still expects full repayment of its loans to two bankrupt CLEC= s=0F- ICG Communications, Inc., and NorthPoint Communications Group, Inc. =20 Bankruptcy courts often find ways of restructuring debt that enables banks = to=20 emerge unscathed, Mr. Johnson says. Meanwhile, the telecom industry appears to be recovering, Mr. Johnson notes= . =20 =0F"While there still may be more bankruptcies, the perspective in the bank= ing=20 industry is that things have bottomed out,=0F" he says. =0F"I believe we= =0F're at the=20 bottom.=0F" Recovery Could Be Stymied Debt-market analysts at Bear, Stearns & Co. are less sanguine. The debt=20 market appears to have regained its footing, Bear Stearns analysts say, but= =20 the recovery could be stymied by fear, uncertainty, and market failures. = =0F" The telecom sector remains prone to headline risk,=0F" they say, suggesting= that=20 the struggling market won=0F't be able to absorb bad news. Debt markets are especially vulnerable in Europe, where large carriers are= =20 selling =0F"noncore=0F" assets and holding initial public offerings (IPOs) = of stock=20 to raise badly needed funds, Bear Stearns notes. Those funds will help=20 carriers reduce their debts and pay for expensive new wireless networks. B= ut=20 what if nobody is willing to buy the assets or invest in the IPOs? Many analysts view France Telecom=0F's IPO of its wireless subsidiary, Oran= ge=20 plc, as a crucial test of Europe=0F's capital markets. If stock-market=20 investors don=0F't support that IPO, analysts fear that the budding recover= y=20 will wilt. =0F"IPOs and noncore disposals must succeed,=0F" Messrs. Crehan and Secker = of=20 Morgan Stanley declare. =0F"The situation has reached an impasse. Telecom= =20 companies need to spend more=0F-on network build-out and upgrades=0F-to rea= lize a=20 return on their original investment. But financial markets are reluctant t= o=20 risk even more money.=0F" =0F"If the European equity markets do not support [IPOs], necessary=20 capital-raising steps could be delayed, refocusing investors and the rating= =20 agencies on credit ratings,=0F" Bear Stearns says. =0F"Delayed plans might= force=20 the international telecom giants to turn to the banks at a time when the=20 banks are more closely scrutinizing their loan portfolios.=0F" Vendors Become Lenders The type of lending that seems to worry analysts most is vendor financing, = in=20 which equipment vendors give carriers loans in exchange for guaranteed=20 equipment orders. Vendor financing was much less common before last April,= =20 when the stock market still was the best source of funding for telecom=20 companies. When stock market investors closed their doors, many telecom companies went= =20 to the bond market. When bonds dried up, they visited banks. Rejected by= =20 banks, many carriers turned to vendors. Analysts are nervous because vendors sometimes aren=0F't qualified to judge= =20 creditworthiness and administer loan programs. But the vendors are eager t= o=20 snag customers. =0F"Offering financing has quickly developed into a compet= itive=20 weapon by equipment manufacturers keen to take market share,=0F" Messrs. Cr= ehan=20 and Secker explain. =0F"The aggressive expansion of vendor financing has raised fears that equi= pment=20 manufacturers could suffer like the banks should there be widespread=20 default,=0F" Messrs. Crehan and Secker said. =0F"Arguably, the equipment= =20 manufacturers are more exposed to this risk since, by definition, vendor=20 financing is lending to companies that the banks and financial markets have= =20 refused.=0F" Vendor financing worries already have stung some manufacturers. Lucent=20 Technologies, Inc., for example, recently increased its provision for bad= =20 debts to $500 million from $250 million, damaging its financial standing in= =20 the process (TR, Dec. 25, 2000). Vendor financing defaults won=0F't hurt only vendors, analysts say, but als= o=20 could cause equipment manufacturers to turn around and default on their=20 lenders=0F-not a positive development in a year when Standard & Poor=0F's a= lready=20 expects an increase in defaults by debt-laden telecom companies. =0F-Tom Leithauser Conn. Draft Decision Would Let SNET Drop Cable TV Business The Connecticut Department of Public Utility Control has proposed letting= =20 Southern New England Telephone Co. (SNET) and its video service subsidiary,= =20 SNET Personal Vision, Inc., stop providing cable TV services in the state. SNET, a subsidiary of SBC Communications, Inc., had told the department tha= t=20 its hybrid fiber/coaxial cable (HFC) cable TV network was unsuitable for=20 ubiquitous, full-service telephony and that the video-only deployment of th= e=20 HFC network was commercially impracticable (TR, Aug. 14, 2000). A draft department decision says the agency lacks the statutory authority t= o=20 require that SNET continue providing service. It says the department also= =20 lacks the authority to force the transfer of SNET=0F's cable TV franchise o= r=20 video assets to another company, as Connecticut Telephone & Communications= =20 Systems, Inc., had requested last fall (TR, Sept. 25, 2000). Written exceptions to the draft decision are due Jan. 26 in docket 00-08-14= . =20 The department will hold a Feb. 5 hearing, if one is requested, and plans t= o=20 issue a final decision Feb. 14. In 1999 the department modified the terms of SNET=0F's franchise, which=20 originally required the company to serve the entire state by September 2007= . =20 The recent draft decision says that transferring SNET=0F's modified franchi= se=20 agreement to Connecticut Tel would violate the state=0F's =0F"level playing= field=20 requirements.=0F" But the draft does encourage SNET to cooperate with Connecticut Tel and any= =20 other party interested in using its network, or parts of its network, to=20 provide competitive cable TV or other services. Executive Briefings Advanced Services =0F- The FCC gives data CLECs a major win by clarifying= =20 ILECs=0F' =0F"line-splitting=0F" duties and finding that ILECs must offer l= ine-sharing=20 over fiber loops. (Page 3) Bush=0F's =0F`E-rate=0F' Plan =0F- President Bush=0F's package of education= legislative=20 proposals draws criticism from policymakers who helped draft and implement= =20 the =0F"E-rate=0F" telecom discount program. It=0F's also sparking concern= among=20 schools and libraries that have participated and benefited from the program= . =20 (Page 4) 700 MHz Band Auction =0F- Large wireless carriers once again ask the FCC to= =20 postpone the scheduled auction of spectrum in the 700 MHz band, citing a ho= st=20 of familiar concerns that they say could dampen enthusiasm for bidding on t= he=20 frequencies. But rural carriers and TV broadcasters urge the Commission to= =20 begin the auction March 6, as scheduled. (Page 5) 700 MHz Band Relocation =0F- The FCC takes additional steps to help spur th= e=20 relocation of incumbent TV broadcasters from the 700 MHz band in order to= =20 make way for wireless carriers. But it won=0F't force incumbents to clear = the=20 frequencies=0F-at least not yet. (Page 6) Scarce Spectrum =0F- Spectrum issues will top the wireless industry=0F's Wa= shington=20 agenda this year, says CTIA President and CEO Tom Wheeler. He wants the FC= C=20 to lift the spectrum cap while a high-level effort to identify and allocate= =0F" 3G=0F" frequencies proceeds. (Page 8) Spectrum Cap =0F- The FCC reexamines whether to lift the cap on how much=20 spectrum wireless carriers may hold in any one market. It also explores if= =20 it should eliminate its cellular cross-interest rule. (Page 9) Internet Privacy =0F- Reps. Chris Cannon and Anna G. Eshoo introduce a bill= to=20 require operators of commercial Web sites that collect personally=20 identifiable information to explain to site visitors what type of informati= on=20 is collected, how it will be used, and who is collecting it. (Page 11) Infrastructure Tax-Credit Bill =0F- Key lawmakers who control the congressi= onal=20 purse strings revive a push to extend tax credits to carriers that deploy= =20 high-speed Internet facilities. They=0F've also asked President Bush to in= clude=20 the measure in his initial budget submission to Congress. (Page 11) New Approach to Broadband Regs? =0F- The =0F"time is ripe=0F" for legislati= on creating=20 a new regulatory regime for broadband services and networks, similar to the= =20 regime that governs the wireless industry, according to executives at=20 Verizon. (Page 12) =0F`Dominant=0F' Regulation =0F- A federal appeals court agrees with the fo= rmer U S=20 WEST that the FCC erred in focusing on the company=0F's market share when= =20 considering its request to be freed from =0F"dominant=0F"-carrier regulatio= n of=20 certain services. (Page 14) InterLATA Bid Approval =0F- The FCC=0F's authorization of SWBT to offer int= erLATA=20 services in Kansas and Oklahoma may offer insights to other Bell companies= =20 planning their own interLATA bids. (Page 15) Limits on EELs =0F- As it promised to do last year, the FCC begins reexamin= ing=20 its policy barring carriers from using enhanced extended links exclusively = to=20 provide access services. (Page 16) Directory Assistance Rules =0F- The FCC expands the category of competitors= =20 entitled to access local exchange carriers=0F' subscriber listing informati= on. =20 LECs now must provide Internet-based directory publishers with=20 nondiscriminatory access to those databases. (Page 17) TELRIC Rates and Pole Attachments =0F- The Supreme Court agrees to hear two= =20 cases involving disputes over FCC rules. One challenges the FCC=0F's=20 methodology for setting rates for interconnection and UNEs. In a separate= =20 case, the court will consider whether the agency has authority to regulate= =20 the pole attachment rates for wireless and cable TV service providers. (Pa= ge=20 17) State Immunity =0F- The Supreme Court again refuses to review an appeals co= urt=20 finding that state regulators are subject to federal lawsuits regarding=20 carrier interconnection. (Page 18) =0F'Net =0F`Filtering=0F' =0F- The FCC wants advice on how to implement the= Children=0F's=20 Internet Protection Act of 2000, which requires schools and libraries that= =20 receive =0F"E-rate=0F" discounts to use =0F"filtering=0F" technology preven= ting minors=20 from accessing =0F"harmful=0F" material over the =0F'Net. (Page 20) =20 Lucent Restructuring =0F- Wall Street analysts see Lucent=0F's restructurin= g as a=20 way to restore profitability but doubt that the plan will increase growth. = =20 Lucent=0F's bankers extend a new loan but ask for security, suggesting they= are=20 less certain than before of Lucent=0F's creditworthiness. (Page 21) Brazilian Wireless Consolidation =0F- Telefonica and Portugal Telecom are= =20 determined to lead what they say is the =0F"inevitable consolidation=0F" of= the=20 Brazilian wireless industry. The former rivals will combine their Brazilia= n=20 mobile telephony assets into a $10 billion joint venture that will be the= =20 country=0F's largest wireless service provider. (Page 23) Handset Outsourcing =0F- Ericsson decides to exit the mobile phone manufact= uring=20 business after that part of its operations turns in yet another disappointi= ng=20 quarter. =0F"The results in our mobile phones business, while in line with= =20 expectations, remain unsatisfactory,=0F" says Kurt Hellstrom, president and= CEO=20 of the Swedish company. (Page 23) Vancouver Rights-of-way =0F- Canadian regulator CRTC settles a dispute betw= een=20 the city of Vancouver and Ledcor Industries. The commission says a number = of=20 city-imposed project fees as unreasonable and paves the way for completion = of=20 the network deployment. (Page 24) Wireless Licenses =0F- Telecom regulators in Brazil and France face setback= s in=20 their attempts to award licenses for wireless services. (Page 24) Antenna Collocations =0F- Two wireless industry trade groups seek revisions= of a=20 draft agreement designed to streamline the review of antenna collocations= =20 under the National Historic Preservation Act. The groups say the changes a= re=20 needed to ensure that the pact accomplishes its goal. (Page 25) Building Access =0F- Building owners and competitive telecom service provid= ers,=20 escalating the battle they=0F've been waging for the last few years, shift = their=20 focus to multitenant residential buildings. (Page 27) Jurisdictional Cost Allocation =0F- The FCC orders Alaskan telco ATU to pay= an=20 interexchange carrier $2.7 million in damages to make up for improperly=20 assigning to the interstate jurisdiction the traffic-sensitive costs of=20 carrying Internet-bound traffic. (Page 29) =0F`C,=0F' =0F`F=0F' Block Reauction =0F- The FCC nets a record $16.8 billi= on in its=20 reauction of 422 =0F"C=0F" and =0F"F=0F" block PCS licenses=0F-an amount wi= thin the range=20 expected by most financial and industry analysts. Meanwhile, at least one= =20 participant is planning on challenging the results before the FCC=0F-and=20 possibly in court. (Page 30) Verizon Wholesale-Retail Split =0F- An administrative law judge recommends = that=20 the Pennsylvania PUC develop its own plan for Verizon to split its wholesal= e=20 and retail operations within one year. The ALJ also criticizes Verizon=0F'= s =0F" alternative=0F" plan for not going far enough. (Page 32) International Service Authorizations =0F- The FCC generally wins support fo= r its=20 proposals to streamline procedures governing pro forma assignments and=20 transfers of international service authorizations. (Page 32) Falling Credit Ratings =0F- Many telecom companies these days are groaning = under=20 the weight of excessive debt that they accumulated while building networks,= =20 acquiring other companies, and trying to enter new markets. Determining=20 whether they can pay those and future debts is the job of telecom analysts= =20 like Robert Ray of Moody=0F's Investors Service. (Page 39) Telecom=0F's Iffy Debts =0F- On the one hand analysts are sounding alarm be= lls,=20 while on the other they=0F're saying, =0F"Don=0F't panic.=0F" The reason f= or the caution=20 flags is the level of questionable debt at telecom companies. (Page 40) Copyright 2001, Telecommunications Reports International, Inc. All rights= =20 reserved. =====================================

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Telecommunications Reports -- 02/05/01

=20 =20 Telecommunications Reports - February 5, 2001 Verizon Wireless=0F' Reauction Bids Create Buzz As Analysts Praise Carriers= =0F'=20 Activities in Sale U.S. Carriers See Progress in Opening Markets But Ask USTR To Keep Pressure= =20 on Laggards USTR Delays Plea for WTO Probe Of Mexico, Keeps Options Open Burns To Unveil =0F`Tech Seven=0F' Legislative Package; House, Senate Telec= om=20 Panels To Add Members Powell To Lead with Review Of FCC Operational Changes Tauzin Demands Report on Critical Infrastructure=20 AT&T Execs See Hope of Truce In Long Distance Price Wars Verizon Wireless is rolling out its two-way text messaging service,... Versatel Absorbs VersaPoint, Cuts Workers, Writes Off Assets E.spire Mulls Reverse Split To Meet Nasdaq=0F's Conditions Convergent To Cut Workforce, Close Offices Early Talks with WRC-03 Nations Seen As Key for U.S. Success Bureau OKs Satellite Operators For Intersatellite Communications DoJ, FBI Want Foreign Control Of DT Limited by FCC Conditions Intelsat Told To Disclose Privatization Info Don=0F't Exempt Foreign Agencies From Ex Parte Rules, Carriers Say Unlicensed International Carriers Given 90 Days To Come Forward FCC Delays 700 MHz Auction Again at Request of Industry QUALCOMM Creates Platform To Spur Wireless Internet Apps PCIA Drops Opposition To Lifting Spectrum Cap France, Brazil Have Troubles Awarding Wireless Licenses Telefon AB L.M. Ericsson has announced a $400 million network expansion=20 contract... FCC Sets Arbitration Schedule For Interconnection Disputes Pay-Per-Call Providers=0F' Case Should Go to FCC, Court Says Aerial v. Underground Facilities Is Topic of City-CLEC Debate AeA Advises against Regulating Competitive Broadband Markets Missouri PSC Faults SW Bell=0F's InterLATA Bid CLECs Tout Effect on Economy But Seek Help from Congress Furchtgott-Roth=0F's Departure Plan Sparks Speculation on Nominees Court Upholds FCC Rules Giving ILECs Road to Pricing Flexibility AT&T Corp. has won a multiyear $100 million broadband service contract... Utah Bill Takes Aim at Cities Entering Telecom Business Va. Regulators Tell Verizon Not To Cut Off CLEC=0F's Customers Oftel Extends BT Price Controls For Retail, Wholesale Services Loral Scraps $3.5 Billion Plan For Direct-to-Consumer Service European Commission Seeks Cybercrime Policy Harmonization Psion plc and Motorola, Inc., say they are discontinuing a joint agreement.= .. Personnel Regulatory & Government Affairs Financial Briefs Industry News Wireless Industry Says Agreement Could Streamline Antenna Siting What=0F's Ahead. . . Executive Briefings Verizon Wireless=0F' Reauction Bids Create Buzz As Analysts Praise Carriers= =0F'=20 Activities in Sale The buzz on Wall Street last week in the wake of the FCC=0F's reauction of = 422 =0F" C=0F" and =0F"F=0F" block PCS (personal commu-nications service) licenses f= ocused on=20 the aggressiveness of Verizon Wireless, the nation=0F's largest wireless ca= rrier. Industry observers also talked up the prices paid for three 10- megahertz= =20 licenses in New York City. Verizon Wireless agreed to shell out more than $4 billion=0F-or nearly a qu= arter=20 of the entire $16.8 billion the auction netted=0F-for just two New York Cit= y=20 licenses (TR, Jan. 29). The additional 20 MHz of spectrum will give it 45= =20 MHz in the nation=0F's largest market. Alaska Native Wireless LLC, which is 39.9%-owned by AT&T Wireless Services,= =20 Inc., won the third New York City license with a $1.4 billion bid. Verizon Wireless topped all bidding at the sale, which ended Jan. 26,=20 offering more than $8.7 billion for 113 licenses covering 150 million =0F"p= ops=0F"=20 (potential customers). =0F"It is very interesting that the company with one of the strongest spect= rum=20 positions before the auction. . .has felt the need to be so aggressive,=0F"= =20 Lehman Brothers, Inc., analyst John M. Bensche said in a note to investors= =20 last week. =0F"We commend Verizon for its boldness in the auction, where i= t=20 garnered spectrum over almost twice as many =0F`pops=0F' as the next-closes= t=20 bidder.=0F" Mr. Bensche noted that Verizon Wireless and its founding companies =0F"had = been=20 quite conservative in their acquisition philosophy. . .This prior=20 conservatism makes the aggressive bidding all the more remarkable, and we= =20 wonder how much of the =0F`new=0F' philosophy was transplanted into the ven= ture by=20 Vodafone, the world leader in spectrum bullishness.=0F" Verizon Wireless is a joint venture of Verizon Communications, Inc., and=20 Vodafone AirTouch plc. =0F"Verizon, with its voracious appetite, was the clear upset victor,=0F" s= aid=20 Michael I. Rollins, an analyst with Salomon Smith Barney, Inc. He had=20 predicted before the auction that the carrier would bid $3 billion to $5=20 billion on licenses. =0F"Although we understand that spectrum is an attractive resource, we were= a=20 bit surprised at how aggressive the company was relative to others in the= =20 auctions,=0F" Cynthia M. Motz, an analyst for Credit Suisse First Boston Co= rp.,=20 agreed in a note to investors. She had expected Verizon Wireless to bid le= ss=20 than $1.3 billion in the reauction. =0F"Based on their auction wins, we believe Verizon is unlikely to be an av= id=20 participant in subsequent auctions,=0F" including the 700 megahertz band sa= le,=20 Ms. Motz added. The FCC=0F's Wireless Telecommunications Bureau last week postponed the 700= MHz=20 band auction from March 6 to Sept. 12 (see separate story). Verizon Wireless officials have declined to comment on the reauction result= s,=20 citing the FCC=0F's anti-collusion rules. But Dennis F. Strigl, the carrie= r=0F's=20 president and chief executive officer, acknowledged at the Comnet Conferenc= e=20 & Expo in Washington last week (see separate story) that the overall prices= =20 paid at the sale were =0F"extremely high.=0F" Analysts speculated why Verizon Wireless had agreed to pay so much for the= =20 New York City spectrum. It could be that the carrier wanted to ensure=20 dominance in the wireless data market, or to guarantee that competitors=0F-= such=20 as Cingular Wireless LLC=0F-didn=0F't land the valuable frequencies, they t= heorized. Or perhaps Verizon Wireless is closer than analysts believe to being tapped= =20 out regarding its available spectrum in New York, they speculated. =0F"The company has been quite mum about exactly why it felt the need to bu= lk up=20 so much,=0F" Mr. Bensche said. =0F"Of course, it will be incumbent upon ma= nagement=20 to be much more forthcoming about their view of the revenue and EBITDA=20 (earnings before interest, taxes, depreciation, and amortization) potential= =20 around wireless data than they have been in the past as they seek to explai= n=20 the $8.8 billion increase in the debt load.=0F" Indeed, Credit Suisse First Boston last week downgraded Verizon=20 Communications=0F' stock from a strong buy to a buy, in part because of its= need=20 to raise cash to pay for the spectrum and the costs of building its wireles= s=20 network. The parent company has said it will lend the wireless unit the=20 money to pay for the licenses. Standard & Poor=0F's revised its outlook on= =20 Verizon Communications to stable from positive, citing the auction debt as= =20 one reason. Whatever Verizon Wireless=0F' reasons for snatching up the New York City=20 spectrum, analysts concede that licenses there are valuable for any carrier= . =20 =0F"In order to provide nationwide coverage in the United States, New York = is=20 mandatory,=0F" noted Knox Bricken, an analyst at the Yankee Group. Overall, Mr. Bensche said, the C and F block reauction proceeds equate to= =20 $4.18 per =0F"megahertz pop,=0F" just behind third-generation (3G) auctions= in the=20 United Kingdom ($4.29 per MHz pop) and Germany ($4.68 per MHz pop) last yea= r,=20 which raised more than $80 billion (TR, May 1, and Aug. 21 and 28, 2000). = =20 Verizon Wireless=0F' bidding worked out to $5.79 per MHz pop, Mr. Bensche s= aid. =0F"We believe that biding was rational, and that an average of $4.18/pop/M= Hz=20 was a reasonable amount for carriers to pay for the spectrum available,=0F"= Mr.=20 Rollins said. Analysts Scrutinize Other Strategies Here=0F's a look at analysts=0F' take on how the other largest carriers did= at the=20 auction: AT&T WIRELESS: It didn=0F't win any licenses separately but will benefit f= rom=20 those won by its =0F"designated entity=0F" (DE), or small-business, partner= Alaska=20 Native Wireless, which bid $2.8 billion for 44 licenses. Through that alliance, analysts note, AT&T Wireless gained spectrum in Los= =20 Angeles and New York, bringing its holdings to 45 MHz in those markets. It= =20 also added licenses in other major markets. AT&T Wireless told analysts last week that the additional spectrum would=20 allow it to roll out a 3G system in 16 additional markets. In all, the=20 carrier says, it will be able to deploy the 3G universal mobile=20 telecommunications system (UMTS) technology in 88 of the top 100 markets. In addition, Mr. Bensche noted that DE affiliates or subsidiaries of two=20 other carriers with close ties to AT&T Wireless=0F-Triton PCS Holdings, Inc= .,=20 and Dobson Communications Corp.=0F-also won a total of 28 licenses at the= =20 auction. CINGULAR WIRELESS: The carrier has 85% equity in DE Salmon PCS LLC, the=20 number-three bidder at the reauction with $2.3 billion in bids on 79=20 licenses. Analysts say Salmon won licenses in a number of markets where=20 Cingular needs to fill in holes in its footprint, including Minneapolis;=20 Denver; Portland, Ore.; Norfolk, Va.; Pittsburgh; and Richmond, Va. =20 It also won licenses that could shore up Cingular=0F's spectrum position in= =20 other key markets, including Los Angeles, Dallas, and Boston. But it failed to win any spectrum in New York City=0F-a key market. Cingul= ar=20 already has a 10 MHz block of spectrum in the Big Apple, thanks to a swap o= f=20 licenses with VoiceStream Wireless Corp. announced before the auction (TR,= =20 Nov. 6, 2000). Mr. Bensche said Cingular =0F"should be comfortable=0F" with that block unt= il it=20 can acquire more spectrum in New York City in the 700 MHz band auction. He= =20 called Cingular-backed Salmon=0F's decision not to remain in bidding for Ne= w=20 York City spectrum =0F"an act of bravery on behalf of [Cingular] shareholde= rs.=0F" Ms. Motz also commended Cingular for its =0F"disciplined=0F" bidding via Sa= lmon. =0F" While the pressure was on for Cingular to win a New York license, it was no= t=20 enough for the company to be pressured into paying more than it was willing= ,=0F"=20 she said. =20 Salmon officials have said they intend to use the licenses for their own=20 network, although they would have the right to use Cingular=0F's name and m= ight=20 establish roaming and operations agreements with the large carrier. VoiceStream: A VoiceStream subsidiary, Voice-Stream PCS BTA, bid $482=20 million for 19 licenses. Its DE affiliate, Cook Inlet/VS GSM V P, offered= =20 $506 million for 22 licenses. =20 The companies filled important VoiceStream footprint holes in the Carolinas= ,=20 including Charlotte and Greensboro in North Carolina and Charleston and=20 Columbia in South Carolina, analysts said. VoiceStream also picked up licenses in Texas, the Pacific Northwest, and th= e=20 Midwest. Its auction success, combined with its planned merger with=20 Powertel, Inc., and recent spectrum swap with Cingular, has helped it build= a=20 nationwide footprint, Mr. Bensche said. Ms. Motz said Cingular=0F's and VoiceStream=0F's auction results =0F"could = suggest=20 that the two intend to work closely together on favorable roaming=20 arrangements in the near future (since each has what the other needs alread= y=20 built out).=0F" SPRINT PCS: SprintCom, Inc., a Sprint PCS subsidiary, dropped out of the= =20 reauction. But SVC BidCo L.P., a DE that is 80%-owned by Sprint PCS, won= =20 five licenses for $281 million. The licenses are in areas where analysts s= ay=20 Sprint PCS had only 10 MHz of spectrum=0F-Tampa and Orlando in Florida,=20 Cincinnati and Dayton in Ohio, and Norfolk, Va. Analysts note that Sprint PCS also secured additional spectrum in a swap wi= th=20 AT&T Wireless announced before the auction. They say that because it has= =20 such a strong spectrum position (30 MHz of spectrum in the majority of its= =20 markets), they aren=0F't surprised it wasn=0F't more aggressive in the sale= . NEXTEL COMMUNICATIONS, INC.: Nextel Spectrum Acquisition Corp., a Nextel= =20 subsidiary, dropped out of the reauction when bidding got too high, as did= =20 Connectbid LLC, a Nextel DE bidding partner controlled by cellular industry= =20 pioneer Craig McCaw. Analysts were not surprised. They said the auction d= id=20 not afford Nextel a chance to secure a full national footprint. =0F"The prospect of holding only 10 MHz of PCS spectrum in a handful of mar= kets=20 at high prices is not an ideal remedy to Nextel=0F's current spectrum need,= =0F" Mr.=20 Bensche said. =20 =0F"With an average of 16 MHz of spectrum in the 800 MHz band to operate it= s=20 iDEN system, it would suit Nextel more to acquire a contiguous 10 MHz on a= =20 nationwide basis rather than a piecemeal collection of properties,=0F" he = said. Analysts expect Nextel to continue acquiring 800 MHz and 900 MHz band=20 spectrum and say it also could pursue licenses at the 700 MHz band auction.= =0F" Whatever the strategy, the completion of the auction puts Nextel=0F's=20 competition in a much stronger position to better compete in both the voice= =20 and data markets, leaving Nextel at a disadvantage for future services,=0F"= Mr.=20 Bensche said. Meanwhile last week, Dana Frix, an attorney for San Antonio=0F-based Allegh= eny=20 Communications, Inc., told TRthat company officials still were considering= =20 their options for contesting the auction results. Allegheny, which dropped out of the reauction before it was over when the= =20 prices got too high, says the DE rules permitted large carriers to=20 participate through =0F"shell entities=0F" for licenses reserved for=20 entrepreneurs. Allegheny failed to persuade the U.S. Court of Appeals in= =20 Washington to block the reauction the day before it began in December 2000= =20 (TR, Dec. 18, 2000). The 35 winning bidders in the reauction have until Feb. 12 to submit down= =20 payments, the FCC said in a public notice released last week. The bidders= =20 also must submit their =0F"long-form=0F" 601 applications, as well as form = 602,=20 which includes ownership information, by that date. The FCC has said it=20 would review ownership arrangements of winning auction bidders closely befo= re=20 granting licenses. Of the 422 licenses on the block in the reauction, 170 were reserved for=20 qualified DEs and 252 were open to all bidders. Mr. Bensche noted that the= =20 liberal capitalization rules for DEs allowed large companies to jump back a= nd=20 forth between bidding on =0F"open=0F" and =0F"closed=0F" licenses, using bi= dding credits=20 for the open licenses through the DEs. =0F"In reality, this drove up the prices in the closed blocks to the same l= evels=20 as the open licenses being chased by the designated entities,=0F" Mr. Bensc= he=20 concluded. =0F"In fact, analyzing all of the markets in which at the close= of=20 the auction one of the open licenses was won by a bidder with bidding=20 credits, we come to the conclusion that the closed blocks went for 9% more= =20 than the open blocks!=0F" Meanwhile, last week bankrupt NextWave Telecom, Inc., whose reclaimed=20 licenses were snatched up at the reauction, filed its reply brief with the= =20 U.S. Court of Appeals in Washington in its case against the FCC. In its brief, NextWave repeated its argument that the cancellation of its= =20 licenses was prohibited by the U.S. Bankruptcy Code. Oral arguments are=20 scheduled for March 15 in NextWave Personal Communications, Inc., v. FCC=20 (case nos. 00-1402 and 1403). =0F-Paul Kirby U.S. Carriers See Progress in Opening Markets But Ask USTR To Keep Pressure= =20 on Laggards Countries around the world are making progress in complying with open-trade= =20 agreements affecting telecom services, but much more work needs to be done,= =20 U.S. carriers have told the Office of the U.S. Trade Representative. The carriers=0F' statements about global telecom markets had familiar theme= s. =20 They raised issues similar to those that have dominated debates on opening= =20 U.S. service markets to competition=0F-disputes over pricing unbundled netw= ork=20 elements and policies on collocating competitors=0F' equipment in incumbent= s=0F'=20 facilities. USTR recently asked for comments on the effectiveness of the World Trade=20 Organization=0F's basic telecom trade agreement, the telecom trade provisio= ns of=20 the North American Free Trade Agreement, and other telecom trade pacts. It= =20 plans to complete its annual review of the agreements by March 31. Germany Germany was a primary target of competitors=0F' complaints about the progre= ss of=20 market-opening efforts. The Competitive Telecommunications Association sai= d=20 the market conditions for competitors had =0F"worsened=0F" in Germany over = the last=20 year. =0F"The intermingling of interests between the German federal government an= d=20 Deutsche Telekom [AG], which the German federal government controls in=20 numerous overt and subtle ways, remains a serious problem,=0F" CompTel said= . CompTel objected to =0F"exorbitant=0F" licensing fees that require an =0F"u= p-front=20 payment of administrative costs projected over a 30-year period.=0F" It ch= arged=20 that Deutsche Telekom had delayed delivering services to competitors=0F'=20 customers and imposed onerous conditions on collocating equipment in its=20 central offices. Covad Communications Group, Inc., also complained of market conditions in= =20 Germany, specifically the rates for unbundled local loops. It said Deutsch= e=20 Telekom had proposed charging 34 deutsche marks ($16.25) per month for a=20 local loop, an increase of 33%. Deutsche Telekom=0F's online service unit= =20 offers ADSL (asymmetric digital subscriber line) service for 49 deutsche=20 marks ($23.42) per month. =0F"In order to provide a comparable ADSL retail product in a sustainable= =20 competitive market, a new entrant would have to charge an end user 49=20 deutsche marks, while paying Deutsche Telekom 34 deutsche marks per month f= or=20 a loop (in addition to apportioned payments for collocation, transport, and= =20 OSS, as well as amortizing the increased nonrecurring loop charge of 357=20 deutsche marks [$170.69]),=0F" Covad said. In addition, the competitor would have to amortize its own investments in= =20 equipment and network infrastructure, as well as salaries and marketing=20 costs, it said. Mexico As USTR decided last week to wait on pursuing a complaint against Mexico at= =20 the World Trade Organization (see separate story), U.S. carriers continued = to=20 raise concerns about market conditions in Mexico. WorldCom, Inc., said Mexico =0F"unquestionably presents the most serious an= d=20 pressing concerns.=0F" USTR=0F's =0F"persistent efforts to improve competi= tive=20 conditions in Mexico have resulted in some progress,=0F" it said, but it ci= ted=20 some remaining problems: (1) The rule that gives the incumbent, Telefonos de Mexico SA de CV=20 (Telmex), sole authority to negotiate accounting rates with foreign=20 carriers. Competitive carriers can=0F't offer =0F"market-based rates=0F" f= or=20 international calls because Telmex has resisted reducing the =0F"huge subsi= dies=0F"=20 it receives from U.S. carriers and customers, WorldCom said. (2) The Mexican regulatory agency, the Comision Federal de=20 Telecomunicaciones (Cofetel), has refused to implement =0F"flexible and=20 cost-oriented international termination rates=0F" as an alternative to the= =20 current system. (3) Cofetel has failed to regulate Telmex as a =0F"dominant=0F" carrier. (4) Cofetel=0F's decision-making process lacks =0F"transparency,=0F" and T= elmex=0F's=20 competitors don=0F't have adequate input into the regulatory process. CompTel said that =0F"despite promises of real change, no real advances hav= e=20 been made=0F" in Mexico. Telmex, it added, is failing to meet its obligati= on to=20 provide timely, nondiscriminatory, and cost-based interconnection. CompTel viewed the decision to cut the rate for =0F"on-net interconnection= =0F" to=20 1.25 cents per minute as a =0F"positive step.=0F" Telmex has challenged th= e rate=20 in court. Telmex charges carriers a =0F"resale=0F" tariff rate of more tha= n 9=20 cents per minute to terminate traffic in cities where the competitive carri= er=20 doesn=0F't have a network, CompTel said. Spain Spain=0F's Ministry of Science and Technology has completed an initial revi= ew of=20 Telefonica S.A.=0F's =0F"reference interconnection offer,=0F" Covad reporte= d. It said=20 it had several concerns with the terms of the offer. Telefonica =0F"offers only discriminatory collocation,=0F" it said, explain= ing that=20 Telefonica requires competitors to install equipment in separate caged=20 collocation spaces and restricts the types of equipment that can be=20 installed. Covad also complained about Telefonica=0F's slow provisioning= =20 intervals for unbundled loops and lack of information on the condition or= =20 availability of loops. United Kingdom Although the U.K.=0F's Office of Telecommunications has completed a series = of=20 proceedings to open markets, the telecom environment there is =0F"neither= =20 stable, predictable, nor nondiscriminatory,=0F" Covad said. British Telecommunications plc has refused to offer cageless collocation an= d=20 has limited the central offices that new entrants can access, it said. Cov= ad=20 said other new entrants had accused British Telecom of allocating=20 insufficient resources to provisioning unbundled loops. France=20 Covad criticized France Telecom S.A.=0F's =0F"highly problematic=0F" practi= ce of=20 refusing to sign any interconnection/operations agreement with a new market= =20 entrant that doesn=0F't hold an =0F"L 33.1=0F" telecom infrastructure licen= se=20 already. But the new entrant, Covad said, needs information in the draft= =20 local loop access agreement to formulate the business plan required by the= =20 license application. Covad also faulted France Telecom=0F's =0F"discriminatory=0F" collocation p= olicies,=20 which forbid new entrants from collocating ATM (asynchronous transfer mode)= =20 equipment and IP (Internet protocol) routers. France Telecom also refuses = to=20 provision for new entrants =0F"spare=0F" copper pairs (those that currently= aren=0F't=20 in use), Covad said. France Telecom=0F's pricing structure for unbundled loops, collocation,=20 transport, and electronic bonding to operation support system (OSS) functio= ns=20 =0F"clearly puts new entrants in a price-squeeze situation when compared to= the=20 retail prices for DSL service offered by France Telecom=0F's ISP affiliates= ,=0F"=20 Covad concluded. Peru=20 BellSouth Corp. focused on Peru, commending USTR=0F's role in opening the= =20 country=0F's telecom markets to competition. But it expressed concern abou= t new=20 regulations under consideration in Peru. Peruvian regulators plan to reduce the interconnection rate for wireless=20 carriers connecting with Telefonica del Peru=0F's wireline network, BellSou= th=20 said. It voiced concern that new rates would be challenged and not put int= o=20 effect. It also complained about the regulators=0F' decision that the new= =20 interconnection rates wouldn=0F't apply to fixed-to-mobile calls. Because the amount of fixed-to-mobile traffic exceeds the amount of=20 mobile-to-fixed traffic, mobile carriers would be =0F"significantly harmed= =0F" if=20 the changes went into effect, BellSouth said. It said the new arrangement= =20 was =0F"inconsistent with Peru=0F's WTO commitments to prevent anticompetit= ive=20 practices=0F" because it would benefit Telefonica del Peru. AT&T Corp. raised similar concerns about Peru. =0F"Continued USTR involvem= ent=20 remains necessary to ensure that Telefonica, as Peru=0F's major supplier, i= s=20 required to provide =0F`rates for all services at all levels that are=20 comparable, cost-oriented, reasonable, and nondiscriminatory,=0F'=0F" it sa= id. South Africa AT&T objected to constraints on providers of value-added network services= =20 (VANS) in South Africa. Telkom South Africa Ltd., the incumbent telecom=20 operator, =0F"continues to deny new telecommunications facilities to AT&T a= nd=20 many other VANS suppliers,=0F" AT&T said. It said the South African regulatory agency, the Independent Communication= =20 Authority of South Africa, had proposed to require that at least 15% of=20 ownership and control of a VANS license be held by =0F"historically=20 disadvantaged persons.=0F" Such a requirement would =0F"clearly violate So= uth=20 Africa=0F's WTO commitments to provide market access and national treatment= to=20 foreign VANS suppliers,=0F" AT&T said. Japan To comply with the WTO=0F's basic telecommunications service agreement, Jap= an=20 still needs to create an independent regulatory authority, CompTel said. I= t=20 noted that the government still owns a =0F"significant stake=0F" in Nippon= =20 Telegraph and Telephone Corp. (NTT). CompTel complained that NTT employees often leave to work at the Ministry o= f=20 Posts and Telecommunications (MPT) for a few years and then return to NTT. = =20 Those employees don=0F't recuse themselves from par-ticipating in regulator= y=20 actions regarding NTT, it said. CompTel said MPT =0F"must establish a clear and detailed regulatory=20 environment.=0F" MPT needs to set guidelines on cross-subsidies and tests = for=20 predatory pricing, transparency of accounts, and misuse of customer=20 information, CompTel said. MPT oversaw splitting NTT into five companies in 1999, CompTel noted. But= =20 MPT doesn=0F't regulate those carriers as =0F"dominant,=0F" despite their s= ignificant=20 market shares, it added. For example, local telecom service providers NTT= =20 East and NTT West jointly control more than 90% of the nation=0F's lines,= =20 CompTel said. CompTel also raised concerns about compliance with other points in the=20 reference paper and a May 1998 U.S.-Japan deregulation joint statement. Th= e=20 criticisms include the following:=20 (1) NTT levies =0F"excessively high interconnect charges=0F"; (2) NTT fails to provide access to ducts, conduits, and rights-of-way; and= =20 (3) Japan imposes =0F"unnecessary and burdensome licensing conditions.=0F" Taiwan CompTel said Taiwan hadn=0F't met its commitments outlined in the U.S.-Taiw= an=20 1998 Accession Protocol.It faulted Taiwan for restrictive licensing=20 conditions and a lack of =0F"transparency=0F" in the regulatory process.=20 =0F"With just six months to go before the telecommunications services marke= t is=20 to be opened to all new entrants, [Taiwan=0F's wireline regulations] requir= ing=20 an extraordinary investment of $1.2 billion in the Taiwan market and a=20 build-out of 1 million exchange lines=0F-150,000 of which must be installed= =20 prior to any service offering=0F-remain in effect,=0F" CompTel said. USTR Delays Plea for WTO Probe Of Mexico, Keeps Options Open The Office of the U.S. Trade Representative still may ask the World Trade= =20 Organization to investigate Mexico=0F's compliance with a WTO agreement to = give=20 foreign carriers=0F' access to its telecom market. But first USTR wants to= give=20 Mexico more time to address U.S. concerns before pressing its case. USTR declined last week to ask the WTO to convene a =0F"dispute-settlement= =20 panel=0F" to address claims that Mexico has failed to implement its=20 market-opening commitments under the WTO=0F's basic telecom service agreeme= nt. USTR asked the WTO in December 2000 to convene such a panel. But Mexico=20 blocked the initial request, as a WTO member country has the right to do. = A=20 second such request cannot be blocked. USTR didn=0F't make a second request for a dispute-settlement panel when WT= O=20 officials convened Feb. 1, but that does not mean USTR has =0F"dropped=0F" = the=20 case, a USTR spokeswoman said. =0F"That is not at all the case,=0F" she sa= id. =0F"We=20 reserve the right to move forward.=0F" =20 She said a second set of WTO consultations with Mexico ended Jan. 16, and= =20 USTR is =0F"evaluating where we stand.=0F" Although the parties have made = some=20 progress in addressing U.S. concerns, several areas of disagreement remain,= =20 the spokeswoman said. The key concern, she said, is the level of=20 international settlement rates on routes to Mexico. Industry sources also warned against reading too much into USTR=0F's decisi= on=20 not to move forward immediately. =0F"They=0F're just giving [Mexico] some = more=20 time to address the situation,=0F" one source said. =0F"It doesn=0F't mean= they can=0F't=20 [seek an investigation] a month from now=0F" at the next meeting of the WTO= =0F's=20 dispute-settlement panel in Geneva. In addition, President Bush and Mexican President Vicente Fox plan to meet= =20 Feb. 16, and sources said telecom topics could be on the agenda. The meeti= ng=20 would be =0F"an excellent time [for Bush] to bring these important issues u= p,=0F"=20 another source said. And President Fox, who took office last fall, has sai= d=20 he =0F"understands the importance of a competitive telecom marketplace,=0F"= the=20 source said. In addition to Mexico=0F's high international settlement rates, U.S. indust= ry=20 also is concerned about other interconnection rates in Mexico that are =0F"= well=20 above cost=0F" and the fact that there is =0F"still no meaningful regulatio= n of=20 Mexico=0F's dominant carrier,=0F" the source said. Burns To Unveil =0F`Tech Seven=0F' Legislative Package; House, Senate Telec= om=20 Panels To Add Members With the makeup of the House and Senate telecom subcommittees beginning to= =20 take shape, lawmakers from both panels are preparing to launch the first=20 major telecom and Internet-related initiatives of the 107th Congress. Leading the way in the Senate is communications subcommittee Chairman Conra= d=20 Burns (R., Mont.), who plans to unveil his =0F"tech seven=0F" package of te= lecom=20 and Internet bills this week. Sen. Burns, who dubbed his high-tech agenda= =20 for the last Congress the =0F"digital dozen,=0F" will reintroduce a few hol= dover=20 bills that weren=0F't passed, as well as some =0F"new surprises,=0F" his sp= okesman=20 told TRlast week. Sen. Burns=0F' digital dozen enjoyed considerable success last in the last= =20 Congress, as nearly half of the bills became part of new telecom laws. Tho= se=20 successes include measures to privatize the international satellite=20 consortium Intelsat, designate =0F"911=0F" as the universal emergency telep= hone=20 number, permit direct broadcast satellite TV companies to retransmit local= =20 broadcast station signals, legalize digital signatures, and set up a rural = TV=20 loan guarantee plan. Almost certain to be included in this year=0F's package are bills to expand= =20 deployment of broadband services using low-power TV spectrum, to ease=20 reporting requirements for small incumbent local exchange carriers, and to= =20 lift the caps on universal service =0F"high-cost=0F" support, the Burns spo= kesman=20 said. The other =0F"top priorities=0F" on Sen. Burns=0F' agenda are bills to bols= ter online=20 privacy and to curb =0F"spamming=0F" (sending unsolicited commercial e-mail= ), the=20 spokesman said. Sen. Burns also may address the process by which the=20 Internet Corporation for Assigned Names and Numbers (ICANN) selects Interne= t=20 domain name suffixes. He might do so either through legislation or through= =20 the subcommittee=0F's oversight capacity. Meanwhile, Sen. Burns=0F' subcommittee has grown by three seats since the= =20 previous Congress. In handing out subcommittee assignments last week,=20 Commerce, Science, and Transportation Committee Chairman John McCain (R.,= =20 Ariz.) gave the Democrats two extra seats on the panel and the Republicans= =20 one more. Both parties now have 10 members on the panel. The new Democratic members are Barbara Boxer (Calif.) and John D. Edwards= =20 (N.C.). Sen. Edwards has said he would reintroduce a bill to give consumer= s=20 more control over how their telecom service providers could use their calli= ng=20 records for marketing (TR,Nov. 8, 1999). In a statement on the Senate floor last week, Sen. Edwards said, =0F"During= the=20 last Congress, I introduced the Telephone Call Privacy Act [S 1850] in orde= r=20 to prevent phone companies from disclosing consumers=0F' private phone reco= rds=20 without their permission. I will be reintroducing this bill soon,=0F" he s= aid. Senate Republicans had five seats to fill on the communications=20 subcommittee. The GOP picked up one seat from Sen. McCain=0F's decision to= =20 expand the panel and was forced to fill four more because of three election= =20 casualties and the departure of William H. Frist (Tenn.) from the full=20 Commerce Committee (TR,Jan. 15). =20 The new Republican members on the communications subcommittee are Olympia J= .=20 Snowe (Maine), Gordon Smith (Ore.), Peter G. Fitzgerald (Ill.), and freshme= n=20 John Ensign (Nev.) and George Allen (Va.). =20 Tauzin Expands Telecom Panel Meanwhile, efforts to organize the House telecommunications subcommittee we= re=20 held up by a dispute over whether to add seats to the full House Energy and= =20 Commerce Committee. =20 Democratic leadership was pushing to add one more Democrat to the Commerce= =20 Committee, which would narrow the balance of power on the committee to 30= =0F-26=20 in the Republicans=0F' favor. House Speaker J. Dennis Hastert (R., Ill.),= =20 however, has proposed adding one more GOP and one more Democratic seat. Final determinations on committee matters, including the jurisdiction and= =20 membership of its subcommittees, will be made at an organizational meeting= =20 set for Feb. 7. =0F"We=0F'll be operating under the assumption that they a= re=20 adding a Democrat and a Republican=0F" to the committee, Commerce spokesman= Ken=20 Johnson said Friday, Feb. 2. Despite the delay, Commerce Chairman W.J. (Billy) Tauzin (R., La.) said his= =20 subcommittee assignments and selections for subcommittee chairmen had been= =20 ratified by the Commerce Committee=0F's Republican members. Rep. Tauzin has proposed adding two more GOP seats to the telecommunication= s=20 subcommittee, which had 15 Republicans last session when it was called the= =20 telecommunications, trade, and consumer protection subcommittee. Assuming= =20 committee approval for that expansion, new telecom subcommittee Republicans= =20 will be its Chairman Fred Upton (Mich.), Michael Bilirakis (Fla.), Joe Bart= on=20 (Texas), Thomas M. Davis III (Va.), and John B. Shadegg (Ariz.). Rep. Clif= f=20 Stearns (R., Fla.), who was on the panel during the last Congress, will be= =20 its vice chairman. Commerce Committee Ranking Democrat John D. Dingell (Mich.) will wait for t= he=20 House leadership to agree on the size of the Commerce Committee before movi= ng=20 to select new committee members and announcing his subcommittee assignments= ,=20 a Dingell spokeswoman said. That could happen =0F"early [this] week,=0F" s= he said. The telecom subcommittee=0F's first hearing of the 107th Congress is schedu= led=20 for Feb. 8. The hearing will focus on ICANN=0F's recent selection of regis= try=20 operators for new top-level domains. Powell To Lead with Review Of FCC Operational Changes With a Republican administration in place for the first time since the=20 passage of the Telecommunications Act of 1996, GOP insiders appearing at la= st=20 week=0F's Comnet convention in Washington said the political landscape was = ripe=20 for overhauling the FCC. Key congressional and FCC staffers predicted that federal policy-makers wou= ld=20 launch major efforts this year to (1) curb the Commission=0F's authority to= =20 impose =0F"voluntary=0F" conditions on merger applications, (2) update the = agency=0F's=20 traditional common carrier rules, and (3) pressure the FCC to accelerate it= s=20 decision making. =20 The Republican-heavy panel also saw spectrum- management issues=0F-includin= g the=20 identification of new spectrum for third-generation wireless services=0F-to= pping=20 the Bush administration=0F's telecom agenda. Lauren J. (Pete) Belvin, an attorney at Wilkinson Barker & Knauer LLP, said= =20 history proved that telecom policies inevitably would come to the forefront= =20 of the Bush administration =0F"whether the administration is deeply involve= d=20 with telecom or not.=0F" Ms. Belvin is a former FCC and Senate staffer. =0F"Telecom [policy-making] happens,=0F" Ms. Belvin said, because =0F"the m= arket pipes=20 its tune, there=0F's a reaction to it, and the FCC is at front and center.= =0F" Recently designated FCC Chairman Michael K. Powell=0F's first order of busi= ness=20 will be to determine which of the Commission=0F's operations are =0F"messed= up,=0F"=20 said Peter Tenhula, Mr. Powell=0F's senior legal adviser. =0F"We=0F'll pro= bably start=20 with initiatives that may not be regulatory or deregulatory but more=20 operational,=0F" Mr. Tenhula said. =20 During his first week as chairman, Mr. Powell received numerous complaints= =20 about the slow pace of the FCC=0F's decision-making process, Mr. Tenhula sa= id. =0F" Right now, 80% of the FCC=0F's agenda is reactive instead of proactive, whe= re it=0F' s responding to a petition for rulemaking or a [section] 271 application,= =0F"=20 Mr. Tenhula said. =0F"At the top of the chairman=0F's agenda will be refor= ming the=20 operation of the Commission=0F" and =0F"expediting its decision making,=0F"= he said. Mr. Tenhula suggested that Chairman Powell also would reexamine whether=20 obtaining the authority to provide in-region interLATA (local access and=20 transport area) services still is an incentive to encourage the Bell=20 operating companies to open their local exchange markets to competition. = =20 Under section 271 of the Telecommunications Act of 1996, the Bells must=20 satisfy a 14-point =0F"competitive checklist=0F" of market-opening requirem= ents=20 before receiving the FCC=0F's blessing to offer interLATA services. =0F"I=0F'm sure that more [section 271 applications] are going to be filed = in the=20 future, but whether or not [in-region interLATA service authorization] is a= =20 yummy enough carrot anymore, I=0F'm not sure,=0F" Mr. Tenhula said. =0F"At= the time=20 of the Act, though, it sure looked yummy,=0F" he said. A reexamination of the section 271 process couldn=0F't come soon enough, sa= id=20 Howard Waltzman, the recently named telecom counsel to the House Energy and= =20 Commerce Committee. Technology has =0F"overtaken legislation,=0F" he said,= =0F"and=20 what has been happening in the marketplace has eviscerated many parts of th= e=0F"=20 Act. Policy-makers need to =0F"reevaluate some of the core parts of the Act and= =20 determine. . .whether or not they=0F're hindering investment and innovation= ,=0F" he=20 said. =20 He predicted a groundswell of bipartisan support in the newly elected=20 Congress for limiting the FCC=0F's role in reviewing merger-related license= =20 transfers, as well as limiting its ability to impose conditions on section= =20 271 and merger applications. Congress will be looking at =0F"what we can do to change the agency to make= it=20 more efficient,=0F" Mr. Waltzman said. =0F"The biggest frustration with th= e way=20 the FCC implemented the telecom act under the Clinton administration was th= at=20 the processes were too slow,=0F" he said. Asked to comment on the financial struggles of competitive local exchange= =20 carriers (CLECs), Mr. Waltzman said the CLECs=0F' financial woes don=0F't = portend=20 an end to local exchange competition. Cable TV providers and wireless=20 carriers also are deploying alternative local phone service, he noted. Verizon=0F's Strigl Has Spectrum Plan In a keynote address at the Comnet conference, the head of Verizon Wireless= =20 said that with the growth of the wireless data sector creating demand for= =20 spectrum, federal regulators must adopt a consistent, market-based approach= =20 to allocating frequencies. =0F"We need to ensure that the precious spectrum we have reaches its fulles= t=20 potential through a competitive and forward-looking policy,=0F" Verizon Wir= eless=20 Chief Executive Officer and President Dennis F. Strigl said. =0F"Marketpla= ce=20 forces of fair and open competition should be the sole basis for awarding= =20 spectrum, not artificial controls like caps on spectrum. . .or limitations= =20 based on allowances or set-asides for various groups.=0F" Regarding the wireless Internet, Mr. Strigl said that to be successful, U.S= .=20 carriers must create =0F"a unique Internet experience.=0F" He added that h= is=20 company is not =0F"replicating what is done on the desktop.=0F" =0F"Deep customization of both content and delivery=0F" will drive the succ= ess of=20 the wireless Web, Mr. Strigl said. Examples of this include alerts sent to= =20 wireless devices that can notify their users when preselected stocks hit a= =20 certain price or when schools are closed during inclement weather, he said.= =20 Or users can access data such as weather or flight information. Two-way te= xt=20 messaging is another feature Mr. Strigl said he expected to help drive the= =20 growth of the wireless data sector. As for the devices themselves, he said, =0F"we need compelling wireless=20 appliances.=0F" He expects =0F"nontraditional handsets=0F" such as persona= l digital=20 assistants (PDAs) with voice capability to become more popular. He stresse= d=20 the need for technical standards to promote the use of various devices. Mr. Strigl said all major U.S. wireless carriers this year would be=20 aggressively forming alliances with applications providers and Internet=20 vendors in hopes of promoting the growth of mobile e-commerce. He touted the potential of location-based services and vehicle-based=20 telematics. However, he acknowledged the industry needs to protect=20 consumers=0F' privacy when offering location-based services, and he said it= must=20 encourage responsible driving when using telematic applications. Tauzin Demands Report on Critical Infrastructure=20 House Energy and Commerce Committee Chairman W.J. (Billy) Tauzin (R., La.) = is=20 demanding that the National Security Council provide his panel with a copy = of=20 a 200-page critical infrastructure report that he says was required by law = to=20 be transmitted to Congress by Jan. 15 but never arrived. The lawmaker also is seeking further information about published reports th= at=20 former President Clinton waited until the end of his term before naming=20 members to the National Infrastructure Assurance Council, even though the= =20 NIAC had been established by executive order in the summer of 1999. =20 =0F"I am concerned that President Clinton waited until his last full day in= =20 office to finally appoint the first group of members to this critical=20 council,=0F" Rep. Tauzin said in Jan. 25 letter to Richard Clarke, NSC nati= onal=20 coordinator-infrastructure protection and counterterrorism. =20 The executive order had called for the 30-member panel to propose and devel= op=20 new ways for the public and private sectors to cooperate on telecom and=20 information infrastructure issues (TR,July 19, 1999).=20 Rep. Tauzin has asked Mr. Clarke to turn over to the committee the names of= =20 the last-minute NIAC appointees and to =0F"indicate whether your office=20 recommended each of these individuals for a position on the NIAC and, if no= t,=20 specify the individual or entity that recommended such person.=0F" In requesting a copy of the overdue infrastructure report, Rep. Tauzin also= =20 questioned why the study =0F"was, in fact, prepared but never signed by=0F"= former=20 President Clinton. =0F"Under the Defense Authorization Act of 2001, this r= eport=20 was required to be transmitted to the Congress by Jan.15, 2001,=0F" he note= d. Rep. Tauzin originally had asked Mr. Clarke to provide the committee with t= he=20 information by Wednesday, Jan. 31. But a committee spokesman said the pane= l=20 had decided to give the NSC =0F"more leeway=0F" in meeting that deadline = =0F"because=20 of transition issues=0F" related to the change in presidential administrati= ons. AT&T Execs See Hope of Truce In Long Distance Price Wars AT&T Corp. executives believe they=0F're seeing at least a temporary cease-= fire=20 in the long distance rate wars that have ravaged the revenue streams of=20 incumbent interexchange carriers (IXCs). =0F"Pricing still is aggressive, = but=20 it is not setting new lows,=0F" AT&T Chairman and Chief Executive Officer C= .=20 Michael Armstrong said Jan. 29 during a conference call with financial=20 analysts to discuss the company=0F's year 2000 financial results. Analysts warn, however, that any equilibrium in the IXC sector may be=20 temporary. =0F"Some have noted that long distance pricing has stabilized, = which=20 recent data support,=0F" said Frank J. Governali, an analyst for Goldman, S= achs=20 & Co., in a report. =0F"But expecting long term =0F`price stability=0F' in= long=20 distance in our view is not realistic.=0F" Lower rates will spur greater demand, but demand growth won=0F't be enough = to=20 offset the lower rates, said Daniel P. Reingold, managing director-equity= =20 research at Credit Suisse First Boston Corp. The market will become more= =20 competitive as Bell companies win approval to offer in-region interLATA=20 (local access and transport area) service, and new entrants like Global=20 Crossing Ltd. and Qwest Communications International, Inc., will continue= =20 their incursions, Mr. Reingold said in a report. Mr. Reingold has no rating on AT&T, but he gives WorldCom, Inc., a =0F"hold= =0F"=20 rating because of its reliance on long distance revenue. =0F"Our concern r= uns=20 far deeper than price competition and [Bell company entry] in the voice lon= g=20 distance business,=0F" he said. =0F"Rather, it runs to pricing in the long= -haul=20 data-transport segment as well.=0F" WorldCom=0F's 2000 financial results, scheduled to be unveiled Feb. 8, are= =20 likely to show the same weakness as those of Sprint Corp. and AT&T. Last= =20 week, Sprint reported a 17% decline in long distance operating income for t= he=20 fourth quarter of 2000 compared with figures for the year-ago quarter,=20 despite an 18% increase in long distance calling volumes. AT&T=0F's consumer services unit, which relies heavily on long distance rev= enue,=20 posted a 9.5% decline in year 2000 sales. The long distance turmoil hit AT= &T=0F' s business services unit, too. Because of its reliance on revenue from voi= ce=20 long distance services, the business unit=0F's annual revenue increased onl= y=20 3.3%, AT&T executives said. But the price war didn=0F't seem to hurt Verizon Communications, Inc., a=20 relatively new entrant in the interLATA service market. Verizon=0F's inter= LATA=20 service revenue increased $55 million in the fourth quarter, the company sa= id=20 last week. AT&T executives suggested that new competitors like Verizon would have more= =20 effect on market share than on rates. Low rates will continue to cause pai= n=20 because customers still are migrating to cheaper calling plans, but AT&T=0F= 's=20 larger woe is the continuing loss of long distance subscribers to Bell=20 companies, wireless service providers, and other new rivals, executives sai= d. AT&T has tried to boost its sagging fortunes by offering local service. =20 Bundles of local and long distance service are thought to be popular with= =20 consumers and profitable for carriers. Verizon=0F's success in the interLA= TA=20 service markets of New York stems largely from its dominance in that state= =0F's=20 local service markets. But AT&T=0F's efforts to compete as a local service provider are hamstrung = by=20 the prices it must pay incumbent local exchange carriers for unbundled=20 network elements (UNEs), Mr. Armstrong said. =0F"If there is an open marke= t, we=20 can compete,=0F" he said, noting that AT&T corralled 750,000 customers for = its =0F" any distance=0F" service in New York. That state has one of the most open = and=20 competitive local telephone markets in the nation, he said. But in other states, AT&T=0F's local-service efforts have fallen flat becau= se of=20 UNE rates, Mr. Armstrong suggested. =0F"The way that the markets have been= =20 opened is not operationally or economically viable,=0F" he said. That leav= es=20 AT&T dependent on its shrinking long distance business for revenue, and on= =20 its cable telephony business as a way to break into local-service markets. Verizon Wireless is rolling out its two-way text messaging service,... Verizon Wireless is rolling out its two-way text messaging service, Mobile= =20 Messenger, in more than 200 markets. Subscribers with two-way text messagi= ng=0F- capable phones can send and receive messages of up to 120 characters. They= =20 can either sign up for one of two rate plans or pay two cents for each=20 message received and a dime for each message sent. One rate plan is $2.99 = a=20 month and includes 100 free messages, while another is $7.99 a month and=20 includes 600 messages. All messaging fees will be waived until April 1. Versatel Absorbs VersaPoint, Cuts Workers, Writes Off Assets Versatel Telecom International NV has absorbed what remains of VersaPoint= =0F-its=20 former joint venture with NorthPoint Communications Group, Inc.=0F-after cu= tting=20 most of the workforce and halting many of the operations of the money-losin= g=20 business. It said it would be writing off redundant assets. Before NorthPoint=0F's recent filing for bankruptcy protection (TR, Jan. 22= ), it=20 arranged sell its 50% stake in VersaPoint to Versatel for $6.5 million. Th= e=20 companies created the venture less than a year ago. According to Versatel Chief Executive Officer Raj Raithatha, the company=20 remains committed to Versa-Point=0F's strategy of deploying digital subscri= ber=20 line (DSL) service to compete against European incumbent network operators.= =20 But VersaPoint focused on wholesale DSL markets and staked out a large=20 European territory that included France and the United Kingdom. =20 Versatel=0F's focus is more narrow, offering retail service to business=20 customers in the Netherlands, Belgium, Luxembourg, and northwestern Germany= ,=20 Mr. Raithatha said. Versatel is happy to take control of VersaPoint=0F's assets, especially its= =20 central office (CO) collocations in the Netherlands, where =0F"space is at = a=20 premium,=0F" Mr. Raithatha said. =0F"It was particularly important that we= secure=20 the Dutch COs.=0F" Still, many of VersaPoint=0F's assets are redundant or are not crucial to= =20 Versatel=0F's plans, he said. Of 286 VersaPoint workers, 200 will be laid = off. =20 About 1,000 CO collocations that were planned or operational are being=20 abandoned because they lie outside Versatel=0F's territory, Mr. Raithatha s= aid. The VersaPoint acquisition is a mixed financial bag for Versatel, which wil= l=20 have to absorb VersaPoint=0F's projected EBITDA (earnings before interest,= =20 taxes, depreciation, and amortization) loss of $9.3 million. Versatel will= =20 take a charge of $4.6 million to account for the layoffs and the write-off = of=20 redundant assets. But Versatel will be able to redeploy the $70 million it had planned to=20 invest this year in VersaPoint. With that additional money, Versatel won= =0F't=20 have to seek additional funding for at least two years, and by then it=20 expects to be profitable, Mr. Raithatha said. E.spire Mulls Reverse Split To Meet Nasdaq=0F's Conditions The Nasdaq Listing Qualifications Panel has agreed to continue listing=20 e.spire Communications, Inc.=0F's securities on the Nasdaq National Market,= but=20 the financially struggling carrier will have to boost its stock price if it= =20 wants to stay there past April 2. Under conditions set by the Nasdaq panel, e.spire must demonstrate a closin= g=20 bid price of $5 per share by April 2 and maintain its closing bid price at= =20 that level for 10 consecutive trading days. To accomplish that, e.spire is= =20 considering a =0F"reverse stock split,=0F" the company said. =20 The company also must complete a restructuring of its bond indebtedness by= =20 April 2, the Nasdaq panel said. If it accomplishes both those goals, the= =20 panel would consider listing e.spire=0F's stock under Nasdaq=0F's =0F"alter= native=20 listing standards,=0F" requiring net tangible assets of at least $4 million= . E.spire will need additional funding to survive until April. It is due to= =20 run out of cash this month. A spokeswoman said e.spire was =0F"working 24/= 7=0F" to=20 try to secure additional capital. Meanwhile, e.spire said the U.S. District Court in Baltimore had dismissed= =20 with prejudice a class action lawsuit against the company and some of its= =20 former officers and directors. The lawsuit alleged that e.spire had used= =20 improper accounting methods to overstate its earnings for 1999. =20 =0F"Having fought and won this case, we can turn our focus fully on buildin= g=20 shareholder value,=0F" said George F. Schmitt, e.spire chairman and acting = chief=20 executive officer. Convergent To Cut Workforce, Close Offices Convergent Communications, Inc., plans to reduce its workforce by 22% and= =20 close five offices in an effort to reduce its monthly losses by $3 million,= =20 the telecom systems integrator has said. Convergent, of Englewood, Colo.,= =20 already has eliminated 11 offices by selling its PBX and key telephone syst= em=20 businesses to Inter-Tel, Inc. (TR, Jan. 8, notes). Convergent will boost its data service sales force from 85 people to 155=20 people as part of its new focus on the data business, said Joseph Zell,=20 president and chief executive officer. Early Talks with WRC-03 Nations Seen As Key for U.S. Success It=0F's important for U.S. officials to consult with other nations as they= =20 prepare for the International Telecommunication Union=0F's 2003 World=20 Radiocommunication Conference (WRC-03), FCC officials and industry=20 representatives agree. =0F"One of the best ways of achieving a tremendous amount at WRC is. . .[by= ]=20 listening to our compatriots in other countries, listening to their thought= s=20 as to what should be done,=0F" Commissioner Susan Ness said last week at th= e=20 opening meeting of an industry advisory committee helping the agency draft= =20 proposals for the WRC-03. =0F"And to the extent that we can work with these other countries to achiev= e=20 their goals at the same time we=0F're trying to formulate our goals, we=0F'= re going=20 to have a much more successful and less confrontational radio conference,= =0F"=20 Ms. Ness added. She noted that WRC-03 would be the fourth such conference= =20 since she became a member of the Commission. Donald Abelson, chief of the FCC=0F's International Bureau, agreed that the= =20 lesson the FCC had learned from past conferences =0F"is the sooner we get t= o=20 talk to our foreign colleagues and coordinate with them, the better our=20 proposals are.=0F" Mr. Abelson said the advisory committee would be important because it would= =20 help the FCC develop WRC-03 proposals it can present to other federal=20 agencies, such as the Commerce and State departments. Those proposals eventually would be the subject of consultations with=20 regulators from other countries leading up to WRC-03. Peter A. Tenhula, senior legal adviser to Chairman Michael K. Powell, agree= d=20 that early planning was essential for a successful WRC-03. Full Slate of Issues Among the issues the advisory committee wants addressed at WRC-03 are (1)= =20 spectrum for third-generation (3G) services, also known as International=20 Mobile Telecommunications-2000 (IMT-2000); (2) terrestrial wireless=20 interactive multimedia services; (3) spectrum sharing in the 40 gigahertz= =20 band; (4) aeronautical mobile-satellite services; (5) public protection and= =20 disaster relief; (6) interregional sharing issues for broadcasting satellit= e=20 services; (7) high-frequency broadcasting service; and (8) regulatory=20 procedures governing satellite networks. Much of the advisory panel=0F's work will be done by seven informal working= =20 groups focusing on specific issues, said Brian Fontes, chairman of the=20 advisory committee and vice president-federal regulation at Cingular Wirele= ss=20 LLC. Mr. Fontes is a former FCC chief of staff who led the U.S. delegation= =20 at the 1995 WRC. Jennifer Warren, senior director-telecom trade and=20 regulatory affairs at Lockheed Martin Corp., is the panel=0F's co-chair. Many of the issues the panel will explore are contentious, Mr. Fontes said.= =0F" I know full well as a member of a competitive industry that there=0F's a lo= t of=20 competition among the U.S. industry interests and that competition will rea= r=20 its head in various debates and discussions,=0F" he added. =0F"There are a= lso=20 differences between government and industry about how spectrum should be=20 used.=0F" But after all the issues have been debated, Mr. Fontes said, it=0F's import= ant=20 to reach a consensus=0F-and to do so in time to allow consultations with ot= her=20 countries. =0F"We=0F're going to have to recognize where we each come from and how we = best can=20 work cooperatively and constructively together,=0F" he said. =0F"No more d= o we=20 have the luxury of waiting to the last moment to achieve the U.S.=20 objectives. We must be prepared well in advance.=0F" Julie Garcia, director of the FCC=0F's WRC-03 preparation team, said the ag= ency=20 was listening to industry feedback about how to improve its conference=20 planning. =0F"This is an ongoing process,=0F" she said. =0F"We will conti= nue to look=20 for ways that we can take the industry=0F's view into account.=0F" U.S. officials who participated in WRC-2000 last year felt that they were= =20 successful on issues such as broadcasting satellite service and IMT-2000=20 planning (TR, June 5, 2000). Bureau OKs Satellite Operators For Intersatellite Communications The FCC=0F's International Bureau has modified the licenses of 10 operators= of=20 geostationary orbit (GSO) satellite systems, enabling them to provide fixed= =20 satellite services in parts of the Ka-band. The license modifications allo= w=20 them to operate intersatellite service links (ISLs) using that spectrum. The bureau said that it could permit the operators to provide ISL services = as=20 a result of decisions made at the 1997 World Radiocommunication Conference= =20 (WRC-97) and in light of the operators=0F' studies on sharing the ISL spect= rum. =20 WRC-97 resolved technical issues regarding GSO satellite transmissions and= =20 assigned the 65=0F-71 gigahertz band for ISL use by fixed satellite service= =20 (FSS) providers. The FCC subsequently reserved that spectrum for=20 nongovernment use. The bureau granted the ISL license modifications to PanAmSat Corp., Teledes= ic=20 LLC, Loral Corp., Hughes Communications Galaxy, Inc., Astrolink Internation= al=20 LLC, CyberStar Licensee LLC, EchoStar Satellite Corp., and WB Holdings 1 LL= C,=20 GE American Communications, Inc., and Motorola, Inc. In a series of =0F"or= ders=20 and authorizations=0F" released Jan. 31, the bureau assigned each operator = a=20 frequency. In some cases it also set system build-out =0F"milestones=0F" t= hat=20 operators must meet to retain the modified licenses. Section 25.145(f) of the FCC=0F's rules states that a Ka-band GSO FSS licen= see=20 must (1) begin construction of its first satellite within one year of grant= ,=20 (2) begin construction of the remainder within two years, (3) launch at lea= st=20 one satellite into each of its assigned orbit locations within five years,= =20 and (4) launch the remainder of its satellites by the date required by the= =20 International Telecommunication Union. The bureau also issued a Jan. 30 order modifying VisionStar, Inc.=0F's lice= nse=20 to launch and operate a satellite system in GSO to provide FSSs. The burea= u=20 gave VisionStar 500 MHz of additional downlink operating frequencies for=20 satellite-to-user transmissions, bringing its total to 1,000 MHz. =20 DoJ, FBI Want Foreign Control Of DT Limited by FCC Conditions The U.S. Department of Justice and the Federal Bureau of Investigation say= =20 they have reached an agreement with VoiceStream Wireless Corp. and Deutsche= =20 Telekom AG that reduces the law enforcement, national security, and public= =20 safety risks of DT=0F's planned acquisition of VoiceStream. In December 2000, the law enforcement authorities and the companies asked t= he=20 FCC to defer a decision on the transaction until the outstanding concerns= =20 could be resolved (TR, Dec. 25, 2000). DoJ and the FBI now say they won=0F= 't=20 oppose the FCC=0F's approving license transfers associated with the transac= tion=20 as long as the terms of their agreement with the carriers are conditions of= =20 the approval. In a petition filed with the FCC in International docket 00-187, DoJ and th= e=20 FBI said the agreement pays particular attention to the German government= =0F's=20 control or influence over DT. DT says the government is not involved in it= s=20 operations. The German government currently owns 60% of DT; its interest i= n=20 the combined entity would decline to about 45% after DT=0F's acquisitions o= f=20 VoiceStream and Powertel, Inc. Among other things, the agreement stipulates that DT shall not disclose=20 classified or sensitive information, subscriber information, or transaction= al=20 or call data to any foreign government. It also requires DT officials to= =20 notify the FBI and DoJ if a foreign government attempts to participate in= =20 day-to-day management of DT or exercise control of it in a way that=20 interferes with the carrier=0F's obligations to abide by the agreement. Th= e=20 agreement was reached Jan. 12. =0F"Although the agreement does not eliminate every law enforcement, nation= al=20 security, or public safety risk posed by the proposed transactions, it does= =20 reduce those risks while affording the companies treatment consistent with= =20 other carriers in like circumstances,=0F" the FBI and DoJ said in their pet= ition. Intelsat Told To Disclose Privatization Info The FCC=0F's International Bureau has required Intelsat LLC to disclose cer= tain=20 information=0F-including its draft shareholder=0F's agreement and bylaws=0F= -to parties=20 who agree to be bound by a protective order. =20 Intelsat LLC is the privatized entity slated to succeed the intergovernment= al=20 organization Intelsat this spring. On Dec. 18, 2000, it asked for=20 confidential treatment of =0F"supplemental=0F" information it was filing in= the FCC=0F' s proceeding to determine whether the privatization complies with a U.S. la= w=20 passed last year (the Open-Market Reorganization for the Betterment of=20 International Telecommunications Act). =20 In its order released Jan. 29, the FCC required Intelsat LLC to file copies= =20 of the most up-to-date versions of its novation agreement, distribution=20 agreement, and related documents within seven days after the March Intelsat= =20 board of governors meeting. The FCC also extended the deadlines for=20 commenting on the supplemental filing. Comments now are due Feb. 22;=20 replies, March 5; and responses to replies, March 12. Don=0F't Exempt Foreign Agencies From Ex Parte Rules, Carriers Say Only two carriers weighed in on the FCC=0F's proposal to exempt foreign=20 regulators from rules requiring them to report on their communications with= =20 FCC officials, but both vehemently opposed the plan. They said the rules= =20 protect regulated entities by making the FCC=0F's deliberations =0F"transpa= rent.=0F" Communications from the U.S. Department of Justice or the Federal Trade=20 Commission regarding =0F"a telecommunications competition matter in a proce= eding=20 which has not been designated for hearing and in which the relevant agency = is=20 not a party or commenter=0F" are exempt from the FCC=0F's rules requiring p= arties=20 to report such ex parte communications. In December 2000, the FCC proposed= =20 widening that exemption to include =0F"international and foreign government= al=20 bodies that exercise similar jurisdiction over relevant matters=0F" (TR,Dec= . 18,=20 2000). =20 In a rulemaking notice released in General Counsel docket 00-219, the FCC= =20 cited increased globalization and international mergers as reasons for the= =20 proposed rule change. The FCC said the rule change would encourage =0F" effective, expedited, and consistent=0F" communications among antitrust and= =20 competition policy-makers. The Competitive Telecommunications Association said extending the exemption= =0F" would impair significantly both the due-process rights of parties=20 participating in affected proceedings as well as the FCC=0F's ability to re= nder=20 a decision based on a complete record.=0F" =20 Communications between the FCC and foreign regulators raise different=20 questions from those between the FCC and DoJ or the FTC, CompTel said. It= =20 argued that foreign regulatory bodies =0F"operate under laws and regulation= s=20 that may embody substantially different competition goals=0F" than the FCC= =20 pursues, unlike DoJ or the FTC, which operate under a =0F"complementary=20 statutory scheme.=0F"=20 Many foreign governments maintain interests or have close ties to =0F"comme= rcial=20 enterprises that may be affected by the FCC=0F's decisions in merger cases,= =0F" it=20 continued. =20 And Vodafone Group plc, through its business unit Vodafone Americas Asia=20 Region, Inc., said the rationale behind the rule change the FCC cited was= =20 insufficient. If the FCC wanted to communicate with foreign regulators =0F= "on=20 general methods of analysis, for example, or general approaches to evaluati= ng=20 licenses transfers,=0F" those communications would not fall under ex parte= =20 rules. The rulemaking notice =0F"does not explain why, in the context of a= =20 specific proceeding, the ex parte rules hinder exchange of information,=0F"= it=20 said. Vodafone questioned whether the FCC has authority under the federal=20 Administrative Procedure Act to =0F"afford foreign government agencies the = same=20 treatment as [domestic] regulatory agencies.=0F" The APA=0F's =0F"whole re= cord=0F" and=20 due-process safeguards that ensure that parties may comment on the entire= =20 record of a proceeding are underlying principles of federal agencies=0F' ex= =20 parte rules, Vodafone said. The APA makes an =0F"express distinction=0F" b= etween=20 U.S. and non-U.S. government agencies, it added.=20 Vodafone acknowledged that there might be situations in which disclosure of= =20 an interagency ex parte communication =0F"is not advisable.=0F" But it sai= d the=20 FCC should address those situations case by case. Unlicensed International Carriers Given 90 Days To Come Forward The FCC=0F's International and Enforcement bureaus have given carriers and= =20 operators 90 days to turn themselves in if they=0F've been offering=20 international services or facilities without proper authorization. The=20 International Bureau doesn=0F't =0F"expect=0F" to undertake enforcement act= ions=20 against violators that come forward and seek the required authorization, bu= t=20 cases of noncompliance discovered after the three-month period will be=20 referred to the Enforcement Bureau, the two bureaus said. Their actions were prompted by requests from =0F"a number=0F" of carriers f= or=20 authorization to provide international services, after they were already=20 doing so, the bureaus said in a Jan. 30 public notice. They also cited=20 instances of companies=0F' belatedly seeking permission to assign or transf= er=20 control of their authorizations to provide international facilities or to= =20 land submarine cables. The 90-day period will begin on the date the public notice appears in the= =20 Federal Register. Once the notice is published, the International Bureau= =0F's=20 Telecommunications Division =0F"will be extremely reluctant to grant reques= ts=20 for nunc pro tunc approval [as though timely filed] of belatedly filed=20 applications,=0F" the notice says. Section 214 of the Communications Act of 1934, as amended, requires carrier= s=20 to obtain FCC authorization before they begin providing international telec= om=20 services. FCC Delays 700 MHz Auction Again at Request of Industry Major wireless carriers are praising the FCC=0F's decision to postpone, for= the=20 fourth time, an auction of spectrum licenses in the 700 megahertz band. Bu= t=20 a group representing rural carriers and a major TV broadcaster say the acti= on=20 wasn=0F't necessary. The decision to postpone the auction from March 6 until Sept. 12 was needed= =0F" to provide additional time for bidder preparation and planning=0F" and for = other=20 auction administrative reasons, the FCC=0F's Wireless Telecommunications Bu= reau=20 said in a public notice released Jan. 31. The action came after Verizon Wireless and other large carriers cited a hos= t=20 of concerns they said could dampen enthusiasm for bidding on the=20 frequencies. In a Jan. 18 letter to the Wireless Telecommunications Bureau= ,=20 Verizon Wireless said carriers needed time to assess their spectrum needs a= nd=20 form alliances between the reauction of =0F"C=0F" and =0F"F=0F" block PCS (= personal=20 communications service) licenses and the 700 MHz band sale (TR,Jan. 22). T= he=20 PCS reauction ended Jan. 26 (TR,Jan. 29; and separate story). Large carriers had supported in comments Verizon Wireless=0F' request for a= =20 postponement; some asked for the auction to be postponed even longer than t= he=20 six months Verizon Wireless had requested (TR,Jan. 29). Other reasons the industry cited in urging a delay included concerns that (= 1)=20 TV broadcasters occupy large chunks of the spectrum to be licensed and=20 additional time is needed to negotiate band-clearing agreements with them;= =20 (2) companies need more time to prepare for package-bidding rules that will= =20 be used for the first time in the auction; and (3) a high-level effort to= =20 identify and allocate frequencies for third-generation (3G) services will= =20 affect carriers=0F' interest in the 700 MHz band. Commissioner Harold W. Furchtgott-Roth opposed the postponement, noting tha= t=20 the FCC already had missed a Sept. 30, 2000, statutory deadline for=20 depositing proceeds from the auction into the U.S. Treasury. =0F"I am=20 disappointed that the Commission has decided to postpone this auction once= =20 again,=0F" he said in a statement. =0F"With each succeeding delay, the cre= dibility=20 of our spectrum and auction-management policies becomes more suspect.=0F" Commissioner Gloria Tristani, who dissented from the FCC=0F's decision last= year=20 to postpone the auction to this March, said she did not oppose the latest= =20 delay. She cited the short time frame between the C and F block auction an= d=20 the 700 MHz band sale. =0F"At this point, the scheduling problems before us are of a different nat= ure=20 and largely of this agency=0F's own making,=0F" she said. =0F"The challeng= es posed by=20 the early auction of 700 MHz spectrum need not be burdened further by=20 unfortunate administrative miscalculations. The bureau asserts that this= =20 delay is necessary to address these administrative matters.=0F" Large Carriers Welcome Delay Verizon Wireless President and Chief Executive Officer Dennis F. Strigl=20 praised the FCC=0F's decision. =0F"I think the FCC made exactly the right = move,=0F"=20 Mr. Strigl said after a keynote address at the Comnet Conference & Expo in= =20 Washington last week (see separate story). He said the presence of TV=20 broadcasters in the band =0F"will have a significant impact on the value of= this=20 spectrum.=0F" He added, =0F"At this point, I can=0F't tell you that the ne= w spectrum=20 has high value.=0F" Broadcasters are expected to vacate the spectrum (channels 60=0F-69) as par= t of=20 their transition to digital TV, but they don=0F't need to do so until 2006 = at=20 the earliest. The uncertainty over when the frequencies will be available= =20 has created anxiety among wireless carriers considering bidding in the=20 auction. Thomas E. Wheeler, president and CEO of the Cellular Telecommunications &= =20 Internet Association, also praised the FCC=0F's decision. =0F"We need to t= ake a=20 quick breath before plunging into the next round of spectrum bidding so tha= t=20 carriers can assess their spectrum needs and develop bidding strategies,=0F= " he=20 said. But several TV broadcasters and a group representing rural carriers opposed= =20 any further delay. They said that carriers had had plenty of time to prepa= re=20 for the auction and that further delay would be unfair. =0F"There didn=0F't seem to be any justification for another delay,=0F" sai= d Nancy=20 Udell, vice president-media relations for Paxson Communications Corp., the= =20 largest incumbent broadcaster in the spectrum to be auctioned. But =0F"sin= ce=20 the FCC has spoken, we=0F're ready to participate=0F" in any band-clearing= =20 negotiations, she added. Brent Weingardt, an attorney for the Rural Telecommunications Group (RTG),= =20 also criticized the postponement. =0F"There=0F's little pretense that the= =20 Commission only views auctions in terms of how much revenue they can=20 generate. . .and they=0F're willing to assist larger companies, who are the= only=20 ones that are going to be able to compete in that auction,=0F" he said. = =0F"We don=0F' t see any other public interest in postponing it.=0F" Mr. Weingardt said he didn=0F't expect RTG members to participate in the au= ction=20 but said his group opposed a further delay on =0F"principle.=0F" Analysts Assess Effect Wall Street analysts saw the auction delay as either positive or neutral fo= r=20 carriers. =0F"The additional six months until the start of the auction giv= es=20 both the FCC and the potential bidders quite a bit of time to ready=20 themselves,=0F" said John M. Bensche, an analyst at Lehman Brothers, Inc., = in a=20 note to investors. =0F"By September, the industry will hopefully have=20 appropriately addressed the various issues that remain surrounding the 700= =20 MHz band and the auction can commence without further delay.=0F" Michael I. Rollins, an analyst for Salomon Smith Barney, Inc., said the=20 delay, which he characterized as =0F"widely anticipated,=0F" was =0F"neutra= l=0F" for=20 carriers because many had indicated little interest in the 700 MHz auction,= =20 focusing instead on the C and F block sale. Cynthia M. Motz, an analyst for Credit Suisse First Boston Corp., echoed th= at=20 view. She doesn=0F't expect the bidding for 700 MHz licenses to be nearly = as=20 fierce as it was in the C and F block reauction and doubts that large=20 carriers such as Verizon Wireless, AT&T Wireless Services, Inc., VoiceStrea= m=20 Wireless Corp. and Sprint PCS will be very active. =0F"This should hopeful= ly=20 make for some attractive pricing for at least some of the licenses,=0F" Ms.= Motz=20 said in a note to investors. QUALCOMM Creates Platform To Spur Wireless Internet Apps QUALCOMM, Inc., has developed an open software platform to help spur the=20 development of applications for the wireless Internet. The binary run-time= =20 environment for wireless (BREW) platform will enable developers,=20 manufacturers, and carriers to reduce software-development costs and speed= =20 the delivery of data services to consumers, QUALCOMM said. The BREW platform was developed for devices that use CDMA (code-division=20 multiple-access) technology but eventually will be available for use with= =20 other technologies, a company spokesman said. Consumers will be able to=20 update their BREW-enabled handsets by deleting old software and downloading= =20 new programs. =0F"Compelling applications will generate consumer demand for wireless Inte= rnet=20 access, speeding the deployment of next-generation CDMA wireless services,= =0F"=20 said Paul E. Jacobs, QUALCOMM=0F's executive vice president. QUALCOMM has signed memoranda of under-standing with several wireless=20 carriers, manufacturers, and developers to use the platform, including=20 Verizon Wireless and Leap Wireless International, Inc., in the U.S., Korea= =20 Telecom in Korea, and Pegaso PCS in Mexico. QUALCOMM says BREW-enabled products are expected to be commercially availab= le=20 in some regions in the third quarter of this year. An investors note from= =20 Lehman Brothers, Inc., said BREW would be rolled out in Japan first by KDDI= =20 Corp. QUALCOMM will charge carriers a fee to use BREW and will receive a portion = of=20 fees paid by wireless device users for BREW applications. PCIA Drops Opposition To Lifting Spectrum Cap The Personal Communications Industry Association, which in the past has urg= ed=20 the FCC on behalf of small carriers to continue to limit the amount of=20 spectrum wireless carriers may hold in any one market, has declared it =0F"= will=20 no longer play an active role=0F" in the issue. In a statement released last week, PCIA President and Chief Executive Offic= er=20 Jay Kitchen said the spectrum cap had been =0F"tremendously successful.=0F"= But =0F" this issue has become moot as new spectrum is now available without=20 restrictions, leaving U.S. carriers a clear and open opportunity=0F" to off= er 3G=20 (third-generation) services, he added. Mr. Kitchen also cited PCIA=0F's =0F"focus on the development of the mobile= =20 convergence marketplace on a global level=0F" as a factor in its decision t= o=20 discontinue its =0F"active role in the spectrum cap issue.=0F" Large carriers have urged the FCC to lift the cap, saying they need more=20 spectrum to keep up with the demand for wireless services. The FCC has ask= ed=20 for comments on whether it should remove the restriction (TR, Jan. 29). France, Brazil Have Troubles Awarding Wireless Licenses French telecom regulator Authorite de Regulation des Telecommunications (AR= T)=20 has decided to organize another =0F"beauty contest=0F" in hopes of attracti= ng more=20 bidders for third-generation (3G) licenses. In its initial attempt, only t= wo=20 companies bid for four licenses on the block. Brazil had similar problems,= =20 postponing an auction of licenses Friday, Feb. 2, due to a lack of bidder= =20 interest. ART said last week that the two bids for the French licenses came from Fran= ce=20 Telecom=0F's Orange plc mobile phone service unit and Vivendi SA=0F's Ceget= el SA,=20 which owns French mobile phone operator Societe Francaise du Radiotelephone= =20 (SFR). Dropping out of the contest last week was French wireless carrier Bouygues= =20 Telecom SA. French utility Suez Lyonnaise des Eaux and Telefonica SA of=20 Spain had withdrawn from the running earlier (TR, Jan. 29). ART is selling the four UMTS (universal mobile telecommunications system)= =20 licenses for 4.95 billion euros ($4.6 billion) each. It has planned to awa= rd=20 the licenses in June. =0F"A structuring of the market around two operators only could not be=20 considered,=0F" ART said in a statement. It said that such an arrangement = =0F" would not make it possible to satisfy the objectives of development of a=20 competitive market.=0F" France is the latest European country to run into trouble selling 3G licens= es=20 in recent months after the United Kingdom and Germany raised more than $80= =20 billion auctioning such spectrum last year (TR, May 1, and Aug. 21 and 28,= =20 2000). Carriers and financial analysts have expressed concern that the high prices= =20 paid for the licenses, as well as the costs of building out systems, will= =20 make it difficult to recoup investments. Brazil Looks for Bidders In Brazil, telecom regulator Anatel announced that it was suspending its=20 planned auction of three licenses, which was scheduled to begin Feb. 6. It= =20 blamed the delay on a lack of bidders. Anatel said additional auction roun= ds=20 to sell three licenses each would be held as scheduled Feb. 20 and March 13= . =20 It said there were seven bidders each lined up for those rounds. The decision to suspend the first auction round came after a Brazilian judg= e=20 earlier last week lifted an injunction that had forced the round to be=20 delayed from Jan. 30. In other countries the following spectrum-related=20 developments occured: In Canada, Industry Canada=0F's auction of 3G PCS (personal communications= =20 service) licenses generated $1.48 billion Canadian (US$991 million) in bids= =20 for 52 10-megahertz licenses covering 16 markets. Five of the original sev= en=20 bidders won licenses in the sale, which closed Feb. 1 after three weeks and= =20 51 rounds. Bell Mobility, Inc., led all bidders, offering $720 million Canadian (US$48= 2=20 million) for 20 licenses, followed by Rogers Wireless, Inc., which bid $393= =20 million Canadian (US$263 million) for 23 licenses. TELUS Communications,= =20 Inc., came in third, bidding $355 million Canadian (US$238 million) for fiv= e=20 licenses. =0F"The licensing of this spectrum is a crucial step in improving Canada=0F= 's=20 information infrastructure,=0F" Canadian Industry Minister Brian Tobin said= . =0F" This will facilitate the development of new wireless telecommunications=20 services, bringing the Internet and other communications services, such as= =20 e-mail and mobile commerce, closer to all Canadians.=0F" In Singapore, the Infocomm Development Authority (IDA) said Jan. 30 that it= s=20 auction of fixed wireless broadband licenses would be postponed until after= =20 the country=0F's 3G auction in April or May. The fixed wireless license sa= le=20 was originally scheduled for February, as was the 3G auction (TR, Jan. 8,= =20 notes). =0F"A number of interested players have requested for more time to= =20 reassess the market situation, as well as to explore alternative=20 technologies,=0F" the IDA said. In Venezuela, telecom regulator Comision Nacional de Telecomunicaciones=20 (Conatel) Jan. 31 opened registration for an auction of LMDS (local=20 multipoint distribution service) licenses. The licenses will be auctioned = in=20 three blocks. One block will have national coverage, while the other two= =20 will provide regional footprints. Separately, Conatel=0F's auction of wire= less=20 local loop (WLL) licenses continued last week. Telefon AB L.M. Ericsson has announced a $400 million network expansion=20 contract... Telefon AB L.M. Ericsson has announced a $400 million network expansion=20 contract with Turkcell, a Turkish GSM (Global System for Mobile=20 communications) service provider. Ericsson said it would =0F"upgrade and= =20 develop=0F" the Turkcell system. FCC Sets Arbitration Schedule For Interconnection Disputes The FCC has set the schedule for arbitrating disputes between Verizon=20 Virginia, Inc., and three other carriers over interconnection agreements. = =20 The Commission said in a public notice last week that AT&T Communications o= f=20 Virginia, Inc., Cox Virginia Telecom, Inc., and WorldCom, Inc., may schedul= e=20 prefiling conferences now and submit requests for arbitration of their=20 interconnection agreements with Verizon within 30 days of the conference. In the notice, the FCC instructed the arbitrator of the proceeding to set= =20 dates for conferences and hearings on the matter. The arbitration proceedi= ng=20 will follow rules set out in the FCC=0F's 1996 =0F"local competition order= =0F" in=20 Common Carrier docket 96-98 (TR,Aug. 12, 1996). The FCC recently agreed to preempt the Virginia State Corporation Commissio= n=0F' s authority to arbitrate their interconnection pacts with Verizon (TR,Jan.= =20 22, p. 39). The state commission had refused to act in the matter, citing= =20 uncertainty over whether acting would be deemed a waiver of its immunity fr= om=20 federal court review under the 11th Amendment to the U.S. Constitution. At the same time it agreed to preempt the Virginia commission, the FCC=20 addressed generic procedural issues concerning arbitrations conducted=20 pursuant to its preemption authority in section 252(e)(5) of the=20 Telecommunications Act of 1996. In that undocketed Jan. 19 order, the FCC= =20 designated the chief of the Common Carrier Bureau to arbitrate such dispute= s,=20 with assistance from the Common Carrier and Enforcement bureau staffs. The FCC also granted the arbitrator additional flexibility in ruling on=20 disputed issues. The arbitrator has discretion to =0F"require parties to s= ubmit=20 new final offers, or adopt a result not submitted by any party, in=20 circumstances where the final offer submitted by one or more of the parties= =20 fails to comply with the Act=0F" or FCC rules, the Commission said. It also said the arbitrator could, in some circumstances, offer an=20 alternative solution even when the final offers submitted by the parties=20 complied with the Act and with FCC rules.=20 Interim arbitration procedures adopted in the 1996 local competition order= =20 allowed an FCC arbitrator in a carrier interconnection proceeding only to= =20 issue arbitration awards that were proposed as a =0F"final offer=0F" by a p= arty in=20 a proceeding.=20 Pay-Per-Call Providers=0F' Case Should Go to FCC, Court Says The U.S. District Court in New York City has dismissed a lawsuit alleging= =20 that WorldCom, Inc., unlawfully blocked calls to pay-per-call =0F"900=0F"-n= umber=20 services. District Judge John G. Koeltl told a group of pay-per-call servi= ce=20 providers to take their complaints against WorldCom to the FCC. =20 The plaintiffs charged that MCI WorldCom, Inc. (now WorldCom) violated=20 sections 201 and 202 of the Communications Act of 1934. Those provisions= =20 require common carriers to provide services under =0F"just and reasonable= =0F" terms=20 and forbid =0F"unreasonable discrimination=0F" in the provision of common c= arrier=20 services. The plaintiffs also alleged that WorldCom violated FCC rules by not providi= ng=20 sufficient notice before blocking their numbers. In LO/AD Communications, B.V.I. Ltd. et al. v. MCI WorldCom, Inc. (case no.= =20 00 Civ. 3594), the plaintiffs said WorldCom=0F's actions were motivated by = =0F" personal objections=0F" to the content of their 900-number services. The o= ther=20 plaintiffs are International Dialing Services, Inc., Ashera, Inc., and=20 Telemedia, Inc. WorldCom told the court it had discontinued service to the selected numbers= =20 after discovering that the plaintiffs unnecessarily routed their customers= =0F'=20 calls over expensive international traffic routes. WorldCom said customers believed they were making local calls and refused t= o=20 pay the unexpected international calling charges. The company said its FCC= =20 tariff allowed it to block calls =0F"to prevent unlawful use of, or nonpaym= ent=20 for, its services.=0F"=20 Citing the legal doctrine of =0F"primary jurisdiction,=0F" Judge Koeltl fou= nd that=20 the FCC should hear the complaints first. While federal courts have=20 concurrent jurisdiction with the FCC over litigation under the Act, the=20 doctrine =0F"allows a federal court to refer a matter extending beyond the= =20 conventional experiences of judges=0F" to an administrative agency with mor= e =0F" specialized experience, expertise, and insight,=0F" he noted. Aerial v. Underground Facilities Is Topic of City-CLEC Debate Municipalities and competitive local exchange carriers sparred last week ov= er=20 whether the FCC should preempt several Ohio cities=0F' authority over the= =20 placement of telecommunications facilities. Their debate centered on one question: Does requiring a competitive local= =20 exchange carrier (CLEC) to place its fiber lines underground, rather than o= n=20 aerial facilities where the incumbent=0F's facilities are located, constitu= te =0F" discrimination=0F" under section 253 of the Telecommunications Act of 1996? Predictably, the two sides split on the issue. CLECs said that subjecting= =20 them to different requirements from those faced by incumbent local exchange= =20 carriers constituted discrimination and created a =0F"barrier to market ent= ry=0F"=20 by increasing CLECs=0F' costs. Section 253(a) bars state and local governm= ent=20 actions that prevent or have the effect of preventing any entity from=20 providing any interstate or intrastate telecom service. Municipalities insisted that directing where telecommunications facilities= =20 should be placed was within the scope of authority reserved to local=20 governments under section 253 of the Act. According to section 253(c),=20 nothing in section 253 affects =0F"the authority of a state or local govern= ment=20 to manage the public rights-of-way or to require fair and reasonable=20 compensation from telecommunications providers, on a competitively neutral= =20 and nondiscriminatory basis.=0F" =20 Both sides presented their views in comments filed last week in Cable=20 Services docket 00-255. In that proceeding, City Signal Communications,=20 Inc., had asked the FCC to preempt the underground telecom line requirement= s=20 of Cleveland Heights, Wickliffe, and Pepper Pike, Ohio. It said the=20 municipalities=0F' rules prohibiting new telecommunication facilities from = being=20 placed on above-ground poles constituted an =0F"effective prohibition on en= try=0F"=20 by increasing costs for new service market entrants. AT&T Corp. said any disparity in cities=0F' treatment of incumbent telcos a= nd=20 CLECs gave the incumbents a =0F"substantial cost advantage=0F" over new ent= rants=20 and violated the FCC=0F's requirements that cities manage rights-of-ways on= a =0F" competitively neutral and nondiscrim-inatory=0F" basis. It said requiring = City=20 Signal to place its facilities underground effectively prohibited it from= =20 providing service, because the alternatives were (1) to pay the higher cost= s=20 of placing facilities underground, =0F"rendering its service noncompetitive= ,=0F" or=20 (2) to engage in a protracted negotiation and litigation.=20 Level 3 Communications LLC said the FCC had =0F"not hesitated=0F" to use it= s=20 preemptive power =0F"in cases involving treatment that could be viewed as= =20 creating barriers to entry.=0F" It cited a proceeding in CCBPol file 97-1 = in=20 which the FCC preempted a Connecticut state regulation that prohibited non= =0F- local exchange carriers from providing pay phone service (TR,Dec. 16, 1998)= . =20 In that proceeding, the FCC found that the restriction imposed additional= =20 burdens and costs, =0F"thus deterring the entry of potential competitors,= =0F" Level=20 3 recalled. It said the FCC should grant City Signal=0F's requests under t= he=20 Connecticut pay phone =0F"precedent.=0F" The Ohio cities=0F' reasoning behind the underground requirement isn=0F't = =0F" necessary to protect the public safety and welfare,=0F" Telergy Network=20 Services, Inc., said. According to section 253(b), nothing in section 253= =20 affects =0F"the ability of a state to impose, on a competitively neutral ba= sis=20 and consistent with [the Act=0F's universal service provisions], requiremen= ts=20 necessary to preserve and advance universal service, protect the public=20 safety and welfare, ensure the continued quality of telecommunications=20 services, and safeguard the rights of consumers.=0F" The Ohio cities had cited the =0F"visual blight=0F" caused by additional ae= rial=20 telecom facilities on poles. But that reasoning does not meet the high=20 standard that the FCC has used for judging state=0F's and localities=0F'=20 regulations on matters of competitive neutrality, Telergy said. =0F"By definition, if it is necessary for City Signal to place its faciliti= es=20 underground to protect the public, it must be necessary for the incumbent a= nd=20 other existing providers to place their identical facilities underground as= =20 well,=0F" Telergy said. =0F"If the =0F`visual blight=0F' of which the citie= s complain is=20 to be eliminated, all aerial facilities would have to be placed underground= .=0F" Municipalities often use such regulations as a tactic to delay the entry of= =20 CLECs into service markets, Adelphia Business Solutions, Inc., said. Case= =20 law, state legislatures, and =0F"harsh realities of the competitive marketp= lace=0F"=20 have =0F"driven home the lesson that municipal delays prevent competitive= =20 telecommunications companies from entering the market,=0F" it said. =20 A group of 50 municipalities from 13 states, including Denver; Santa Fe,=20 N.M.; Fort Worth, Texas; Detroit; and Tallahassee, Fla., defended the Ohio= =20 cities=0F' rights to set rules regarding the placement of telecom facilitie= s. =20 The Act =0F"expressly bars [the FCC=0F's] preemption authority under sectio= n 253 on=20 matters relating to right-of-way management,=0F" they said. =0F"Such matte= rs are=20 left solely to the jurisdiction of the federal courts,=0F" and the FCC has = no=20 authority to grant City Signal=0F's petition, they added. City Signal hasn=0F't made a showing of how the regulations requiring=20 underground installation constitute an =0F"effective prohibition on entry,= =0F" they=20 said. =0F"It has shown nothing with respect to the routes involved, the co= st=20 for aerial v. undergrounding construction on each. . .or how any purported= =20 cost increase compares against either the overall capital costs of the City= =20 Signal system or the revenues which City Signal expects to derive from it.= =0F" Section 253 doesn=0F't interfere with local government=0F's authority to di= rect=20 where cables and wires should be installed, the city of Richmond, Va., said= . =20 It recalled that in a 1996 order, In re Classic Telephone, Inc., the FCC=20 cited statements by Sen. Dianne Feinstein (D, Calif.) during the debate on= =20 section 253(c). Her statements dealt with the types of restrictions that= =20 local governments could impose as part of their right-of-way management. = =20 =0F"Included among those was the ability to =0F`require a company to place = its=20 facilities underground rather than overhead, consistent with the requiremen= ts=20 placed on other utility companies,=0F'=0F" Richmond recalled. The FCC =0F"and numerous courts have confirmed that the Act does not, and w= as=20 not intended to, render local governments impotent with respect to=20 maintaining control over the use of public property,=0F" it concluded. =20 AeA Advises against Regulating Competitive Broadband Markets The AeA (formerly the American Electronics Association) is advising federal= =20 policy-makers to take a hands-off approach to regulating broadband service= =20 markets with multiple providers. As examples of competitive broadband=20 markets, AeA cites =0F"residential areas served by cable, DSL [digital=20 subscriber line], and satellite providers.=0F" In a report that was submitted Jan. 29 to the White House and Congress, AeA= =20 also calls for more efforts at the federal level to promote competition in = =0F" sectors (such as multitenant buildings) where there are bottlenecks to=20 competitive entry.=0F" =20 It says the FCC should =0F"continue to show regulatory restraint with respe= ct to=20 emerging services, given the fact that the market for such services, while= =20 still nascent, is functioning in a competitive fashion.=0F"=20 Briefing reporters about AeA=0F's policy positions, AeA President and Chief= =20 Executive Officer William T. Archey said the organization=0F's report got a= =0F" favorable=0F" reception when it was presented to top White House officials.= The=20 paper reflects the views of AeA member companies that participated in a=20 series of =0F"town hall meetings=0F" last year, Mr. Archey said. The report also urges Congress to extend the current moratorium on new or= =20 discriminatory Internet taxes and permanently ban the taxation of Internet= =20 access services. The moratorium, which began in 1998, will expire in Octob= er=20 absent congressional action. The report also reiterates AeA=0F's recent ca= ll=20 for federal preemption of state privacy laws affecting e-commerce or Intern= et=20 businesses (TR, Jan. 22). Missouri PSC Faults SW Bell=0F's InterLATA Bid The Missouri Public Service Commission has decided against supporting=20 Southwestern Bell Telephone Co.=0F's efforts to obtain the FCC=0F's permiss= ion to=20 provide interLATA (local access and transport area) service in the state, P= SC=20 Commissioner Kelvin Simmons told TR. SW Bell=0F's planned application still could win the PSC=0F's backing if th= e=20 company addressed the PSC=0F's concerns, which include pricing and access t= o=20 unbundled local loops and transport, Mr. Simmons said. The PSC plans to=20 deliberate on the request again as early as Feb. 6, although a final decisi= on=20 won=0F't be issued then, he added. SW Bell intends to make changes to address the PSC=0F's concerns, a SW Bell= =20 official told TR. He said SW Bell was confident that the PSC ultimately=20 would support the petition. The FCC has the final say in determining whether a Bell company has met the= =20 14-point =0F"competitive checklist=0F" of market-opening requirements in th= e=20 Telecom-munications Act of 1996. =20 But the Act directs the FCC to consult the U.S. Department of Justice and t= he=20 relevant state regulators before deciding. CLECs Tout Effect on Economy But Seek Help from Congress Competitive local exchange carriers (CLECs) have played a major role in=20 fueling the economic growth of the last decade, according to a new study by= =20 the Association for Local Telecommunications Services (ALTS). Still, Congress should consider legislation to help CLECs overcome the=20 impediments to competition imposed by incumbent local exchange carriers=20 (ILECs), building owners, municipalities, and the financial markets, ALTS= =20 said. The report, Local Competition Policy & The New Economy,was written by ALTS= =20 Director-public policy research David A. Wolcott. He links the growth of t= he=20 Internet to partnerships between CLECs and Internet service providers=20 (ISPs). CLECs, he says, deliver about 60% of the local dial-up traffic to= =20 ISPs in the U.S. =0F"It is a symbiotic relationship that has led to increa= sed=20 competition in the two industries and has greatly impacted the virtual=20 explosion of the Internet in the United States,=0F" Mr. Wolcott writes. Broadband technology is one of the =0F"drivers that have fueled the explosi= ve=20 economic growth of the last decade,=0F" he writes. =0F"Federal Reserve Cha= irman=20 Alan Greenspan, while not singling out the [Telecommunications Act of 1996]= =20 or any other legislative initiative, has attributed much of the recent=20 productivity growth and deepening of capital markets to the communications= =20 and information technology industries.=0F" The study, however, raises a familiar list of complaints about actions of= =20 ILECs, building owners, and municipalities that it says =0F"frustrate the= =20 emergence of full and effective competition.=0F" It offers a list of=20 initiatives that Congress should consider so CLECs can continue fueling=20 economic growth. Among the legislative initiatives the association advocat= es=20 to address its complaints about ILECs are the following: (1) Separate ILECs into wholesale and retail units; (2) Allow the FCC to impose steeper penalties for violating pro-competitive= =20 directives; (3) Require that =0F"all combinations of network elements and full function= ality=20 of the loop be provided to competitors=0F";=20 (4) Extend collocation requirements to include =0F"multifunctional=0F" equi= pment; (5) Affirm the FCC=0F's pricing methodology for unbundled network elements;= and=20 (6) Permit interconnection among CLECs collocated in ILEC facilities. The ALTS study also targets building owners, with whom CLECs have been=20 feuding over the need for mandatory building access. It asks Congress to= =20 require building owners to =0F"provide nondiscriminatory access to their=20 buildings while at the same time protecting the security of the building an= d=20 ensuring that competitors pay for the costs of installing equipment.=0F" ALTS also takes aim at municipalities, which it says have caused =0F"excess= ive=20 delay=0F" by not promptly approving applications to use public rights-of-wa= y. =20 It asks Congress to do the following: (1) Ensure =0F"expeditious intervals=0F" for approving applications for acc= ess to=20 rights-of-way; (2) Require franchise fees to be based on the actual costs of managing the= =20 rights-of-way, not on a percentage of carriers=0F' revenues; (3) Bar cities from imposing =0F"unreasonable=0F" telecom and universal ser= vice=20 requirements on telecom carriers; (4) Ensure that carriers have a private right of action in the courts to=20 enforce the rights-of-way provisions in section 253 of the 1996 Act; and (5) Establish a process for obtaining rights-of-way across areas under=20 federal jurisdiction at cost-based rates and without =0F"unnecessary=20 restrictions.=0F" The study acknowledges that CLECs face =0F"financial impediments=0F" to ful= filling=20 the competitive goals of the 1996 Act. =0F"The current year will undoubted= ly be=20 a critical time for CLECs,=0F" it says, noting that some financial analysts= =20 predict half of all CLECs will file for bankruptcy protection or face=20 consolidation. To help CLECs overcome their financial hurdles, Congress should consider=20 establishing programs to extend credit to eligible carriers to finance the= =20 deployment of broadband services in rural areas, the study says. ALTS points to the proposed Broadband Internet Access Act of 2001, introduc= ed=20 in the House as HR 267 by Rep. Philip English (R., Pa.) and in the Senate a= s=20 S 88, introduced by Sen. John D. Rockefeller IV (D., W.Va.) (TR, Jan. 29). ALTS also urges Congress to establish programs authorizing the use of =0F" financial incentives=0F" for the deployment of broadband services to =0F"ta= rgeted=20 urban and rural areas.=0F" Furchtgott-Roth=0F's Departure Plan Sparks Speculation on Nominees FCC Commissioner Harold W. Furchtgott-Roth=0F's decision not to seek=20 renomination to a second term on the Commission has touched off a new round= =20 of speculation about who the Bush administration will appoint to the=20 Commission and when it will act to fill potential vacancies at the agency. Many industry and congressional observers think the White House will act=20 quickly to fill the vacancy that was created by the resignation by former= =20 Chairman William E. Kennard last month. They point to the speed with which= =20 President Bush tapped Commissioner Michael K. Powell to succeed Mr. Kennard= =20 as chairman. That announcement was made on the first business day after th= e=20 inauguration. =0F"I think they=0F're moving quickly on it. . .and we could see something = happen=20 in the next couple of weeks,=0F" former FCC Chairman Richard E. Wiley told = TR during a break at last week=0F's Comnet conference (see separate story). = =20 Mr. Wiley, who played a key role on the Bush administration=0F's FCC transi= tion=20 advisory team, said there might be a sense of urgency at the White House to= =20 name at least one GOP Commissioner to give the Republicans a majority on th= e=20 Commission. There currently are two Democrats on the five-seat FCC (Commissioners Susan= =20 Ness and Gloria Tristani) and two Republicans (Commissioners Furchtgott-Rot= h=20 and Chairman Powell). The Communications Act of 1934, as amended, prevents= =20 any one political party from appointing more than a bare majority of FCC=20 Commissioners. =20 Mentioned as possible Bush administration Republican appointees to the FCC= =20 are Patrick H. Wood III, chairman of the Texas Public Utility Commission, a= nd=20 Kevin Martin, a former adviser to Mr. Furchtgott-Roth and a central figure = in=20 the Bush administration=0F's FCC transition team (TR, Jan. 22). Earl Comst= ock,=20 a Washington attorney and former aide to Sen. Ted Stevens (R., Alaska), als= o=20 has been mentioned. Mr. Wood was seen as a possible successor to Mr. Kennard before President= =20 Bush tapped Chairman Powell for the top spot. Mr. Martin, meanwhile, has= =20 ties to the Bush administration beyond his work on the FCC transition team.= =0F" He=0F's really paid his dues and earned his stripes with the White House by= =20 helping out on the Florida ballot recount,=0F" a GOP congressional source s= aid. The White House also has the option of replacing Ms. Ness, who is serving a= =20 recess appointment that expires at the end of the first session of the 107t= h=20 Congress (TR, Dec. 25, 2000). =20 There=0F's also talk that the White House, along with nominating a new GOP= =20 Commissioner, simultaneously will nominate a Democrat to replace Ms. Ness. = =20 Democrats favor a =0F"package deal=0F" because it would make it easier for = their=20 nominees to win approval by a Republican-controlled Senate, according to a= =20 Senate source familiar with how the FCC nominations process works. =0F"It=0F's still a free-for-all right now,=0F" the source says, as numerou= s lawmakers=20 float names of individuals they would liked to see nominated to the FCC. = =0F" They=0F're also working industry, [congressional] leadership, and other mem= bers=20 of Congress for support, too,=0F" the source said. Mentioned as possible Democratic nominees are House Energy and Commerce=20 Committee Minority Staff Director Andy Levin, who is being pushed by his bo= ss=20 John D. Dingell (Mich.), and Michael I. Copps, assistant secretary of=20 commerce for trade development and a former chief of staff to Sen. Ernest F= .=20 Hollings (S.C.). =20 Former National Telecommunications and Information Administrator Gregory L.= =20 Rohde also is under consideration, sources say. Meanwhile, Mr. Furchtgott-Roth says he=0F'll remain on the Commission until= a =0F" mutually agreeable departure date is worked out=0F" with the Bush=20 administration. Mr. Furchtgott-Roth=0F's term expired last June; he can=20 continue at the agency until the end of the first session of the 107th=20 Congress, which is expected to occur this fall. In a Jan. 31 statement announcing his decision, Mr. Furchtgott-Roth gave fe= w=20 clues about his next move, saying only that =0F"there comes a time when eve= ry=20 free market advocate in government must fulfill his dream by returning to t= he=20 private sector. For me, that time has arrived.=0F" His tenure at the Commission drew praise from two House telecom Republicans= . =20 Energy and Commerce Committee Chairman W.J. (Billy) Tauzin (La.) says Mr.= =20 Furchtgott-Roth will be =0F"greatly missed,=0F" and Rep. Charles (Chip) Pic= kering=20 (R., Miss.) lauded his efforts =0F"to ensure that the FCC was an independen= t=20 agency accountable to consumers. . .and not an extension of the executive= =20 branch.=0F"=20 Court Upholds FCC Rules Giving ILECs Road to Pricing Flexibility A federal appeals court says it=0F's reasonable to use the number of carrie= rs=20 collocating equipment in an incumbent=0F's wire centers as =0F"proxy=0F" me= asures for=20 determining the levels of local competition. The FCC uses that proxy to=20 determine whether an incumbent local exchange carrier should be freed from= =20 some pricing regulations. The U.S. Court of Appeals in Washington last wee= k=20 rejected WorldCom, Inc.=0F's argument that the FCC=0F's criteria for granti= ng ILECs=20 pricing flexibility didn=0F't measure competition accurately and were unlaw= fully=20 arbitrary. The case centered on the FCC=0F's 1999 pricing-flexibility order in Common= =20 Carrier docket 96-262. The order allowed ILECs regulated under its price-c= ap=20 regime to gain greater flexibility in setting rates for interstate services= =20 if they met certain competitive =0F"triggers=0F" (TR, Aug. 9, 1999). For example, ILECs can win relief from some pricing rules if the FCC finds= =20 that unaffiliated carriers have collocated facilities in a certain percenta= ge=20 of the ILEC=0F's wire centers and that at least one collocator is=20 facilities-based. In its Feb. 2 ruling in MCI WorldCom, Inc., et al. v. FCC (case no. 99-1395= ),=20 the court found that the FCC =0F"made a reasonable policy determination=0F"= that=20 the number of collocating comptitors was a reasonable proxy for the level o= f=20 competition in a particular market. Judge David B. Sentelle wrote the=20 opinion; he was joined by Judge A. Raymond Randolph and Chief Judge Harry T= .=20 Edwards.=20 The judges didn=0F't specifically endorse the use of collocation as a proxy= ,=20 even allowing that =0F"it may well be that collocation is a poor measure of= =20 market share.=0F" But they noted that the FCC had not relied on market sha= re as=20 =0F"the be-all and end-all=0F" of competition. They agreed with the FCC th= at =0F"the=20 presence of sunk investment, and the resulting potential for entry into the= =20 market, can limit anticompetitive behavior by LECs.=0F" In oral arguments last December, the judges expressed frustration bordering= =20 on exasperation at WorldCom=0F's inability to present an alternative means = of=20 measuring competition (TR, Dec. 4, 2000). AT&T Corp. and Time Warner=20 Telecom, Inc., also were petitioners in the consolidated case. The judges concluded that because they found the FCC=0F's proxy model =0F" reasonable,=0F" there was no basis on which to require the FCC =0F"to condu= ct a=20 more searching analysis of competition before granting pricing flexibility.= =0F" =20 They cited a 1980 case before the circuit court in Washington, D.C., U.S. v= .=20 FCC.=20 =0F"Someone must decide when enough data is enough. In the first instance,= that=20 decision must be made by the Commission. . .To allow others to force the=20 Commission to conduct further evidentiary inquiry would be to arm intereste= d=20 parties with a potent instrument for delay,=0F" the judges quoted. The judges rejected WorldCom=0F's claim that the pricing-flexibility order= =20 violated FCC precedent because much of the relief it provided to ILECs was= =20 typical of that given to carriers that are regulated as =0F"nondominant.=0F= " =20 WorldCom argued that the FCC should be precluded from granting such relief= =20 without conducting the same kind of competition analysis that it does when= =20 determining if a carrier should be considered nondominant. =20 The appeals court disagreed, saying the pricing flexibility order did not= =20 grant LECs =0F"all the regulatory relief afforded nondominant carriers.=0F"= It=20 noted that carriers that obtain regulatory relief under the=20 pricing-flexibility order still must file tariffs, a requirement that is = =0F"not=20 insignificant.=0F" The appeals court also dismissed WorldCom=0F's argument that the FCC was=20 arbitrary and capricious in authorizing regulatory relief by metropolitan= =20 statistical area (MSA). It said the FCC had considered other options when= =20 devising its rules and called WorldCom=0F's objections =0F"at bottom. . .a= =20 difference in policy preferences. . .[and] not a sufficient basis on which = to=20 upset the FCC=0F's determination.=0F" The judges relied on similar reasoning in dismissing WorldCom=0F's objectio= ns to=20 the triggers the FCC established. The court called these objections =0F"no= more=20 than policy differences.=0F" It said the FCC had made =0F"rational=20 legislative-type judgments=0F" that it is =0F"empowered to exercise and we = are=20 required to respect.=0F"=20 AT&T Corp. has won a multiyear $100 million broadband service contract... AT&T Corp. has won a multiyear $100 million broadband service contract from= =20 MerchantWired, which provides network services to retailers, the company ha= s=20 announced. MerchantWired, of Indianapolis, will resell AT&T=0F's frame rel= ay=20 and asynchronous transfer mode services to merchants. It also has plans to= =20 resell AT&T=0F's virtual private network, Internet protocol, and digital=20 subscriber line services.=20 Utah Bill Takes Aim at Cities Entering Telecom Business Utah state Rep. Greg Curtis (R.) plans to introduce a bill to regulate=20 efforts by municipalities such as Provo that are getting into the=20 telecommunications business, a legislative staff member has told TR. The city of Provo recently bought a local cable TV company, Provo Cable, an= d=20 is competing against an AT&T Broadband cable TV system. Rep. Curtis=0F' bi= ll=20 would authorize state regulation of such government-owned telecom businesse= s. Provo is building a high-speed broadband system to bring advanced telecom= =20 services to every resident of the city, Michael Mower, Provo=0F's=20 director-community and governmental relations, told TR. Mr. Mower said AT&T=0F's cable TV system provides services only to select= =20 businesses and portions of the city. The legislative staff member said lawmakers were concerned about Provo=0F's= =20 owning its own telecom company because the state constitution bars the stat= e=20 from regulating cities. That would mean that the Utah Public Service Commission wouldn=0F't be able= to=20 regulate a municipal telecom company. The text of Rep. Curtis=0F' bill was= n=0F't=20 available as of TR=0F's news deadline. Mr. Mower hopes legislators understand that the process of leveling the=20 playing field =0F"goes both ways,=0F" he said, and that huge corporations h= old some=20 advantages over city-owned systems. Va. Regulators Tell Verizon Not To Cut Off CLEC=0F's Customers The Virginia State Corporation Commission has enjoined Verizon Virginia,=20 Inc., from =0F"unreasonably disconnecting=0F" customers who switch to compe= titor=20 Cavalier Telephone LLC for their local exchange service. Cavalier asked the SCC for help last September, claiming that Verizon =0F" unlawfully interrupted service=0F" to hundreds of customers who chose to mi= grate=20 to Cavalier. Verizon acknowledged that =0F"premature disconnections=0F" led= to 66=20 service outages but said 43 of those customers were reconnected by the day= =20 after the disconnections were reported to Verizon. The Virginia commission found that although the number of premature=20 disconnections was =0F"unacceptable,=0F" there was no evidence that Verizon= =0F's=20 disconnections were intentional. =0F"Nevertheless,=0F" the SCC said, =0F"w= e cannot=20 condone this inattention to customer service.=0F" The SCC directed the companies to file monthly reports, beginning Feb. 12,= =20 detailing any further unwarranted disconnections of service. Oftel Extends BT Price Controls For Retail, Wholesale Services British Telecommunications plc (BT) is facing an increased level of=20 competition =0F"but continues to have market power=0F" in the provision of= =20 residential telephone service, the United Kingdom=0F's Office of=20 Telecommunications (Oftel) has announced. Oftel said it would extend=20 existing BT price controls=0F-which had been scheduled to expire in August= =0F-for=20 an additional year. Oftel will continue to review the level of competition that BT faces in the= =20 U.K. in order to assess whether residential price controls will be necessar= y=20 beyond 2002. David Edmonds, Oftel=0F's director general-telecommunications, said Feb. 1 = that=20 extending the price control regime was necessary to protect consumers. =0F= " Oftel will carry out a review of the calls market to assess the impact of= =20 carrier preselection, indirect access, local loop unbundling, and mobile=20 substitution,=0F" he said. =0F"As competition increases and prices fall, t= he case=20 for retail price controls diminishes.=0F" Oftel also said it would keep price controls on wholesale network=20 interconnection rates that BT charges competitive carriers. Those controls= =20 will be extended until October 2005. Loral Scraps $3.5 Billion Plan For Direct-to-Consumer Service Loral Space & Communications Ltd. is scrapping plans to deliver high-speed= =20 Internet service directly to consumers over a $3.5 billion network of=20 satellites and optical fiber. =0F"Despite the feasibility of Loral=0F's pl= an, we=20 have concluded that we do not have the in-house skills to develop the=20 marketing resources to competitively deploy such a system,=0F" Bernard Schw= artz,=20 Loral=0F's chairman and chief executive officer, said at a Feb. 1 Merrill L= ynch=20 & Co. satellite conference in New York. =0F"Data delivery directly to the consumer entails packaging content, engag= ing=20 in e-commerce, providing consumer premises equipment, and acquiring and=20 caring for subscribers, and it is better left to others,=0F" Mr. Schwartz s= aid. =20 =0F"Furthermore, given the crowded field of players, we didn=0F't see a way= to=20 sufficiently differentiate our product from the others entering the=20 direct-to-consumer field.=0F" Under a plan unveiled last February, Loral had intended to complete its=20 network this year and eventually offer service to 10 million homes and smal= l=20 businesses. Loral surmised that digital subscriber line and cable modem=20 services wouldn=0F't satisfy consumers=0F' demand for bandwidth. But Loral= has=20 been stung recently by its investment in Globalstar Telecommunications Ltd.= ,=20 which uses satellites to offer global mobile telephony. Loral owns 38% of= =20 Globalstar, which is near bankruptcy (TR, Jan. 22). Instead of venturing into direct-to-consumer services, Mr. Schwartz said=20 Loral would =0F"stick to what we do best and where we already hold a strong= =20 leadership position=0F-the development of satellite technologies and hardwa= re=20 and the provision of high-quality, value-added transport services.=0F" European Commission Seeks Cybercrime Policy Harmonization The European Commission is developing a plan to harmonize the=20 cybercrime-fighting efforts of European Union member nations with those of= =20 other countries. It has asked for comments on how to do so =0F"without=20 hindering the rapid development of e-commerce in the EU, and respecting the= =20 fundamental right to privacy.=0F" Comments are due March 23. It wants to launch an EU forum for representatives of law enforcement=20 agencies, telecom and Internet service providers, and consumer groups to=20 discuss issues related to cybercrime. The first step will include naming= =20 forum representatives from those sectors. Relevant documents and comments= =20 will be published on a forum Web site. The commission has delivered a cybercrime policy planning document to the= =20 Council of Europe and European Parliament. On March 7 it will hold a publi= c=20 hearing on issues addressed in the planning document. Parties who wish to= =20 submit a statement at the hearing must request an =0F"invitation=0F" to do = so by=20 Feb. 20. Psion plc and Motorola, Inc., say they are discontinuing a joint agreement.= .. Psion plc and Motorola, Inc., say they are discontinuing a joint agreement = to=20 develop wireless devices as Motorola continues a streamlining of its=20 operations. Motorola said it would focus on a wireless smart phone to be= =20 launched in 2002 based on the platform developed by Symbian Ltd., an allian= ce=20 of companies including United Kingdom=0F-based Psion and Motorola. Motorol= a,=20 which owns 21% of Symbian, said it would continue to take an active role in= =20 planning the future of the alliance. Personnel Commissioner Harold Furchtgott-Roth, who has announced plans to leave the F= CC=20 (see separate story), has promoted his two legal advisers. Rebecca Beynon= =20 will be senior counsel, and Bryan Tramont will be senior legal adviser. The Idaho Senate unanimously has approved Gov. Dirk Kempthorne=0F's (R.)=20 nomination of Dennis S. Hansen (R.) to a second six-year term on the state= =0F's=20 Public Utilities Commission. Hansen, who first was appointed to the=20 commission by Gov. Phil Batt (R.), is also the PUC=0F's president. Before= =20 appointment to the commission, Hansen was an accountant with Monsanto Co. o= f=20 Soda Springs and served in the state Senate from 1987 to 1995. Joel I. Klein has been named chairman and chief executive officer of=20 Bertelsmann, Inc., the corporate services arm of German media company=20 Bertelsmann AG. Mr. Klein was assistant attorney general-antitrust for the= =20 U.S. Department of Justice from October 1996 to September 2000. He will=20 oversee Bertelsmann=0F's U.S. operations and advise the company on legal,= =20 strategic, and governmental issues. The law firm of Steptoe & Johnson LLP has merged with the United Kingdom la= w=20 firm of Rakisons. The U.S. practice will continue under its name, and the= =20 U.K. practice will be known as Steptoe & Johnson Rakisons. Lon Bouknight= =20 will be global chairman, and Tony Wollenberg will be managing partner of th= e=20 London practice. Danny Preiskel and Alfred Mamlet will head the London and= =20 U.S. telecom practices, respectively. David Judah in London and Stewart=20 Baker in Washington will lead a new technology, Internet, and media group. Richard R. Roscitt has been named chairman and chief executive officer of A= DC=20 Telecommunications, Inc., a Minneapolis-based telecom equipment maker. Mr.= =20 Roscitt was president of AT&T Corp.=0F's business services group. He succe= eds=20 William J. Cadogan, who is retiring. ADC also named Lynn Davis president a= nd=20 chief operating officer. Mr. Davis was president of ADC=0F's broadband=20 connectivity group. Robert E. Randall is the new chief executive officer at TeraGlobal=20 Communications Corp., a San Diego=0F-based manufacturer of telecom network= =20 software. He was executive vice president and chief operating officer at= =20 FirstWorld Communications Corp. Mr. Randall succeeds interim CEO William= =20 Reddersen, who will remain on the board.=20 Alamosa PCS Holdings, Inc., has said President and Chief Operating Officer= =20 Jerry Brantley left the company. In addition, Chief Technology Officer Ton= y=20 Sabatino and regional vice presidents now report to David Sharbutt, the=20 company=0F's chairman and chief executive officer. Frederick M. Lax has been named executive vice president and chief operatin= g=20 officer at Tekelec, Inc., a California telecom network equipment=20 manufacturer. He was VP and general manager at Lucent Technologies, Inc.= =0F's=20 messaging solutions unit. Nextel Communications, Inc., has promoted Scott E. Hoganson to senior vice= =20 president-sales operations. He previously was president of the carrier=0F'= s=20 Midsouth area. Nextel also has promoted Linda Marshall to VP of the Midwes= t=20 region. Ms. Marshall previously was president of the company=0F's Great La= kes=20 area. Jean-Francois Deschamps has been named senior vice president-global service= =20 operations at Global One, a France Telecom Group affiliate. He was assista= nt=20 VP-product management data services.=20 Vincent M. Oddo has been named executive vice president and chief informati= on=20 officer at Network Telephone Corp., a Pensacola, Fla.=0F-based integrated= =20 communications provider. He was executive VP and CIO at Gabriel/TriVergent= =20 Communications, Inc.=20 Frank D. Brilliant has joined Arch Wireless, Inc., as vice president of the= =20 paging carrier=0F's newly created Business Solutions Group. He previously = was=20 vice president-sales at BizRate.com. AOL Time Warner, Inc., has named John Buckley vice president-corporate,=20 effective March 12. He was senior VP-communications at Fannie Mae. NewSouth Communications Corp., a Greenville, S.C., integrated communication= s=20 provider has promoted Lori Reese to the position of vice president-governme= nt=20 affairs. She was director of that unit. Lucent Technologies, Inc., has named Barbara Gasper vice president-investor= =20 relations, effective Feb. 12. She held that title at Raytheon Co. Ms.=20 Gasper succeeds John DeBono, who will lead investor relations at Agere=20 Systems, Inc., the Lucent microelectronics unit that will be spun off later= =20 this year. Michael G. Donahoe has been named senior general counsel and vice=20 president-corporate development at DataVoN, Inc., a Dallas-based network=20 services provider. He most recently was VP-legal at CapRock Communications= =20 Corp., which late last year was acquired by McLeodUSA, Inc.=20 Lucent China has named Michael Kwan chief operating officer. He was=20 president at Lucent Technologies Qingdao Telecommunications Systems, Ltd., = a=20 51% Lucent-owned joint venture in China.=20 John Joyce was named chief operating officer at Ambient Corp., a powerline= =20 telecom technology manufacturer. He was president at ABB Financial=20 Consulting, Inc., and senior vice president at ABB Financial Services, Inc.= =20 Wilfred Kopelowitz was named Ambient=0F's chief financial officer. He was= =20 corporate controller at Amdocs Corp.=20 Harold Gowl is the new chief operating officer at Wisor Telecom, Inc., a=20 Rockville, Md., maker of operation support systems. He was president and= =20 chief executive officer at Newcomm Net, a competitive local exchange carrie= r. Research in Motion Ltd. has appointed Larry Conlee chief operating=20 officer-engineering and manufacturing. Mr. Conlee previously was at=20 Motorola, Inc., where he was a corporate vice president for various groups= =20 and divisions. NeTune Communications, Inc., has named Richard J. Agostinelli to the new=20 positions of chief operating officer and chief financial officer. He was= =20 chief executive officer and president-continental graphics at Continental= =20 Graphics Holdings, Inc. NeTune is a Culver City, Calif., provider of=20 broadband communications services to the motion picture and TV production= =20 industries.=20 JP Systems, Inc., a Dallas-based developer of wireless-enabling technology= =20 and services, has named Tim D. Torno chief financial officer. Mr. Torno wa= s=20 CFO and vice president-finance and secretary for Ultrak, Inc. Philip Veneziano was named chief financial officer at Everest Broadband=20 Networks Corp., a Fort Lee, N.J.=0F-based provider of broadband services to= =20 multitenant buildings. He was senior vice president-financial operations a= t=20 Juno Online Service, Inc. Christopher Dalrymple was named Everest Broadban= d=0F' s general counsel. He was associate counsel at Interliant, Inc. =20 Howard N. Levitas has joined the Industrial Telecommunications Association = as=20 chief information officer. Mr. Levitas was previously manager-applications= =20 development at Verizon Connected Solutions, Inc. Telefon AB L.M. Ericsson has hired Ase Lindskog as director-press relations= =20 in its external relations group and Ola Rembe to the same position in the= =20 public relations and special interest media group. Mr. Lindskog is a forme= r=20 journalist, financial analyst, and secretary general of the Swedish Society= =20 for Financial Analysts. Mr. Rembe was director-corporate communication and= =20 PR at Jobline International. Maureen O=0F'Connor is the new executive director at the Maryland Coalition= for=20 Telephone Competition, a consumer group whose industry members include AT&T= =20 Corp. and Winstar Communications, Inc. She=0F's founder of O=0F'Connor Pub= lic=20 Relations, LLC. The National Cable Television Association has promoted Director-state=20 telecommunications policy Rick Cimerman and Director-public affairs David= =20 Pierce. Both were promoted to senior director. San Diego=0F-based ideaEDGE Ventures has hired Hans Davidsson as a managing= =20 partner. Mr. Davidsson was vice president-Internet applications and=20 solutions at Telefon AB L.M. Ericsson. The Universal Service Administrative Co. has elected Allan T. Thoms vice= =20 chairman of its board of directors. Mr. Thoms is the chairman of the Iowa= =20 Utilities Board. Frank Gumper, vice president-public policy development at= =20 Verizon Communications, Inc., was reelected USAC=0F's chairman and Cheryl= =20 Parrino was reelected chief executive officer. Former U.S. Deputy Attorney General Ronald D. Lee has been elected partner = in=20 Arnold & Porter=0F's Washington, D.C. law office. He=0F'll focus on the= =20 regulatory and public policy legal issues of telecommunications, computer= =20 security, and encryption. Mr. Lee from 1987 to 1994 practiced law at the= =20 firm=0F's Washington and Los Angeles offices. Dale Hatfield, former chief of the FCC=0F's Office of Engineering and=20 Technology, has joined Fantasma Networks, Inc., as a technical adviser. Mr= .=20 Hatfield will advise the Mountain View, Calif.=0F-based wireless video=20 networking technology provider on ultrawideband technology. He also is=20 director of the Interdisciplinary Telecommunications Program at the=20 University of Colorado at Boulder. San Diego=0F-based AirFiber, Inc., says Brett Helm, its newly hired preside= nt=20 and chief operating officer, will join its board of directors along with=20 Marcel Gani, chief financial officer of Juniper Networks, Inc. Wireless Online, Inc., says Neil Cox, president of SecurityLink, will join= =20 its board of directors. Regulatory & Government Affairs DT Services, Inc., and 4MTV Corp. separately have asked the FCC to grant th= em=20 =0F"exempt telecommunications company=0F" (ETC) status under the Public Uti= lity=20 Holding Company Act of 1935 (PUHCA), as amended by the Telecommunications A= ct=20 of 1996. The PUHCA effectively prevented utility companies from providing= =20 telecom services, but the Act made it possible for them to do so either by= =20 acquiring or holding interest in an ETC. DT is a subsidiary of Dominion=20 Resources, Inc., a registered holding company under PUHCA. 4MTV is a priva= te=20 Nevada-based corporation, and plans to offer broadband Internet and other= =20 network services. Comments on DT=0F's request are due in Network Securities= file=20 ETC 00-53 by Feb. 9, and replies are due Feb. 16. Comments and replies on= =20 4MTV=0F's request are due Feb. 19 and 26, respectively. They should refer = to=20 ETC 01-01. The FCC is seeking comments on requests by Amana Colonies Telephone Co. and= =20 South Slope Cooperative Telephone Co. for waivers of its =0F"study area=0F"= =20 definitions. One of the requested waivers would enable Amana (d/b/a=20 Hickorytech and Heartland Telecommunications of Iowa) to alter its Iowa stu= dy=20 area to remove a telephone exchange it is transferring to South Slope. The= =20 other waiver would enable South Slope to include that exchange, which serve= s=20 about 1,500 lines, when calculating its universal service support. A study= =20 area is the geographical area over which universal service support is=20 calculated. Comments and replies on both requests are due Feb. 19 and Marc= h=20 1, respectively. Filings should refer to Common Carrier docket 96-45. The FCC=0F's Wireless Telecommunications Bureau is seeking comments on a re= quest=20 by an intergovernmental public safety agency for a rule waiver to allow it = to=20 use eight radio frequencies allocated for non-public safety use in Chicago.= =20 Comments on the DuPage Public Safety Communications request are due Feb. 20= =20 and replies are due Feb. 27. Parties should reference DA 01-264. The North American Numbering Council will discuss plans for a performance= =20 review and a =0F"requirements document=0F" for the North American Numbering= Plan=20 administrator, among other topics, during its Feb. 20-21 meeting. The NANC= =20 meeting will begin at 8:30 a.m. in Room TW-C305 of the FCC=0F's headquarter= s in=20 Washington. Contact Cheryl Callahan at 202/418-2320 for more information. The FCC=0F's Wireless Telecommunications Bureau is seeking comments on requ= ests=20 for frequency coordination certification in the 800 megahertz and 900 MHz= =20 private land mobile radio service (PLMRS) public safety pool frequencies. = =20 The International Association of Fire Chiefs, Inc., and the International= =20 Municipal Signal Association (IAFC/IMSA) are seeking certification in the 8= 00=20 MHz and 900 MHz bands, while the American Association of State Highway and= =20 Transportation Officials (AASHTO) is seeking certification in the 800 MHz= =20 band. Comments are due Feb. 21 and replies March 8. Comments on the=20 IAFC/IMSA request should reference DA 01-152, while comments on the AASHTO= =20 request should reference DA 01-151. The FCC is seeking comments on five petitions for declaratory ruling from= =20 companies partly owned by VoiceStream Wireless Corp. asking the FCC to perm= it=20 Deutsche Telekom AG to take an indirect ownership interest greater than 25%= =20 in those companies. DT would gain such an ownership interest as a result o= f=20 DT=0F's planned acquisition of VoiceStream (see separate story). The Germa= n=20 government owns 60% of DT. Comments are due Feb. 22 and replies March 8. = =20 Comments should reference DA 01-280 and International docket 00-187. The FCC is seeking comments on the National Exchange Carrier Association,= =20 Inc.=0F's proposed revisions to the average schedule universal service form= ulas=20 for the period from July 1, 2001, to June 30, 2002. On Dec., 28, 2000, NEC= A=20 submitted proposed changes to formulas for average schedule interstate=20 settlement disbursements. Comments and replies are due March 5 and 26,=20 respectively. They should refer to Accounting Safeguards file 01-16. The FCC is seeking comments on Western Wireless Corp.=0F's request that the= FCC=20 designate it an eligible telecommunication carrier for the purpose of=20 receiving universal service funding for serving the Pine Ridge Reservation = in=20 South Dakota. Comments are due 30 days after the notice seeking comment is= =20 published in the Federal Registerand should refer to Common Carrier docket= =20 96-45. Replies are due 15 days later. The FCC says five bidders have qualified to participate in the reauction of= =20 eight licenses for the 700 megahertz =0F"guard bands=0F" surrounding public= safety=20 spectrum, which is scheduled to begin Feb. 13. The licenses were offered b= ut=20 unsold at an auction last September. The qualified bidders and their upfro= nt=20 payments are Access Spectrum LLC ($156,000), Harbor Wireless LLC ($110,000)= ,=20 Nextel Spectrum Acquisition Corp. ($156,000), Pegasus Guard Band LLC=20 ($161,000), and PTPMS II Communications, Inc. ($161,000). Companies that= =20 make larger upfront payments can bid more in the auction. The FCC has affirmed its decision that economic area (EA) licensees are not= =20 required to make =0F"progress payments=0F" to incumbent SMR (specialized mo= bile=20 radio) service operators that are involuntarily relocated from the upper 20= 0=20 channels of the 800 megahertz band. Instead, the FCC said, EA licensees ca= n=20 wait until a relocation is completed before picking up the costs. In a thi= rd=20 order on reconsideration in Private Radio docket 93-144 released Feb. 2, th= e=20 FCC denied a petition filed by the American Mobile Telecommunications=20 Association, which had sought reconsideration of a 1999 decision=20 restructuring the licensing framework for the 800 MHz band SMR service. =20 The FCC has noted that Southwestern Bell Telephone Co. will no longer be=20 required to submit performance measurement data for its Kansas and Oklahoma= =20 operations. That requirement was one of the conditions of the FCC=0F's app= roval=20 of the merger between parent company SBC Communications, Inc., and Ameritec= h=20 Corp. When it approved the merger, the FCC established a =0F"carrier-to-ca= rrier=20 performance plan=0F" that required the merged company to report the monthly= =20 results of 20 performance measurements for the telco operations in each of= =20 the states in its service territory (TR, Oct. 11, 1999). The FCC last mont= h=20 determined that the Kansas and Oklahoma telcos had opened their markets to= =20 competition and approved them to offer in-region interLATA services,=20 effective March 7, under section 271 of the Telecommunications Act of 1996= =20 (TR, Jan. 29). SBC will submit its final performance measurements report= =20 under the plan on March 20. The New Jersey Board of Public Utilities has asked the FCC to rule on its= =20 request for authority to implement certain number-conservation measures,=20 including 1,000-number block =0F"pooling=0F" and number rationing. The New= Jersey=20 regulators last summer requested permission pursuant to an FCC order that= =20 introduced a plan for national pooling and encouraged states to apply for= =20 authority to conduct pooling trials until the national rollout began (TR,= =20 March 20, 2000). Despite receiving comments on the board=0F's request last= year=20 (TR, Aug. 14, 2000), the FCC has not yet issued a decision in the matter. = In=20 its recent petition in Common Carrier docket 96-98 and Network Security fil= e=20 L-00-95, the board asked the FCC immediately to approve its request so it c= an=20 implement the conservation measures =0F"before further depletion of finite= =20 numbering resources.=0F"=20 The Michigan Public Service Commission has asked the FCC for authority to= =20 conduct 1,000-number block =0F"pooling=0F" in two metropolitan statistical = areas=20 (MSAs). In its =0F"number optimization=0F" order last year in Common Carri= er=20 docket 99-200, the FCC announced a plan to conduct nationwide pooling (TR,= =20 March 20, 2000). It also encouraged states to seek authority to begin=20 pooling until the FCC announces a national rollout schedule. The Michigan= =20 PSC last week asked for authority to conduct 1,000-number block pooling in= =20 the Detroit and Grand Rapid MSAs, to order sequential number assignment, an= d=20 to maintain =0F"NXX=0F" rationing for six months after the implementation o= f=20 area-code relief measures. =20 In a joint petition, Golden West Telephone Cooperative, Project Telephone= =20 Co., and Range Telephone Cooperative have asked the FCC=0F's Common Carrier= =20 Bureau to reconsider its decision designating Western Wireless Corp. as an= =20 ETC (eligible telecommunications carrier) for the purpose of receiving=20 federal =0F"high-cost=0F" support in Wyoming (TR, Jan. 8). They said they = hadn=0F't=20 received notice that the areas covered by the ETC designation could include= =20 parts of their exchanges. They also argued that ETC designation must=20 correspond with the entire study area of the incumbent telco. In a separat= e=20 petition, Chugwater Telephone Co., Range Telephone, and RT Communications,= =20 Inc., also sought reconsideration or clarification of the order. They argu= ed=20 that the Wyoming legislature should be given time to pass a pending bill (H= B=20 0052) that would authorize the state Public Service Commission to make ETC= =20 designations itself.=20 Regionet Wireless Licensee LLC said it opposed a petition asking the FCC to= =20 reconsider its recent decision to freeze the processing of new applications= =20 in the automated maritime telecommunications systems (AMTS) as it considers= =20 switching from site-based licensing to geographic licensing. Warren C.=20 Havens has filed a petition for reconsideration of a =0F"fourth report and = order=20 and third notice of proposed rulemaking=0F" adopted last year in Private Ra= dio=20 docket 92-257 (TR, Nov. 20, 2000). The FCC=0F's Enforcement Bureau is proposing a $5,000 monetary forfeiture= =20 against Verizon Florida, Inc., for violating Commission rules by operating = an=20 air-ground station without agency authorization. Verizon told the FCC that= =20 it operated the station without authorization between Sept. 1, 1999, and=20 March 10, 2000. The notice of apparent liability was released Feb. 1 in fi= le=20 no. EB-00-TS-148. The FCC=0F's Wireless Telecommunications Bureau says its policy of permitti= ng=20 applicants one extra business day to file applications under its jurisdicti= on=20 is no longer in effect. In a public notice released Feb. 1, the bureau sai= d=20 it was clarifying that all applications for wireless telecom services filed= =20 since Feb. 12, 1999, have been deemed filed on the date received by the=20 Commission. The FCC began providing an extra day for those filing Common= =20 Carrier applications requiring fees when it moved the filing location to a= =20 bank in Pittsburgh in 1990. The Market Disputes Resolution Division of the FCC=0F's Enforcement Bureau = has=20 granted a request by Texcom, Inc., (d/b/a Answer Indiana) to withdraw a=20 complaint it had filed against SBC Communications, Inc. Texcom had said SB= C=20 improperly collected payment for termination of SBC-originated traffic on= =20 Texcom=0F's network. The companies settled the matter during private=20 negotiations. The division agreed to dismiss the complaint with prejudice = in=20 Enforcement Bureau file 00-MD-12. New Skies Satellites N.V. has asked the FCC=0F's International Bureau to cl= arify=20 or reconsider a recent order that granted Telesat Canada=0F's petition to a= dd=20 the Anik F-1 satellite to the Permitted Space Station List. New Skies said= =20 clarification was needed so all parties understand (1) =0F"that additional= =20 authorization would be necessary before Anik F-1 would be allowed to provid= e=20 narrowband services to any C-band earth stations operating in the United=20 States that are smaller than 4.5 meters in diameter,=0F" and (2) =0F"the Co= mmission=0F' s rationale for concluding that operations from adjacent orbital locations= =20 will be protected.=0F" Pegasus Development Corp. is asking the FCC=0F's International Bureau to=20 reconsider a recent decision to grant Loral CyberStar, Inc., authority to= =20 launch and operate two satellites in the geostationary satellite orbit (GSO= )=20 to provide fixed-satellite service (FSS) in the Ka-band. In a petition for= =20 reconsideration filed Jan. 19, Pegasus said the International Bureau=0F's o= rder =0F" relies on a stale and inapplicable record. . .A refreshed record will=20 demonstrate that there currently exists a shortage of available Ka-band=20 orbital locations, that Loral has sufficient access to other orbital=20 resources, and that the public interest would be better served by making th= e=20 67-[degree] W.L. orbital location available for the second-round Ka-band=20 applicants,=0F" Pegasus said. The Rural Health Care Division of the Universal Service Administrative Co.= =20 recently sent 50 letters committing funding to health care providers in rur= al=20 areas. The program funds discounts on telecom services for eligible rural= =20 hospitals and other health care providers. USAC has committed more than $7= =20 million to 613 health care providers during the second year of its =0F" telemedicine=0F" program. The Federal Trade Commission is supporting a Web site=20 (http://www.consumer.gov/sentinel) offering statistics on Internet fraud,= =20 identity theft, and tips on avoiding online frauds and deceptions. The FTC= =20 said more than 80 public and private organizations contribute consumer=20 complaints to the multiagency Consumer Sentinel database, which law=20 enforcement officials use to share data about fraud. =20 House Ways and Means Committee Republican Philip S. English (Pa.) introduce= d=20 a bill, HR 267, to extend tax credits to carriers that deploy high-speed=20 Internet facilities in rural and underserved areas. The legislation has mo= re=20 than 50 co-sponsors. It=0F's a companion to S 88, which was introduced las= t=20 month by Sen. John D. Rockefeller IV (D., W.Va.) (TR, Jan. 29). Rep. Rodney P. Frelinghuysen (R., N.J.) introduced legislation that would= =20 require carriers to get written consent from customers before obtaining the= ir=20 wireless location information. The Wireless Privacy Protection Act, HR 260= ,=20 would direct the FCC to adopt such rules within six months of enactment. House freshman Michael Honda (D., Calif.) plans to form a bipartisan wirele= ss=20 caucus to focus exclusively on issues related to third-generation (3G)=20 wireless technology. More details about the caucus will be released =0F"wi= thin=20 the next few weeks,=0F" a Honda spokesman told TRlast week. Rep. Honda=0F'= s=20 initiative would be the second congressional caucus that=0F's focused on=20 wireless issues. Last year the Congressional Wireless Telecommunications= =20 Caucus was formed by Reps. Albert Wynn (D., Md.) and Charles (Chip) Pickeri= ng=20 (R., Miss.) and Sens. Byron Dorgan (D., N.D.) and Sam Brownback (R., Kan.)= =20 (TR, April 17, 2000). =20 A push to repeal the 3% federal excise tax on telephone bills has been=20 revived in the Senate by Finance Committee Chairman Charles E. Grassley (R.= ,=20 Iowa). The tax =0F"is outdated, unfair, and complex=0F" for consmers and p= hone=20 companies,=0F" the lawmaker said Feb. 1 when introducing the Help Eliminate= the=20 Levy on Locution Act (HELLO), S 234. Sen. Grassley added, =0F"It cannot b= e=20 justified on any tax policy grounds.=0F"=20 Celtronix Telemetry, Inc., has asked a federal appeals court to review the= =20 FCC=0F's decision to implement a debt-restructuring plan for licensees in t= he=20 218=0F-219 megahertz service, which was formerly called the interactive vid= eo=20 and data service (IVDS) (TR, Dec. 18, 2000; and Jan. 8, notes). In a=20 petition for review and notice of appeal (case no. 01-1021 and 01-1022) fil= ed=20 with the U.S. Court of Appeals in Washington, Celtronix argued that the=20 Commission=0F's action was unlawful, arbitrary, and capricious. Washington state Rep. Richard DeBolt (R.) has introduced legislation to=20 provide tax incentives for companies seeking to deploy advanced telecom=20 services in rural areas. HB 1239 would exempt from taxation any sales to o= r=20 by telecom companies for machinery, equipment, or tangible personal propert= y=20 used to build telecom infrastructure in rural areas. Telecom company=20 machinery, equipment, or facilities used to provide advanced telecom servic= es=20 to rural areas would be exempt from the use tax. Telecom companies also=20 would be eligible for tax credits equal to 50% of their costs of constructi= ng=20 telecom structures or facilities, or acquiring machinery or equipment. HB= =20 1239 awaits consideration by the House Technology, Telecommunications, and= =20 Energy Committee. Illinois legislators are considering a bill to rewrite the telecom provisio= ns=20 of the state=0F's Public Utilities Act, which expires July 1. The bill (HB = 492=20 and SB 134) would freeze rates, with a cap on future linked to the rate of= =20 inflation. It also would deregulate optional services, such as call waitin= g=20 and Caller ID. =20 Hawaii state Rep. Calvin K.Y. Say (D.) has introduced legislation to amend= =20 the state franchise tax to include the revenues of telephone, telecom, and= =20 cable TV businesses. Those businesses would have to pay 2.5% of their gros= s=20 receipts for the preceding calendar year. The bill, HB 1180, awaits=20 consideration by the House Consumer Protection and Commerce Committee and t= he=20 House Finance Committee. The North Carolina Utilities Commission has ordered the North American=20 Numbering Plan administrator (NANPA) to release two =0F"NXX=0F" codes in th= e =0F"980=0F"=20 area code to BellSouth Telecommunications, Inc. NXX codes are blocks of=20 10,000 sequential phone numbers. BellSouth had requested the NXX codes for= =20 two large business customers, Duke Energy Corp. and Microsoft Corp. But th= e=20 application for numbers in the new area code didn=0F't meet FCC guidelines= =20 regarding =0F"months to exhaust,=0F" the NCUC said, so the NANPA had denied= the=20 request. The NCUC directed BellSouth to assign the phone numbers to the tw= o=20 customers sequentially and stated that the numbers would be subject to=20 reclamation if not used within the period allowed by industry guidelines. = =20 The 980 area code is scheduled to be activated as an =0F"overlay=0F" of the= =0F"704=0F"=20 area code April 1. The Australian government has created an E-Security Coordination Group to= =20 assess the nation=0F's telecom- and information-infrastructure security nee= ds. =20 The National Office for the Information Economy is the group=0F's lead agen= cy. =0F" In addition to focusing on security standards, the group will work on=20 incident reporting, awareness raising, and skills shortages,=0F" the govern= ment=20 announced Feb. 2. It also formed a critical infrastructure priorities=20 subcommittee, led by the Commonwealth Attorney General=0F's Department, to = carry=20 out critical infrastructure threat and vulnerability assessments. Financial Briefs The Amsterdam Exchange intends to add KPNQwest NV to the AEX Index, a listi= ng=20 of the exchange=0F's top 25 companies, KPNQwest said. KPNQwest is a joint= =20 venture of Qwest Communications International, Inc., and Royal KPN NV, the= =20 Dutch national carrier. XO Communications, Inc., will seek to raise as much as $2 billion through t= he=20 sale of common stock, preferred shares, depositary shares, warrants, or deb= t=20 securities under a =0F"shelf registration statement=0F" filed with the Secu= rities=20 and Exchange Commission. Further details of the fund-raising effort will b= e=20 revealed in future filings. XO intends to use the funds to pay for network= =20 expansion, operating losses, and possible acquisitions. Telecom Italia SpA has raised $1.85 billion through the sale of convertible= =20 bonds in Europe. The Italian carrier intends to use the proceeds to=20 refinance existing debt. Nortel Networks Ltd., a subsidiary of Nortel Networks Corp., intends to rai= se=20 $1.5 billion through the sale of senior unsecured notes. Nortel, a=20 Toronto-based telecom equipment maker, intends to use the funds for loans t= o=20 its affiliates and other corporate purposes. The company expects to comple= te=20 the transaction this month. Leap Wireless International, Inc., said QUALCOMM, Inc., had agreed to provi= de=20 it with $125 million to support the carrier=0F's purchase of licenses in th= e FCC=0F' s reauction of =0F"C=0F" and =0F"F=0F" block PCS (personal communications s= ervice)=20 licenses, which ended last month (see separate story). Under terms of a=20 senior secured credit facility, QUALCOMM will transfer to Leap a $125 milli= on=20 auction discount voucher previously issued by the FCC. Leap will repay the= =20 money within five years. Tellabs, Inc., has agreed to pay $181 million cash for Future Networks, Inc= .,=20 a cable modem maker based in Alpharetta, Ga. Tellabs, of Lisle, Ill., said= =20 the acquisition would fill gaps in its portfolio of cable modem and cable= =20 telephony products. The companies expect to complete the transaction this= =20 month. Lafayette Communications LLC has signed a definitive agreement to acquire= =20 licenses for 10 megahertz of spectrum from subsidiaries of Carolina PCS I= =20 Limited Partnership for an undisclosed price. The spectrum covers nine bas= ic=20 trading areas serving about 3.5 million people in the entire state of South= =20 Carolina. Industry News The Organization for the Promotion and Advancement of Small=20 Telecommunications Companies is holding a March 28 seminar to discuss=20 opportunities to purchase Bell companies=0F' rural exchanges. OPASTCO said= Bell=20 companies, including Qwest Communications Corp., may sell =0F"upwards of 20= =20 million lines=0F" in the next five years. The OPASTCO seminar will be held= at=20 the Hyatt Regency at the Dallas/Fort Worth Airport. For more information,= =20 contact Tiffani Belk at 202/659-5990. The Ordering and Billing Forum=0F's Vendor Demo 2001 will be held Aug. 27= =0F-29 in=20 Seattle. The OBF is an industry group sponsored by the Alliance for=20 Telecommunications Industry Solutions. The International Engineering=20 Consortium will co-host the event. Call 312/559-3328 or visit=20 http://www.atis.org or http://www.iec.org for more information. The Alliance for Telecommunications Industry Solutions and the=20 Telecommunications Industry Association have begun developing the operating= =20 principles and procedures for a new industry-led body that will act as a = =0F" gatekeeper=0F" for terminal equipment standards. The FCC late last year=20 selected ATIS and TIA to sponsor the Administrative Council for Terminal=20 Attachments (TR, Nov. 13 and Dec. 25, 2000). The council will oversee the= =20 development of standards to replace the detailed technical criteria in part= =20 68 (equipment) of the FCC=0F's rules. Parties wishing to be notified of th= e=20 first council meeting should forward their contact information, including a= n=20 e-mail address, to Megan Hayes (mhayes@atis.org). Consumers Union, publisher of Consumer Reports magazine, and TeleBright Cor= p.=20 have formed an alliance that will allow consumers to compare prices and=20 offerings of mobile phone service plans online. Consumer Reports Online=20 (http://www.ConsumerReports.org) is using TeleBright=0F's IntelliRate techn= ology=20 to offer the service. Verizon Communications, Inc., is ending its telephone rental service, the= =20 company told TR. The changes affect only former GTE Corp. telcos. The=20 former Bell Atlantic Corp. telcos already had terminated their rental=20 programs before the merger with GTE that formed Verizon. The company will= =20 bill customers for rental phones through May 2001, a spokesman said. Renta= l=20 customers will own the phones when the billing cycle is completed. BellSouth Corp. will exit the payphone business over the next two years,=20 selling or scrapping about 143,000 public phones, the company said. Pay=20 phone usage has declined dramatically since 1998 and the business has becom= e=20 less profitable, BellSouth noted. =0F"Our customers are opting for the new= =20 technology options we provide, including wireless telephones and interactiv= e=20 pagers,=0F" said Charles B. Coe, BellSouth=0F's president-network services,= in a=20 statement. BellSouth said it would take two years to exit the business so= =20 that its pay phone location providers would have time to find an alternativ= e=20 to BellSouth service. SigmaOne Communications Corp. says a patent-infringement lawsuit filed=20 against it by TruePosition, Inc., is =0F"totally without technical merit an= d=20 motivated strictly by commercial considerations.=0F" TruePosition=0F's act= ion,=20 filed in U.S. District Court in Delaware, claims that SigmaOne infringed on= =20 three patents related to its network-based wireless location systems (TR,= =20 Jan. 22, notes). SigmaOne has decided to counter sue. =0F"We believe that= our=20 counter suit will produce an unequivocal declaration that TruePosition=0F's= =20 patents have no relation to, and are not infringed by, SigmaOne=0F's techno= logy=20 and that, in addition, the patents are invalid,=0F" said SigmaOne President= Mark=20 Licht. =0F"SigmaOne will also aggressively enforce its own intellectual=20 property rights in the field of wireless location technology.=0F" Sprint Corp. has completed the transition of 95% of the circuits covered by= =20 the FTS2001 federal government telecom service contract, according to Antho= ny=20 G. D=0F'Agata, vice president and general manager of Sprint=0F's government= systems=20 division. Qwest Communications International, Inc., has challenged the=20 General Service Administration=0F's award of =0F"bridge contracts=0F" to Sp= rint and=20 AT&T Corp. to cover government agency customers who haven=0F't completed th= e=20 transition from FTS2000 to FTS2001 (TR, Dec. 18, 2000, p. 38). Mr. D=0F'Ag= ata=20 cited the need to obtain approval for an additional function required by on= e=20 agency customer as contributing to the transition delay. He also cited=20 agencies=0F' concerns about the year 2000 computer bug early in the transit= ion=20 period, which discouraged them from making changes in their telecom systems= .=20 Lucent Technologies, Inc., has won a two-year, $129 million contract to=20 provide broadband network equipment to Sprint Corp. Lucent said it will=20 deploy its Stinger DSL (digital subscriber line) platform in about 1,000=20 Sprint central offices in the U.S. Sprint will use the equipment for its I= ON=20 (integrated on-demand network) service.=20 Sprint PCS and Unplugged Games, Inc., have signed an agreement for Unplugge= d=20 Games to provide its wireless games service on the carrier=0F's wireless We= b. =20 Sprint PCS also has signed an agreement with Tribune Media Services that wi= ll=20 give Sprint PCS subscribers to access to entertainment content from Tribune= =20 Media Services=0F' Zap2it.com Web site. Global Crossing Ltd. of Bermuda has completed the Pan American Crossing=20 network segment linking the U.S. and Mexico to Central America and the=20 Caribbean. It=0F's the latest step in deployment of the company=0F's globa= l fiber=20 optic system, which is scheduled to be finished by mid-2001. Activation of= =20 the Pan American Crossing makes Global Crossing =0F"the first company to=20 directly link California, Mexico, and Panama,=0F" Global Crossing said. Certicom Corp., a provider of mobile e-business security software and=20 services, has opened a European office in London. Telefon AB L.M. Ericsson is forming a separate company to focus on mobile= =20 Internet networks and applications. The company will be called Ericsson=20 Internet Applications and Solutions AB. Asia Global Crossing Ltd., Digital Telecommunications Phils, Inc. (Digitel)= ,=20 and Broadband Infrastructure (BI) Group have launched Digitel Crossing, a= =20 40:40:20 joint venture in the Philippines. Digitel Crossing has plans to= =20 build a terrestrial fiber optic network that will connect in early 2002 wit= h=20 Asia Global Crossing=0F's undersea network. Under the terms of the agreeme= nt,=20 Digitel and BI Group will buy network capacity from Asia Global Crossing.= =20 QUALCOMM, Inc., has announced that it has prevailed in three patent=20 opposition proceedings in Korea and Europe. The proceedings were initiated= =20 by Motorola, Inc. The Korean Intellectual Property Office upheld two=20 QUALCOMM patents, the European Patent Office upheld a third. In another=20 development, SnapTrack, Inc., a QUALCOMM subsidiary, was awarded a patent= =20 from the U.S. Patent and Trademark Office for its wireless location and=20 asset-tracking technology. Vodafone Group plcs=0F' United Kingdom affiliate has extended the roaming= =20 capabilities of its Globalstar mobile satellite phone customers from the U.= K.=20 to North America. It now offers its customers =0F"roaming agreements with = 272=20 networks=0F" on both sides of the Atlantic, said Paul Donovan, Vodafone U.K= .=0F's=20 managing director. Oy Nokia of Finland has signed a $186 million contract to upgrade the=20 wireless communications infrastructure of PTK Centertel Sp. z.o.o. of=20 Poland. Nokia will upgrade PTK Centertel=0F's GSM (Global System for Mobil= e=20 communications) network and will deploy GPRS (general packet radio service)= =20 infrastructure.=20 Rogers AT&T Wireless has selected Ericsson Canada, Inc., as exclusive=20 supplier for its third-generation wireless network. The contract is the = =0F" largest ever awarded to Ericsson in Canada,=0F" Ericsson said.=20 Wireless Industry Says Agreement Could Streamline Antenna Siting The FCC, the Advisory Council on Historic Preservation (ACHP), and a=20 telecommunications working group that includes historic preservation=20 officers, federal officials, and industry representatives have formulated a= =20 programmatic agreement designed to streamline the review of antenna=20 collocations under the National Historic Preservation Act (TR, Nov. 27, 200= 0;=20 Jan. 8, notes, and Jan. 29). The agreement comes on the heels of the advisory council=0F's decision in= =20 November 2000 to revise rules that the industry maintains make it difficult= =20 to site antenna towers. The new regulations were adopted after a court=20 challenge alleged voting irregularities in the council=0F's 1999 adoption o= f the=20 original rules, which implemented section 106 of the National Historic=20 Preservation Act (TR, Aug. 14 and 28; and Sept. 11, 2000). Like many industry officials, Robert L. Hoggarth, senior vice=20 president-government relations for the Personal Communications Industry=20 Association, has problems with the ACHP=0F's rules. But he says he hopes t= he=20 programmatic agreement on collocations=0F-and perhaps other issues=0F-can h= elp=20 speed the antenna-siting process. Mr. Hoggarth discussed the agreement wit= h=20 TR. An edited excerpt of the conversation follows. TR: What=0F's your complaint with the process used to adopt the rules that= the=20 ACHP approved last November? Hoggarth: The new rules, in our view, were originally promulgated=0F-or at= =20 least an attempt was made to promulgate them=0F-back in 1999. The current= =20 version that the ACHP passed in the fall was essentially the same rules tha= t=20 they attempted to adopt in early 1999. TR: So in your view, the rules that were approved last November and took=20 effect in January are pretty much the same as those adopted in 1999? Hoggarth: The original revisions that took place in early 1999 never legal= ly=20 went into effect because they were incorrectly promulgated. This latest=20 effort on the part of ACHP was an attempt to cure the early illegalities. = =20 The shortened rulemaking process was, in many respects, a way to rubber-sta= mp=20 the original rules. While it did provide an opportunity for the industry t= o=20 suggest changes, not many of those were accepted by the ACHP. TR: What problems does the wireless industry have with the rules themselve= s? Hoggarth: The key to the wireless industry is speed to market. And the=20 latest applications of the advisory council rules by state authorities and = by=20 the federal government have created additional potential for real delays fo= r=20 the industry in the processing of new antenna-site requests. TR: Why have the rules hurt the antenna-siting process? Is the wireless=20 industry asking to be treated differently from other industries? Hoggarth: No. What=0F's happened is the new process has upped the ante wi= th=20 respect to the level of review by state and local authorities. The challen= ge=20 that the industry has found is that in implementing those rules, many state= =20 historic preservation officers and many other stakeholders have used it as = an=20 opportunity to almost step in and take an approval role, as opposed to an= =20 advisory role. . .It=0F's the FCC that approves the antenna sites as oppose= d to=20 the state historic preservation officers or the ACHP. TR: So you see the ACHP as trying to have a greater role than it=0F's allow= ed=20 under the law? Hoggarth: Correct. Our goal is to make sure that historic preservation=20 issues are addressed and that they=0F're looked at in a responsible way. = =20 Resources should be devoted to those sites that are going to present real= =20 challenges for cultural and historic preservation, as opposed to the creati= on=20 of an additional bureaucracy that does nothing but cause more pressure and= =20 work for state and local authorities, significantly increase the processing= =20 cost for carriers and tower companies, and delay the approval of those=20 facilities. TR:A telecom working group has drafted a programmatic agreement to streamli= ne=20 the antenna collocation process. What=0F's the purpose of such an agreemen= t? Hoggarth: The efforts to come up with a collocation agreement, as well as= =20 previous efforts of the telecommunications working group, were attempts to= =20 address the overall industry concern about the ACHP rules and processes. Our goal was to bite off manageable chunks of the problem so we could resol= ve=20 some things in the very short term and provide immediate benefits to the=20 historic preservation community and the industry. This is a billion-dollar= =20 issue overall, with respect to compliance, speed of service delays, and=20 additional obligations, both at the state and local levels. And collocation is one way to take a significant chunk out of that=20 billion-dollar burden. Since last summer there have been active negotiatio= ns=20 on issues such as delegation and collocation, in an effort to resolve some= =20 short-term, immediate goals. A group within the telecommunications working= =20 group established by the ACHP reached consensus on a collocation proposal. But what arose in the late fall was significant concern on the ACHP=0F's si= de as=20 to how to implement any agreement reached by the telecommunications working= =20 group. As a result, the ACHP authorized negotiations between the ACHP and= =20 the FCC to reach a programmatic agreement with respect to the collocation o= f=20 new antenna facilities on existing structures and buildings. A general consensus was reached in the fall as to what that would look like= . =20 The latest efforts, with respect to the programmatic agreement, focus on th= e=20 real desire=0F-on the part of both industry and government=0F-to have a spe= cific=20 agreement that has some teeth to it, that has some consistency to it, that= =20 everyone can be willing to abide by. . . The negotiations have become very complicated. We at PCIA and the tower=20 industry have been working with the ACHP, the FCC, and the state historic= =20 preservation officer community to reach agreements on language that satisfi= es=20 the goals of preserving historic properties in a responsible manner. TR: So the devil is in the details, it seems. PCIA asked the FCC to amend= =20 the draft agreement it sought comment on last month. So did the Cellular= =20 Telecommunications & Internet Association. Hoggarth: Certainly from our industry=0F's perspective, the draft agreemen= t=20 that was put on public notice is not our ideal. It=0F's simply a matter no= w of=20 word-smithing, and we want to make sure that the appropriate administrative= =20 rules are observed. TR: Ideally how would a programmatic agreement streamline the collocation= =20 process? Hoggarth: What it would do is allow the industry to put antennas on existi= ng=20 facilities without individual review, thereby minimizing the impact on the= =20 environment by limiting the number of new towers that go up. The programmatic agreement will have very specific parameters in which the= =20 historic preservation community will be assured that new facilities will go= =20 through a process of review. There=0F'll be assurance that the existing=20 structure on which the collocation is taking place already has undergone a= =20 measure of review, or that any significant site changes created by=20 collocation will be appropriately reviewed by local authorities. TR:Under this streamlined approach, what percentage of antennas no longer= =20 would have to undergo review by historic preservation officials? Hoggarth: Our hope is that, as a result of the programmatic agreement, we= =20 would eliminate 80% to 85% of the reviews by state and federal authorities. The present system anticipates significant review of literally every new=20 antenna that=0F's sited in a community. And with collocation, that=0F's si= mply not=20 necessary. TR: Is there a sense for how many antennas that 80% to 85% represents? Hoggarth: No, it=0F's hard to say. What we=0F're trying to do is create a= system=20 that not only ensures that current sites remain in place and aren=0F't subj= ect=20 to review, but also that going forward a large number of new sites will be= =20 collocations. TR: Where has the opposition come from to the collocation agreement? Hoggarth: The concerns expressed by the historic preservation community=20 center around language that ensures that there are no significant loopholes= ,=20 and we certainly agree with that. TR: Isn=0F't it also correct that some historic preservation officers have= been=20 concerned that they won=0F't have the same review authority on collocations= that=20 they currently have? Hoggarth: I think the concern is a combination of that, plus just a=20 lack-of-control issue, which says, =0F"My goodness, I don=0F't have the opp= ortunity=20 to review what sort of sites are going to go up.=0F" The reality is that the wireless industry is expanding so significantly and= =20 so greatly that historic preservation officers simply don=0F't have the tim= e to=20 review every new project. =20 They simply don=0F't need to review every one of them, given the lack of ad= verse=20 impacts from so many of these collocations. TR: In addition to collocation, what are some of the wireless industry=0F's= =20 other regulatory concerns that are being discussed by the telecom working= =20 group? Hoggarth: They involve such things as the time periods in which reviews ar= e=20 required. They involve the role of the FCC and the role of the industry in= =20 terms of application reviews, the use of authorized consultants to conduct= =20 the reviews, and the role of the ACHP v. the role of the state historic=20 preservation officers. Literally all aspects of the advisory council=0F's = rules=20 are touched on. TR: ACHP officials have said they=0F'd like to vote at their meeting in Ma= rch=20 on a broader programmatic agreement that includes many of these issues in= =20 addition to collocation. Do you think that=0F's still realistic? Hoggarth: There are various expectations that folks are bringing to the=20 table. The reality is that we thought collocation was something that could= =20 be resolved in a 60-day time frame, and it=0F's now taken four months. And= that=0F' s just one issue that we thought we had broad consensus on within the=20 telecommunications working group. As a result, it=0F's just a practical view that a broader programmatic agre= ement=20 is going to take a lot of hard work. I can=0F't give you any predictions o= n=20 time, because if we=0F're fortunate and if things break the right way, we m= ight=20 be able to accomplish things sooner rather than later. But I=0F'm optimistic. It=0F's going to take a tremendous amount of work o= ver the=20 next year to actually bring something to fruition. We continue to work on individual issues with the ACHP. We=0F've establish= ed=20 very positive working relationships with the NCSHPO organization, and we ar= e=20 building relationships with various tribal representatives as well, so that= =20 we can really address all aspects of cultural and historical preservation. What=0F's Ahead. . . FEBRUARY 5=0F-The U.S. Court of Appeals in Washington will hear oral arguments in=20 National Exchange Carrier Association, Inc., v. FCC(case no. 00-1055). NEC= A=20 is challenging the FCC=0F's December 1999 decision rejecting NECA=0F's prop= osed=20 modifications to the 1999 =0F"average-schedule=0F" Universal Service Fund f= ormula=20 (TR, 10/9/00 p.36). 7=0F-Comments are due to the United Kingdom=0F's Office of Telecommunicatio= ns on=20 whether to impose additional conditions on Cable & Wireless plc=0F's operat= or=20 license for certain international routes (TR, 1/15/01 p.32). 8=0F-Section 275 of Telecommunications Act prohibits Bell operating compani= es=20 from providing alarm monitoring services until this date (TR,11/17/97 p.7).= =20 The Act grandfa-thered alarm monitoring operations existing as of Nov. 30,= =20 1995. 13=0F-The FCC=0F's Wireless Telecommunications Bureau holds an auction of e= ight=20 700-megahertz band licenses that weren=0F't bought at the =0F"guard-band=0F= " auction=20 (TR, 10/16/00 p.38). 14=0F-CONNECTICUT: The Connecticut Department of Public Utility Control pl= ans=20 to issue its final decision on whether to require Southern New England=20 Telephone Co.=0F's video service subsidiary to continue providing cable TV= =20 services in the state (TR, 1/29/01 p.44). 14=0F-New deadline for submitting comments to the FCC on its most recent or= der=20 aimed at conserving telephone numbers. Replies are due March 7 (TR, 1/29/0= 1=20 p.35). Filings should reference Common Carrier dockets 99-200 and 96-98. 15=0F-NEW JERSEY: Deadline for Verizon New Jersey, Inc., to file a new=20 alternative rate regulation plan with state regulators (TR, 1/8/01 p.23). 15=0F-IRELAND: Grant proposals are due to Ireland=0F's Department of Publi= c=20 Enterprise as part of its plan to make $3.6 million available to community= =20 groups for communications technologies (TR, 12/4/00 p.30). 19=0F-CALIFORNIA: Comments are due to the Public Utilities Commission on C= ap=20 Gemini Ernst & Young=0F's reports on Pacific Bell=0F's operation support sy= stems=20 (OSSs). The commission plans to issue a draft decision on the reports Apri= l=20 6, and a final decision May 24 (TR, 12/25/00 p.4) 20=0F-22=0F-The Consortium for School Networking holds a tele-com and Inter= net=20 conference in Washington. For more information, call 202/624-1740 or go to= =20 http://www.k12schoolnetworking.org. 22=0F-The FCC holds a meeting. 22=0F-Comments are due to the FCC on its notice of proposed rule-making=20 concerning the allocation of third-generation wireless frequencies=20 (Engineering and Technology docket 00-258). Replies are due March 9 (TR,= =20 1/29/01 p.35). 22=0F-Comments are due to the FCC on its proposal to reallocate 27 megahert= z of=20 spectrum transferred from federal government to private use (Engineering an= d=20 Technology docket 00-221). Replies are due March 26 (TR, 1/29/01 p.35). 23=0F-The Alliance for Public Technology holds an advanced services policy = forum=20 at the National Press Club in Washington. 25=0F-28=0F-The National Association of Regulatory Utility Commissioners ho= lds its=20 winter committee meetings in Washington, D.C. For more information, call= =20 202/898-2214. 26=0F-Comments are due to the FCC on the federal-state joint board=0F's=20 recommendations regarding the Rural Task Force=0F's plan for reforming the= =20 universal service support mechanism (TR, 1/29/01 p.35). Replies are due=20 March 12 in Common Carrier docket 96-45. 26=0F-Comments are due to the FCC on the MAG (multiassociation group) propo= sal=20 for overhauling interstate access and universal service support mechanisms= =20 (TR, 1/29/01 p.35). Replies are due March 12. Comments on those aspects o= f=20 the MAG proposal that would increase or modify data-reporting requirements= =20 are due to the Office of Management and Budget by March 26. 27=0F-28=0F-Lucent Technologies, Inc., and the Association for Local=20 Telecommunications Services sponsor a competitive carrier regulatory summit= =20 in Washington. For more information, call 800/765-9222. MARCH 1=0F-2=0F-Credit Suisse First Boston holds a wireless Internet conference i= n=20 Tokyo. For more information, go to http://www.csfb.com/conferences. 5=0F-6=0F-Law Seminars International holds a =0F"Local Telecommunications= =20 Infrastructure=0F" conference in Atlanta. For more information, call=20 206/621-1938 or 800/854-8009. Executive Briefings Verizon Wireless=0F' Bidding =0F- The buzz on Wall Street in the wake of th= e FCC=0F's=20 reauction of 422 =0F"C=0F" and =0F"F=0F" block PCS licenses focuses on the = aggressiveness=20 of Verizon Wireless. Industry observers also talk up the prices paid for= =20 three 10 MHz licenses in New York City. (Page 3) USTR Review =0F- Countries around the world are making progress in complyin= g=20 with various telecom-munications trade agreements, but much more work needs= =20 to be done, U.S. carriers tell USTR. They raise concerns similar to those= =20 that have dominated the debates about telecom competition in the U.S. (Pag= e=20 5) Mexican Market =0F- The U.S. Trade Representative still may ask a World Tra= de=20 Organization panel to investigate Mexico=0F's compliance with a WTO agreeme= nt to=20 give foreign carriers access to its telecom market. (Page 7) Comnet Convention =0F- Key congressional and FCC staffers predict that fede= ral=20 policy-makers will launch major efforts this year to curb the Commission=0F= 's=20 authority to impose =0F"voluntary=0F" conditions on merger applications, up= date the=20 agency=0F's traditional common carrier rules, and pressure the FCC to accel= erate=20 its decision making. (Page 9) Critical Infrastructure =0F- House Energy and Commerce Committee Chairman T= auzin=20 demands a copy of a critical infrastructure report that he says the law=20 required be sent to Congress by Jan. 15 but that never arrived. (Page 10) Long Distance Rate War =0F- AT&T execs believe they=0F're seeing at least a= =20 temporary cease-fire in the long distance rate wars that have ravaged the= =20 revenue streams of incumbent IXCs. =0F"Pricing still is aggressive, but it= is=20 not setting new lows,=0F" AT&T Chairman Mike Armstrong says. Analysts, how= ever,=20 say any truce is likely to be short-lived. (Page 11) VersaPoint Breakup =0F- Versatel absorbs what remains of VersaPoint=0F-its = former=20 joint venture with NorthPoint=0F-after cutting most of the workforce and=20 canceling many of the operations of the money-losing business. (Page 12) World Radio Conference =0F- It=0F's important for U.S. officials to consult= with=20 other nations as they prepare for the ITU=0F's 2003 World Radiocommunicatio= n=20 Conference, FCC officials and industry representatives agree. (Page 13) Satellite Licenses =0F- The FCC=0F's International Bureau modifies the lice= nses of=20 GSO satellite system operators to allow them to use Ka-band spectrum for=20 intersatellite service links. (Page 14) DT-VoiceStream Merger =0F- The Justice Department and FBI say they have rea= ched=20 an agreement with VoiceStream and Deutsche Telekom that reduces the law=20 enforcement, national security, and public safety risks of DT=0F's planned= =20 acquisition of VoiceStream. (Page 14) Ex Parte Rules =0F- Two carriers vehemently oppose the FCC=0F's proposal to= exempt=20 foreign regulators from requirements to report on their communications with= =20 the FCC. They say the rules protect regulated entities by making the FCC= =0F's=20 deliberations =0F"transparent.=0F" (Page 15) Spectrum Cap =0F- PCIA, which in the past has urged the FCC on behalf of sm= all=20 carriers to continue to limit the amount of spectrum wireless carriers may= =20 hold in any one market, declares that it =0F"will no longer play an active = role=0F"=20 in the issue. (Page 16) 700 MHz Auction Delay =0F- Major wireless carriers praise the FCC=0F's four= th delay=20 of a 700 MHz band auction. But rural carriers and a major TV broadcaster= =20 criticize the move, saying it was unnecessary. (Page 16) Wireless Internet Applications =0F- QUAL-COMM develops an open software pla= tform=20 to help spur the development of applications for the wireless Internet. = =20 (Page 17) Spectrum Dilemma =0F- French and Brazilian telecom regulators have more tro= ubles=20 awarding wireless licenses. France decides to organize another =0F"beauty= =20 contest=0F" in hopes of attracting more bidders for 3G licenses after only = two=20 companies bid for four licenses on the block. Brazil postpones an auction = of=20 wireless licenses because of a lack of interest by bidders. (Page 18) Interconnection Arbitration =0F- The FCC sets the schedule for arbitrating= =20 disputes between Verizon and three other carriers over interconnection=20 agreements. The FCC says that AT&T, Cox, and WorldCom may now file request= s=20 for arbitration and that the Common Carrier Bureau chief will preside over= =20 the proceedings. (Page 20) Pay-Per-Call Case =0F- A federal district judge dismisses a lawsuit allegin= g=20 that WorldCom unlawfully blocked calls to pay-per-call =0F"900=0F"-number= =20 services. He tells a group of pay-per-call service providers to take their= =20 complaint against WorldCom to the FCC. (Page 20) Equipment-Placement Debate =0F- Municipalities and CLECs spar over whether = the=20 FCC should preempt several Ohio cities=0F' authority over the placement of= =20 telecom facilities. The debate centers around one question: Does requirin= g=20 a CLEC to place its lines underground, rather than on poles where the=20 incumbent=0F's facilities are located, constitute discrimination? (Page 2= 1) Missouri InterLATA Bid =0F- The Missouri PSC decides against supporting SW = Bell=0F' s bid to provide interLATA service in the state. It could change its mind = if=20 the company addresses the PSC=0F's concerns about issues such as pricing an= d=20 access to unbundled loops. (Page 21) AeA=0F's 2001 Agenda =0F- The former American Electronics Association advis= es=20 federal policymakers to take a hands-off approach to regulating broadband= =20 service markets with multiple providers. (Page 22) ALTS=0F' Wish List =0F- CLECs are major players in fueling economic growth,= ALTS=20 says. But Congress needs to consider legislation to help CLECs overcome th= e=20 impediments posed by ILECs, building owners, municipalities, and the=20 financial markets. (Page 23) FCC Commissioners =0F- Harold W. Furchtgott-Roth=0F's decision not to seek= =20 renomination to a second term on the Commission sparks a new round of=20 speculation about who the Bush administration will appoint to the FCC and= =20 when it will fill potential vacancies at the agency. Some think the White= =20 House will act quickly to fill the seat left open by former Chairman Kennar= d=0F' s resignation. (Page 24) Pricing-Flexibility Rules =0F- A federal appeals court says the FCC acted= =20 reasonably in counting the number of carriers collocating equipment in an= =20 incumbent=0F's wire centers to determine the level of local competition. T= he=20 U.S. Court of Appeals in Washington rejects WorldCom=0F's argument that the= FCC=0F' s criteria for granting LECs pricing flexibility don=0F't accurately measur= e=20 competition and are unlawfully arbitrary. (Page 25) City-Owned Telecom Businesses =0F- Utah state Rep. Greg Curtis plans to=20 introduce a bill to authorize state regulation of city-owned telecom=20 businesses, such as the broadband service offerings Provo is planning to=20 provide through its newly acquired cable TV system. Without the bill, the= =20 PSC couldn=0F't regulate such businesses. (Page 26) BT Price Controls =0F- Oftel acknowledges that BT faces increased competiti= on in=20 the provision of residential voice service but extends price controls for a= =20 year because of BT=0F's continued =0F"market power.=0F" It also extends co= ntrols on=20 competitive carrier interconnection charges. (Page 27) Fighting Cybercrime =0F- The European Commission launches an initiative aim= ed at=20 harmonizing the cybercrime policies of its member nations with those of oth= er=20 countries. (Page 27) Loral=0F's Retreat =0F- Loral Space & Communications scraps plans to delive= r=20 high-speed Internet service directly to consumers over a $3.5 billion netwo= rk=20 of satellites and optical fiber. =0F"We do not have the in-house skills to= =20 develop the marketing resources to competitively deploy such a system,=0F" = CEO=20 Bernard Schwartz says. (Page 27) Antenna Collocations =0F- Rob Hoggarth of PCIA hopes an agreement hammered= out=20 by the FCC, the Advisory Council on Historic Preservation, historic=20 preservation officers, and wireless industry reps can streamline the review= =20 of antenna collocations under the National Historic Preservation Act. (Pa= ge=20 35) Copyright 2001, Telecommunications Reports International, Inc. All rights= =20 reserved.

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Subject: Telecommunications Reports -- 02/05/01 Sender: trhtml-owner@maui.tr.com Recipients: [] File: dasovich-j/all_documents/8817. ===================================== =20 =20 Telecommunications Reports - February 5, 2001 Verizon Wireless=0F' Reauction Bids Create Buzz As Analysts Praise Carriers= =0F'=20 Activities in Sale U.S. Carriers See Progress in Opening Markets But Ask USTR To Keep Pressure= =20 on Laggards USTR Delays Plea for WTO Probe Of Mexico, Keeps Options Open Burns To Unveil =0F`Tech Seven=0F' Legislative Package; House, Senate Telec= om=20 Panels To Add Members Powell To Lead with Review Of FCC Operational Changes Tauzin Demands Report on Critical Infrastructure=20 AT&T Execs See Hope of Truce In Long Distance Price Wars Verizon Wireless is rolling out its two-way text messaging service,... Versatel Absorbs VersaPoint, Cuts Workers, Writes Off Assets E.spire Mulls Reverse Split To Meet Nasdaq=0F's Conditions Convergent To Cut Workforce, Close Offices Early Talks with WRC-03 Nations Seen As Key for U.S. Success Bureau OKs Satellite Operators For Intersatellite Communications DoJ, FBI Want Foreign Control Of DT Limited by FCC Conditions Intelsat Told To Disclose Privatization Info Don=0F't Exempt Foreign Agencies From Ex Parte Rules, Carriers Say Unlicensed International Carriers Given 90 Days To Come Forward FCC Delays 700 MHz Auction Again at Request of Industry QUALCOMM Creates Platform To Spur Wireless Internet Apps PCIA Drops Opposition To Lifting Spectrum Cap France, Brazil Have Troubles Awarding Wireless Licenses Telefon AB L.M. Ericsson has announced a $400 million network expansion=20 contract... FCC Sets Arbitration Schedule For Interconnection Disputes Pay-Per-Call Providers=0F' Case Should Go to FCC, Court Says Aerial v. Underground Facilities Is Topic of City-CLEC Debate AeA Advises against Regulating Competitive Broadband Markets Missouri PSC Faults SW Bell=0F's InterLATA Bid CLECs Tout Effect on Economy But Seek Help from Congress Furchtgott-Roth=0F's Departure Plan Sparks Speculation on Nominees Court Upholds FCC Rules Giving ILECs Road to Pricing Flexibility AT&T Corp. has won a multiyear $100 million broadband service contract... Utah Bill Takes Aim at Cities Entering Telecom Business Va. Regulators Tell Verizon Not To Cut Off CLEC=0F's Customers Oftel Extends BT Price Controls For Retail, Wholesale Services Loral Scraps $3.5 Billion Plan For Direct-to-Consumer Service European Commission Seeks Cybercrime Policy Harmonization Psion plc and Motorola, Inc., say they are discontinuing a joint agreement.= .. Personnel Regulatory & Government Affairs Financial Briefs Industry News Wireless Industry Says Agreement Could Streamline Antenna Siting What=0F's Ahead. . . Executive Briefings Verizon Wireless=0F' Reauction Bids Create Buzz As Analysts Praise Carriers= =0F'=20 Activities in Sale The buzz on Wall Street last week in the wake of the FCC=0F's reauction of = 422 =0F" C=0F" and =0F"F=0F" block PCS (personal commu-nications service) licenses f= ocused on=20 the aggressiveness of Verizon Wireless, the nation=0F's largest wireless ca= rrier. Industry observers also talked up the prices paid for three 10- megahertz= =20 licenses in New York City. Verizon Wireless agreed to shell out more than $4 billion=0F-or nearly a qu= arter=20 of the entire $16.8 billion the auction netted=0F-for just two New York Cit= y=20 licenses (TR, Jan. 29). The additional 20 MHz of spectrum will give it 45= =20 MHz in the nation=0F's largest market. Alaska Native Wireless LLC, which is 39.9%-owned by AT&T Wireless Services,= =20 Inc., won the third New York City license with a $1.4 billion bid. Verizon Wireless topped all bidding at the sale, which ended Jan. 26,=20 offering more than $8.7 billion for 113 licenses covering 150 million =0F"p= ops=0F"=20 (potential customers). =0F"It is very interesting that the company with one of the strongest spect= rum=20 positions before the auction. . .has felt the need to be so aggressive,=0F"= =20 Lehman Brothers, Inc., analyst John M. Bensche said in a note to investors= =20 last week. =0F"We commend Verizon for its boldness in the auction, where i= t=20 garnered spectrum over almost twice as many =0F`pops=0F' as the next-closes= t=20 bidder.=0F" Mr. Bensche noted that Verizon Wireless and its founding companies =0F"had = been=20 quite conservative in their acquisition philosophy. . .This prior=20 conservatism makes the aggressive bidding all the more remarkable, and we= =20 wonder how much of the =0F`new=0F' philosophy was transplanted into the ven= ture by=20 Vodafone, the world leader in spectrum bullishness.=0F" Verizon Wireless is a joint venture of Verizon Communications, Inc., and=20 Vodafone AirTouch plc. =0F"Verizon, with its voracious appetite, was the clear upset victor,=0F" s= aid=20 Michael I. Rollins, an analyst with Salomon Smith Barney, Inc. He had=20 predicted before the auction that the carrier would bid $3 billion to $5=20 billion on licenses. =0F"Although we understand that spectrum is an attractive resource, we were= a=20 bit surprised at how aggressive the company was relative to others in the= =20 auctions,=0F" Cynthia M. Motz, an analyst for Credit Suisse First Boston Co= rp.,=20 agreed in a note to investors. She had expected Verizon Wireless to bid le= ss=20 than $1.3 billion in the reauction. =0F"Based on their auction wins, we believe Verizon is unlikely to be an av= id=20 participant in subsequent auctions,=0F" including the 700 megahertz band sa= le,=20 Ms. Motz added. The FCC=0F's Wireless Telecommunications Bureau last week postponed the 700= MHz=20 band auction from March 6 to Sept. 12 (see separate story). Verizon Wireless officials have declined to comment on the reauction result= s,=20 citing the FCC=0F's anti-collusion rules. But Dennis F. Strigl, the carrie= r=0F's=20 president and chief executive officer, acknowledged at the Comnet Conferenc= e=20 & Expo in Washington last week (see separate story) that the overall prices= =20 paid at the sale were =0F"extremely high.=0F" Analysts speculated why Verizon Wireless had agreed to pay so much for the= =20 New York City spectrum. It could be that the carrier wanted to ensure=20 dominance in the wireless data market, or to guarantee that competitors=0F-= such=20 as Cingular Wireless LLC=0F-didn=0F't land the valuable frequencies, they t= heorized. Or perhaps Verizon Wireless is closer than analysts believe to being tapped= =20 out regarding its available spectrum in New York, they speculated. =0F"The company has been quite mum about exactly why it felt the need to bu= lk up=20 so much,=0F" Mr. Bensche said. =0F"Of course, it will be incumbent upon ma= nagement=20 to be much more forthcoming about their view of the revenue and EBITDA=20 (earnings before interest, taxes, depreciation, and amortization) potential= =20 around wireless data than they have been in the past as they seek to explai= n=20 the $8.8 billion increase in the debt load.=0F" Indeed, Credit Suisse First Boston last week downgraded Verizon=20 Communications=0F' stock from a strong buy to a buy, in part because of its= need=20 to raise cash to pay for the spectrum and the costs of building its wireles= s=20 network. The parent company has said it will lend the wireless unit the=20 money to pay for the licenses. Standard & Poor=0F's revised its outlook on= =20 Verizon Communications to stable from positive, citing the auction debt as= =20 one reason. Whatever Verizon Wireless=0F' reasons for snatching up the New York City=20 spectrum, analysts concede that licenses there are valuable for any carrier= . =20 =0F"In order to provide nationwide coverage in the United States, New York = is=20 mandatory,=0F" noted Knox Bricken, an analyst at the Yankee Group. Overall, Mr. Bensche said, the C and F block reauction proceeds equate to= =20 $4.18 per =0F"megahertz pop,=0F" just behind third-generation (3G) auctions= in the=20 United Kingdom ($4.29 per MHz pop) and Germany ($4.68 per MHz pop) last yea= r,=20 which raised more than $80 billion (TR, May 1, and Aug. 21 and 28, 2000). = =20 Verizon Wireless=0F' bidding worked out to $5.79 per MHz pop, Mr. Bensche s= aid. =0F"We believe that biding was rational, and that an average of $4.18/pop/M= Hz=20 was a reasonable amount for carriers to pay for the spectrum available,=0F"= Mr.=20 Rollins said. Analysts Scrutinize Other Strategies Here=0F's a look at analysts=0F' take on how the other largest carriers did= at the=20 auction: AT&T WIRELESS: It didn=0F't win any licenses separately but will benefit f= rom=20 those won by its =0F"designated entity=0F" (DE), or small-business, partner= Alaska=20 Native Wireless, which bid $2.8 billion for 44 licenses. Through that alliance, analysts note, AT&T Wireless gained spectrum in Los= =20 Angeles and New York, bringing its holdings to 45 MHz in those markets. It= =20 also added licenses in other major markets. AT&T Wireless told analysts last week that the additional spectrum would=20 allow it to roll out a 3G system in 16 additional markets. In all, the=20 carrier says, it will be able to deploy the 3G universal mobile=20 telecommunications system (UMTS) technology in 88 of the top 100 markets. In addition, Mr. Bensche noted that DE affiliates or subsidiaries of two=20 other carriers with close ties to AT&T Wireless=0F-Triton PCS Holdings, Inc= .,=20 and Dobson Communications Corp.=0F-also won a total of 28 licenses at the= =20 auction. CINGULAR WIRELESS: The carrier has 85% equity in DE Salmon PCS LLC, the=20 number-three bidder at the reauction with $2.3 billion in bids on 79=20 licenses. Analysts say Salmon won licenses in a number of markets where=20 Cingular needs to fill in holes in its footprint, including Minneapolis;=20 Denver; Portland, Ore.; Norfolk, Va.; Pittsburgh; and Richmond, Va. =20 It also won licenses that could shore up Cingular=0F's spectrum position in= =20 other key markets, including Los Angeles, Dallas, and Boston. But it failed to win any spectrum in New York City=0F-a key market. Cingul= ar=20 already has a 10 MHz block of spectrum in the Big Apple, thanks to a swap o= f=20 licenses with VoiceStream Wireless Corp. announced before the auction (TR,= =20 Nov. 6, 2000). Mr. Bensche said Cingular =0F"should be comfortable=0F" with that block unt= il it=20 can acquire more spectrum in New York City in the 700 MHz band auction. He= =20 called Cingular-backed Salmon=0F's decision not to remain in bidding for Ne= w=20 York City spectrum =0F"an act of bravery on behalf of [Cingular] shareholde= rs.=0F" Ms. Motz also commended Cingular for its =0F"disciplined=0F" bidding via Sa= lmon. =0F" While the pressure was on for Cingular to win a New York license, it was no= t=20 enough for the company to be pressured into paying more than it was willing= ,=0F"=20 she said. =20 Salmon officials have said they intend to use the licenses for their own=20 network, although they would have the right to use Cingular=0F's name and m= ight=20 establish roaming and operations agreements with the large carrier. VoiceStream: A VoiceStream subsidiary, Voice-Stream PCS BTA, bid $482=20 million for 19 licenses. Its DE affiliate, Cook Inlet/VS GSM V P, offered= =20 $506 million for 22 licenses. =20 The companies filled important VoiceStream footprint holes in the Carolinas= ,=20 including Charlotte and Greensboro in North Carolina and Charleston and=20 Columbia in South Carolina, analysts said. VoiceStream also picked up licenses in Texas, the Pacific Northwest, and th= e=20 Midwest. Its auction success, combined with its planned merger with=20 Powertel, Inc., and recent spectrum swap with Cingular, has helped it build= a=20 nationwide footprint, Mr. Bensche said. Ms. Motz said Cingular=0F's and VoiceStream=0F's auction results =0F"could = suggest=20 that the two intend to work closely together on favorable roaming=20 arrangements in the near future (since each has what the other needs alread= y=20 built out).=0F" SPRINT PCS: SprintCom, Inc., a Sprint PCS subsidiary, dropped out of the= =20 reauction. But SVC BidCo L.P., a DE that is 80%-owned by Sprint PCS, won= =20 five licenses for $281 million. The licenses are in areas where analysts s= ay=20 Sprint PCS had only 10 MHz of spectrum=0F-Tampa and Orlando in Florida,=20 Cincinnati and Dayton in Ohio, and Norfolk, Va. Analysts note that Sprint PCS also secured additional spectrum in a swap wi= th=20 AT&T Wireless announced before the auction. They say that because it has= =20 such a strong spectrum position (30 MHz of spectrum in the majority of its= =20 markets), they aren=0F't surprised it wasn=0F't more aggressive in the sale= . NEXTEL COMMUNICATIONS, INC.: Nextel Spectrum Acquisition Corp., a Nextel= =20 subsidiary, dropped out of the reauction when bidding got too high, as did= =20 Connectbid LLC, a Nextel DE bidding partner controlled by cellular industry= =20 pioneer Craig McCaw. Analysts were not surprised. They said the auction d= id=20 not afford Nextel a chance to secure a full national footprint. =0F"The prospect of holding only 10 MHz of PCS spectrum in a handful of mar= kets=20 at high prices is not an ideal remedy to Nextel=0F's current spectrum need,= =0F" Mr.=20 Bensche said. =20 =0F"With an average of 16 MHz of spectrum in the 800 MHz band to operate it= s=20 iDEN system, it would suit Nextel more to acquire a contiguous 10 MHz on a= =20 nationwide basis rather than a piecemeal collection of properties,=0F" he = said. Analysts expect Nextel to continue acquiring 800 MHz and 900 MHz band=20 spectrum and say it also could pursue licenses at the 700 MHz band auction.= =0F" Whatever the strategy, the completion of the auction puts Nextel=0F's=20 competition in a much stronger position to better compete in both the voice= =20 and data markets, leaving Nextel at a disadvantage for future services,=0F"= Mr.=20 Bensche said. Meanwhile last week, Dana Frix, an attorney for San Antonio=0F-based Allegh= eny=20 Communications, Inc., told TRthat company officials still were considering= =20 their options for contesting the auction results. Allegheny, which dropped out of the reauction before it was over when the= =20 prices got too high, says the DE rules permitted large carriers to=20 participate through =0F"shell entities=0F" for licenses reserved for=20 entrepreneurs. Allegheny failed to persuade the U.S. Court of Appeals in= =20 Washington to block the reauction the day before it began in December 2000= =20 (TR, Dec. 18, 2000). The 35 winning bidders in the reauction have until Feb. 12 to submit down= =20 payments, the FCC said in a public notice released last week. The bidders= =20 also must submit their =0F"long-form=0F" 601 applications, as well as form = 602,=20 which includes ownership information, by that date. The FCC has said it=20 would review ownership arrangements of winning auction bidders closely befo= re=20 granting licenses. Of the 422 licenses on the block in the reauction, 170 were reserved for=20 qualified DEs and 252 were open to all bidders. Mr. Bensche noted that the= =20 liberal capitalization rules for DEs allowed large companies to jump back a= nd=20 forth between bidding on =0F"open=0F" and =0F"closed=0F" licenses, using bi= dding credits=20 for the open licenses through the DEs. =0F"In reality, this drove up the prices in the closed blocks to the same l= evels=20 as the open licenses being chased by the designated entities,=0F" Mr. Bensc= he=20 concluded. =0F"In fact, analyzing all of the markets in which at the close= of=20 the auction one of the open licenses was won by a bidder with bidding=20 credits, we come to the conclusion that the closed blocks went for 9% more= =20 than the open blocks!=0F" Meanwhile, last week bankrupt NextWave Telecom, Inc., whose reclaimed=20 licenses were snatched up at the reauction, filed its reply brief with the= =20 U.S. Court of Appeals in Washington in its case against the FCC. In its brief, NextWave repeated its argument that the cancellation of its= =20 licenses was prohibited by the U.S. Bankruptcy Code. Oral arguments are=20 scheduled for March 15 in NextWave Personal Communications, Inc., v. FCC=20 (case nos. 00-1402 and 1403). =0F-Paul Kirby U.S. Carriers See Progress in Opening Markets But Ask USTR To Keep Pressure= =20 on Laggards Countries around the world are making progress in complying with open-trade= =20 agreements affecting telecom services, but much more work needs to be done,= =20 U.S. carriers have told the Office of the U.S. Trade Representative. The carriers=0F' statements about global telecom markets had familiar theme= s. =20 They raised issues similar to those that have dominated debates on opening= =20 U.S. service markets to competition=0F-disputes over pricing unbundled netw= ork=20 elements and policies on collocating competitors=0F' equipment in incumbent= s=0F'=20 facilities. USTR recently asked for comments on the effectiveness of the World Trade=20 Organization=0F's basic telecom trade agreement, the telecom trade provisio= ns of=20 the North American Free Trade Agreement, and other telecom trade pacts. It= =20 plans to complete its annual review of the agreements by March 31. Germany Germany was a primary target of competitors=0F' complaints about the progre= ss of=20 market-opening efforts. The Competitive Telecommunications Association sai= d=20 the market conditions for competitors had =0F"worsened=0F" in Germany over = the last=20 year. =0F"The intermingling of interests between the German federal government an= d=20 Deutsche Telekom [AG], which the German federal government controls in=20 numerous overt and subtle ways, remains a serious problem,=0F" CompTel said= . CompTel objected to =0F"exorbitant=0F" licensing fees that require an =0F"u= p-front=20 payment of administrative costs projected over a 30-year period.=0F" It ch= arged=20 that Deutsche Telekom had delayed delivering services to competitors=0F'=20 customers and imposed onerous conditions on collocating equipment in its=20 central offices. Covad Communications Group, Inc., also complained of market conditions in= =20 Germany, specifically the rates for unbundled local loops. It said Deutsch= e=20 Telekom had proposed charging 34 deutsche marks ($16.25) per month for a=20 local loop, an increase of 33%. Deutsche Telekom=0F's online service unit= =20 offers ADSL (asymmetric digital subscriber line) service for 49 deutsche=20 marks ($23.42) per month. =0F"In order to provide a comparable ADSL retail product in a sustainable= =20 competitive market, a new entrant would have to charge an end user 49=20 deutsche marks, while paying Deutsche Telekom 34 deutsche marks per month f= or=20 a loop (in addition to apportioned payments for collocation, transport, and= =20 OSS, as well as amortizing the increased nonrecurring loop charge of 357=20 deutsche marks [$170.69]),=0F" Covad said. In addition, the competitor would have to amortize its own investments in= =20 equipment and network infrastructure, as well as salaries and marketing=20 costs, it said. Mexico As USTR decided last week to wait on pursuing a complaint against Mexico at= =20 the World Trade Organization (see separate story), U.S. carriers continued = to=20 raise concerns about market conditions in Mexico. WorldCom, Inc., said Mexico =0F"unquestionably presents the most serious an= d=20 pressing concerns.=0F" USTR=0F's =0F"persistent efforts to improve competi= tive=20 conditions in Mexico have resulted in some progress,=0F" it said, but it ci= ted=20 some remaining problems: (1) The rule that gives the incumbent, Telefonos de Mexico SA de CV=20 (Telmex), sole authority to negotiate accounting rates with foreign=20 carriers. Competitive carriers can=0F't offer =0F"market-based rates=0F" f= or=20 international calls because Telmex has resisted reducing the =0F"huge subsi= dies=0F"=20 it receives from U.S. carriers and customers, WorldCom said. (2) The Mexican regulatory agency, the Comision Federal de=20 Telecomunicaciones (Cofetel), has refused to implement =0F"flexible and=20 cost-oriented international termination rates=0F" as an alternative to the= =20 current system. (3) Cofetel has failed to regulate Telmex as a =0F"dominant=0F" carrier. (4) Cofetel=0F's decision-making process lacks =0F"transparency,=0F" and T= elmex=0F's=20 competitors don=0F't have adequate input into the regulatory process. CompTel said that =0F"despite promises of real change, no real advances hav= e=20 been made=0F" in Mexico. Telmex, it added, is failing to meet its obligati= on to=20 provide timely, nondiscriminatory, and cost-based interconnection. CompTel viewed the decision to cut the rate for =0F"on-net interconnection= =0F" to=20 1.25 cents per minute as a =0F"positive step.=0F" Telmex has challenged th= e rate=20 in court. Telmex charges carriers a =0F"resale=0F" tariff rate of more tha= n 9=20 cents per minute to terminate traffic in cities where the competitive carri= er=20 doesn=0F't have a network, CompTel said. Spain Spain=0F's Ministry of Science and Technology has completed an initial revi= ew of=20 Telefonica S.A.=0F's =0F"reference interconnection offer,=0F" Covad reporte= d. It said=20 it had several concerns with the terms of the offer. Telefonica =0F"offers only discriminatory collocation,=0F" it said, explain= ing that=20 Telefonica requires competitors to install equipment in separate caged=20 collocation spaces and restricts the types of equipment that can be=20 installed. Covad also complained about Telefonica=0F's slow provisioning= =20 intervals for unbundled loops and lack of information on the condition or= =20 availability of loops. United Kingdom Although the U.K.=0F's Office of Telecommunications has completed a series = of=20 proceedings to open markets, the telecom environment there is =0F"neither= =20 stable, predictable, nor nondiscriminatory,=0F" Covad said. British Telecommunications plc has refused to offer cageless collocation an= d=20 has limited the central offices that new entrants can access, it said. Cov= ad=20 said other new entrants had accused British Telecom of allocating=20 insufficient resources to provisioning unbundled loops. France=20 Covad criticized France Telecom S.A.=0F's =0F"highly problematic=0F" practi= ce of=20 refusing to sign any interconnection/operations agreement with a new market= =20 entrant that doesn=0F't hold an =0F"L 33.1=0F" telecom infrastructure licen= se=20 already. But the new entrant, Covad said, needs information in the draft= =20 local loop access agreement to formulate the business plan required by the= =20 license application. Covad also faulted France Telecom=0F's =0F"discriminatory=0F" collocation p= olicies,=20 which forbid new entrants from collocating ATM (asynchronous transfer mode)= =20 equipment and IP (Internet protocol) routers. France Telecom also refuses = to=20 provision for new entrants =0F"spare=0F" copper pairs (those that currently= aren=0F't=20 in use), Covad said. France Telecom=0F's pricing structure for unbundled loops, collocation,=20 transport, and electronic bonding to operation support system (OSS) functio= ns=20 =0F"clearly puts new entrants in a price-squeeze situation when compared to= the=20 retail prices for DSL service offered by France Telecom=0F's ISP affiliates= ,=0F"=20 Covad concluded. Peru=20 BellSouth Corp. focused on Peru, commending USTR=0F's role in opening the= =20 country=0F's telecom markets to competition. But it expressed concern abou= t new=20 regulations under consideration in Peru. Peruvian regulators plan to reduce the interconnection rate for wireless=20 carriers connecting with Telefonica del Peru=0F's wireline network, BellSou= th=20 said. It voiced concern that new rates would be challenged and not put int= o=20 effect. It also complained about the regulators=0F' decision that the new= =20 interconnection rates wouldn=0F't apply to fixed-to-mobile calls. Because the amount of fixed-to-mobile traffic exceeds the amount of=20 mobile-to-fixed traffic, mobile carriers would be =0F"significantly harmed= =0F" if=20 the changes went into effect, BellSouth said. It said the new arrangement= =20 was =0F"inconsistent with Peru=0F's WTO commitments to prevent anticompetit= ive=20 practices=0F" because it would benefit Telefonica del Peru. AT&T Corp. raised similar concerns about Peru. =0F"Continued USTR involvem= ent=20 remains necessary to ensure that Telefonica, as Peru=0F's major supplier, i= s=20 required to provide =0F`rates for all services at all levels that are=20 comparable, cost-oriented, reasonable, and nondiscriminatory,=0F'=0F" it sa= id. South Africa AT&T objected to constraints on providers of value-added network services= =20 (VANS) in South Africa. Telkom South Africa Ltd., the incumbent telecom=20 operator, =0F"continues to deny new telecommunications facilities to AT&T a= nd=20 many other VANS suppliers,=0F" AT&T said. It said the South African regulatory agency, the Independent Communication= =20 Authority of South Africa, had proposed to require that at least 15% of=20 ownership and control of a VANS license be held by =0F"historically=20 disadvantaged persons.=0F" Such a requirement would =0F"clearly violate So= uth=20 Africa=0F's WTO commitments to provide market access and national treatment= to=20 foreign VANS suppliers,=0F" AT&T said. Japan To comply with the WTO=0F's basic telecommunications service agreement, Jap= an=20 still needs to create an independent regulatory authority, CompTel said. I= t=20 noted that the government still owns a =0F"significant stake=0F" in Nippon= =20 Telegraph and Telephone Corp. (NTT). CompTel complained that NTT employees often leave to work at the Ministry o= f=20 Posts and Telecommunications (MPT) for a few years and then return to NTT. = =20 Those employees don=0F't recuse themselves from par-ticipating in regulator= y=20 actions regarding NTT, it said. CompTel said MPT =0F"must establish a clear and detailed regulatory=20 environment.=0F" MPT needs to set guidelines on cross-subsidies and tests = for=20 predatory pricing, transparency of accounts, and misuse of customer=20 information, CompTel said. MPT oversaw splitting NTT into five companies in 1999, CompTel noted. But= =20 MPT doesn=0F't regulate those carriers as =0F"dominant,=0F" despite their s= ignificant=20 market shares, it added. For example, local telecom service providers NTT= =20 East and NTT West jointly control more than 90% of the nation=0F's lines,= =20 CompTel said. CompTel also raised concerns about compliance with other points in the=20 reference paper and a May 1998 U.S.-Japan deregulation joint statement. Th= e=20 criticisms include the following:=20 (1) NTT levies =0F"excessively high interconnect charges=0F"; (2) NTT fails to provide access to ducts, conduits, and rights-of-way; and= =20 (3) Japan imposes =0F"unnecessary and burdensome licensing conditions.=0F" Taiwan CompTel said Taiwan hadn=0F't met its commitments outlined in the U.S.-Taiw= an=20 1998 Accession Protocol.It faulted Taiwan for restrictive licensing=20 conditions and a lack of =0F"transparency=0F" in the regulatory process.=20 =0F"With just six months to go before the telecommunications services marke= t is=20 to be opened to all new entrants, [Taiwan=0F's wireline regulations] requir= ing=20 an extraordinary investment of $1.2 billion in the Taiwan market and a=20 build-out of 1 million exchange lines=0F-150,000 of which must be installed= =20 prior to any service offering=0F-remain in effect,=0F" CompTel said. USTR Delays Plea for WTO Probe Of Mexico, Keeps Options Open The Office of the U.S. Trade Representative still may ask the World Trade= =20 Organization to investigate Mexico=0F's compliance with a WTO agreement to = give=20 foreign carriers=0F' access to its telecom market. But first USTR wants to= give=20 Mexico more time to address U.S. concerns before pressing its case. USTR declined last week to ask the WTO to convene a =0F"dispute-settlement= =20 panel=0F" to address claims that Mexico has failed to implement its=20 market-opening commitments under the WTO=0F's basic telecom service agreeme= nt. USTR asked the WTO in December 2000 to convene such a panel. But Mexico=20 blocked the initial request, as a WTO member country has the right to do. = A=20 second such request cannot be blocked. USTR didn=0F't make a second request for a dispute-settlement panel when WT= O=20 officials convened Feb. 1, but that does not mean USTR has =0F"dropped=0F" = the=20 case, a USTR spokeswoman said. =0F"That is not at all the case,=0F" she sa= id. =0F"We=20 reserve the right to move forward.=0F" =20 She said a second set of WTO consultations with Mexico ended Jan. 16, and= =20 USTR is =0F"evaluating where we stand.=0F" Although the parties have made = some=20 progress in addressing U.S. concerns, several areas of disagreement remain,= =20 the spokeswoman said. The key concern, she said, is the level of=20 international settlement rates on routes to Mexico. Industry sources also warned against reading too much into USTR=0F's decisi= on=20 not to move forward immediately. =0F"They=0F're just giving [Mexico] some = more=20 time to address the situation,=0F" one source said. =0F"It doesn=0F't mean= they can=0F't=20 [seek an investigation] a month from now=0F" at the next meeting of the WTO= =0F's=20 dispute-settlement panel in Geneva. In addition, President Bush and Mexican President Vicente Fox plan to meet= =20 Feb. 16, and sources said telecom topics could be on the agenda. The meeti= ng=20 would be =0F"an excellent time [for Bush] to bring these important issues u= p,=0F"=20 another source said. And President Fox, who took office last fall, has sai= d=20 he =0F"understands the importance of a competitive telecom marketplace,=0F"= the=20 source said. In addition to Mexico=0F's high international settlement rates, U.S. indust= ry=20 also is concerned about other interconnection rates in Mexico that are =0F"= well=20 above cost=0F" and the fact that there is =0F"still no meaningful regulatio= n of=20 Mexico=0F's dominant carrier,=0F" the source said. Burns To Unveil =0F`Tech Seven=0F' Legislative Package; House, Senate Telec= om=20 Panels To Add Members With the makeup of the House and Senate telecom subcommittees beginning to= =20 take shape, lawmakers from both panels are preparing to launch the first=20 major telecom and Internet-related initiatives of the 107th Congress. Leading the way in the Senate is communications subcommittee Chairman Conra= d=20 Burns (R., Mont.), who plans to unveil his =0F"tech seven=0F" package of te= lecom=20 and Internet bills this week. Sen. Burns, who dubbed his high-tech agenda= =20 for the last Congress the =0F"digital dozen,=0F" will reintroduce a few hol= dover=20 bills that weren=0F't passed, as well as some =0F"new surprises,=0F" his sp= okesman=20 told TRlast week. Sen. Burns=0F' digital dozen enjoyed considerable success last in the last= =20 Congress, as nearly half of the bills became part of new telecom laws. Tho= se=20 successes include measures to privatize the international satellite=20 consortium Intelsat, designate =0F"911=0F" as the universal emergency telep= hone=20 number, permit direct broadcast satellite TV companies to retransmit local= =20 broadcast station signals, legalize digital signatures, and set up a rural = TV=20 loan guarantee plan. Almost certain to be included in this year=0F's package are bills to expand= =20 deployment of broadband services using low-power TV spectrum, to ease=20 reporting requirements for small incumbent local exchange carriers, and to= =20 lift the caps on universal service =0F"high-cost=0F" support, the Burns spo= kesman=20 said. The other =0F"top priorities=0F" on Sen. Burns=0F' agenda are bills to bols= ter online=20 privacy and to curb =0F"spamming=0F" (sending unsolicited commercial e-mail= ), the=20 spokesman said. Sen. Burns also may address the process by which the=20 Internet Corporation for Assigned Names and Numbers (ICANN) selects Interne= t=20 domain name suffixes. He might do so either through legislation or through= =20 the subcommittee=0F's oversight capacity. Meanwhile, Sen. Burns=0F' subcommittee has grown by three seats since the= =20 previous Congress. In handing out subcommittee assignments last week,=20 Commerce, Science, and Transportation Committee Chairman John McCain (R.,= =20 Ariz.) gave the Democrats two extra seats on the panel and the Republicans= =20 one more. Both parties now have 10 members on the panel. The new Democratic members are Barbara Boxer (Calif.) and John D. Edwards= =20 (N.C.). Sen. Edwards has said he would reintroduce a bill to give consumer= s=20 more control over how their telecom service providers could use their calli= ng=20 records for marketing (TR,Nov. 8, 1999). In a statement on the Senate floor last week, Sen. Edwards said, =0F"During= the=20 last Congress, I introduced the Telephone Call Privacy Act [S 1850] in orde= r=20 to prevent phone companies from disclosing consumers=0F' private phone reco= rds=20 without their permission. I will be reintroducing this bill soon,=0F" he s= aid. Senate Republicans had five seats to fill on the communications=20 subcommittee. The GOP picked up one seat from Sen. McCain=0F's decision to= =20 expand the panel and was forced to fill four more because of three election= =20 casualties and the departure of William H. Frist (Tenn.) from the full=20 Commerce Committee (TR,Jan. 15). =20 The new Republican members on the communications subcommittee are Olympia J= .=20 Snowe (Maine), Gordon Smith (Ore.), Peter G. Fitzgerald (Ill.), and freshme= n=20 John Ensign (Nev.) and George Allen (Va.). =20 Tauzin Expands Telecom Panel Meanwhile, efforts to organize the House telecommunications subcommittee we= re=20 held up by a dispute over whether to add seats to the full House Energy and= =20 Commerce Committee. =20 Democratic leadership was pushing to add one more Democrat to the Commerce= =20 Committee, which would narrow the balance of power on the committee to 30= =0F-26=20 in the Republicans=0F' favor. House Speaker J. Dennis Hastert (R., Ill.),= =20 however, has proposed adding one more GOP and one more Democratic seat. Final determinations on committee matters, including the jurisdiction and= =20 membership of its subcommittees, will be made at an organizational meeting= =20 set for Feb. 7. =0F"We=0F'll be operating under the assumption that they a= re=20 adding a Democrat and a Republican=0F" to the committee, Commerce spokesman= Ken=20 Johnson said Friday, Feb. 2. Despite the delay, Commerce Chairman W.J. (Billy) Tauzin (R., La.) said his= =20 subcommittee assignments and selections for subcommittee chairmen had been= =20 ratified by the Commerce Committee=0F's Republican members. Rep. Tauzin has proposed adding two more GOP seats to the telecommunication= s=20 subcommittee, which had 15 Republicans last session when it was called the= =20 telecommunications, trade, and consumer protection subcommittee. Assuming= =20 committee approval for that expansion, new telecom subcommittee Republicans= =20 will be its Chairman Fred Upton (Mich.), Michael Bilirakis (Fla.), Joe Bart= on=20 (Texas), Thomas M. Davis III (Va.), and John B. Shadegg (Ariz.). Rep. Clif= f=20 Stearns (R., Fla.), who was on the panel during the last Congress, will be= =20 its vice chairman. Commerce Committee Ranking Democrat John D. Dingell (Mich.) will wait for t= he=20 House leadership to agree on the size of the Commerce Committee before movi= ng=20 to select new committee members and announcing his subcommittee assignments= ,=20 a Dingell spokeswoman said. That could happen =0F"early [this] week,=0F" s= he said. The telecom subcommittee=0F's first hearing of the 107th Congress is schedu= led=20 for Feb. 8. The hearing will focus on ICANN=0F's recent selection of regis= try=20 operators for new top-level domains. Powell To Lead with Review Of FCC Operational Changes With a Republican administration in place for the first time since the=20 passage of the Telecommunications Act of 1996, GOP insiders appearing at la= st=20 week=0F's Comnet convention in Washington said the political landscape was = ripe=20 for overhauling the FCC. Key congressional and FCC staffers predicted that federal policy-makers wou= ld=20 launch major efforts this year to (1) curb the Commission=0F's authority to= =20 impose =0F"voluntary=0F" conditions on merger applications, (2) update the = agency=0F's=20 traditional common carrier rules, and (3) pressure the FCC to accelerate it= s=20 decision making. =20 The Republican-heavy panel also saw spectrum- management issues=0F-includin= g the=20 identification of new spectrum for third-generation wireless services=0F-to= pping=20 the Bush administration=0F's telecom agenda. Lauren J. (Pete) Belvin, an attorney at Wilkinson Barker & Knauer LLP, said= =20 history proved that telecom policies inevitably would come to the forefront= =20 of the Bush administration =0F"whether the administration is deeply involve= d=20 with telecom or not.=0F" Ms. Belvin is a former FCC and Senate staffer. =0F"Telecom [policy-making] happens,=0F" Ms. Belvin said, because =0F"the m= arket pipes=20 its tune, there=0F's a reaction to it, and the FCC is at front and center.= =0F" Recently designated FCC Chairman Michael K. Powell=0F's first order of busi= ness=20 will be to determine which of the Commission=0F's operations are =0F"messed= up,=0F"=20 said Peter Tenhula, Mr. Powell=0F's senior legal adviser. =0F"We=0F'll pro= bably start=20 with initiatives that may not be regulatory or deregulatory but more=20 operational,=0F" Mr. Tenhula said. =20 During his first week as chairman, Mr. Powell received numerous complaints= =20 about the slow pace of the FCC=0F's decision-making process, Mr. Tenhula sa= id. =0F" Right now, 80% of the FCC=0F's agenda is reactive instead of proactive, whe= re it=0F' s responding to a petition for rulemaking or a [section] 271 application,= =0F"=20 Mr. Tenhula said. =0F"At the top of the chairman=0F's agenda will be refor= ming the=20 operation of the Commission=0F" and =0F"expediting its decision making,=0F"= he said. Mr. Tenhula suggested that Chairman Powell also would reexamine whether=20 obtaining the authority to provide in-region interLATA (local access and=20 transport area) services still is an incentive to encourage the Bell=20 operating companies to open their local exchange markets to competition. = =20 Under section 271 of the Telecommunications Act of 1996, the Bells must=20 satisfy a 14-point =0F"competitive checklist=0F" of market-opening requirem= ents=20 before receiving the FCC=0F's blessing to offer interLATA services. =0F"I=0F'm sure that more [section 271 applications] are going to be filed = in the=20 future, but whether or not [in-region interLATA service authorization] is a= =20 yummy enough carrot anymore, I=0F'm not sure,=0F" Mr. Tenhula said. =0F"At= the time=20 of the Act, though, it sure looked yummy,=0F" he said. A reexamination of the section 271 process couldn=0F't come soon enough, sa= id=20 Howard Waltzman, the recently named telecom counsel to the House Energy and= =20 Commerce Committee. Technology has =0F"overtaken legislation,=0F" he said,= =0F"and=20 what has been happening in the marketplace has eviscerated many parts of th= e=0F"=20 Act. Policy-makers need to =0F"reevaluate some of the core parts of the Act and= =20 determine. . .whether or not they=0F're hindering investment and innovation= ,=0F" he=20 said. =20 He predicted a groundswell of bipartisan support in the newly elected=20 Congress for limiting the FCC=0F's role in reviewing merger-related license= =20 transfers, as well as limiting its ability to impose conditions on section= =20 271 and merger applications. Congress will be looking at =0F"what we can do to change the agency to make= it=20 more efficient,=0F" Mr. Waltzman said. =0F"The biggest frustration with th= e way=20 the FCC implemented the telecom act under the Clinton administration was th= at=20 the processes were too slow,=0F" he said. Asked to comment on the financial struggles of competitive local exchange= =20 carriers (CLECs), Mr. Waltzman said the CLECs=0F' financial woes don=0F't = portend=20 an end to local exchange competition. Cable TV providers and wireless=20 carriers also are deploying alternative local phone service, he noted. Verizon=0F's Strigl Has Spectrum Plan In a keynote address at the Comnet conference, the head of Verizon Wireless= =20 said that with the growth of the wireless data sector creating demand for= =20 spectrum, federal regulators must adopt a consistent, market-based approach= =20 to allocating frequencies. =0F"We need to ensure that the precious spectrum we have reaches its fulles= t=20 potential through a competitive and forward-looking policy,=0F" Verizon Wir= eless=20 Chief Executive Officer and President Dennis F. Strigl said. =0F"Marketpla= ce=20 forces of fair and open competition should be the sole basis for awarding= =20 spectrum, not artificial controls like caps on spectrum. . .or limitations= =20 based on allowances or set-asides for various groups.=0F" Regarding the wireless Internet, Mr. Strigl said that to be successful, U.S= .=20 carriers must create =0F"a unique Internet experience.=0F" He added that h= is=20 company is not =0F"replicating what is done on the desktop.=0F" =0F"Deep customization of both content and delivery=0F" will drive the succ= ess of=20 the wireless Web, Mr. Strigl said. Examples of this include alerts sent to= =20 wireless devices that can notify their users when preselected stocks hit a= =20 certain price or when schools are closed during inclement weather, he said.= =20 Or users can access data such as weather or flight information. Two-way te= xt=20 messaging is another feature Mr. Strigl said he expected to help drive the= =20 growth of the wireless data sector. As for the devices themselves, he said, =0F"we need compelling wireless=20 appliances.=0F" He expects =0F"nontraditional handsets=0F" such as persona= l digital=20 assistants (PDAs) with voice capability to become more popular. He stresse= d=20 the need for technical standards to promote the use of various devices. Mr. Strigl said all major U.S. wireless carriers this year would be=20 aggressively forming alliances with applications providers and Internet=20 vendors in hopes of promoting the growth of mobile e-commerce. He touted the potential of location-based services and vehicle-based=20 telematics. However, he acknowledged the industry needs to protect=20 consumers=0F' privacy when offering location-based services, and he said it= must=20 encourage responsible driving when using telematic applications. Tauzin Demands Report on Critical Infrastructure=20 House Energy and Commerce Committee Chairman W.J. (Billy) Tauzin (R., La.) = is=20 demanding that the National Security Council provide his panel with a copy = of=20 a 200-page critical infrastructure report that he says was required by law = to=20 be transmitted to Congress by Jan. 15 but never arrived. The lawmaker also is seeking further information about published reports th= at=20 former President Clinton waited until the end of his term before naming=20 members to the National Infrastructure Assurance Council, even though the= =20 NIAC had been established by executive order in the summer of 1999. =20 =0F"I am concerned that President Clinton waited until his last full day in= =20 office to finally appoint the first group of members to this critical=20 council,=0F" Rep. Tauzin said in Jan. 25 letter to Richard Clarke, NSC nati= onal=20 coordinator-infrastructure protection and counterterrorism. =20 The executive order had called for the 30-member panel to propose and devel= op=20 new ways for the public and private sectors to cooperate on telecom and=20 information infrastructure issues (TR,July 19, 1999).=20 Rep. Tauzin has asked Mr. Clarke to turn over to the committee the names of= =20 the last-minute NIAC appointees and to =0F"indicate whether your office=20 recommended each of these individuals for a position on the NIAC and, if no= t,=20 specify the individual or entity that recommended such person.=0F" In requesting a copy of the overdue infrastructure report, Rep. Tauzin also= =20 questioned why the study =0F"was, in fact, prepared but never signed by=0F"= former=20 President Clinton. =0F"Under the Defense Authorization Act of 2001, this r= eport=20 was required to be transmitted to the Congress by Jan.15, 2001,=0F" he note= d. Rep. Tauzin originally had asked Mr. Clarke to provide the committee with t= he=20 information by Wednesday, Jan. 31. But a committee spokesman said the pane= l=20 had decided to give the NSC =0F"more leeway=0F" in meeting that deadline = =0F"because=20 of transition issues=0F" related to the change in presidential administrati= ons. AT&T Execs See Hope of Truce In Long Distance Price Wars AT&T Corp. executives believe they=0F're seeing at least a temporary cease-= fire=20 in the long distance rate wars that have ravaged the revenue streams of=20 incumbent interexchange carriers (IXCs). =0F"Pricing still is aggressive, = but=20 it is not setting new lows,=0F" AT&T Chairman and Chief Executive Officer C= .=20 Michael Armstrong said Jan. 29 during a conference call with financial=20 analysts to discuss the company=0F's year 2000 financial results. Analysts warn, however, that any equilibrium in the IXC sector may be=20 temporary. =0F"Some have noted that long distance pricing has stabilized, = which=20 recent data support,=0F" said Frank J. Governali, an analyst for Goldman, S= achs=20 & Co., in a report. =0F"But expecting long term =0F`price stability=0F' in= long=20 distance in our view is not realistic.=0F" Lower rates will spur greater demand, but demand growth won=0F't be enough = to=20 offset the lower rates, said Daniel P. Reingold, managing director-equity= =20 research at Credit Suisse First Boston Corp. The market will become more= =20 competitive as Bell companies win approval to offer in-region interLATA=20 (local access and transport area) service, and new entrants like Global=20 Crossing Ltd. and Qwest Communications International, Inc., will continue= =20 their incursions, Mr. Reingold said in a report. Mr. Reingold has no rating on AT&T, but he gives WorldCom, Inc., a =0F"hold= =0F"=20 rating because of its reliance on long distance revenue. =0F"Our concern r= uns=20 far deeper than price competition and [Bell company entry] in the voice lon= g=20 distance business,=0F" he said. =0F"Rather, it runs to pricing in the long= -haul=20 data-transport segment as well.=0F" WorldCom=0F's 2000 financial results, scheduled to be unveiled Feb. 8, are= =20 likely to show the same weakness as those of Sprint Corp. and AT&T. Last= =20 week, Sprint reported a 17% decline in long distance operating income for t= he=20 fourth quarter of 2000 compared with figures for the year-ago quarter,=20 despite an 18% increase in long distance calling volumes. AT&T=0F's consumer services unit, which relies heavily on long distance rev= enue,=20 posted a 9.5% decline in year 2000 sales. The long distance turmoil hit AT= &T=0F' s business services unit, too. Because of its reliance on revenue from voi= ce=20 long distance services, the business unit=0F's annual revenue increased onl= y=20 3.3%, AT&T executives said. But the price war didn=0F't seem to hurt Verizon Communications, Inc., a=20 relatively new entrant in the interLATA service market. Verizon=0F's inter= LATA=20 service revenue increased $55 million in the fourth quarter, the company sa= id=20 last week. AT&T executives suggested that new competitors like Verizon would have more= =20 effect on market share than on rates. Low rates will continue to cause pai= n=20 because customers still are migrating to cheaper calling plans, but AT&T=0F= 's=20 larger woe is the continuing loss of long distance subscribers to Bell=20 companies, wireless service providers, and other new rivals, executives sai= d. AT&T has tried to boost its sagging fortunes by offering local service. =20 Bundles of local and long distance service are thought to be popular with= =20 consumers and profitable for carriers. Verizon=0F's success in the interLA= TA=20 service markets of New York stems largely from its dominance in that state= =0F's=20 local service markets. But AT&T=0F's efforts to compete as a local service provider are hamstrung = by=20 the prices it must pay incumbent local exchange carriers for unbundled=20 network elements (UNEs), Mr. Armstrong said. =0F"If there is an open marke= t, we=20 can compete,=0F" he said, noting that AT&T corralled 750,000 customers for = its =0F" any distance=0F" service in New York. That state has one of the most open = and=20 competitive local telephone markets in the nation, he said. But in other states, AT&T=0F's local-service efforts have fallen flat becau= se of=20 UNE rates, Mr. Armstrong suggested. =0F"The way that the markets have been= =20 opened is not operationally or economically viable,=0F" he said. That leav= es=20 AT&T dependent on its shrinking long distance business for revenue, and on= =20 its cable telephony business as a way to break into local-service markets. Verizon Wireless is rolling out its two-way text messaging service,... Verizon Wireless is rolling out its two-way text messaging service, Mobile= =20 Messenger, in more than 200 markets. Subscribers with two-way text messagi= ng=0F- capable phones can send and receive messages of up to 120 characters. They= =20 can either sign up for one of two rate plans or pay two cents for each=20 message received and a dime for each message sent. One rate plan is $2.99 = a=20 month and includes 100 free messages, while another is $7.99 a month and=20 includes 600 messages. All messaging fees will be waived until April 1. Versatel Absorbs VersaPoint, Cuts Workers, Writes Off Assets Versatel Telecom International NV has absorbed what remains of VersaPoint= =0F-its=20 former joint venture with NorthPoint Communications Group, Inc.=0F-after cu= tting=20 most of the workforce and halting many of the operations of the money-losin= g=20 business. It said it would be writing off redundant assets. Before NorthPoint=0F's recent filing for bankruptcy protection (TR, Jan. 22= ), it=20 arranged sell its 50% stake in VersaPoint to Versatel for $6.5 million. Th= e=20 companies created the venture less than a year ago. According to Versatel Chief Executive Officer Raj Raithatha, the company=20 remains committed to Versa-Point=0F's strategy of deploying digital subscri= ber=20 line (DSL) service to compete against European incumbent network operators.= =20 But VersaPoint focused on wholesale DSL markets and staked out a large=20 European territory that included France and the United Kingdom. =20 Versatel=0F's focus is more narrow, offering retail service to business=20 customers in the Netherlands, Belgium, Luxembourg, and northwestern Germany= ,=20 Mr. Raithatha said. Versatel is happy to take control of VersaPoint=0F's assets, especially its= =20 central office (CO) collocations in the Netherlands, where =0F"space is at = a=20 premium,=0F" Mr. Raithatha said. =0F"It was particularly important that we= secure=20 the Dutch COs.=0F" Still, many of VersaPoint=0F's assets are redundant or are not crucial to= =20 Versatel=0F's plans, he said. Of 286 VersaPoint workers, 200 will be laid = off. =20 About 1,000 CO collocations that were planned or operational are being=20 abandoned because they lie outside Versatel=0F's territory, Mr. Raithatha s= aid. The VersaPoint acquisition is a mixed financial bag for Versatel, which wil= l=20 have to absorb VersaPoint=0F's projected EBITDA (earnings before interest,= =20 taxes, depreciation, and amortization) loss of $9.3 million. Versatel will= =20 take a charge of $4.6 million to account for the layoffs and the write-off = of=20 redundant assets. But Versatel will be able to redeploy the $70 million it had planned to=20 invest this year in VersaPoint. With that additional money, Versatel won= =0F't=20 have to seek additional funding for at least two years, and by then it=20 expects to be profitable, Mr. Raithatha said. E.spire Mulls Reverse Split To Meet Nasdaq=0F's Conditions The Nasdaq Listing Qualifications Panel has agreed to continue listing=20 e.spire Communications, Inc.=0F's securities on the Nasdaq National Market,= but=20 the financially struggling carrier will have to boost its stock price if it= =20 wants to stay there past April 2. Under conditions set by the Nasdaq panel, e.spire must demonstrate a closin= g=20 bid price of $5 per share by April 2 and maintain its closing bid price at= =20 that level for 10 consecutive trading days. To accomplish that, e.spire is= =20 considering a =0F"reverse stock split,=0F" the company said. =20 The company also must complete a restructuring of its bond indebtedness by= =20 April 2, the Nasdaq panel said. If it accomplishes both those goals, the= =20 panel would consider listing e.spire=0F's stock under Nasdaq=0F's =0F"alter= native=20 listing standards,=0F" requiring net tangible assets of at least $4 million= . E.spire will need additional funding to survive until April. It is due to= =20 run out of cash this month. A spokeswoman said e.spire was =0F"working 24/= 7=0F" to=20 try to secure additional capital. Meanwhile, e.spire said the U.S. District Court in Baltimore had dismissed= =20 with prejudice a class action lawsuit against the company and some of its= =20 former officers and directors. The lawsuit alleged that e.spire had used= =20 improper accounting methods to overstate its earnings for 1999. =20 =0F"Having fought and won this case, we can turn our focus fully on buildin= g=20 shareholder value,=0F" said George F. Schmitt, e.spire chairman and acting = chief=20 executive officer. Convergent To Cut Workforce, Close Offices Convergent Communications, Inc., plans to reduce its workforce by 22% and= =20 close five offices in an effort to reduce its monthly losses by $3 million,= =20 the telecom systems integrator has said. Convergent, of Englewood, Colo.,= =20 already has eliminated 11 offices by selling its PBX and key telephone syst= em=20 businesses to Inter-Tel, Inc. (TR, Jan. 8, notes). Convergent will boost its data service sales force from 85 people to 155=20 people as part of its new focus on the data business, said Joseph Zell,=20 president and chief executive officer. Early Talks with WRC-03 Nations Seen As Key for U.S. Success It=0F's important for U.S. officials to consult with other nations as they= =20 prepare for the International Telecommunication Union=0F's 2003 World=20 Radiocommunication Conference (WRC-03), FCC officials and industry=20 representatives agree. =0F"One of the best ways of achieving a tremendous amount at WRC is. . .[by= ]=20 listening to our compatriots in other countries, listening to their thought= s=20 as to what should be done,=0F" Commissioner Susan Ness said last week at th= e=20 opening meeting of an industry advisory committee helping the agency draft= =20 proposals for the WRC-03. =0F"And to the extent that we can work with these other countries to achiev= e=20 their goals at the same time we=0F're trying to formulate our goals, we=0F'= re going=20 to have a much more successful and less confrontational radio conference,= =0F"=20 Ms. Ness added. She noted that WRC-03 would be the fourth such conference= =20 since she became a member of the Commission. Donald Abelson, chief of the FCC=0F's International Bureau, agreed that the= =20 lesson the FCC had learned from past conferences =0F"is the sooner we get t= o=20 talk to our foreign colleagues and coordinate with them, the better our=20 proposals are.=0F" Mr. Abelson said the advisory committee would be important because it would= =20 help the FCC develop WRC-03 proposals it can present to other federal=20 agencies, such as the Commerce and State departments. Those proposals eventually would be the subject of consultations with=20 regulators from other countries leading up to WRC-03. Peter A. Tenhula, senior legal adviser to Chairman Michael K. Powell, agree= d=20 that early planning was essential for a successful WRC-03. Full Slate of Issues Among the issues the advisory committee wants addressed at WRC-03 are (1)= =20 spectrum for third-generation (3G) services, also known as International=20 Mobile Telecommunications-2000 (IMT-2000); (2) terrestrial wireless=20 interactive multimedia services; (3) spectrum sharing in the 40 gigahertz= =20 band; (4) aeronautical mobile-satellite services; (5) public protection and= =20 disaster relief; (6) interregional sharing issues for broadcasting satellit= e=20 services; (7) high-frequency broadcasting service; and (8) regulatory=20 procedures governing satellite networks. Much of the advisory panel=0F's work will be done by seven informal working= =20 groups focusing on specific issues, said Brian Fontes, chairman of the=20 advisory committee and vice president-federal regulation at Cingular Wirele= ss=20 LLC. Mr. Fontes is a former FCC chief of staff who led the U.S. delegation= =20 at the 1995 WRC. Jennifer Warren, senior director-telecom trade and=20 regulatory affairs at Lockheed Martin Corp., is the panel=0F's co-chair. Many of the issues the panel will explore are contentious, Mr. Fontes said.= =0F" I know full well as a member of a competitive industry that there=0F's a lo= t of=20 competition among the U.S. industry interests and that competition will rea= r=20 its head in various debates and discussions,=0F" he added. =0F"There are a= lso=20 differences between government and industry about how spectrum should be=20 used.=0F" But after all the issues have been debated, Mr. Fontes said, it=0F's import= ant=20 to reach a consensus=0F-and to do so in time to allow consultations with ot= her=20 countries. =0F"We=0F're going to have to recognize where we each come from and how we = best can=20 work cooperatively and constructively together,=0F" he said. =0F"No more d= o we=20 have the luxury of waiting to the last moment to achieve the U.S.=20 objectives. We must be prepared well in advance.=0F" Julie Garcia, director of the FCC=0F's WRC-03 preparation team, said the ag= ency=20 was listening to industry feedback about how to improve its conference=20 planning. =0F"This is an ongoing process,=0F" she said. =0F"We will conti= nue to look=20 for ways that we can take the industry=0F's view into account.=0F" U.S. officials who participated in WRC-2000 last year felt that they were= =20 successful on issues such as broadcasting satellite service and IMT-2000=20 planning (TR, June 5, 2000). Bureau OKs Satellite Operators For Intersatellite Communications The FCC=0F's International Bureau has modified the licenses of 10 operators= of=20 geostationary orbit (GSO) satellite systems, enabling them to provide fixed= =20 satellite services in parts of the Ka-band. The license modifications allo= w=20 them to operate intersatellite service links (ISLs) using that spectrum. The bureau said that it could permit the operators to provide ISL services = as=20 a result of decisions made at the 1997 World Radiocommunication Conference= =20 (WRC-97) and in light of the operators=0F' studies on sharing the ISL spect= rum. =20 WRC-97 resolved technical issues regarding GSO satellite transmissions and= =20 assigned the 65=0F-71 gigahertz band for ISL use by fixed satellite service= =20 (FSS) providers. The FCC subsequently reserved that spectrum for=20 nongovernment use. The bureau granted the ISL license modifications to PanAmSat Corp., Teledes= ic=20 LLC, Loral Corp., Hughes Communications Galaxy, Inc., Astrolink Internation= al=20 LLC, CyberStar Licensee LLC, EchoStar Satellite Corp., and WB Holdings 1 LL= C,=20 GE American Communications, Inc., and Motorola, Inc. In a series of =0F"or= ders=20 and authorizations=0F" released Jan. 31, the bureau assigned each operator = a=20 frequency. In some cases it also set system build-out =0F"milestones=0F" t= hat=20 operators must meet to retain the modified licenses. Section 25.145(f) of the FCC=0F's rules states that a Ka-band GSO FSS licen= see=20 must (1) begin construction of its first satellite within one year of grant= ,=20 (2) begin construction of the remainder within two years, (3) launch at lea= st=20 one satellite into each of its assigned orbit locations within five years,= =20 and (4) launch the remainder of its satellites by the date required by the= =20 International Telecommunication Union. The bureau also issued a Jan. 30 order modifying VisionStar, Inc.=0F's lice= nse=20 to launch and operate a satellite system in GSO to provide FSSs. The burea= u=20 gave VisionStar 500 MHz of additional downlink operating frequencies for=20 satellite-to-user transmissions, bringing its total to 1,000 MHz. =20 DoJ, FBI Want Foreign Control Of DT Limited by FCC Conditions The U.S. Department of Justice and the Federal Bureau of Investigation say= =20 they have reached an agreement with VoiceStream Wireless Corp. and Deutsche= =20 Telekom AG that reduces the law enforcement, national security, and public= =20 safety risks of DT=0F's planned acquisition of VoiceStream. In December 2000, the law enforcement authorities and the companies asked t= he=20 FCC to defer a decision on the transaction until the outstanding concerns= =20 could be resolved (TR, Dec. 25, 2000). DoJ and the FBI now say they won=0F= 't=20 oppose the FCC=0F's approving license transfers associated with the transac= tion=20 as long as the terms of their agreement with the carriers are conditions of= =20 the approval. In a petition filed with the FCC in International docket 00-187, DoJ and th= e=20 FBI said the agreement pays particular attention to the German government= =0F's=20 control or influence over DT. DT says the government is not involved in it= s=20 operations. The German government currently owns 60% of DT; its interest i= n=20 the combined entity would decline to about 45% after DT=0F's acquisitions o= f=20 VoiceStream and Powertel, Inc. Among other things, the agreement stipulates that DT shall not disclose=20 classified or sensitive information, subscriber information, or transaction= al=20 or call data to any foreign government. It also requires DT officials to= =20 notify the FBI and DoJ if a foreign government attempts to participate in= =20 day-to-day management of DT or exercise control of it in a way that=20 interferes with the carrier=0F's obligations to abide by the agreement. Th= e=20 agreement was reached Jan. 12. =0F"Although the agreement does not eliminate every law enforcement, nation= al=20 security, or public safety risk posed by the proposed transactions, it does= =20 reduce those risks while affording the companies treatment consistent with= =20 other carriers in like circumstances,=0F" the FBI and DoJ said in their pet= ition. Intelsat Told To Disclose Privatization Info The FCC=0F's International Bureau has required Intelsat LLC to disclose cer= tain=20 information=0F-including its draft shareholder=0F's agreement and bylaws=0F= -to parties=20 who agree to be bound by a protective order. =20 Intelsat LLC is the privatized entity slated to succeed the intergovernment= al=20 organization Intelsat this spring. On Dec. 18, 2000, it asked for=20 confidential treatment of =0F"supplemental=0F" information it was filing in= the FCC=0F' s proceeding to determine whether the privatization complies with a U.S. la= w=20 passed last year (the Open-Market Reorganization for the Betterment of=20 International Telecommunications Act). =20 In its order released Jan. 29, the FCC required Intelsat LLC to file copies= =20 of the most up-to-date versions of its novation agreement, distribution=20 agreement, and related documents within seven days after the March Intelsat= =20 board of governors meeting. The FCC also extended the deadlines for=20 commenting on the supplemental filing. Comments now are due Feb. 22;=20 replies, March 5; and responses to replies, March 12. Don=0F't Exempt Foreign Agencies From Ex Parte Rules, Carriers Say Only two carriers weighed in on the FCC=0F's proposal to exempt foreign=20 regulators from rules requiring them to report on their communications with= =20 FCC officials, but both vehemently opposed the plan. They said the rules= =20 protect regulated entities by making the FCC=0F's deliberations =0F"transpa= rent.=0F" Communications from the U.S. Department of Justice or the Federal Trade=20 Commission regarding =0F"a telecommunications competition matter in a proce= eding=20 which has not been designated for hearing and in which the relevant agency = is=20 not a party or commenter=0F" are exempt from the FCC=0F's rules requiring p= arties=20 to report such ex parte communications. In December 2000, the FCC proposed= =20 widening that exemption to include =0F"international and foreign government= al=20 bodies that exercise similar jurisdiction over relevant matters=0F" (TR,Dec= . 18,=20 2000). =20 In a rulemaking notice released in General Counsel docket 00-219, the FCC= =20 cited increased globalization and international mergers as reasons for the= =20 proposed rule change. The FCC said the rule change would encourage =0F" effective, expedited, and consistent=0F" communications among antitrust and= =20 competition policy-makers. The Competitive Telecommunications Association said extending the exemption= =0F" would impair significantly both the due-process rights of parties=20 participating in affected proceedings as well as the FCC=0F's ability to re= nder=20 a decision based on a complete record.=0F" =20 Communications between the FCC and foreign regulators raise different=20 questions from those between the FCC and DoJ or the FTC, CompTel said. It= =20 argued that foreign regulatory bodies =0F"operate under laws and regulation= s=20 that may embody substantially different competition goals=0F" than the FCC= =20 pursues, unlike DoJ or the FTC, which operate under a =0F"complementary=20 statutory scheme.=0F"=20 Many foreign governments maintain interests or have close ties to =0F"comme= rcial=20 enterprises that may be affected by the FCC=0F's decisions in merger cases,= =0F" it=20 continued. =20 And Vodafone Group plc, through its business unit Vodafone Americas Asia=20 Region, Inc., said the rationale behind the rule change the FCC cited was= =20 insufficient. If the FCC wanted to communicate with foreign regulators =0F= "on=20 general methods of analysis, for example, or general approaches to evaluati= ng=20 licenses transfers,=0F" those communications would not fall under ex parte= =20 rules. The rulemaking notice =0F"does not explain why, in the context of a= =20 specific proceeding, the ex parte rules hinder exchange of information,=0F"= it=20 said. Vodafone questioned whether the FCC has authority under the federal=20 Administrative Procedure Act to =0F"afford foreign government agencies the = same=20 treatment as [domestic] regulatory agencies.=0F" The APA=0F's =0F"whole re= cord=0F" and=20 due-process safeguards that ensure that parties may comment on the entire= =20 record of a proceeding are underlying principles of federal agencies=0F' ex= =20 parte rules, Vodafone said. The APA makes an =0F"express distinction=0F" b= etween=20 U.S. and non-U.S. government agencies, it added.=20 Vodafone acknowledged that there might be situations in which disclosure of= =20 an interagency ex parte communication =0F"is not advisable.=0F" But it sai= d the=20 FCC should address those situations case by case. Unlicensed International Carriers Given 90 Days To Come Forward The FCC=0F's International and Enforcement bureaus have given carriers and= =20 operators 90 days to turn themselves in if they=0F've been offering=20 international services or facilities without proper authorization. The=20 International Bureau doesn=0F't =0F"expect=0F" to undertake enforcement act= ions=20 against violators that come forward and seek the required authorization, bu= t=20 cases of noncompliance discovered after the three-month period will be=20 referred to the Enforcement Bureau, the two bureaus said. Their actions were prompted by requests from =0F"a number=0F" of carriers f= or=20 authorization to provide international services, after they were already=20 doing so, the bureaus said in a Jan. 30 public notice. They also cited=20 instances of companies=0F' belatedly seeking permission to assign or transf= er=20 control of their authorizations to provide international facilities or to= =20 land submarine cables. The 90-day period will begin on the date the public notice appears in the= =20 Federal Register. Once the notice is published, the International Bureau= =0F's=20 Telecommunications Division =0F"will be extremely reluctant to grant reques= ts=20 for nunc pro tunc approval [as though timely filed] of belatedly filed=20 applications,=0F" the notice says. Section 214 of the Communications Act of 1934, as amended, requires carrier= s=20 to obtain FCC authorization before they begin providing international telec= om=20 services. FCC Delays 700 MHz Auction Again at Request of Industry Major wireless carriers are praising the FCC=0F's decision to postpone, for= the=20 fourth time, an auction of spectrum licenses in the 700 megahertz band. Bu= t=20 a group representing rural carriers and a major TV broadcaster say the acti= on=20 wasn=0F't necessary. The decision to postpone the auction from March 6 until Sept. 12 was needed= =0F" to provide additional time for bidder preparation and planning=0F" and for = other=20 auction administrative reasons, the FCC=0F's Wireless Telecommunications Bu= reau=20 said in a public notice released Jan. 31. The action came after Verizon Wireless and other large carriers cited a hos= t=20 of concerns they said could dampen enthusiasm for bidding on the=20 frequencies. In a Jan. 18 letter to the Wireless Telecommunications Bureau= ,=20 Verizon Wireless said carriers needed time to assess their spectrum needs a= nd=20 form alliances between the reauction of =0F"C=0F" and =0F"F=0F" block PCS (= personal=20 communications service) licenses and the 700 MHz band sale (TR,Jan. 22). T= he=20 PCS reauction ended Jan. 26 (TR,Jan. 29; and separate story). Large carriers had supported in comments Verizon Wireless=0F' request for a= =20 postponement; some asked for the auction to be postponed even longer than t= he=20 six months Verizon Wireless had requested (TR,Jan. 29). Other reasons the industry cited in urging a delay included concerns that (= 1)=20 TV broadcasters occupy large chunks of the spectrum to be licensed and=20 additional time is needed to negotiate band-clearing agreements with them;= =20 (2) companies need more time to prepare for package-bidding rules that will= =20 be used for the first time in the auction; and (3) a high-level effort to= =20 identify and allocate frequencies for third-generation (3G) services will= =20 affect carriers=0F' interest in the 700 MHz band. Commissioner Harold W. Furchtgott-Roth opposed the postponement, noting tha= t=20 the FCC already had missed a Sept. 30, 2000, statutory deadline for=20 depositing proceeds from the auction into the U.S. Treasury. =0F"I am=20 disappointed that the Commission has decided to postpone this auction once= =20 again,=0F" he said in a statement. =0F"With each succeeding delay, the cre= dibility=20 of our spectrum and auction-management policies becomes more suspect.=0F" Commissioner Gloria Tristani, who dissented from the FCC=0F's decision last= year=20 to postpone the auction to this March, said she did not oppose the latest= =20 delay. She cited the short time frame between the C and F block auction an= d=20 the 700 MHz band sale. =0F"At this point, the scheduling problems before us are of a different nat= ure=20 and largely of this agency=0F's own making,=0F" she said. =0F"The challeng= es posed by=20 the early auction of 700 MHz spectrum need not be burdened further by=20 unfortunate administrative miscalculations. The bureau asserts that this= =20 delay is necessary to address these administrative matters.=0F" Large Carriers Welcome Delay Verizon Wireless President and Chief Executive Officer Dennis F. Strigl=20 praised the FCC=0F's decision. =0F"I think the FCC made exactly the right = move,=0F"=20 Mr. Strigl said after a keynote address at the Comnet Conference & Expo in= =20 Washington last week (see separate story). He said the presence of TV=20 broadcasters in the band =0F"will have a significant impact on the value of= this=20 spectrum.=0F" He added, =0F"At this point, I can=0F't tell you that the ne= w spectrum=20 has high value.=0F" Broadcasters are expected to vacate the spectrum (channels 60=0F-69) as par= t of=20 their transition to digital TV, but they don=0F't need to do so until 2006 = at=20 the earliest. The uncertainty over when the frequencies will be available= =20 has created anxiety among wireless carriers considering bidding in the=20 auction. Thomas E. Wheeler, president and CEO of the Cellular Telecommunications &= =20 Internet Association, also praised the FCC=0F's decision. =0F"We need to t= ake a=20 quick breath before plunging into the next round of spectrum bidding so tha= t=20 carriers can assess their spectrum needs and develop bidding strategies,=0F= " he=20 said. But several TV broadcasters and a group representing rural carriers opposed= =20 any further delay. They said that carriers had had plenty of time to prepa= re=20 for the auction and that further delay would be unfair. =0F"There didn=0F't seem to be any justification for another delay,=0F" sai= d Nancy=20 Udell, vice president-media relations for Paxson Communications Corp., the= =20 largest incumbent broadcaster in the spectrum to be auctioned. But =0F"sin= ce=20 the FCC has spoken, we=0F're ready to participate=0F" in any band-clearing= =20 negotiations, she added. Brent Weingardt, an attorney for the Rural Telecommunications Group (RTG),= =20 also criticized the postponement. =0F"There=0F's little pretense that the= =20 Commission only views auctions in terms of how much revenue they can=20 generate. . .and they=0F're willing to assist larger companies, who are the= only=20 ones that are going to be able to compete in that auction,=0F" he said. = =0F"We don=0F' t see any other public interest in postponing it.=0F" Mr. Weingardt said he didn=0F't expect RTG members to participate in the au= ction=20 but said his group opposed a further delay on =0F"principle.=0F" Analysts Assess Effect Wall Street analysts saw the auction delay as either positive or neutral fo= r=20 carriers. =0F"The additional six months until the start of the auction giv= es=20 both the FCC and the potential bidders quite a bit of time to ready=20 themselves,=0F" said John M. Bensche, an analyst at Lehman Brothers, Inc., = in a=20 note to investors. =0F"By September, the industry will hopefully have=20 appropriately addressed the various issues that remain surrounding the 700= =20 MHz band and the auction can commence without further delay.=0F" Michael I. Rollins, an analyst for Salomon Smith Barney, Inc., said the=20 delay, which he characterized as =0F"widely anticipated,=0F" was =0F"neutra= l=0F" for=20 carriers because many had indicated little interest in the 700 MHz auction,= =20 focusing instead on the C and F block sale. Cynthia M. Motz, an analyst for Credit Suisse First Boston Corp., echoed th= at=20 view. She doesn=0F't expect the bidding for 700 MHz licenses to be nearly = as=20 fierce as it was in the C and F block reauction and doubts that large=20 carriers such as Verizon Wireless, AT&T Wireless Services, Inc., VoiceStrea= m=20 Wireless Corp. and Sprint PCS will be very active. =0F"This should hopeful= ly=20 make for some attractive pricing for at least some of the licenses,=0F" Ms.= Motz=20 said in a note to investors. QUALCOMM Creates Platform To Spur Wireless Internet Apps QUALCOMM, Inc., has developed an open software platform to help spur the=20 development of applications for the wireless Internet. The binary run-time= =20 environment for wireless (BREW) platform will enable developers,=20 manufacturers, and carriers to reduce software-development costs and speed= =20 the delivery of data services to consumers, QUALCOMM said. The BREW platform was developed for devices that use CDMA (code-division=20 multiple-access) technology but eventually will be available for use with= =20 other technologies, a company spokesman said. Consumers will be able to=20 update their BREW-enabled handsets by deleting old software and downloading= =20 new programs. =0F"Compelling applications will generate consumer demand for wireless Inte= rnet=20 access, speeding the deployment of next-generation CDMA wireless services,= =0F"=20 said Paul E. Jacobs, QUALCOMM=0F's executive vice president. QUALCOMM has signed memoranda of under-standing with several wireless=20 carriers, manufacturers, and developers to use the platform, including=20 Verizon Wireless and Leap Wireless International, Inc., in the U.S., Korea= =20 Telecom in Korea, and Pegaso PCS in Mexico. QUALCOMM says BREW-enabled products are expected to be commercially availab= le=20 in some regions in the third quarter of this year. An investors note from= =20 Lehman Brothers, Inc., said BREW would be rolled out in Japan first by KDDI= =20 Corp. QUALCOMM will charge carriers a fee to use BREW and will receive a portion = of=20 fees paid by wireless device users for BREW applications. PCIA Drops Opposition To Lifting Spectrum Cap The Personal Communications Industry Association, which in the past has urg= ed=20 the FCC on behalf of small carriers to continue to limit the amount of=20 spectrum wireless carriers may hold in any one market, has declared it =0F"= will=20 no longer play an active role=0F" in the issue. In a statement released last week, PCIA President and Chief Executive Offic= er=20 Jay Kitchen said the spectrum cap had been =0F"tremendously successful.=0F"= But =0F" this issue has become moot as new spectrum is now available without=20 restrictions, leaving U.S. carriers a clear and open opportunity=0F" to off= er 3G=20 (third-generation) services, he added. Mr. Kitchen also cited PCIA=0F's =0F"focus on the development of the mobile= =20 convergence marketplace on a global level=0F" as a factor in its decision t= o=20 discontinue its =0F"active role in the spectrum cap issue.=0F" Large carriers have urged the FCC to lift the cap, saying they need more=20 spectrum to keep up with the demand for wireless services. The FCC has ask= ed=20 for comments on whether it should remove the restriction (TR, Jan. 29). France, Brazil Have Troubles Awarding Wireless Licenses French telecom regulator Authorite de Regulation des Telecommunications (AR= T)=20 has decided to organize another =0F"beauty contest=0F" in hopes of attracti= ng more=20 bidders for third-generation (3G) licenses. In its initial attempt, only t= wo=20 companies bid for four licenses on the block. Brazil had similar problems,= =20 postponing an auction of licenses Friday, Feb. 2, due to a lack of bidder= =20 interest. ART said last week that the two bids for the French licenses came from Fran= ce=20 Telecom=0F's Orange plc mobile phone service unit and Vivendi SA=0F's Ceget= el SA,=20 which owns French mobile phone operator Societe Francaise du Radiotelephone= =20 (SFR). Dropping out of the contest last week was French wireless carrier Bouygues= =20 Telecom SA. French utility Suez Lyonnaise des Eaux and Telefonica SA of=20 Spain had withdrawn from the running earlier (TR, Jan. 29). ART is selling the four UMTS (universal mobile telecommunications system)= =20 licenses for 4.95 billion euros ($4.6 billion) each. It has planned to awa= rd=20 the licenses in June. =0F"A structuring of the market around two operators only could not be=20 considered,=0F" ART said in a statement. It said that such an arrangement = =0F" would not make it possible to satisfy the objectives of development of a=20 competitive market.=0F" France is the latest European country to run into trouble selling 3G licens= es=20 in recent months after the United Kingdom and Germany raised more than $80= =20 billion auctioning such spectrum last year (TR, May 1, and Aug. 21 and 28,= =20 2000). Carriers and financial analysts have expressed concern that the high prices= =20 paid for the licenses, as well as the costs of building out systems, will= =20 make it difficult to recoup investments. Brazil Looks for Bidders In Brazil, telecom regulator Anatel announced that it was suspending its=20 planned auction of three licenses, which was scheduled to begin Feb. 6. It= =20 blamed the delay on a lack of bidders. Anatel said additional auction roun= ds=20 to sell three licenses each would be held as scheduled Feb. 20 and March 13= . =20 It said there were seven bidders each lined up for those rounds. The decision to suspend the first auction round came after a Brazilian judg= e=20 earlier last week lifted an injunction that had forced the round to be=20 delayed from Jan. 30. In other countries the following spectrum-related=20 developments occured: In Canada, Industry Canada=0F's auction of 3G PCS (personal communications= =20 service) licenses generated $1.48 billion Canadian (US$991 million) in bids= =20 for 52 10-megahertz licenses covering 16 markets. Five of the original sev= en=20 bidders won licenses in the sale, which closed Feb. 1 after three weeks and= =20 51 rounds. Bell Mobility, Inc., led all bidders, offering $720 million Canadian (US$48= 2=20 million) for 20 licenses, followed by Rogers Wireless, Inc., which bid $393= =20 million Canadian (US$263 million) for 23 licenses. TELUS Communications,= =20 Inc., came in third, bidding $355 million Canadian (US$238 million) for fiv= e=20 licenses. =0F"The licensing of this spectrum is a crucial step in improving Canada=0F= 's=20 information infrastructure,=0F" Canadian Industry Minister Brian Tobin said= . =0F" This will facilitate the development of new wireless telecommunications=20 services, bringing the Internet and other communications services, such as= =20 e-mail and mobile commerce, closer to all Canadians.=0F" In Singapore, the Infocomm Development Authority (IDA) said Jan. 30 that it= s=20 auction of fixed wireless broadband licenses would be postponed until after= =20 the country=0F's 3G auction in April or May. The fixed wireless license sa= le=20 was originally scheduled for February, as was the 3G auction (TR, Jan. 8,= =20 notes). =0F"A number of interested players have requested for more time to= =20 reassess the market situation, as well as to explore alternative=20 technologies,=0F" the IDA said. In Venezuela, telecom regulator Comision Nacional de Telecomunicaciones=20 (Conatel) Jan. 31 opened registration for an auction of LMDS (local=20 multipoint distribution service) licenses. The licenses will be auctioned = in=20 three blocks. One block will have national coverage, while the other two= =20 will provide regional footprints. Separately, Conatel=0F's auction of wire= less=20 local loop (WLL) licenses continued last week. Telefon AB L.M. Ericsson has announced a $400 million network expansion=20 contract... Telefon AB L.M. Ericsson has announced a $400 million network expansion=20 contract with Turkcell, a Turkish GSM (Global System for Mobile=20 communications) service provider. Ericsson said it would =0F"upgrade and= =20 develop=0F" the Turkcell system. FCC Sets Arbitration Schedule For Interconnection Disputes The FCC has set the schedule for arbitrating disputes between Verizon=20 Virginia, Inc., and three other carriers over interconnection agreements. = =20 The Commission said in a public notice last week that AT&T Communications o= f=20 Virginia, Inc., Cox Virginia Telecom, Inc., and WorldCom, Inc., may schedul= e=20 prefiling conferences now and submit requests for arbitration of their=20 interconnection agreements with Verizon within 30 days of the conference. In the notice, the FCC instructed the arbitrator of the proceeding to set= =20 dates for conferences and hearings on the matter. The arbitration proceedi= ng=20 will follow rules set out in the FCC=0F's 1996 =0F"local competition order= =0F" in=20 Common Carrier docket 96-98 (TR,Aug. 12, 1996). The FCC recently agreed to preempt the Virginia State Corporation Commissio= n=0F' s authority to arbitrate their interconnection pacts with Verizon (TR,Jan.= =20 22, p. 39). The state commission had refused to act in the matter, citing= =20 uncertainty over whether acting would be deemed a waiver of its immunity fr= om=20 federal court review under the 11th Amendment to the U.S. Constitution. At the same time it agreed to preempt the Virginia commission, the FCC=20 addressed generic procedural issues concerning arbitrations conducted=20 pursuant to its preemption authority in section 252(e)(5) of the=20 Telecommunications Act of 1996. In that undocketed Jan. 19 order, the FCC= =20 designated the chief of the Common Carrier Bureau to arbitrate such dispute= s,=20 with assistance from the Common Carrier and Enforcement bureau staffs. The FCC also granted the arbitrator additional flexibility in ruling on=20 disputed issues. The arbitrator has discretion to =0F"require parties to s= ubmit=20 new final offers, or adopt a result not submitted by any party, in=20 circumstances where the final offer submitted by one or more of the parties= =20 fails to comply with the Act=0F" or FCC rules, the Commission said. It also said the arbitrator could, in some circumstances, offer an=20 alternative solution even when the final offers submitted by the parties=20 complied with the Act and with FCC rules.=20 Interim arbitration procedures adopted in the 1996 local competition order= =20 allowed an FCC arbitrator in a carrier interconnection proceeding only to= =20 issue arbitration awards that were proposed as a =0F"final offer=0F" by a p= arty in=20 a proceeding.=20 Pay-Per-Call Providers=0F' Case Should Go to FCC, Court Says The U.S. District Court in New York City has dismissed a lawsuit alleging= =20 that WorldCom, Inc., unlawfully blocked calls to pay-per-call =0F"900=0F"-n= umber=20 services. District Judge John G. Koeltl told a group of pay-per-call servi= ce=20 providers to take their complaints against WorldCom to the FCC. =20 The plaintiffs charged that MCI WorldCom, Inc. (now WorldCom) violated=20 sections 201 and 202 of the Communications Act of 1934. Those provisions= =20 require common carriers to provide services under =0F"just and reasonable= =0F" terms=20 and forbid =0F"unreasonable discrimination=0F" in the provision of common c= arrier=20 services. The plaintiffs also alleged that WorldCom violated FCC rules by not providi= ng=20 sufficient notice before blocking their numbers. In LO/AD Communications, B.V.I. Ltd. et al. v. MCI WorldCom, Inc. (case no.= =20 00 Civ. 3594), the plaintiffs said WorldCom=0F's actions were motivated by = =0F" personal objections=0F" to the content of their 900-number services. The o= ther=20 plaintiffs are International Dialing Services, Inc., Ashera, Inc., and=20 Telemedia, Inc. WorldCom told the court it had discontinued service to the selected numbers= =20 after discovering that the plaintiffs unnecessarily routed their customers= =0F'=20 calls over expensive international traffic routes. WorldCom said customers believed they were making local calls and refused t= o=20 pay the unexpected international calling charges. The company said its FCC= =20 tariff allowed it to block calls =0F"to prevent unlawful use of, or nonpaym= ent=20 for, its services.=0F"=20 Citing the legal doctrine of =0F"primary jurisdiction,=0F" Judge Koeltl fou= nd that=20 the FCC should hear the complaints first. While federal courts have=20 concurrent jurisdiction with the FCC over litigation under the Act, the=20 doctrine =0F"allows a federal court to refer a matter extending beyond the= =20 conventional experiences of judges=0F" to an administrative agency with mor= e =0F" specialized experience, expertise, and insight,=0F" he noted. Aerial v. Underground Facilities Is Topic of City-CLEC Debate Municipalities and competitive local exchange carriers sparred last week ov= er=20 whether the FCC should preempt several Ohio cities=0F' authority over the= =20 placement of telecommunications facilities. Their debate centered on one question: Does requiring a competitive local= =20 exchange carrier (CLEC) to place its fiber lines underground, rather than o= n=20 aerial facilities where the incumbent=0F's facilities are located, constitu= te =0F" discrimination=0F" under section 253 of the Telecommunications Act of 1996? Predictably, the two sides split on the issue. CLECs said that subjecting= =20 them to different requirements from those faced by incumbent local exchange= =20 carriers constituted discrimination and created a =0F"barrier to market ent= ry=0F"=20 by increasing CLECs=0F' costs. Section 253(a) bars state and local governm= ent=20 actions that prevent or have the effect of preventing any entity from=20 providing any interstate or intrastate telecom service. Municipalities insisted that directing where telecommunications facilities= =20 should be placed was within the scope of authority reserved to local=20 governments under section 253 of the Act. According to section 253(c),=20 nothing in section 253 affects =0F"the authority of a state or local govern= ment=20 to manage the public rights-of-way or to require fair and reasonable=20 compensation from telecommunications providers, on a competitively neutral= =20 and nondiscriminatory basis.=0F" =20 Both sides presented their views in comments filed last week in Cable=20 Services docket 00-255. In that proceeding, City Signal Communications,=20 Inc., had asked the FCC to preempt the underground telecom line requirement= s=20 of Cleveland Heights, Wickliffe, and Pepper Pike, Ohio. It said the=20 municipalities=0F' rules prohibiting new telecommunication facilities from = being=20 placed on above-ground poles constituted an =0F"effective prohibition on en= try=0F"=20 by increasing costs for new service market entrants. AT&T Corp. said any disparity in cities=0F' treatment of incumbent telcos a= nd=20 CLECs gave the incumbents a =0F"substantial cost advantage=0F" over new ent= rants=20 and violated the FCC=0F's requirements that cities manage rights-of-ways on= a =0F" competitively neutral and nondiscrim-inatory=0F" basis. It said requiring = City=20 Signal to place its facilities underground effectively prohibited it from= =20 providing service, because the alternatives were (1) to pay the higher cost= s=20 of placing facilities underground, =0F"rendering its service noncompetitive= ,=0F" or=20 (2) to engage in a protracted negotiation and litigation.=20 Level 3 Communications LLC said the FCC had =0F"not hesitated=0F" to use it= s=20 preemptive power =0F"in cases involving treatment that could be viewed as= =20 creating barriers to entry.=0F" It cited a proceeding in CCBPol file 97-1 = in=20 which the FCC preempted a Connecticut state regulation that prohibited non= =0F- local exchange carriers from providing pay phone service (TR,Dec. 16, 1998)= . =20 In that proceeding, the FCC found that the restriction imposed additional= =20 burdens and costs, =0F"thus deterring the entry of potential competitors,= =0F" Level=20 3 recalled. It said the FCC should grant City Signal=0F's requests under t= he=20 Connecticut pay phone =0F"precedent.=0F" The Ohio cities=0F' reasoning behind the underground requirement isn=0F't = =0F" necessary to protect the public safety and welfare,=0F" Telergy Network=20 Services, Inc., said. According to section 253(b), nothing in section 253= =20 affects =0F"the ability of a state to impose, on a competitively neutral ba= sis=20 and consistent with [the Act=0F's universal service provisions], requiremen= ts=20 necessary to preserve and advance universal service, protect the public=20 safety and welfare, ensure the continued quality of telecommunications=20 services, and safeguard the rights of consumers.=0F" The Ohio cities had cited the =0F"visual blight=0F" caused by additional ae= rial=20 telecom facilities on poles. But that reasoning does not meet the high=20 standard that the FCC has used for judging state=0F's and localities=0F'=20 regulations on matters of competitive neutrality, Telergy said. =0F"By definition, if it is necessary for City Signal to place its faciliti= es=20 underground to protect the public, it must be necessary for the incumbent a= nd=20 other existing providers to place their identical facilities underground as= =20 well,=0F" Telergy said. =0F"If the =0F`visual blight=0F' of which the citie= s complain is=20 to be eliminated, all aerial facilities would have to be placed underground= .=0F" Municipalities often use such regulations as a tactic to delay the entry of= =20 CLECs into service markets, Adelphia Business Solutions, Inc., said. Case= =20 law, state legislatures, and =0F"harsh realities of the competitive marketp= lace=0F"=20 have =0F"driven home the lesson that municipal delays prevent competitive= =20 telecommunications companies from entering the market,=0F" it said. =20 A group of 50 municipalities from 13 states, including Denver; Santa Fe,=20 N.M.; Fort Worth, Texas; Detroit; and Tallahassee, Fla., defended the Ohio= =20 cities=0F' rights to set rules regarding the placement of telecom facilitie= s. =20 The Act =0F"expressly bars [the FCC=0F's] preemption authority under sectio= n 253 on=20 matters relating to right-of-way management,=0F" they said. =0F"Such matte= rs are=20 left solely to the jurisdiction of the federal courts,=0F" and the FCC has = no=20 authority to grant City Signal=0F's petition, they added. City Signal hasn=0F't made a showing of how the regulations requiring=20 underground installation constitute an =0F"effective prohibition on entry,= =0F" they=20 said. =0F"It has shown nothing with respect to the routes involved, the co= st=20 for aerial v. undergrounding construction on each. . .or how any purported= =20 cost increase compares against either the overall capital costs of the City= =20 Signal system or the revenues which City Signal expects to derive from it.= =0F" Section 253 doesn=0F't interfere with local government=0F's authority to di= rect=20 where cables and wires should be installed, the city of Richmond, Va., said= . =20 It recalled that in a 1996 order, In re Classic Telephone, Inc., the FCC=20 cited statements by Sen. Dianne Feinstein (D, Calif.) during the debate on= =20 section 253(c). Her statements dealt with the types of restrictions that= =20 local governments could impose as part of their right-of-way management. = =20 =0F"Included among those was the ability to =0F`require a company to place = its=20 facilities underground rather than overhead, consistent with the requiremen= ts=20 placed on other utility companies,=0F'=0F" Richmond recalled. The FCC =0F"and numerous courts have confirmed that the Act does not, and w= as=20 not intended to, render local governments impotent with respect to=20 maintaining control over the use of public property,=0F" it concluded. =20 AeA Advises against Regulating Competitive Broadband Markets The AeA (formerly the American Electronics Association) is advising federal= =20 policy-makers to take a hands-off approach to regulating broadband service= =20 markets with multiple providers. As examples of competitive broadband=20 markets, AeA cites =0F"residential areas served by cable, DSL [digital=20 subscriber line], and satellite providers.=0F" In a report that was submitted Jan. 29 to the White House and Congress, AeA= =20 also calls for more efforts at the federal level to promote competition in = =0F" sectors (such as multitenant buildings) where there are bottlenecks to=20 competitive entry.=0F" =20 It says the FCC should =0F"continue to show regulatory restraint with respe= ct to=20 emerging services, given the fact that the market for such services, while= =20 still nascent, is functioning in a competitive fashion.=0F"=20 Briefing reporters about AeA=0F's policy positions, AeA President and Chief= =20 Executive Officer William T. Archey said the organization=0F's report got a= =0F" favorable=0F" reception when it was presented to top White House officials.= The=20 paper reflects the views of AeA member companies that participated in a=20 series of =0F"town hall meetings=0F" last year, Mr. Archey said. The report also urges Congress to extend the current moratorium on new or= =20 discriminatory Internet taxes and permanently ban the taxation of Internet= =20 access services. The moratorium, which began in 1998, will expire in Octob= er=20 absent congressional action. The report also reiterates AeA=0F's recent ca= ll=20 for federal preemption of state privacy laws affecting e-commerce or Intern= et=20 businesses (TR, Jan. 22). Missouri PSC Faults SW Bell=0F's InterLATA Bid The Missouri Public Service Commission has decided against supporting=20 Southwestern Bell Telephone Co.=0F's efforts to obtain the FCC=0F's permiss= ion to=20 provide interLATA (local access and transport area) service in the state, P= SC=20 Commissioner Kelvin Simmons told TR. SW Bell=0F's planned application still could win the PSC=0F's backing if th= e=20 company addressed the PSC=0F's concerns, which include pricing and access t= o=20 unbundled local loops and transport, Mr. Simmons said. The PSC plans to=20 deliberate on the request again as early as Feb. 6, although a final decisi= on=20 won=0F't be issued then, he added. SW Bell intends to make changes to address the PSC=0F's concerns, a SW Bell= =20 official told TR. He said SW Bell was confident that the PSC ultimately=20 would support the petition. The FCC has the final say in determining whether a Bell company has met the= =20 14-point =0F"competitive checklist=0F" of market-opening requirements in th= e=20 Telecom-munications Act of 1996. =20 But the Act directs the FCC to consult the U.S. Department of Justice and t= he=20 relevant state regulators before deciding. CLECs Tout Effect on Economy But Seek Help from Congress Competitive local exchange carriers (CLECs) have played a major role in=20 fueling the economic growth of the last decade, according to a new study by= =20 the Association for Local Telecommunications Services (ALTS). Still, Congress should consider legislation to help CLECs overcome the=20 impediments to competition imposed by incumbent local exchange carriers=20 (ILECs), building owners, municipalities, and the financial markets, ALTS= =20 said. The report, Local Competition Policy & The New Economy,was written by ALTS= =20 Director-public policy research David A. Wolcott. He links the growth of t= he=20 Internet to partnerships between CLECs and Internet service providers=20 (ISPs). CLECs, he says, deliver about 60% of the local dial-up traffic to= =20 ISPs in the U.S. =0F"It is a symbiotic relationship that has led to increa= sed=20 competition in the two industries and has greatly impacted the virtual=20 explosion of the Internet in the United States,=0F" Mr. Wolcott writes. Broadband technology is one of the =0F"drivers that have fueled the explosi= ve=20 economic growth of the last decade,=0F" he writes. =0F"Federal Reserve Cha= irman=20 Alan Greenspan, while not singling out the [Telecommunications Act of 1996]= =20 or any other legislative initiative, has attributed much of the recent=20 productivity growth and deepening of capital markets to the communications= =20 and information technology industries.=0F" The study, however, raises a familiar list of complaints about actions of= =20 ILECs, building owners, and municipalities that it says =0F"frustrate the= =20 emergence of full and effective competition.=0F" It offers a list of=20 initiatives that Congress should consider so CLECs can continue fueling=20 economic growth. Among the legislative initiatives the association advocat= es=20 to address its complaints about ILECs are the following: (1) Separate ILECs into wholesale and retail units; (2) Allow the FCC to impose steeper penalties for violating pro-competitive= =20 directives; (3) Require that =0F"all combinations of network elements and full function= ality=20 of the loop be provided to competitors=0F";=20 (4) Extend collocation requirements to include =0F"multifunctional=0F" equi= pment; (5) Affirm the FCC=0F's pricing methodology for unbundled network elements;= and=20 (6) Permit interconnection among CLECs collocated in ILEC facilities. The ALTS study also targets building owners, with whom CLECs have been=20 feuding over the need for mandatory building access. It asks Congress to= =20 require building owners to =0F"provide nondiscriminatory access to their=20 buildings while at the same time protecting the security of the building an= d=20 ensuring that competitors pay for the costs of installing equipment.=0F" ALTS also takes aim at municipalities, which it says have caused =0F"excess= ive=20 delay=0F" by not promptly approving applications to use public rights-of-wa= y. =20 It asks Congress to do the following: (1) Ensure =0F"expeditious intervals=0F" for approving applications for acc= ess to=20 rights-of-way; (2) Require franchise fees to be based on the actual costs of managing the= =20 rights-of-way, not on a percentage of carriers=0F' revenues; (3) Bar cities from imposing =0F"unreasonable=0F" telecom and universal ser= vice=20 requirements on telecom carriers; (4) Ensure that carriers have a private right of action in the courts to=20 enforce the rights-of-way provisions in section 253 of the 1996 Act; and (5) Establish a process for obtaining rights-of-way across areas under=20 federal jurisdiction at cost-based rates and without =0F"unnecessary=20 restrictions.=0F" The study acknowledges that CLECs face =0F"financial impediments=0F" to ful= filling=20 the competitive goals of the 1996 Act. =0F"The current year will undoubted= ly be=20 a critical time for CLECs,=0F" it says, noting that some financial analysts= =20 predict half of all CLECs will file for bankruptcy protection or face=20 consolidation. To help CLECs overcome their financial hurdles, Congress should consider=20 establishing programs to extend credit to eligible carriers to finance the= =20 deployment of broadband services in rural areas, the study says. ALTS points to the proposed Broadband Internet Access Act of 2001, introduc= ed=20 in the House as HR 267 by Rep. Philip English (R., Pa.) and in the Senate a= s=20 S 88, introduced by Sen. John D. Rockefeller IV (D., W.Va.) (TR, Jan. 29). ALTS also urges Congress to establish programs authorizing the use of =0F" financial incentives=0F" for the deployment of broadband services to =0F"ta= rgeted=20 urban and rural areas.=0F" Furchtgott-Roth=0F's Departure Plan Sparks Speculation on Nominees FCC Commissioner Harold W. Furchtgott-Roth=0F's decision not to seek=20 renomination to a second term on the Commission has touched off a new round= =20 of speculation about who the Bush administration will appoint to the=20 Commission and when it will act to fill potential vacancies at the agency. Many industry and congressional observers think the White House will act=20 quickly to fill the vacancy that was created by the resignation by former= =20 Chairman William E. Kennard last month. They point to the speed with which= =20 President Bush tapped Commissioner Michael K. Powell to succeed Mr. Kennard= =20 as chairman. That announcement was made on the first business day after th= e=20 inauguration. =0F"I think they=0F're moving quickly on it. . .and we could see something = happen=20 in the next couple of weeks,=0F" former FCC Chairman Richard E. Wiley told = TR during a break at last week=0F's Comnet conference (see separate story). = =20 Mr. Wiley, who played a key role on the Bush administration=0F's FCC transi= tion=20 advisory team, said there might be a sense of urgency at the White House to= =20 name at least one GOP Commissioner to give the Republicans a majority on th= e=20 Commission. There currently are two Democrats on the five-seat FCC (Commissioners Susan= =20 Ness and Gloria Tristani) and two Republicans (Commissioners Furchtgott-Rot= h=20 and Chairman Powell). The Communications Act of 1934, as amended, prevents= =20 any one political party from appointing more than a bare majority of FCC=20 Commissioners. =20 Mentioned as possible Bush administration Republican appointees to the FCC= =20 are Patrick H. Wood III, chairman of the Texas Public Utility Commission, a= nd=20 Kevin Martin, a former adviser to Mr. Furchtgott-Roth and a central figure = in=20 the Bush administration=0F's FCC transition team (TR, Jan. 22). Earl Comst= ock,=20 a Washington attorney and former aide to Sen. Ted Stevens (R., Alaska), als= o=20 has been mentioned. Mr. Wood was seen as a possible successor to Mr. Kennard before President= =20 Bush tapped Chairman Powell for the top spot. Mr. Martin, meanwhile, has= =20 ties to the Bush administration beyond his work on the FCC transition team.= =0F" He=0F's really paid his dues and earned his stripes with the White House by= =20 helping out on the Florida ballot recount,=0F" a GOP congressional source s= aid. The White House also has the option of replacing Ms. Ness, who is serving a= =20 recess appointment that expires at the end of the first session of the 107t= h=20 Congress (TR, Dec. 25, 2000). =20 There=0F's also talk that the White House, along with nominating a new GOP= =20 Commissioner, simultaneously will nominate a Democrat to replace Ms. Ness. = =20 Democrats favor a =0F"package deal=0F" because it would make it easier for = their=20 nominees to win approval by a Republican-controlled Senate, according to a= =20 Senate source familiar with how the FCC nominations process works. =0F"It=0F's still a free-for-all right now,=0F" the source says, as numerou= s lawmakers=20 float names of individuals they would liked to see nominated to the FCC. = =0F" They=0F're also working industry, [congressional] leadership, and other mem= bers=20 of Congress for support, too,=0F" the source said. Mentioned as possible Democratic nominees are House Energy and Commerce=20 Committee Minority Staff Director Andy Levin, who is being pushed by his bo= ss=20 John D. Dingell (Mich.), and Michael I. Copps, assistant secretary of=20 commerce for trade development and a former chief of staff to Sen. Ernest F= .=20 Hollings (S.C.). =20 Former National Telecommunications and Information Administrator Gregory L.= =20 Rohde also is under consideration, sources say. Meanwhile, Mr. Furchtgott-Roth says he=0F'll remain on the Commission until= a =0F" mutually agreeable departure date is worked out=0F" with the Bush=20 administration. Mr. Furchtgott-Roth=0F's term expired last June; he can=20 continue at the agency until the end of the first session of the 107th=20 Congress, which is expected to occur this fall. In a Jan. 31 statement announcing his decision, Mr. Furchtgott-Roth gave fe= w=20 clues about his next move, saying only that =0F"there comes a time when eve= ry=20 free market advocate in government must fulfill his dream by returning to t= he=20 private sector. For me, that time has arrived.=0F" His tenure at the Commission drew praise from two House telecom Republicans= . =20 Energy and Commerce Committee Chairman W.J. (Billy) Tauzin (La.) says Mr.= =20 Furchtgott-Roth will be =0F"greatly missed,=0F" and Rep. Charles (Chip) Pic= kering=20 (R., Miss.) lauded his efforts =0F"to ensure that the FCC was an independen= t=20 agency accountable to consumers. . .and not an extension of the executive= =20 branch.=0F"=20 Court Upholds FCC Rules Giving ILECs Road to Pricing Flexibility A federal appeals court says it=0F's reasonable to use the number of carrie= rs=20 collocating equipment in an incumbent=0F's wire centers as =0F"proxy=0F" me= asures for=20 determining the levels of local competition. The FCC uses that proxy to=20 determine whether an incumbent local exchange carrier should be freed from= =20 some pricing regulations. The U.S. Court of Appeals in Washington last wee= k=20 rejected WorldCom, Inc.=0F's argument that the FCC=0F's criteria for granti= ng ILECs=20 pricing flexibility didn=0F't measure competition accurately and were unlaw= fully=20 arbitrary. The case centered on the FCC=0F's 1999 pricing-flexibility order in Common= =20 Carrier docket 96-262. The order allowed ILECs regulated under its price-c= ap=20 regime to gain greater flexibility in setting rates for interstate services= =20 if they met certain competitive =0F"triggers=0F" (TR, Aug. 9, 1999). For example, ILECs can win relief from some pricing rules if the FCC finds= =20 that unaffiliated carriers have collocated facilities in a certain percenta= ge=20 of the ILEC=0F's wire centers and that at least one collocator is=20 facilities-based. In its Feb. 2 ruling in MCI WorldCom, Inc., et al. v. FCC (case no. 99-1395= ),=20 the court found that the FCC =0F"made a reasonable policy determination=0F"= that=20 the number of collocating comptitors was a reasonable proxy for the level o= f=20 competition in a particular market. Judge David B. Sentelle wrote the=20 opinion; he was joined by Judge A. Raymond Randolph and Chief Judge Harry T= .=20 Edwards.=20 The judges didn=0F't specifically endorse the use of collocation as a proxy= ,=20 even allowing that =0F"it may well be that collocation is a poor measure of= =20 market share.=0F" But they noted that the FCC had not relied on market sha= re as=20 =0F"the be-all and end-all=0F" of competition. They agreed with the FCC th= at =0F"the=20 presence of sunk investment, and the resulting potential for entry into the= =20 market, can limit anticompetitive behavior by LECs.=0F" In oral arguments last December, the judges expressed frustration bordering= =20 on exasperation at WorldCom=0F's inability to present an alternative means = of=20 measuring competition (TR, Dec. 4, 2000). AT&T Corp. and Time Warner=20 Telecom, Inc., also were petitioners in the consolidated case. The judges concluded that because they found the FCC=0F's proxy model =0F" reasonable,=0F" there was no basis on which to require the FCC =0F"to condu= ct a=20 more searching analysis of competition before granting pricing flexibility.= =0F" =20 They cited a 1980 case before the circuit court in Washington, D.C., U.S. v= .=20 FCC.=20 =0F"Someone must decide when enough data is enough. In the first instance,= that=20 decision must be made by the Commission. . .To allow others to force the=20 Commission to conduct further evidentiary inquiry would be to arm intereste= d=20 parties with a potent instrument for delay,=0F" the judges quoted. The judges rejected WorldCom=0F's claim that the pricing-flexibility order= =20 violated FCC precedent because much of the relief it provided to ILECs was= =20 typical of that given to carriers that are regulated as =0F"nondominant.=0F= " =20 WorldCom argued that the FCC should be precluded from granting such relief= =20 without conducting the same kind of competition analysis that it does when= =20 determining if a carrier should be considered nondominant. =20 The appeals court disagreed, saying the pricing flexibility order did not= =20 grant LECs =0F"all the regulatory relief afforded nondominant carriers.=0F"= It=20 noted that carriers that obtain regulatory relief under the=20 pricing-flexibility order still must file tariffs, a requirement that is = =0F"not=20 insignificant.=0F" The appeals court also dismissed WorldCom=0F's argument that the FCC was=20 arbitrary and capricious in authorizing regulatory relief by metropolitan= =20 statistical area (MSA). It said the FCC had considered other options when= =20 devising its rules and called WorldCom=0F's objections =0F"at bottom. . .a= =20 difference in policy preferences. . .[and] not a sufficient basis on which = to=20 upset the FCC=0F's determination.=0F" The judges relied on similar reasoning in dismissing WorldCom=0F's objectio= ns to=20 the triggers the FCC established. The court called these objections =0F"no= more=20 than policy differences.=0F" It said the FCC had made =0F"rational=20 legislative-type judgments=0F" that it is =0F"empowered to exercise and we = are=20 required to respect.=0F"=20 AT&T Corp. has won a multiyear $100 million broadband service contract... AT&T Corp. has won a multiyear $100 million broadband service contract from= =20 MerchantWired, which provides network services to retailers, the company ha= s=20 announced. MerchantWired, of Indianapolis, will resell AT&T=0F's frame rel= ay=20 and asynchronous transfer mode services to merchants. It also has plans to= =20 resell AT&T=0F's virtual private network, Internet protocol, and digital=20 subscriber line services.=20 Utah Bill Takes Aim at Cities Entering Telecom Business Utah state Rep. Greg Curtis (R.) plans to introduce a bill to regulate=20 efforts by municipalities such as Provo that are getting into the=20 telecommunications business, a legislative staff member has told TR. The city of Provo recently bought a local cable TV company, Provo Cable, an= d=20 is competing against an AT&T Broadband cable TV system. Rep. Curtis=0F' bi= ll=20 would authorize state regulation of such government-owned telecom businesse= s. Provo is building a high-speed broadband system to bring advanced telecom= =20 services to every resident of the city, Michael Mower, Provo=0F's=20 director-community and governmental relations, told TR. Mr. Mower said AT&T=0F's cable TV system provides services only to select= =20 businesses and portions of the city. The legislative staff member said lawmakers were concerned about Provo=0F's= =20 owning its own telecom company because the state constitution bars the stat= e=20 from regulating cities. That would mean that the Utah Public Service Commission wouldn=0F't be able= to=20 regulate a municipal telecom company. The text of Rep. Curtis=0F' bill was= n=0F't=20 available as of TR=0F's news deadline. Mr. Mower hopes legislators understand that the process of leveling the=20 playing field =0F"goes both ways,=0F" he said, and that huge corporations h= old some=20 advantages over city-owned systems. Va. Regulators Tell Verizon Not To Cut Off CLEC=0F's Customers The Virginia State Corporation Commission has enjoined Verizon Virginia,=20 Inc., from =0F"unreasonably disconnecting=0F" customers who switch to compe= titor=20 Cavalier Telephone LLC for their local exchange service. Cavalier asked the SCC for help last September, claiming that Verizon =0F" unlawfully interrupted service=0F" to hundreds of customers who chose to mi= grate=20 to Cavalier. Verizon acknowledged that =0F"premature disconnections=0F" led= to 66=20 service outages but said 43 of those customers were reconnected by the day= =20 after the disconnections were reported to Verizon. The Virginia commission found that although the number of premature=20 disconnections was =0F"unacceptable,=0F" there was no evidence that Verizon= =0F's=20 disconnections were intentional. =0F"Nevertheless,=0F" the SCC said, =0F"w= e cannot=20 condone this inattention to customer service.=0F" The SCC directed the companies to file monthly reports, beginning Feb. 12,= =20 detailing any further unwarranted disconnections of service. Oftel Extends BT Price Controls For Retail, Wholesale Services British Telecommunications plc (BT) is facing an increased level of=20 competition =0F"but continues to have market power=0F" in the provision of= =20 residential telephone service, the United Kingdom=0F's Office of=20 Telecommunications (Oftel) has announced. Oftel said it would extend=20 existing BT price controls=0F-which had been scheduled to expire in August= =0F-for=20 an additional year. Oftel will continue to review the level of competition that BT faces in the= =20 U.K. in order to assess whether residential price controls will be necessar= y=20 beyond 2002. David Edmonds, Oftel=0F's director general-telecommunications, said Feb. 1 = that=20 extending the price control regime was necessary to protect consumers. =0F= " Oftel will carry out a review of the calls market to assess the impact of= =20 carrier preselection, indirect access, local loop unbundling, and mobile=20 substitution,=0F" he said. =0F"As competition increases and prices fall, t= he case=20 for retail price controls diminishes.=0F" Oftel also said it would keep price controls on wholesale network=20 interconnection rates that BT charges competitive carriers. Those controls= =20 will be extended until October 2005. Loral Scraps $3.5 Billion Plan For Direct-to-Consumer Service Loral Space & Communications Ltd. is scrapping plans to deliver high-speed= =20 Internet service directly to consumers over a $3.5 billion network of=20 satellites and optical fiber. =0F"Despite the feasibility of Loral=0F's pl= an, we=20 have concluded that we do not have the in-house skills to develop the=20 marketing resources to competitively deploy such a system,=0F" Bernard Schw= artz,=20 Loral=0F's chairman and chief executive officer, said at a Feb. 1 Merrill L= ynch=20 & Co. satellite conference in New York. =0F"Data delivery directly to the consumer entails packaging content, engag= ing=20 in e-commerce, providing consumer premises equipment, and acquiring and=20 caring for subscribers, and it is better left to others,=0F" Mr. Schwartz s= aid. =20 =0F"Furthermore, given the crowded field of players, we didn=0F't see a way= to=20 sufficiently differentiate our product from the others entering the=20 direct-to-consumer field.=0F" Under a plan unveiled last February, Loral had intended to complete its=20 network this year and eventually offer service to 10 million homes and smal= l=20 businesses. Loral surmised that digital subscriber line and cable modem=20 services wouldn=0F't satisfy consumers=0F' demand for bandwidth. But Loral= has=20 been stung recently by its investment in Globalstar Telecommunications Ltd.= ,=20 which uses satellites to offer global mobile telephony. Loral owns 38% of= =20 Globalstar, which is near bankruptcy (TR, Jan. 22). Instead of venturing into direct-to-consumer services, Mr. Schwartz said=20 Loral would =0F"stick to what we do best and where we already hold a strong= =20 leadership position=0F-the development of satellite technologies and hardwa= re=20 and the provision of high-quality, value-added transport services.=0F" European Commission Seeks Cybercrime Policy Harmonization The European Commission is developing a plan to harmonize the=20 cybercrime-fighting efforts of European Union member nations with those of= =20 other countries. It has asked for comments on how to do so =0F"without=20 hindering the rapid development of e-commerce in the EU, and respecting the= =20 fundamental right to privacy.=0F" Comments are due March 23. It wants to launch an EU forum for representatives of law enforcement=20 agencies, telecom and Internet service providers, and consumer groups to=20 discuss issues related to cybercrime. The first step will include naming= =20 forum representatives from those sectors. Relevant documents and comments= =20 will be published on a forum Web site. The commission has delivered a cybercrime policy planning document to the= =20 Council of Europe and European Parliament. On March 7 it will hold a publi= c=20 hearing on issues addressed in the planning document. Parties who wish to= =20 submit a statement at the hearing must request an =0F"invitation=0F" to do = so by=20 Feb. 20. Psion plc and Motorola, Inc., say they are discontinuing a joint agreement.= .. Psion plc and Motorola, Inc., say they are discontinuing a joint agreement = to=20 develop wireless devices as Motorola continues a streamlining of its=20 operations. Motorola said it would focus on a wireless smart phone to be= =20 launched in 2002 based on the platform developed by Symbian Ltd., an allian= ce=20 of companies including United Kingdom=0F-based Psion and Motorola. Motorol= a,=20 which owns 21% of Symbian, said it would continue to take an active role in= =20 planning the future of the alliance. Personnel Commissioner Harold Furchtgott-Roth, who has announced plans to leave the F= CC=20 (see separate story), has promoted his two legal advisers. Rebecca Beynon= =20 will be senior counsel, and Bryan Tramont will be senior legal adviser. The Idaho Senate unanimously has approved Gov. Dirk Kempthorne=0F's (R.)=20 nomination of Dennis S. Hansen (R.) to a second six-year term on the state= =0F's=20 Public Utilities Commission. Hansen, who first was appointed to the=20 commission by Gov. Phil Batt (R.), is also the PUC=0F's president. Before= =20 appointment to the commission, Hansen was an accountant with Monsanto Co. o= f=20 Soda Springs and served in the state Senate from 1987 to 1995. Joel I. Klein has been named chairman and chief executive officer of=20 Bertelsmann, Inc., the corporate services arm of German media company=20 Bertelsmann AG. Mr. Klein was assistant attorney general-antitrust for the= =20 U.S. Department of Justice from October 1996 to September 2000. He will=20 oversee Bertelsmann=0F's U.S. operations and advise the company on legal,= =20 strategic, and governmental issues. The law firm of Steptoe & Johnson LLP has merged with the United Kingdom la= w=20 firm of Rakisons. The U.S. practice will continue under its name, and the= =20 U.K. practice will be known as Steptoe & Johnson Rakisons. Lon Bouknight= =20 will be global chairman, and Tony Wollenberg will be managing partner of th= e=20 London practice. Danny Preiskel and Alfred Mamlet will head the London and= =20 U.S. telecom practices, respectively. David Judah in London and Stewart=20 Baker in Washington will lead a new technology, Internet, and media group. Richard R. Roscitt has been named chairman and chief executive officer of A= DC=20 Telecommunications, Inc., a Minneapolis-based telecom equipment maker. Mr.= =20 Roscitt was president of AT&T Corp.=0F's business services group. He succe= eds=20 William J. Cadogan, who is retiring. ADC also named Lynn Davis president a= nd=20 chief operating officer. Mr. Davis was president of ADC=0F's broadband=20 connectivity group. Robert E. Randall is the new chief executive officer at TeraGlobal=20 Communications Corp., a San Diego=0F-based manufacturer of telecom network= =20 software. He was executive vice president and chief operating officer at= =20 FirstWorld Communications Corp. Mr. Randall succeeds interim CEO William= =20 Reddersen, who will remain on the board.=20 Alamosa PCS Holdings, Inc., has said President and Chief Operating Officer= =20 Jerry Brantley left the company. In addition, Chief Technology Officer Ton= y=20 Sabatino and regional vice presidents now report to David Sharbutt, the=20 company=0F's chairman and chief executive officer. Frederick M. Lax has been named executive vice president and chief operatin= g=20 officer at Tekelec, Inc., a California telecom network equipment=20 manufacturer. He was VP and general manager at Lucent Technologies, Inc.= =0F's=20 messaging solutions unit. Nextel Communications, Inc., has promoted Scott E. Hoganson to senior vice= =20 president-sales operations. He previously was president of the carrier=0F'= s=20 Midsouth area. Nextel also has promoted Linda Marshall to VP of the Midwes= t=20 region. Ms. Marshall previously was president of the company=0F's Great La= kes=20 area. Jean-Francois Deschamps has been named senior vice president-global service= =20 operations at Global One, a France Telecom Group affiliate. He was assista= nt=20 VP-product management data services.=20 Vincent M. Oddo has been named executive vice president and chief informati= on=20 officer at Network Telephone Corp., a Pensacola, Fla.=0F-based integrated= =20 communications provider. He was executive VP and CIO at Gabriel/TriVergent= =20 Communications, Inc.=20 Frank D. Brilliant has joined Arch Wireless, Inc., as vice president of the= =20 paging carrier=0F's newly created Business Solutions Group. He previously = was=20 vice president-sales at BizRate.com. AOL Time Warner, Inc., has named John Buckley vice president-corporate,=20 effective March 12. He was senior VP-communications at Fannie Mae. NewSouth Communications Corp., a Greenville, S.C., integrated communication= s=20 provider has promoted Lori Reese to the position of vice president-governme= nt=20 affairs. She was director of that unit. Lucent Technologies, Inc., has named Barbara Gasper vice president-investor= =20 relations, effective Feb. 12. She held that title at Raytheon Co. Ms.=20 Gasper succeeds John DeBono, who will lead investor relations at Agere=20 Systems, Inc., the Lucent microelectronics unit that will be spun off later= =20 this year. Michael G. Donahoe has been named senior general counsel and vice=20 president-corporate development at DataVoN, Inc., a Dallas-based network=20 services provider. He most recently was VP-legal at CapRock Communications= =20 Corp., which late last year was acquired by McLeodUSA, Inc.=20 Lucent China has named Michael Kwan chief operating officer. He was=20 president at Lucent Technologies Qingdao Telecommunications Systems, Ltd., = a=20 51% Lucent-owned joint venture in China.=20 John Joyce was named chief operating officer at Ambient Corp., a powerline= =20 telecom technology manufacturer. He was president at ABB Financial=20 Consulting, Inc., and senior vice president at ABB Financial Services, Inc.= =20 Wilfred Kopelowitz was named Ambient=0F's chief financial officer. He was= =20 corporate controller at Amdocs Corp.=20 Harold Gowl is the new chief operating officer at Wisor Telecom, Inc., a=20 Rockville, Md., maker of operation support systems. He was president and= =20 chief executive officer at Newcomm Net, a competitive local exchange carrie= r. Research in Motion Ltd. has appointed Larry Conlee chief operating=20 officer-engineering and manufacturing. Mr. Conlee previously was at=20 Motorola, Inc., where he was a corporate vice president for various groups= =20 and divisions. NeTune Communications, Inc., has named Richard J. Agostinelli to the new=20 positions of chief operating officer and chief financial officer. He was= =20 chief executive officer and president-continental graphics at Continental= =20 Graphics Holdings, Inc. NeTune is a Culver City, Calif., provider of=20 broadband communications services to the motion picture and TV production= =20 industries.=20 JP Systems, Inc., a Dallas-based developer of wireless-enabling technology= =20 and services, has named Tim D. Torno chief financial officer. Mr. Torno wa= s=20 CFO and vice president-finance and secretary for Ultrak, Inc. Philip Veneziano was named chief financial officer at Everest Broadband=20 Networks Corp., a Fort Lee, N.J.=0F-based provider of broadband services to= =20 multitenant buildings. He was senior vice president-financial operations a= t=20 Juno Online Service, Inc. Christopher Dalrymple was named Everest Broadban= d=0F' s general counsel. He was associate counsel at Interliant, Inc. =20 Howard N. Levitas has joined the Industrial Telecommunications Association = as=20 chief information officer. Mr. Levitas was previously manager-applications= =20 development at Verizon Connected Solutions, Inc. Telefon AB L.M. Ericsson has hired Ase Lindskog as director-press relations= =20 in its external relations group and Ola Rembe to the same position in the= =20 public relations and special interest media group. Mr. Lindskog is a forme= r=20 journalist, financial analyst, and secretary general of the Swedish Society= =20 for Financial Analysts. Mr. Rembe was director-corporate communication and= =20 PR at Jobline International. Maureen O=0F'Connor is the new executive director at the Maryland Coalition= for=20 Telephone Competition, a consumer group whose industry members include AT&T= =20 Corp. and Winstar Communications, Inc. She=0F's founder of O=0F'Connor Pub= lic=20 Relations, LLC. The National Cable Television Association has promoted Director-state=20 telecommunications policy Rick Cimerman and Director-public affairs David= =20 Pierce. Both were promoted to senior director. San Diego=0F-based ideaEDGE Ventures has hired Hans Davidsson as a managing= =20 partner. Mr. Davidsson was vice president-Internet applications and=20 solutions at Telefon AB L.M. Ericsson. The Universal Service Administrative Co. has elected Allan T. Thoms vice= =20 chairman of its board of directors. Mr. Thoms is the chairman of the Iowa= =20 Utilities Board. Frank Gumper, vice president-public policy development at= =20 Verizon Communications, Inc., was reelected USAC=0F's chairman and Cheryl= =20 Parrino was reelected chief executive officer. Former U.S. Deputy Attorney General Ronald D. Lee has been elected partner = in=20 Arnold & Porter=0F's Washington, D.C. law office. He=0F'll focus on the= =20 regulatory and public policy legal issues of telecommunications, computer= =20 security, and encryption. Mr. Lee from 1987 to 1994 practiced law at the= =20 firm=0F's Washington and Los Angeles offices. Dale Hatfield, former chief of the FCC=0F's Office of Engineering and=20 Technology, has joined Fantasma Networks, Inc., as a technical adviser. Mr= .=20 Hatfield will advise the Mountain View, Calif.=0F-based wireless video=20 networking technology provider on ultrawideband technology. He also is=20 director of the Interdisciplinary Telecommunications Program at the=20 University of Colorado at Boulder. San Diego=0F-based AirFiber, Inc., says Brett Helm, its newly hired preside= nt=20 and chief operating officer, will join its board of directors along with=20 Marcel Gani, chief financial officer of Juniper Networks, Inc. Wireless Online, Inc., says Neil Cox, president of SecurityLink, will join= =20 its board of directors. Regulatory & Government Affairs DT Services, Inc., and 4MTV Corp. separately have asked the FCC to grant th= em=20 =0F"exempt telecommunications company=0F" (ETC) status under the Public Uti= lity=20 Holding Company Act of 1935 (PUHCA), as amended by the Telecommunications A= ct=20 of 1996. The PUHCA effectively prevented utility companies from providing= =20 telecom services, but the Act made it possible for them to do so either by= =20 acquiring or holding interest in an ETC. DT is a subsidiary of Dominion=20 Resources, Inc., a registered holding company under PUHCA. 4MTV is a priva= te=20 Nevada-based corporation, and plans to offer broadband Internet and other= =20 network services. Comments on DT=0F's request are due in Network Securities= file=20 ETC 00-53 by Feb. 9, and replies are due Feb. 16. Comments and replies on= =20 4MTV=0F's request are due Feb. 19 and 26, respectively. They should refer = to=20 ETC 01-01. The FCC is seeking comments on requests by Amana Colonies Telephone Co. and= =20 South Slope Cooperative Telephone Co. for waivers of its =0F"study area=0F"= =20 definitions. One of the requested waivers would enable Amana (d/b/a=20 Hickorytech and Heartland Telecommunications of Iowa) to alter its Iowa stu= dy=20 area to remove a telephone exchange it is transferring to South Slope. The= =20 other waiver would enable South Slope to include that exchange, which serve= s=20 about 1,500 lines, when calculating its universal service support. A study= =20 area is the geographical area over which universal service support is=20 calculated. Comments and replies on both requests are due Feb. 19 and Marc= h=20 1, respectively. Filings should refer to Common Carrier docket 96-45. The FCC=0F's Wireless Telecommunications Bureau is seeking comments on a re= quest=20 by an intergovernmental public safety agency for a rule waiver to allow it = to=20 use eight radio frequencies allocated for non-public safety use in Chicago.= =20 Comments on the DuPage Public Safety Communications request are due Feb. 20= =20 and replies are due Feb. 27. Parties should reference DA 01-264. The North American Numbering Council will discuss plans for a performance= =20 review and a =0F"requirements document=0F" for the North American Numbering= Plan=20 administrator, among other topics, during its Feb. 20-21 meeting. The NANC= =20 meeting will begin at 8:30 a.m. in Room TW-C305 of the FCC=0F's headquarter= s in=20 Washington. Contact Cheryl Callahan at 202/418-2320 for more information. The FCC=0F's Wireless Telecommunications Bureau is seeking comments on requ= ests=20 for frequency coordination certification in the 800 megahertz and 900 MHz= =20 private land mobile radio service (PLMRS) public safety pool frequencies. = =20 The International Association of Fire Chiefs, Inc., and the International= =20 Municipal Signal Association (IAFC/IMSA) are seeking certification in the 8= 00=20 MHz and 900 MHz bands, while the American Association of State Highway and= =20 Transportation Officials (AASHTO) is seeking certification in the 800 MHz= =20 band. Comments are due Feb. 21 and replies March 8. Comments on the=20 IAFC/IMSA request should reference DA 01-152, while comments on the AASHTO= =20 request should reference DA 01-151. The FCC is seeking comments on five petitions for declaratory ruling from= =20 companies partly owned by VoiceStream Wireless Corp. asking the FCC to perm= it=20 Deutsche Telekom AG to take an indirect ownership interest greater than 25%= =20 in those companies. DT would gain such an ownership interest as a result o= f=20 DT=0F's planned acquisition of VoiceStream (see separate story). The Germa= n=20 government owns 60% of DT. Comments are due Feb. 22 and replies March 8. = =20 Comments should reference DA 01-280 and International docket 00-187. The FCC is seeking comments on the National Exchange Carrier Association,= =20 Inc.=0F's proposed revisions to the average schedule universal service form= ulas=20 for the period from July 1, 2001, to June 30, 2002. On Dec., 28, 2000, NEC= A=20 submitted proposed changes to formulas for average schedule interstate=20 settlement disbursements. Comments and replies are due March 5 and 26,=20 respectively. They should refer to Accounting Safeguards file 01-16. The FCC is seeking comments on Western Wireless Corp.=0F's request that the= FCC=20 designate it an eligible telecommunication carrier for the purpose of=20 receiving universal service funding for serving the Pine Ridge Reservation = in=20 South Dakota. Comments are due 30 days after the notice seeking comment is= =20 published in the Federal Registerand should refer to Common Carrier docket= =20 96-45. Replies are due 15 days later. The FCC says five bidders have qualified to participate in the reauction of= =20 eight licenses for the 700 megahertz =0F"guard bands=0F" surrounding public= safety=20 spectrum, which is scheduled to begin Feb. 13. The licenses were offered b= ut=20 unsold at an auction last September. The qualified bidders and their upfro= nt=20 payments are Access Spectrum LLC ($156,000), Harbor Wireless LLC ($110,000)= ,=20 Nextel Spectrum Acquisition Corp. ($156,000), Pegasus Guard Band LLC=20 ($161,000), and PTPMS II Communications, Inc. ($161,000). Companies that= =20 make larger upfront payments can bid more in the auction. The FCC has affirmed its decision that economic area (EA) licensees are not= =20 required to make =0F"progress payments=0F" to incumbent SMR (specialized mo= bile=20 radio) service operators that are involuntarily relocated from the upper 20= 0=20 channels of the 800 megahertz band. Instead, the FCC said, EA licensees ca= n=20 wait until a relocation is completed before picking up the costs. In a thi= rd=20 order on reconsideration in Private Radio docket 93-144 released Feb. 2, th= e=20 FCC denied a petition filed by the American Mobile Telecommunications=20 Association, which had sought reconsideration of a 1999 decision=20 restructuring the licensing framework for the 800 MHz band SMR service. =20 The FCC has noted that Southwestern Bell Telephone Co. will no longer be=20 required to submit performance measurement data for its Kansas and Oklahoma= =20 operations. That requirement was one of the conditions of the FCC=0F's app= roval=20 of the merger between parent company SBC Communications, Inc., and Ameritec= h=20 Corp. When it approved the merger, the FCC established a =0F"carrier-to-ca= rrier=20 performance plan=0F" that required the merged company to report the monthly= =20 results of 20 performance measurements for the telco operations in each of= =20 the states in its service territory (TR, Oct. 11, 1999). The FCC last mont= h=20 determined that the Kansas and Oklahoma telcos had opened their markets to= =20 competition and approved them to offer in-region interLATA services,=20 effective March 7, under section 271 of the Telecommunications Act of 1996= =20 (TR, Jan. 29). SBC will submit its final performance measurements report= =20 under the plan on March 20. The New Jersey Board of Public Utilities has asked the FCC to rule on its= =20 request for authority to implement certain number-conservation measures,=20 including 1,000-number block =0F"pooling=0F" and number rationing. The New= Jersey=20 regulators last summer requested permission pursuant to an FCC order that= =20 introduced a plan for national pooling and encouraged states to apply for= =20 authority to conduct pooling trials until the national rollout began (TR,= =20 March 20, 2000). Despite receiving comments on the board=0F's request last= year=20 (TR, Aug. 14, 2000), the FCC has not yet issued a decision in the matter. = In=20 its recent petition in Common Carrier docket 96-98 and Network Security fil= e=20 L-00-95, the board asked the FCC immediately to approve its request so it c= an=20 implement the conservation measures =0F"before further depletion of finite= =20 numbering resources.=0F"=20 The Michigan Public Service Commission has asked the FCC for authority to= =20 conduct 1,000-number block =0F"pooling=0F" in two metropolitan statistical = areas=20 (MSAs). In its =0F"number optimization=0F" order last year in Common Carri= er=20 docket 99-200, the FCC announced a plan to conduct nationwide pooling (TR,= =20 March 20, 2000). It also encouraged states to seek authority to begin=20 pooling until the FCC announces a national rollout schedule. The Michigan= =20 PSC last week asked for authority to conduct 1,000-number block pooling in= =20 the Detroit and Grand Rapid MSAs, to order sequential number assignment, an= d=20 to maintain =0F"NXX=0F" rationing for six months after the implementation o= f=20 area-code relief measures. =20 In a joint petition, Golden West Telephone Cooperative, Project Telephone= =20 Co., and Range Telephone Cooperative have asked the FCC=0F's Common Carrier= =20 Bureau to reconsider its decision designating Western Wireless Corp. as an= =20 ETC (eligible telecommunications carrier) for the purpose of receiving=20 federal =0F"high-cost=0F" support in Wyoming (TR, Jan. 8). They said they = hadn=0F't=20 received notice that the areas covered by the ETC designation could include= =20 parts of their exchanges. They also argued that ETC designation must=20 correspond with the entire study area of the incumbent telco. In a separat= e=20 petition, Chugwater Telephone Co., Range Telephone, and RT Communications,= =20 Inc., also sought reconsideration or clarification of the order. They argu= ed=20 that the Wyoming legislature should be given time to pass a pending bill (H= B=20 0052) that would authorize the state Public Service Commission to make ETC= =20 designations itself.=20 Regionet Wireless Licensee LLC said it opposed a petition asking the FCC to= =20 reconsider its recent decision to freeze the processing of new applications= =20 in the automated maritime telecommunications systems (AMTS) as it considers= =20 switching from site-based licensing to geographic licensing. Warren C.=20 Havens has filed a petition for reconsideration of a =0F"fourth report and = order=20 and third notice of proposed rulemaking=0F" adopted last year in Private Ra= dio=20 docket 92-257 (TR, Nov. 20, 2000). The FCC=0F's Enforcement Bureau is proposing a $5,000 monetary forfeiture= =20 against Verizon Florida, Inc., for violating Commission rules by operating = an=20 air-ground station without agency authorization. Verizon told the FCC that= =20 it operated the station without authorization between Sept. 1, 1999, and=20 March 10, 2000. The notice of apparent liability was released Feb. 1 in fi= le=20 no. EB-00-TS-148. The FCC=0F's Wireless Telecommunications Bureau says its policy of permitti= ng=20 applicants one extra business day to file applications under its jurisdicti= on=20 is no longer in effect. In a public notice released Feb. 1, the bureau sai= d=20 it was clarifying that all applications for wireless telecom services filed= =20 since Feb. 12, 1999, have been deemed filed on the date received by the=20 Commission. The FCC began providing an extra day for those filing Common= =20 Carrier applications requiring fees when it moved the filing location to a= =20 bank in Pittsburgh in 1990. The Market Disputes Resolution Division of the FCC=0F's Enforcement Bureau = has=20 granted a request by Texcom, Inc., (d/b/a Answer Indiana) to withdraw a=20 complaint it had filed against SBC Communications, Inc. Texcom had said SB= C=20 improperly collected payment for termination of SBC-originated traffic on= =20 Texcom=0F's network. The companies settled the matter during private=20 negotiations. The division agreed to dismiss the complaint with prejudice = in=20 Enforcement Bureau file 00-MD-12. New Skies Satellites N.V. has asked the FCC=0F's International Bureau to cl= arify=20 or reconsider a recent order that granted Telesat Canada=0F's petition to a= dd=20 the Anik F-1 satellite to the Permitted Space Station List. New Skies said= =20 clarification was needed so all parties understand (1) =0F"that additional= =20 authorization would be necessary before Anik F-1 would be allowed to provid= e=20 narrowband services to any C-band earth stations operating in the United=20 States that are smaller than 4.5 meters in diameter,=0F" and (2) =0F"the Co= mmission=0F' s rationale for concluding that operations from adjacent orbital locations= =20 will be protected.=0F" Pegasus Development Corp. is asking the FCC=0F's International Bureau to=20 reconsider a recent decision to grant Loral CyberStar, Inc., authority to= =20 launch and operate two satellites in the geostationary satellite orbit (GSO= )=20 to provide fixed-satellite service (FSS) in the Ka-band. In a petition for= =20 reconsideration filed Jan. 19, Pegasus said the International Bureau=0F's o= rder =0F" relies on a stale and inapplicable record. . .A refreshed record will=20 demonstrate that there currently exists a shortage of available Ka-band=20 orbital locations, that Loral has sufficient access to other orbital=20 resources, and that the public interest would be better served by making th= e=20 67-[degree] W.L. orbital location available for the second-round Ka-band=20 applicants,=0F" Pegasus said. The Rural Health Care Division of the Universal Service Administrative Co.= =20 recently sent 50 letters committing funding to health care providers in rur= al=20 areas. The program funds discounts on telecom services for eligible rural= =20 hospitals and other health care providers. USAC has committed more than $7= =20 million to 613 health care providers during the second year of its =0F" telemedicine=0F" program. The Federal Trade Commission is supporting a Web site=20 (http://www.consumer.gov/sentinel) offering statistics on Internet fraud,= =20 identity theft, and tips on avoiding online frauds and deceptions. The FTC= =20 said more than 80 public and private organizations contribute consumer=20 complaints to the multiagency Consumer Sentinel database, which law=20 enforcement officials use to share data about fraud. =20 House Ways and Means Committee Republican Philip S. English (Pa.) introduce= d=20 a bill, HR 267, to extend tax credits to carriers that deploy high-speed=20 Internet facilities in rural and underserved areas. The legislation has mo= re=20 than 50 co-sponsors. It=0F's a companion to S 88, which was introduced las= t=20 month by Sen. John D. Rockefeller IV (D., W.Va.) (TR, Jan. 29). Rep. Rodney P. Frelinghuysen (R., N.J.) introduced legislation that would= =20 require carriers to get written consent from customers before obtaining the= ir=20 wireless location information. The Wireless Privacy Protection Act, HR 260= ,=20 would direct the FCC to adopt such rules within six months of enactment. House freshman Michael Honda (D., Calif.) plans to form a bipartisan wirele= ss=20 caucus to focus exclusively on issues related to third-generation (3G)=20 wireless technology. More details about the caucus will be released =0F"wi= thin=20 the next few weeks,=0F" a Honda spokesman told TRlast week. Rep. Honda=0F'= s=20 initiative would be the second congressional caucus that=0F's focused on=20 wireless issues. Last year the Congressional Wireless Telecommunications= =20 Caucus was formed by Reps. Albert Wynn (D., Md.) and Charles (Chip) Pickeri= ng=20 (R., Miss.) and Sens. Byron Dorgan (D., N.D.) and Sam Brownback (R., Kan.)= =20 (TR, April 17, 2000). =20 A push to repeal the 3% federal excise tax on telephone bills has been=20 revived in the Senate by Finance Committee Chairman Charles E. Grassley (R.= ,=20 Iowa). The tax =0F"is outdated, unfair, and complex=0F" for consmers and p= hone=20 companies,=0F" the lawmaker said Feb. 1 when introducing the Help Eliminate= the=20 Levy on Locution Act (HELLO), S 234. Sen. Grassley added, =0F"It cannot b= e=20 justified on any tax policy grounds.=0F"=20 Celtronix Telemetry, Inc., has asked a federal appeals court to review the= =20 FCC=0F's decision to implement a debt-restructuring plan for licensees in t= he=20 218=0F-219 megahertz service, which was formerly called the interactive vid= eo=20 and data service (IVDS) (TR, Dec. 18, 2000; and Jan. 8, notes). In a=20 petition for review and notice of appeal (case no. 01-1021 and 01-1022) fil= ed=20 with the U.S. Court of Appeals in Washington, Celtronix argued that the=20 Commission=0F's action was unlawful, arbitrary, and capricious. Washington state Rep. Richard DeBolt (R.) has introduced legislation to=20 provide tax incentives for companies seeking to deploy advanced telecom=20 services in rural areas. HB 1239 would exempt from taxation any sales to o= r=20 by telecom companies for machinery, equipment, or tangible personal propert= y=20 used to build telecom infrastructure in rural areas. Telecom company=20 machinery, equipment, or facilities used to provide advanced telecom servic= es=20 to rural areas would be exempt from the use tax. Telecom companies also=20 would be eligible for tax credits equal to 50% of their costs of constructi= ng=20 telecom structures or facilities, or acquiring machinery or equipment. HB= =20 1239 awaits consideration by the House Technology, Telecommunications, and= =20 Energy Committee. Illinois legislators are considering a bill to rewrite the telecom provisio= ns=20 of the state=0F's Public Utilities Act, which expires July 1. The bill (HB = 492=20 and SB 134) would freeze rates, with a cap on future linked to the rate of= =20 inflation. It also would deregulate optional services, such as call waitin= g=20 and Caller ID. =20 Hawaii state Rep. Calvin K.Y. Say (D.) has introduced legislation to amend= =20 the state franchise tax to include the revenues of telephone, telecom, and= =20 cable TV businesses. Those businesses would have to pay 2.5% of their gros= s=20 receipts for the preceding calendar year. The bill, HB 1180, awaits=20 consideration by the House Consumer Protection and Commerce Committee and t= he=20 House Finance Committee. The North Carolina Utilities Commission has ordered the North American=20 Numbering Plan administrator (NANPA) to release two =0F"NXX=0F" codes in th= e =0F"980=0F"=20 area code to BellSouth Telecommunications, Inc. NXX codes are blocks of=20 10,000 sequential phone numbers. BellSouth had requested the NXX codes for= =20 two large business customers, Duke Energy Corp. and Microsoft Corp. But th= e=20 application for numbers in the new area code didn=0F't meet FCC guidelines= =20 regarding =0F"months to exhaust,=0F" the NCUC said, so the NANPA had denied= the=20 request. The NCUC directed BellSouth to assign the phone numbers to the tw= o=20 customers sequentially and stated that the numbers would be subject to=20 reclamation if not used within the period allowed by industry guidelines. = =20 The 980 area code is scheduled to be activated as an =0F"overlay=0F" of the= =0F"704=0F"=20 area code April 1. The Australian government has created an E-Security Coordination Group to= =20 assess the nation=0F's telecom- and information-infrastructure security nee= ds. =20 The National Office for the Information Economy is the group=0F's lead agen= cy. =0F" In addition to focusing on security standards, the group will work on=20 incident reporting, awareness raising, and skills shortages,=0F" the govern= ment=20 announced Feb. 2. It also formed a critical infrastructure priorities=20 subcommittee, led by the Commonwealth Attorney General=0F's Department, to = carry=20 out critical infrastructure threat and vulnerability assessments. Financial Briefs The Amsterdam Exchange intends to add KPNQwest NV to the AEX Index, a listi= ng=20 of the exchange=0F's top 25 companies, KPNQwest said. KPNQwest is a joint= =20 venture of Qwest Communications International, Inc., and Royal KPN NV, the= =20 Dutch national carrier. XO Communications, Inc., will seek to raise as much as $2 billion through t= he=20 sale of common stock, preferred shares, depositary shares, warrants, or deb= t=20 securities under a =0F"shelf registration statement=0F" filed with the Secu= rities=20 and Exchange Commission. Further details of the fund-raising effort will b= e=20 revealed in future filings. XO intends to use the funds to pay for network= =20 expansion, operating losses, and possible acquisitions. Telecom Italia SpA has raised $1.85 billion through the sale of convertible= =20 bonds in Europe. The Italian carrier intends to use the proceeds to=20 refinance existing debt. Nortel Networks Ltd., a subsidiary of Nortel Networks Corp., intends to rai= se=20 $1.5 billion through the sale of senior unsecured notes. Nortel, a=20 Toronto-based telecom equipment maker, intends to use the funds for loans t= o=20 its affiliates and other corporate purposes. The company expects to comple= te=20 the transaction this month. Leap Wireless International, Inc., said QUALCOMM, Inc., had agreed to provi= de=20 it with $125 million to support the carrier=0F's purchase of licenses in th= e FCC=0F' s reauction of =0F"C=0F" and =0F"F=0F" block PCS (personal communications s= ervice)=20 licenses, which ended last month (see separate story). Under terms of a=20 senior secured credit facility, QUALCOMM will transfer to Leap a $125 milli= on=20 auction discount voucher previously issued by the FCC. Leap will repay the= =20 money within five years. Tellabs, Inc., has agreed to pay $181 million cash for Future Networks, Inc= .,=20 a cable modem maker based in Alpharetta, Ga. Tellabs, of Lisle, Ill., said= =20 the acquisition would fill gaps in its portfolio of cable modem and cable= =20 telephony products. The companies expect to complete the transaction this= =20 month. Lafayette Communications LLC has signed a definitive agreement to acquire= =20 licenses for 10 megahertz of spectrum from subsidiaries of Carolina PCS I= =20 Limited Partnership for an undisclosed price. The spectrum covers nine bas= ic=20 trading areas serving about 3.5 million people in the entire state of South= =20 Carolina. Industry News The Organization for the Promotion and Advancement of Small=20 Telecommunications Companies is holding a March 28 seminar to discuss=20 opportunities to purchase Bell companies=0F' rural exchanges. OPASTCO said= Bell=20 companies, including Qwest Communications Corp., may sell =0F"upwards of 20= =20 million lines=0F" in the next five years. The OPASTCO seminar will be held= at=20 the Hyatt Regency at the Dallas/Fort Worth Airport. For more information,= =20 contact Tiffani Belk at 202/659-5990. The Ordering and Billing Forum=0F's Vendor Demo 2001 will be held Aug. 27= =0F-29 in=20 Seattle. The OBF is an industry group sponsored by the Alliance for=20 Telecommunications Industry Solutions. The International Engineering=20 Consortium will co-host the event. Call 312/559-3328 or visit=20 http://www.atis.org or http://www.iec.org for more information. The Alliance for Telecommunications Industry Solutions and the=20 Telecommunications Industry Association have begun developing the operating= =20 principles and procedures for a new industry-led body that will act as a = =0F" gatekeeper=0F" for terminal equipment standards. The FCC late last year=20 selected ATIS and TIA to sponsor the Administrative Council for Terminal=20 Attachments (TR, Nov. 13 and Dec. 25, 2000). The council will oversee the= =20 development of standards to replace the detailed technical criteria in part= =20 68 (equipment) of the FCC=0F's rules. Parties wishing to be notified of th= e=20 first council meeting should forward their contact information, including a= n=20 e-mail address, to Megan Hayes (mhayes@atis.org). Consumers Union, publisher of Consumer Reports magazine, and TeleBright Cor= p.=20 have formed an alliance that will allow consumers to compare prices and=20 offerings of mobile phone service plans online. Consumer Reports Online=20 (http://www.ConsumerReports.org) is using TeleBright=0F's IntelliRate techn= ology=20 to offer the service. Verizon Communications, Inc., is ending its telephone rental service, the= =20 company told TR. The changes affect only former GTE Corp. telcos. The=20 former Bell Atlantic Corp. telcos already had terminated their rental=20 programs before the merger with GTE that formed Verizon. The company will= =20 bill customers for rental phones through May 2001, a spokesman said. Renta= l=20 customers will own the phones when the billing cycle is completed. BellSouth Corp. will exit the payphone business over the next two years,=20 selling or scrapping about 143,000 public phones, the company said. Pay=20 phone usage has declined dramatically since 1998 and the business has becom= e=20 less profitable, BellSouth noted. =0F"Our customers are opting for the new= =20 technology options we provide, including wireless telephones and interactiv= e=20 pagers,=0F" said Charles B. Coe, BellSouth=0F's president-network services,= in a=20 statement. BellSouth said it would take two years to exit the business so= =20 that its pay phone location providers would have time to find an alternativ= e=20 to BellSouth service. SigmaOne Communications Corp. says a patent-infringement lawsuit filed=20 against it by TruePosition, Inc., is =0F"totally without technical merit an= d=20 motivated strictly by commercial considerations.=0F" TruePosition=0F's act= ion,=20 filed in U.S. District Court in Delaware, claims that SigmaOne infringed on= =20 three patents related to its network-based wireless location systems (TR,= =20 Jan. 22, notes). SigmaOne has decided to counter sue. =0F"We believe that= our=20 counter suit will produce an unequivocal declaration that TruePosition=0F's= =20 patents have no relation to, and are not infringed by, SigmaOne=0F's techno= logy=20 and that, in addition, the patents are invalid,=0F" said SigmaOne President= Mark=20 Licht. =0F"SigmaOne will also aggressively enforce its own intellectual=20 property rights in the field of wireless location technology.=0F" Sprint Corp. has completed the transition of 95% of the circuits covered by= =20 the FTS2001 federal government telecom service contract, according to Antho= ny=20 G. D=0F'Agata, vice president and general manager of Sprint=0F's government= systems=20 division. Qwest Communications International, Inc., has challenged the=20 General Service Administration=0F's award of =0F"bridge contracts=0F" to Sp= rint and=20 AT&T Corp. to cover government agency customers who haven=0F't completed th= e=20 transition from FTS2000 to FTS2001 (TR, Dec. 18, 2000, p. 38). Mr. D=0F'Ag= ata=20 cited the need to obtain approval for an additional function required by on= e=20 agency customer as contributing to the transition delay. He also cited=20 agencies=0F' concerns about the year 2000 computer bug early in the transit= ion=20 period, which discouraged them from making changes in their telecom systems= .=20 Lucent Technologies, Inc., has won a two-year, $129 million contract to=20 provide broadband network equipment to Sprint Corp. Lucent said it will=20 deploy its Stinger DSL (digital subscriber line) platform in about 1,000=20 Sprint central offices in the U.S. Sprint will use the equipment for its I= ON=20 (integrated on-demand network) service.=20 Sprint PCS and Unplugged Games, Inc., have signed an agreement for Unplugge= d=20 Games to provide its wireless games service on the carrier=0F's wireless We= b. =20 Sprint PCS also has signed an agreement with Tribune Media Services that wi= ll=20 give Sprint PCS subscribers to access to entertainment content from Tribune= =20 Media Services=0F' Zap2it.com Web site. Global Crossing Ltd. of Bermuda has completed the Pan American Crossing=20 network segment linking the U.S. and Mexico to Central America and the=20 Caribbean. It=0F's the latest step in deployment of the company=0F's globa= l fiber=20 optic system, which is scheduled to be finished by mid-2001. Activation of= =20 the Pan American Crossing makes Global Crossing =0F"the first company to=20 directly link California, Mexico, and Panama,=0F" Global Crossing said. Certicom Corp., a provider of mobile e-business security software and=20 services, has opened a European office in London. Telefon AB L.M. Ericsson is forming a separate company to focus on mobile= =20 Internet networks and applications. The company will be called Ericsson=20 Internet Applications and Solutions AB. Asia Global Crossing Ltd., Digital Telecommunications Phils, Inc. (Digitel)= ,=20 and Broadband Infrastructure (BI) Group have launched Digitel Crossing, a= =20 40:40:20 joint venture in the Philippines. Digitel Crossing has plans to= =20 build a terrestrial fiber optic network that will connect in early 2002 wit= h=20 Asia Global Crossing=0F's undersea network. Under the terms of the agreeme= nt,=20 Digitel and BI Group will buy network capacity from Asia Global Crossing.= =20 QUALCOMM, Inc., has announced that it has prevailed in three patent=20 opposition proceedings in Korea and Europe. The proceedings were initiated= =20 by Motorola, Inc. The Korean Intellectual Property Office upheld two=20 QUALCOMM patents, the European Patent Office upheld a third. In another=20 development, SnapTrack, Inc., a QUALCOMM subsidiary, was awarded a patent= =20 from the U.S. Patent and Trademark Office for its wireless location and=20 asset-tracking technology. Vodafone Group plcs=0F' United Kingdom affiliate has extended the roaming= =20 capabilities of its Globalstar mobile satellite phone customers from the U.= K.=20 to North America. It now offers its customers =0F"roaming agreements with = 272=20 networks=0F" on both sides of the Atlantic, said Paul Donovan, Vodafone U.K= .=0F's=20 managing director. Oy Nokia of Finland has signed a $186 million contract to upgrade the=20 wireless communications infrastructure of PTK Centertel Sp. z.o.o. of=20 Poland. Nokia will upgrade PTK Centertel=0F's GSM (Global System for Mobil= e=20 communications) network and will deploy GPRS (general packet radio service)= =20 infrastructure.=20 Rogers AT&T Wireless has selected Ericsson Canada, Inc., as exclusive=20 supplier for its third-generation wireless network. The contract is the = =0F" largest ever awarded to Ericsson in Canada,=0F" Ericsson said.=20 Wireless Industry Says Agreement Could Streamline Antenna Siting The FCC, the Advisory Council on Historic Preservation (ACHP), and a=20 telecommunications working group that includes historic preservation=20 officers, federal officials, and industry representatives have formulated a= =20 programmatic agreement designed to streamline the review of antenna=20 collocations under the National Historic Preservation Act (TR, Nov. 27, 200= 0;=20 Jan. 8, notes, and Jan. 29). The agreement comes on the heels of the advisory council=0F's decision in= =20 November 2000 to revise rules that the industry maintains make it difficult= =20 to site antenna towers. The new regulations were adopted after a court=20 challenge alleged voting irregularities in the council=0F's 1999 adoption o= f the=20 original rules, which implemented section 106 of the National Historic=20 Preservation Act (TR, Aug. 14 and 28; and Sept. 11, 2000). Like many industry officials, Robert L. Hoggarth, senior vice=20 president-government relations for the Personal Communications Industry=20 Association, has problems with the ACHP=0F's rules. But he says he hopes t= he=20 programmatic agreement on collocations=0F-and perhaps other issues=0F-can h= elp=20 speed the antenna-siting process. Mr. Hoggarth discussed the agreement wit= h=20 TR. An edited excerpt of the conversation follows. TR: What=0F's your complaint with the process used to adopt the rules that= the=20 ACHP approved last November? Hoggarth: The new rules, in our view, were originally promulgated=0F-or at= =20 least an attempt was made to promulgate them=0F-back in 1999. The current= =20 version that the ACHP passed in the fall was essentially the same rules tha= t=20 they attempted to adopt in early 1999. TR: So in your view, the rules that were approved last November and took=20 effect in January are pretty much the same as those adopted in 1999? Hoggarth: The original revisions that took place in early 1999 never legal= ly=20 went into effect because they were incorrectly promulgated. This latest=20 effort on the part of ACHP was an attempt to cure the early illegalities. = =20 The shortened rulemaking process was, in many respects, a way to rubber-sta= mp=20 the original rules. While it did provide an opportunity for the industry t= o=20 suggest changes, not many of those were accepted by the ACHP. TR: What problems does the wireless industry have with the rules themselve= s? Hoggarth: The key to the wireless industry is speed to market. And the=20 latest applications of the advisory council rules by state authorities and = by=20 the federal government have created additional potential for real delays fo= r=20 the industry in the processing of new antenna-site requests. TR: Why have the rules hurt the antenna-siting process? Is the wireless=20 industry asking to be treated differently from other industries? Hoggarth: No. What=0F's happened is the new process has upped the ante wi= th=20 respect to the level of review by state and local authorities. The challen= ge=20 that the industry has found is that in implementing those rules, many state= =20 historic preservation officers and many other stakeholders have used it as = an=20 opportunity to almost step in and take an approval role, as opposed to an= =20 advisory role. . .It=0F's the FCC that approves the antenna sites as oppose= d to=20 the state historic preservation officers or the ACHP. TR: So you see the ACHP as trying to have a greater role than it=0F's allow= ed=20 under the law? Hoggarth: Correct. Our goal is to make sure that historic preservation=20 issues are addressed and that they=0F're looked at in a responsible way. = =20 Resources should be devoted to those sites that are going to present real= =20 challenges for cultural and historic preservation, as opposed to the creati= on=20 of an additional bureaucracy that does nothing but cause more pressure and= =20 work for state and local authorities, significantly increase the processing= =20 cost for carriers and tower companies, and delay the approval of those=20 facilities. TR:A telecom working group has drafted a programmatic agreement to streamli= ne=20 the antenna collocation process. What=0F's the purpose of such an agreemen= t? Hoggarth: The efforts to come up with a collocation agreement, as well as= =20 previous efforts of the telecommunications working group, were attempts to= =20 address the overall industry concern about the ACHP rules and processes. Our goal was to bite off manageable chunks of the problem so we could resol= ve=20 some things in the very short term and provide immediate benefits to the=20 historic preservation community and the industry. This is a billion-dollar= =20 issue overall, with respect to compliance, speed of service delays, and=20 additional obligations, both at the state and local levels. And collocation is one way to take a significant chunk out of that=20 billion-dollar burden. Since last summer there have been active negotiatio= ns=20 on issues such as delegation and collocation, in an effort to resolve some= =20 short-term, immediate goals. A group within the telecommunications working= =20 group established by the ACHP reached consensus on a collocation proposal. But what arose in the late fall was significant concern on the ACHP=0F's si= de as=20 to how to implement any agreement reached by the telecommunications working= =20 group. As a result, the ACHP authorized negotiations between the ACHP and= =20 the FCC to reach a programmatic agreement with respect to the collocation o= f=20 new antenna facilities on existing structures and buildings. A general consensus was reached in the fall as to what that would look like= . =20 The latest efforts, with respect to the programmatic agreement, focus on th= e=20 real desire=0F-on the part of both industry and government=0F-to have a spe= cific=20 agreement that has some teeth to it, that has some consistency to it, that= =20 everyone can be willing to abide by. . . The negotiations have become very complicated. We at PCIA and the tower=20 industry have been working with the ACHP, the FCC, and the state historic= =20 preservation officer community to reach agreements on language that satisfi= es=20 the goals of preserving historic properties in a responsible manner. TR: So the devil is in the details, it seems. PCIA asked the FCC to amend= =20 the draft agreement it sought comment on last month. So did the Cellular= =20 Telecommunications & Internet Association. Hoggarth: Certainly from our industry=0F's perspective, the draft agreemen= t=20 that was put on public notice is not our ideal. It=0F's simply a matter no= w of=20 word-smithing, and we want to make sure that the appropriate administrative= =20 rules are observed. TR: Ideally how would a programmatic agreement streamline the collocation= =20 process? Hoggarth: What it would do is allow the industry to put antennas on existi= ng=20 facilities without individual review, thereby minimizing the impact on the= =20 environment by limiting the number of new towers that go up. The programmatic agreement will have very specific parameters in which the= =20 historic preservation community will be assured that new facilities will go= =20 through a process of review. There=0F'll be assurance that the existing=20 structure on which the collocation is taking place already has undergone a= =20 measure of review, or that any significant site changes created by=20 collocation will be appropriately reviewed by local authorities. TR:Under this streamlined approach, what percentage of antennas no longer= =20 would have to undergo review by historic preservation officials? Hoggarth: Our hope is that, as a result of the programmatic agreement, we= =20 would eliminate 80% to 85% of the reviews by state and federal authorities. The present system anticipates significant review of literally every new=20 antenna that=0F's sited in a community. And with collocation, that=0F's si= mply not=20 necessary. TR: Is there a sense for how many antennas that 80% to 85% represents? Hoggarth: No, it=0F's hard to say. What we=0F're trying to do is create a= system=20 that not only ensures that current sites remain in place and aren=0F't subj= ect=20 to review, but also that going forward a large number of new sites will be= =20 collocations. TR: Where has the opposition come from to the collocation agreement? Hoggarth: The concerns expressed by the historic preservation community=20 center around language that ensures that there are no significant loopholes= ,=20 and we certainly agree with that. TR: Isn=0F't it also correct that some historic preservation officers have= been=20 concerned that they won=0F't have the same review authority on collocations= that=20 they currently have? Hoggarth: I think the concern is a combination of that, plus just a=20 lack-of-control issue, which says, =0F"My goodness, I don=0F't have the opp= ortunity=20 to review what sort of sites are going to go up.=0F" The reality is that the wireless industry is expanding so significantly and= =20 so greatly that historic preservation officers simply don=0F't have the tim= e to=20 review every new project. =20 They simply don=0F't need to review every one of them, given the lack of ad= verse=20 impacts from so many of these collocations. TR: In addition to collocation, what are some of the wireless industry=0F's= =20 other regulatory concerns that are being discussed by the telecom working= =20 group? Hoggarth: They involve such things as the time periods in which reviews ar= e=20 required. They involve the role of the FCC and the role of the industry in= =20 terms of application reviews, the use of authorized consultants to conduct= =20 the reviews, and the role of the ACHP v. the role of the state historic=20 preservation officers. Literally all aspects of the advisory council=0F's = rules=20 are touched on. TR: ACHP officials have said they=0F'd like to vote at their meeting in Ma= rch=20 on a broader programmatic agreement that includes many of these issues in= =20 addition to collocation. Do you think that=0F's still realistic? Hoggarth: There are various expectations that folks are bringing to the=20 table. The reality is that we thought collocation was something that could= =20 be resolved in a 60-day time frame, and it=0F's now taken four months. And= that=0F' s just one issue that we thought we had broad consensus on within the=20 telecommunications working group. As a result, it=0F's just a practical view that a broader programmatic agre= ement=20 is going to take a lot of hard work. I can=0F't give you any predictions o= n=20 time, because if we=0F're fortunate and if things break the right way, we m= ight=20 be able to accomplish things sooner rather than later. But I=0F'm optimistic. It=0F's going to take a tremendous amount of work o= ver the=20 next year to actually bring something to fruition. We continue to work on individual issues with the ACHP. We=0F've establish= ed=20 very positive working relationships with the NCSHPO organization, and we ar= e=20 building relationships with various tribal representatives as well, so that= =20 we can really address all aspects of cultural and historical preservation. What=0F's Ahead. . . FEBRUARY 5=0F-The U.S. Court of Appeals in Washington will hear oral arguments in=20 National Exchange Carrier Association, Inc., v. FCC(case no. 00-1055). NEC= A=20 is challenging the FCC=0F's December 1999 decision rejecting NECA=0F's prop= osed=20 modifications to the 1999 =0F"average-schedule=0F" Universal Service Fund f= ormula=20 (TR, 10/9/00 p.36). 7=0F-Comments are due to the United Kingdom=0F's Office of Telecommunicatio= ns on=20 whether to impose additional conditions on Cable & Wireless plc=0F's operat= or=20 license for certain international routes (TR, 1/15/01 p.32). 8=0F-Section 275 of Telecommunications Act prohibits Bell operating compani= es=20 from providing alarm monitoring services until this date (TR,11/17/97 p.7).= =20 The Act grandfa-thered alarm monitoring operations existing as of Nov. 30,= =20 1995. 13=0F-The FCC=0F's Wireless Telecommunications Bureau holds an auction of e= ight=20 700-megahertz band licenses that weren=0F't bought at the =0F"guard-band=0F= " auction=20 (TR, 10/16/00 p.38). 14=0F-CONNECTICUT: The Connecticut Department of Public Utility Control pl= ans=20 to issue its final decision on whether to require Southern New England=20 Telephone Co.=0F's video service subsidiary to continue providing cable TV= =20 services in the state (TR, 1/29/01 p.44). 14=0F-New deadline for submitting comments to the FCC on its most recent or= der=20 aimed at conserving telephone numbers. Replies are due March 7 (TR, 1/29/0= 1=20 p.35). Filings should reference Common Carrier dockets 99-200 and 96-98. 15=0F-NEW JERSEY: Deadline for Verizon New Jersey, Inc., to file a new=20 alternative rate regulation plan with state regulators (TR, 1/8/01 p.23). 15=0F-IRELAND: Grant proposals are due to Ireland=0F's Department of Publi= c=20 Enterprise as part of its plan to make $3.6 million available to community= =20 groups for communications technologies (TR, 12/4/00 p.30). 19=0F-CALIFORNIA: Comments are due to the Public Utilities Commission on C= ap=20 Gemini Ernst & Young=0F's reports on Pacific Bell=0F's operation support sy= stems=20 (OSSs). The commission plans to issue a draft decision on the reports Apri= l=20 6, and a final decision May 24 (TR, 12/25/00 p.4) 20=0F-22=0F-The Consortium for School Networking holds a tele-com and Inter= net=20 conference in Washington. For more information, call 202/624-1740 or go to= =20 http://www.k12schoolnetworking.org. 22=0F-The FCC holds a meeting. 22=0F-Comments are due to the FCC on its notice of proposed rule-making=20 concerning the allocation of third-generation wireless frequencies=20 (Engineering and Technology docket 00-258). Replies are due March 9 (TR,= =20 1/29/01 p.35). 22=0F-Comments are due to the FCC on its proposal to reallocate 27 megahert= z of=20 spectrum transferred from federal government to private use (Engineering an= d=20 Technology docket 00-221). Replies are due March 26 (TR, 1/29/01 p.35). 23=0F-The Alliance for Public Technology holds an advanced services policy = forum=20 at the National Press Club in Washington. 25=0F-28=0F-The National Association of Regulatory Utility Commissioners ho= lds its=20 winter committee meetings in Washington, D.C. For more information, call= =20 202/898-2214. 26=0F-Comments are due to the FCC on the federal-state joint board=0F's=20 recommendations regarding the Rural Task Force=0F's plan for reforming the= =20 universal service support mechanism (TR, 1/29/01 p.35). Replies are due=20 March 12 in Common Carrier docket 96-45. 26=0F-Comments are due to the FCC on the MAG (multiassociation group) propo= sal=20 for overhauling interstate access and universal service support mechanisms= =20 (TR, 1/29/01 p.35). Replies are due March 12. Comments on those aspects o= f=20 the MAG proposal that would increase or modify data-reporting requirements= =20 are due to the Office of Management and Budget by March 26. 27=0F-28=0F-Lucent Technologies, Inc., and the Association for Local=20 Telecommunications Services sponsor a competitive carrier regulatory summit= =20 in Washington. For more information, call 800/765-9222. MARCH 1=0F-2=0F-Credit Suisse First Boston holds a wireless Internet conference i= n=20 Tokyo. For more information, go to http://www.csfb.com/conferences. 5=0F-6=0F-Law Seminars International holds a =0F"Local Telecommunications= =20 Infrastructure=0F" conference in Atlanta. For more information, call=20 206/621-1938 or 800/854-8009. Executive Briefings Verizon Wireless=0F' Bidding =0F- The buzz on Wall Street in the wake of th= e FCC=0F's=20 reauction of 422 =0F"C=0F" and =0F"F=0F" block PCS licenses focuses on the = aggressiveness=20 of Verizon Wireless. Industry observers also talk up the prices paid for= =20 three 10 MHz licenses in New York City. (Page 3) USTR Review =0F- Countries around the world are making progress in complyin= g=20 with various telecom-munications trade agreements, but much more work needs= =20 to be done, U.S. carriers tell USTR. They raise concerns similar to those= =20 that have dominated the debates about telecom competition in the U.S. (Pag= e=20 5) Mexican Market =0F- The U.S. Trade Representative still may ask a World Tra= de=20 Organization panel to investigate Mexico=0F's compliance with a WTO agreeme= nt to=20 give foreign carriers access to its telecom market. (Page 7) Comnet Convention =0F- Key congressional and FCC staffers predict that fede= ral=20 policy-makers will launch major efforts this year to curb the Commission=0F= 's=20 authority to impose =0F"voluntary=0F" conditions on merger applications, up= date the=20 agency=0F's traditional common carrier rules, and pressure the FCC to accel= erate=20 its decision making. (Page 9) Critical Infrastructure =0F- House Energy and Commerce Committee Chairman T= auzin=20 demands a copy of a critical infrastructure report that he says the law=20 required be sent to Congress by Jan. 15 but that never arrived. (Page 10) Long Distance Rate War =0F- AT&T execs believe they=0F're seeing at least a= =20 temporary cease-fire in the long distance rate wars that have ravaged the= =20 revenue streams of incumbent IXCs. =0F"Pricing still is aggressive, but it= is=20 not setting new lows,=0F" AT&T Chairman Mike Armstrong says. Analysts, how= ever,=20 say any truce is likely to be short-lived. (Page 11) VersaPoint Breakup =0F- Versatel absorbs what remains of VersaPoint=0F-its = former=20 joint venture with NorthPoint=0F-after cutting most of the workforce and=20 canceling many of the operations of the money-losing business. (Page 12) World Radio Conference =0F- It=0F's important for U.S. officials to consult= with=20 other nations as they prepare for the ITU=0F's 2003 World Radiocommunicatio= n=20 Conference, FCC officials and industry representatives agree. (Page 13) Satellite Licenses =0F- The FCC=0F's International Bureau modifies the lice= nses of=20 GSO satellite system operators to allow them to use Ka-band spectrum for=20 intersatellite service links. (Page 14) DT-VoiceStream Merger =0F- The Justice Department and FBI say they have rea= ched=20 an agreement with VoiceStream and Deutsche Telekom that reduces the law=20 enforcement, national security, and public safety risks of DT=0F's planned= =20 acquisition of VoiceStream. (Page 14) Ex Parte Rules =0F- Two carriers vehemently oppose the FCC=0F's proposal to= exempt=20 foreign regulators from requirements to report on their communications with= =20 the FCC. They say the rules protect regulated entities by making the FCC= =0F's=20 deliberations =0F"transparent.=0F" (Page 15) Spectrum Cap =0F- PCIA, which in the past has urged the FCC on behalf of sm= all=20 carriers to continue to limit the amount of spectrum wireless carriers may= =20 hold in any one market, declares that it =0F"will no longer play an active = role=0F"=20 in the issue. (Page 16) 700 MHz Auction Delay =0F- Major wireless carriers praise the FCC=0F's four= th delay=20 of a 700 MHz band auction. But rural carriers and a major TV broadcaster= =20 criticize the move, saying it was unnecessary. (Page 16) Wireless Internet Applications =0F- QUAL-COMM develops an open software pla= tform=20 to help spur the development of applications for the wireless Internet. = =20 (Page 17) Spectrum Dilemma =0F- French and Brazilian telecom regulators have more tro= ubles=20 awarding wireless licenses. France decides to organize another =0F"beauty= =20 contest=0F" in hopes of attracting more bidders for 3G licenses after only = two=20 companies bid for four licenses on the block. Brazil postpones an auction = of=20 wireless licenses because of a lack of interest by bidders. (Page 18) Interconnection Arbitration =0F- The FCC sets the schedule for arbitrating= =20 disputes between Verizon and three other carriers over interconnection=20 agreements. The FCC says that AT&T, Cox, and WorldCom may now file request= s=20 for arbitration and that the Common Carrier Bureau chief will preside over= =20 the proceedings. (Page 20) Pay-Per-Call Case =0F- A federal district judge dismisses a lawsuit allegin= g=20 that WorldCom unlawfully blocked calls to pay-per-call =0F"900=0F"-number= =20 services. He tells a group of pay-per-call service providers to take their= =20 complaint against WorldCom to the FCC. (Page 20) Equipment-Placement Debate =0F- Municipalities and CLECs spar over whether = the=20 FCC should preempt several Ohio cities=0F' authority over the placement of= =20 telecom facilities. The debate centers around one question: Does requirin= g=20 a CLEC to place its lines underground, rather than on poles where the=20 incumbent=0F's facilities are located, constitute discrimination? (Page 2= 1) Missouri InterLATA Bid =0F- The Missouri PSC decides against supporting SW = Bell=0F' s bid to provide interLATA service in the state. It could change its mind = if=20 the company addresses the PSC=0F's concerns about issues such as pricing an= d=20 access to unbundled loops. (Page 21) AeA=0F's 2001 Agenda =0F- The former American Electronics Association advis= es=20 federal policymakers to take a hands-off approach to regulating broadband= =20 service markets with multiple providers. (Page 22) ALTS=0F' Wish List =0F- CLECs are major players in fueling economic growth,= ALTS=20 says. But Congress needs to consider legislation to help CLECs overcome th= e=20 impediments posed by ILECs, building owners, municipalities, and the=20 financial markets. (Page 23) FCC Commissioners =0F- Harold W. Furchtgott-Roth=0F's decision not to seek= =20 renomination to a second term on the Commission sparks a new round of=20 speculation about who the Bush administration will appoint to the FCC and= =20 when it will fill potential vacancies at the agency. Some think the White= =20 House will act quickly to fill the seat left open by former Chairman Kennar= d=0F' s resignation. (Page 24) Pricing-Flexibility Rules =0F- A federal appeals court says the FCC acted= =20 reasonably in counting the number of carriers collocating equipment in an= =20 incumbent=0F's wire centers to determine the level of local competition. T= he=20 U.S. Court of Appeals in Washington rejects WorldCom=0F's argument that the= FCC=0F' s criteria for granting LECs pricing flexibility don=0F't accurately measur= e=20 competition and are unlawfully arbitrary. (Page 25) City-Owned Telecom Businesses =0F- Utah state Rep. Greg Curtis plans to=20 introduce a bill to authorize state regulation of city-owned telecom=20 businesses, such as the broadband service offerings Provo is planning to=20 provide through its newly acquired cable TV system. Without the bill, the= =20 PSC couldn=0F't regulate such businesses. (Page 26) BT Price Controls =0F- Oftel acknowledges that BT faces increased competiti= on in=20 the provision of residential voice service but extends price controls for a= =20 year because of BT=0F's continued =0F"market power.=0F" It also extends co= ntrols on=20 competitive carrier interconnection charges. (Page 27) Fighting Cybercrime =0F- The European Commission launches an initiative aim= ed at=20 harmonizing the cybercrime policies of its member nations with those of oth= er=20 countries. (Page 27) Loral=0F's Retreat =0F- Loral Space & Communications scraps plans to delive= r=20 high-speed Internet service directly to consumers over a $3.5 billion netwo= rk=20 of satellites and optical fiber. =0F"We do not have the in-house skills to= =20 develop the marketing resources to competitively deploy such a system,=0F" = CEO=20 Bernard Schwartz says. (Page 27) Antenna Collocations =0F- Rob Hoggarth of PCIA hopes an agreement hammered= out=20 by the FCC, the Advisory Council on Historic Preservation, historic=20 preservation officers, and wireless industry reps can streamline the review= =20 of antenna collocations under the National Historic Preservation Act. (Pa= ge=20 35) Copyright 2001, Telecommunications Reports International, Inc. All rights= =20 reserved. =====================================

mara.bronstein@enron.com

RE: Fundamentals Welcome Mara

Sorry. It was in yesterday's Gas Daily on page 5. Mara -----Original Message----- From: Dasovich, Jeff Sent: Thursday, October 25, 2001 9:28 AM To: Bronstein, Mara Subject: RE: Fundamentals Welcome Mara Didn't work. Was it in yesterday's gas daily? If so, I can access it. Thanks very much for your help. Best, Jeff -----Original Message----- From: Bronstein, Mara Sent: Thu 10/25/2001 8:43 AM To: Dasovich, Jeff Cc: Subject: Fundamentals Welcome Mara <<Fundamentals Welcome Mara.htm>> Barry asked me to send you this article about DWR in yesterday's Gas Daily. The article is on page 5. I am not sure if this will work; if it doesn't, email me back and I will send the article a different way. Thanks, Mara Bronstein

dasovich-j/deleted_items/764.

dasovich-j

Subject: RE: Fundamentals Welcome Mara Sender: mara.bronstein@enron.com Recipients: ['jeff.dasovich@enron.com'] File: dasovich-j/deleted_items/764. ===================================== Sorry. It was in yesterday's Gas Daily on page 5. Mara -----Original Message----- From: Dasovich, Jeff Sent: Thursday, October 25, 2001 9:28 AM To: Bronstein, Mara Subject: RE: Fundamentals Welcome Mara Didn't work. Was it in yesterday's gas daily? If so, I can access it. Thanks very much for your help. Best, Jeff -----Original Message----- From: Bronstein, Mara Sent: Thu 10/25/2001 8:43 AM To: Dasovich, Jeff Cc: Subject: Fundamentals Welcome Mara <<Fundamentals Welcome Mara.htm>> Barry asked me to send you this article about DWR in yesterday's Gas Daily. The article is on page 5. I am not sure if this will work; if it doesn't, email me back and I will send the article a different way. Thanks, Mara Bronstein =====================================

ek@a-klaw.com

RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA

Thank you for your explanation. Often I think too literally and narrowly and forget about the importance of spin. All the same, I think we should know if Loretta appreciates the open support of evil industry or not...I'd say it's worth a call. E -----Original Message----- From: Dasovich, Jeff [mailto:Jeff.Dasovich@ENRON.com] Sent: Monday, October 22, 2001 1:58 PM To: Evelyn Kahl Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Suspension Date Great question. If you think it would be useful, I can back channel to Loretta and find out. I'm of the view that this letter is more to refute Angelides, so that his wild assertions don't go unanswered in the court of public opinion. Perhaps the letter should be addressed to Angelides, instead. On the other hand, I think it is also useful to make it known to the press and the public that the PUC has the regulatory tools, processes, etc. necessary to permit customers broad latitude to manage their own energy needs on the one hand, and ensure that there's not the sort of massive cost-shifting to which Angelides refers on the other. In the public's view this has been painted as an either/or issue. Either we end direct access, or granny faces death and destruction. And that's just not the case. In fact, I think it can be argued that the scenario Angelides paints just isn't in the cards, period. But I may be missing the mark with all this and am open to other views. Let me know if you'd like me to find out if Loretta thinks the letter would help her. Could find that out in pretty short order. Best, Jeff -----Original Message----- From: Evelyn Kahl [mailto:ek@a-klaw.com] Sent: Monday, October 22, 2001 3:46 PM To: Dasovich, Jeff Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Suspension Date Has anyone ever stopped to ask Loretta whether the letters are helpful or not? Two things occur to me. First, it is not becoming for a commissioner to be taking actions consistent with the urgings of industry -- particularly if you're a Democrat. Second, it has always struck me that what she needs is some form of record support, not political pats on the back in one-page letters. I am asking you these questions not judging the proposal to send a letter .... but I've never understood what they're supposed to do for her and I honestly would like to understand. E -----Original Message----- From: Dasovich, Jeff [mailto:Jeff.Dasovich@ENRON.com] Sent: Monday, October 22, 2001 11:33 AM To: Dasovich, Jeff; wbooth@booth-law.com; dominic.dimare@calchamber.com; cra@calretailers.com; ek@a-klaw.com; mikahl@ka-pow.com; jrredding@aol.com; drothrock@cmta.net; vjw@cleanpower.org; djsmith@s-k-w.com; dhunter@s-k-w.com Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Suspension Date FYI. Note below that even the mighty and powerful Power Authority's own crackerjack analysis asserts that there is still a net short (despite DWR contracts and DA "stampede"), which should leave one to believe that, contrary to Angelides' letter, the more the DA the better. Which further supports Loretta Lynch's response to the Angelides' letter that DA reduces the amount of spot power DWR has to buy. Best, Jeff CONSUMER POWER AND CONSERVATION FINANCING AUTHORITY Pace of Power Authority Renewable Portfolio Agenda is Slowed Quite possibly the most significant action taken at the October 19 Consumer Power and Conservation Financing Authority (Power Authority) was its inaction on contracts proposed for approval. The Power Authority has aggressively pursued a broad renewable portfolio, with the intent to approve contracts as soon as possible. Instead of approving a number of contracts on its October 19 agenda, the Power Authority deferred calendared decisions on request for bids until its November 2 meeting, acknowledging that no action can be taken until the Department of Water Resources (DWR) rate agreement stalemate has been resolved. Chairman Freeman stated that the Public Utility Commission's rejection of the rate agreement has created an obstacle for the Power Authority to exercise renewable contracts, to contract for peaker generation and/or to implement demand side programs. The Power Authority relies upon DWR's credit to fund these programs, and until a rate agreement is finalized the Power Authority cannot sign contracts. Freeman indicated that the Power Authority has signed letters of intent to purchase output from 14 biomass facilities in the Central Valley, as well as 400 MW generated by wind. With the Current Glut of Contracts, Why Do We Need Additional Reserves? Kellan Flukinger, Senior Advisor to Chairman Freeman and Laura Doll, provided a detailed presentation explaining why he believes the Power Authority must contract for additional renewable and peaking generation. Flukinger believes that despite direct access and the current glut of electricity supplied in long-term contracts, there still appears to be a net short of a few thousand megawatts within the State. Flukinger concluded that the State still is at the mercy of electric generators who are not subject to PUC regulatory authority and who have no real obligation to build and maintain new facilities or to serve customers within the State. He believes that the short-term contracts and spot purchases leave the state vulnerable to price-spikes and supply shortages. He believes that the reserve can be managed through Time-of-Use and Real-Time-Pricing, conservation, interruptibles, demand side management, renewables and peakers. Power Authority Names William Barry as Chief Financial Officer William Barry was approved as Chief Financial Officer of the Power Authority at its October 19 Board meeting in Sacramento. Mr. Barry currently works for the City of San Francisco, and has worked in the past for the New York Power Authority. ********************************************************************** This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to receive for the recipient), please contact the sender or reply to Enron Corp. at enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the intended recipient or any other party, and may not be relied on by anyone as the basis of a contract by estoppel or otherwise. Thank you. **********************************************************************

dasovich-j/inbox/707.

dasovich-j

Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Sender: ek@a-klaw.com Recipients: ['jeff.dasovich@enron.com'] File: dasovich-j/inbox/707. ===================================== Thank you for your explanation. Often I think too literally and narrowly and forget about the importance of spin. All the same, I think we should know if Loretta appreciates the open support of evil industry or not...I'd say it's worth a call. E -----Original Message----- From: Dasovich, Jeff [mailto:Jeff.Dasovich@ENRON.com] Sent: Monday, October 22, 2001 1:58 PM To: Evelyn Kahl Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Suspension Date Great question. If you think it would be useful, I can back channel to Loretta and find out. I'm of the view that this letter is more to refute Angelides, so that his wild assertions don't go unanswered in the court of public opinion. Perhaps the letter should be addressed to Angelides, instead. On the other hand, I think it is also useful to make it known to the press and the public that the PUC has the regulatory tools, processes, etc. necessary to permit customers broad latitude to manage their own energy needs on the one hand, and ensure that there's not the sort of massive cost-shifting to which Angelides refers on the other. In the public's view this has been painted as an either/or issue. Either we end direct access, or granny faces death and destruction. And that's just not the case. In fact, I think it can be argued that the scenario Angelides paints just isn't in the cards, period. But I may be missing the mark with all this and am open to other views. Let me know if you'd like me to find out if Loretta thinks the letter would help her. Could find that out in pretty short order. Best, Jeff -----Original Message----- From: Evelyn Kahl [mailto:ek@a-klaw.com] Sent: Monday, October 22, 2001 3:46 PM To: Dasovich, Jeff Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Suspension Date Has anyone ever stopped to ask Loretta whether the letters are helpful or not? Two things occur to me. First, it is not becoming for a commissioner to be taking actions consistent with the urgings of industry -- particularly if you're a Democrat. Second, it has always struck me that what she needs is some form of record support, not political pats on the back in one-page letters. I am asking you these questions not judging the proposal to send a letter .... but I've never understood what they're supposed to do for her and I honestly would like to understand. E -----Original Message----- From: Dasovich, Jeff [mailto:Jeff.Dasovich@ENRON.com] Sent: Monday, October 22, 2001 11:33 AM To: Dasovich, Jeff; wbooth@booth-law.com; dominic.dimare@calchamber.com; cra@calretailers.com; ek@a-klaw.com; mikahl@ka-pow.com; jrredding@aol.com; drothrock@cmta.net; vjw@cleanpower.org; djsmith@s-k-w.com; dhunter@s-k-w.com Subject: RE: Angelides Oct. 19th Letter to L. Lynch Urging July 1 DA Suspension Date FYI. Note below that even the mighty and powerful Power Authority's own crackerjack analysis asserts that there is still a net short (despite DWR contracts and DA "stampede"), which should leave one to believe that, contrary to Angelides' letter, the more the DA the better. Which further supports Loretta Lynch's response to the Angelides' letter that DA reduces the amount of spot power DWR has to buy. Best, Jeff CONSUMER POWER AND CONSERVATION FINANCING AUTHORITY Pace of Power Authority Renewable Portfolio Agenda is Slowed Quite possibly the most significant action taken at the October 19 Consumer Power and Conservation Financing Authority (Power Authority) was its inaction on contracts proposed for approval. The Power Authority has aggressively pursued a broad renewable portfolio, with the intent to approve contracts as soon as possible. Instead of approving a number of contracts on its October 19 agenda, the Power Authority deferred calendared decisions on request for bids until its November 2 meeting, acknowledging that no action can be taken until the Department of Water Resources (DWR) rate agreement stalemate has been resolved. Chairman Freeman stated that the Public Utility Commission's rejection of the rate agreement has created an obstacle for the Power Authority to exercise renewable contracts, to contract for peaker generation and/or to implement demand side programs. The Power Authority relies upon DWR's credit to fund these programs, and until a rate agreement is finalized the Power Authority cannot sign contracts. Freeman indicated that the Power Authority has signed letters of intent to purchase output from 14 biomass facilities in the Central Valley, as well as 400 MW generated by wind. With the Current Glut of Contracts, Why Do We Need Additional Reserves? Kellan Flukinger, Senior Advisor to Chairman Freeman and Laura Doll, provided a detailed presentation explaining why he believes the Power Authority must contract for additional renewable and peaking generation. Flukinger believes that despite direct access and the current glut of electricity supplied in long-term contracts, there still appears to be a net short of a few thousand megawatts within the State. Flukinger concluded that the State still is at the mercy of electric generators who are not subject to PUC regulatory authority and who have no real obligation to build and maintain new facilities or to serve customers within the State. He believes that the short-term contracts and spot purchases leave the state vulnerable to price-spikes and supply shortages. He believes that the reserve can be managed through Time-of-Use and Real-Time-Pricing, conservation, interruptibles, demand side management, renewables and peakers. Power Authority Names William Barry as Chief Financial Officer William Barry was approved as Chief Financial Officer of the Power Authority at its October 19 Board meeting in Sacramento. Mr. Barry currently works for the City of San Francisco, and has worked in the past for the New York Power Authority. ********************************************************************** This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to receive for the recipient), please contact the sender or reply to Enron Corp. at enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the intended recipient or any other party, and may not be relied on by anyone as the basis of a contract by estoppel or otherwise. Thank you. ********************************************************************** =====================================

joseph.alamo@enron.com

Re: Energy Issues

Miyung, You seem to be finding these okay by yourself so I guess I don't need to be= =20 forwarding the articles I find to you anymore? I don't mind doing it, but I can't see duplicating effort, either! :--) Either way...let me know,=20 Thanks! Joseph Miyung Buster@ENRON_DEVELOPMENT 04/25/2001 08:25 AM To: Ann M Schmidt/Corp/Enron@ENRON, Bryan Seyfried/LON/ECT@ECT,=20 dg27@pacbell.net, Elizabeth Linnell/NA/Enron@Enron, filuntz@aol.com, James = D=20 Steffes/NA/Enron@Enron, Janet Butler/ET&S/Enron@ENRON, Jeannie=20 Mandelker/HOU/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Joe=20 Hartsoe/Corp/Enron@ENRON, John Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,= =20 John Sherriff/LON/ECT@ECT, Joseph Alamo/NA/Enron@Enron, Karen=20 Denne/Corp/Enron@ENRON, Lysa Akin/PDX/ECT@ECT, Margaret=20 Carson/Corp/Enron@ENRON, Mark Palmer/Corp/Enron@ENRON, Mark=20 Schroeder/Enron@EnronXGate, Markus Fiala/LON/ECT@ECT, Michael R=20 Brown/LON/ECT@ECT, Mike Dahlke/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mona L= =20 Petrochko/NA/Enron@Enron, Nicholas O'Day/AP/Enron@Enron, Peggy=20 Mahoney/HOU/EES@EES, Peter Styles/LON/ECT@ECT, Richard=20 Shapiro/NA/Enron@Enron, Rob Bradley/Corp/Enron@ENRON, Sandra=20 McCubbin/NA/Enron@Enron, Shelley Corman/ET&S/Enron@ENRON, Stella=20 Chan/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J Kean/NA/Enron@Enron, Sus= an=20 J Mara/NA/Enron@Enron, Mike Roan/ENRON@enronXgate, Alex=20 Parsons/EU/Enron@Enron, Andrew Morrison/LON/ECT@ECT, lipsen@cisco.com, Jane= l=20 Guerrero/Corp/Enron@Enron, Shirley A Hudler/HOU/ECT@ECT, Kathleen=20 Sullivan/NA/Enron@ENRON, Tom Briggs/NA/Enron@Enron, Linda=20 Robertson/NA/Enron@ENRON, Lora Sullivan/Corp/Enron@ENRON, Jennifer=20 Thome/NA/Enron@Enron, jkradin@marathon-com.com,=20 rlichtenstein@marathon-com.com, syamane@marathon-com.com,=20 ken@kdscommunications.com, hgovenar@govadv.com, sgovenar@govadv.com,=20 bhansen@lhom.com, Carin Nersesian/NA/Enron@Enron cc: =20 Subject: Energy Issues Please see the following articles: Sac Bee, Wed, 4/25: "State's credit takes hit" Sac Bee, Wed, 4/25: "Top energy adviser to quit as Davis pushes for plants= " Sac Bee, Wed, 4/25: "Senators offer bill to put a lid on power prices: Sen= .=20 Dianne Feinstein says there's a good chance the proposal can get out of committee" Sac Bee, Wed, 4/25: "Energy price gouging might end up felony" Sac Bee, Wed, 4/25: "Dan Walters: It's time for politicians to be honest= =20 about the energy crisis" SD Union, Wed, 4/25: "Bond-rating agency delivers reprimand, downgrade" SD Union, Wed, 4/25: "FERC to weigh limited curbs on electricity prices" SD Union, Tues, 4/24: "Grid officials declare a Stage 2 alert" SD Union (AP), Tues, 4/24: "Top credit agency lowers California's bond=20 rating" LA Times,Wed, 4/25: "State's Bond Rating Downgraded to A+" LA Times, Wed, 4/25: "Price Controls Spark Deja Vu" LA Times, Wed, 4/25: "Davis Names Executive to Speed Construction of Power= =20 Plants in State" LA Times, Wed, 4/25: "Power Plant Emits Tons of Fumes" LA Times,Wed, 4/25: "Power Plant Plan Worries Neighbors" SF Chron, Wed, 4/25: "Federal plan called 'too little, too late'=20 Limited price control seen as step in right direction, but officials renew= =20 call for price ceiling" SF Chron, Wed, 4/25: "S&P lowers California's bond rating=20 First cut since '94 could cost taxpayers millions" SF Chron, Wed, 4/25: "Richard Sklar=20 Ex-Muni boss becomes energy czar=20 Davis' pick to oversee power plant construction" SF Chron (AP), Wed, 4/25: "Will price caps deter investment, as federal=20 regulators say?" SF Chron (AP), Wed, 4/25: "Credit agency cites power troubles; lowers=20 state's bond rating"=20 SF Chron (AP), Wed, 4/25: "S&P downgrades California's bonds citing energy= =20 troubles"=20 Mercury News, Wed, 4/25: "State bond rating lowered" Mercury News, Wed, 4/25: "Q&A with Gov. Gray Davis on energy issues" =20 (Opinions/Commentary) Mercury News (AP), Wed, 4/25: "Davis: Power surplus by 2003" Mercury News (AP), Wed, 4/25: "Great America to avoid blackouts" OC Register, Wed, 4/25: "State's bond rating is lowered The energy crisis brings an A+ designation, which likely will mean higher= =20 borrowing costs" =20 OC Register, Wed, 4/25: "Fire stokes wholesale gas cost" Individual.com (Business wire), Wed, 4/25: "Power Companies and Regulators= =20 Must Take=20 Steps To Avoid Spread of California Power Virus/ Andersen Analysis" Individual.com(Business wire), Wed, 4/25: "Soaring Temperatures Produce Ca= ll=20 for Conservation; California ISO Also Announces New Outage Notification System and On-call=20 Number" ---------------------------------------------------------------------------= --- --------------------------------------------------------------------------- State's credit takes hit=20 By Dale Kasler and John Hill Bee Staff Writers (Published April 25, 2001)=20 Alarmed by the drain on California's treasury from more than $5 billion of= =20 electricity purchases, a leading Wall Street credit agency lowered its rati= ng=20 on state bonds Tuesday.=20 Standard & Poor's downgraded California's credit rating by two notches, a= =20 move that will increase the state's borrowing costs and illustrates a growi= ng=20 fear that the state's power expenditures could mushroom during a summer of= =20 blackouts and price spikes.=20 Although the state remains creditworthy, S&P said it has less confidence in= =20 California's ability to repay its debts. It said the state could be=20 downgraded further if electricity purchases spiral out of control and the= =20 economy suffers because of blackouts.=20 "This reflects the mounting uncertainty and the cost to the state of the=20 power purchases," said S&P analyst Steven Zimmermann. "The state is still= =20 strong -- it's just not as strong going forward."=20 Bond ratings are a benchmark of a state's finances, and California official= s=20 have been proud of their ability to restore the state's ratings since they= =20 bottomed out during the recession and budget deficits of the mid-1990s. S&P= 's=20 downgrade is the first for California since July 1994 and comes as a slowdo= wn=20 in the high-tech industry adds to the budgetary anxiety caused by electrici= ty=20 costs.=20 Still, Gov. Gray Davis' office downplayed the significance of S&P's decisio= n.=20 "California's economy is still fundamentally strong, period," said Davis=20 spokesman Roger Salazar. "We expect that in 2001 California will continue t= o=20 lead the nation in economic growth and job creation."=20 S&P lowered California from "AA" to "A-plus" status. That means California'= s=20 debt-payment ability has been reduced from "very strong" to "still strong"= =20 but "somewhat more susceptible to the adverse effects of the changes in=20 circumstances and economic conditions."=20 While it won't directly hamper Davis' plan for solving the energy crisis, t= he=20 downgrade increases the pressure on Davis to issue $10 billion to $15 billi= on=20 worth of bonds this summer as part of his rescue package.=20 The bonds are intended to replenish the state treasury as well as finance= =20 future power purchases. Since mid-January the state has committed $5.7=20 billion to buy electricity for troubled Pacific Gas and Electric Co. and=20 Southern California Edison. The commitment has chewed up a significant=20 portion of a budget surplus estimated by state Treasurer Phil Angelides at= =20 nearly $6 billion; Davis and other state officials have pegged the surplus = at=20 $8 billion.=20 Either way, it's clear that the power expenditures have left Wall Street an= d=20 many state officials nervous. S&P and other rating agencies have had=20 California on a ratings "watch" for some time, signifying that a downgrade= =20 was possible.=20 "The fact is that the state's credit rating and financial strength will=20 continue to be in jeopardy until the state's general fund is repaid for=20 energy costs," said Angelides, who's responsible for selling the bonds.=20 "We have to get the general fund out of the business of purchasing energy.= =20 (The budgetary drain) will begin to affect very dramatically the ability of= =20 the state to provide for core programs, from education to health care to=20 public safety."=20 Angelides spent much of the day urging legislators to pass legislation to g= et=20 the bond offering rolling.=20 The Legislature already authorized the bonds, but Angelides said it must do= =20 so again because PG&E and Edison are challenging the formula the state has= =20 developed for bond repayment. The bond will be repaid with money from a rat= e=20 hike passed by state regulators, but PG&E and Edison say the repayment=20 formula will siphon too much money from their coffers.=20 Angelides said lawmakers must quickly pass the new bill -- which requires a= =20 two-thirds majority -- or he might miss a make-or-break May 8 deadline for= =20 closing on a crucial $4.1 billion bridge loan. That loan is designed to tid= e=20 the state over until the bonds are sold later this summer. But the lenders= =20 won't fork over the funds until they're assured the bonds will be sold,=20 because the state will use the bond proceeds in part to pay off that loan, = he=20 said.=20 Ironically, the sale of those bonds won't be hurt by the S&P downgrade=20 because customer revenue instead of taxpayer dollars are being used to pay= =20 them off, analysts said.=20 "What's important for the bonds is how the (utility) rates are structured t= o=20 pay them off," said analyst Susan Abbott of Moody's Inc. in New York.=20 But the downgrade will raise the interest rate on a host of other bonds=20 issued by the state in the coming months. The likely increase is as much as= =20 one-quarter of 1 percent, said chief economist Ted Gibson of the state=20 Department of Finance.=20 With the state authorized to sell $12 billion worth of general obligation= =20 bonds, the downgrade could add $50 million to $100 million in borrowing cos= ts=20 over the life of those bonds, Angelides said.=20 The S&P action also could raise a red flag to anyone thinking of investing = in=20 a public or private-sector project in California.=20 It "will create perception issues about who we are and where we are in term= s=20 of the economy of the state," Angelides said. "The real issue here is the= =20 reputational damage to the state of California."=20 The two other leading credit agencies, Moody's and Fitch Investors Service,= =20 still have California on a credit watch but haven't issued downgrades.=20 S&P acted the same day the Independent System Operator, which manages=20 California's power grid, declared a Stage 2 power alert. Warm weather and t= he=20 unexpected shutdown of two key power plants caused electricity reserves to= =20 fall below 5 percent.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Bee Deputy Capitol Bureau Chief Dan Smith contributed to this report. ---------------------------------------------------------------------------= --- ------------------------ Top energy adviser to quit as Davis pushes for plants Bee Capitol Bureau (Published April 25, 2001)=20 John Stevens, Gov. Gray Davis' staff director and top energy adviser, is=20 leaving the governor's office at the end of the week, Davis announced=20 Tuesday.=20 Stevens, of Carmichael, joined the administration a year ago as staff=20 director after working 13 years as a top staffer in the Legislature,=20 including a stint as chief of staff to former Assembly Speaker Antonio=20 Villaraigosa.=20 He is the second top Davis adviser to leave in the past two weeks as the=20 Democratic governor struggles to deal with California's energy woes.=20 Like Phil Trounstine, the governor's communications director who announced= =20 his resignation two weeks ago, Stevens said he needed more time with his=20 family.=20 "It's an immense issue," he said of the energy crisis. "I've given what I c= an=20 to it, and I need to take a break."=20 Davis called Stevens, 54, "one of the most dedicated and loyal people that= =20 I've ever had working for me," but acknowledged long hours and intensity to= ok=20 its toll.=20 "This is tough work. This wears people out," Davis said. "He's so self-driv= en=20 that he needs a break, but I venture a guess that down the road, he'll be= =20 willing to come back and help us in some meaningful way on this energy=20 situation."=20 Davis also announced the appointment of Richard Sklar to head a Generation= =20 Implementation Task Force intended to speed up permitting and constructing= =20 power plants.=20 Sklar was the Clinton administration's representative in southeast Europe= =20 helping to rebuild war-torn Bosnia and Kosovo. ---------------------------------------------------------------------------= --- ------------------------ Senators offer bill to put a lid on power prices: Sen. Dianne Feinstein say= s=20 there's a good chance the proposal can get out of committee. By Les Blumenthal Bee Washington Bureau (Published April 25, 2001)=20 WASHINGTON -- West Coast senators formally introduced legislation Tuesday t= o=20 temporarily cap wholesale electric rates and expressed hope that their=20 proposal to ease the huge run-up in energy prices might clear the committee= =20 and make it to a vote on the Senate floor.=20 "I think we are very close to having the votes in committee," Sen. Dianne= =20 Feinstein, D-Calif., said of the Energy and Natural Resources Committee tha= t=20 has jurisdiction over the bill. "I am taking nothing for granted, but the= =20 committee is 50-50."=20 There are 11 Democrats and 11 Republicans on the committee, including=20 Feinstein and the other primary sponsor of the bill, Oregon Sen. Gordon=20 Smith.=20 Smith, a Republican, is the swing vote.=20 Feinstein said the committee chairman, Sen. Frank Murkowski, R-Alaska, has= =20 shown an increasing willingness to help her and Smith move the legislation,= =20 though some differences remain.=20 "He (Murkowski) has told me he'd like to help," Feinstein said. "I think we= =20 are very close to a markup and this could move quickly."=20 Murkowski did not rule out price caps but said he thought the bill sacrific= ed=20 long-term solutions for short-term gains.=20 "I have concerns about the proposal put forward today and the impact it may= =20 have in distorting the market," he said. "It is time to address the=20 underlying causes -- not just the symptoms."=20 Feinstein's comments came at a news conference during which she, Smith,=20 Washington state Democratic Sens. Patty Murray and Maria Cantwell, and New= =20 Mexico Sen. Jeff Bingaman, the ranking Democrat on the Senate Energy=20 Committee, unveiled details of the bill and criticized the Bush=20 administration and federal regulators for failing to take action to cap=20 rates.=20 If approved by Congress and signed by President Bush, the bill would give t= he=20 Federal Energy Regulatory Commission 60 days to impose price caps or set up= a=20 cost-based rate structure that would allow electricity generators to recove= r=20 their costs and earn a fair return.=20 The controls would apply in 11 Western states, including California, Oregon= =20 and Washington. Similar legislation has been introduced in the House of=20 Representatives.=20 The lawmakers said the price controls would remain in effect until March=20 2003, when, they said, enough new generating plants will have come on line = to=20 overcome the West's current electricity shortage.=20 Under federal law, FERC has the authority to ensure wholesale rates are jus= t=20 and reasonable.=20 Feinstein said that during a warm day this summer California may fall 2,000= =20 megawatts short of meeting demand and on a hot day with air conditioners=20 cranked up, there could be a 10,000-megawatt shortfall.=20 Feinstein said that in 1999 California utilities paid $7 billion for=20 electricity, in 2000 more than $32 billion and, according to some estimates= ,=20 the price tag could reach $65 billion this year.=20 "There has been a very strong element of price gouging in this," Feinstein= =20 said.=20 "We should not have to pass legislation to compensate for a federal agency= =20 not doing its job," Murray said, adding that Northwest utilities were payin= g=20 the highest prices in the country for next-day delivery of wholesale power.= =20 "This (bill) will bring the market under control until new generation comes= =20 on line."=20 Cantwell, who is also a committee member, said wholesale rates have risen= =20 11-fold over the past several months, resulting in thousands of layoffs in= =20 the region and the shutdown of the aluminum industry.=20 "We cannot allow our government to sit idly by and allow a tragically flawe= d=20 and easily manipulated power market to wreak havoc on our economy and quali= ty=20 of life," Cantwell said.=20 The Bonneville Power Administration has indicated it may have to raise its= =20 wholesale rates by 250 percent this fall as it is forced to buy power on=20 expensive spot markets because a severe drought in the Pacific Northwest ha= s=20 reduced electricity production at the region's vast hydropower system. BPA= =20 supplies 45 percent of the Northwest's wholesale electricity.=20 Smith said that, as a Republican, he was initially reluctant to support pri= ce=20 control and would have preferred the market sort out its own problems.=20 But, he said, "Hard-nosed business practices that generate big profits are= =20 not always good politics. It's a mistake to defend a system that some can= =20 game to make incredible profits."=20 The Oregon senator said he knew his decision to sponsor the bill was not=20 well-received at the White House.=20 "I know I'm not making any friends down the street," he said. "It's importa= nt=20 to keep this bipartisan, and I'm not going to attack the Bush=20 administration."=20 Both Smith and Feinstein said a FERC staff proposal to cap wholesale electr= ic=20 rates in California when rolling blackouts are imminent falls well short of= =20 what's needed. FERC will consider the proposal at a meeting today.=20 "California is not the only state affected," said Smith. "This is not a=20 California problem alone."=20 Feinstein said the proposal was inadequate.=20 "I'm not sure that is the right way to go," she said. "The only reason they= =20 are considering action is we are putting the heat on them."=20 The Bee's Les Blumenthal can be reached at (202) 383-0008 or=20 lblumenthal@mcclatchydc.com. ---------------------------------------------------------------------------= --- ------------------------ Energy price gouging might end up felony By Emily Bazar Bee Capitol Bureau (Published April 25, 2001)=20 Democratic lawmakers this week will unveil a proposal to make energy price= =20 gouging a felony -- punishable by stiff fines and possible jail time -- tha= t=20 could be subject to the state's controversial "three strikes" law.=20 The measure, sponsored by Lt. Gov. Cruz Bustamante, would punish companies= =20 that sell electricity or natural gas in California at "unjust or unreasonab= le=20 rates."=20 "There is a tremendous amount of wealth that is being transferred from=20 California to five companies, mostly in Texas," Bustamante said. "If what= =20 they're doing isn't illegal, it ought to be."=20 Though lawmakers are expected to introduce the measure Thursday, it already= =20 has generated opposition from Republican lawmakers and constitutional=20 questions from legal experts.=20 Several aspects of the bill, AB 67x, are unresolved and could change.=20 But the intent will remain the same, and energy companies that take advanta= ge=20 of Californians will still face significant penalties, said the bill's=20 author, Assemblyman Dennis Cardoza, D-Merced.=20 According to a draft version of the bill and some proposed amendments, a=20 corporation, or a person with decision-making authority at the corporation,= =20 would be found guilty of a felony if "they collude or conspire to manipulat= e=20 the market to achieve unjust or unreasonable rates for electricity or natur= al=20 gas."=20 A state or federal regulatory agency -- such as the Federal Energy Regulato= ry=20 Commission -- would determine whether rates were unjust or unreasonable. If= =20 that happened, the bill would open the door for prosecution by the state=20 attorney general or local district attorneys.=20 In addition, if found guilty, companies would be forced to pay restitution= =20 and could face fines as high as 10 percent of their gross corporate assets.= =20 Lawmakers are debating whether to make the felony a "three strikes" offense= ,=20 which requires 25 years to life sentences for some people convicted of thre= e=20 felonies.=20 Though the provision was in an early draft of the bill, Cardoza said it's= =20 "not likely" to show up in the final version.=20 "While I think this crime is every bit as abhorrent as going in and stealin= g=20 money from a bank, we're going to have to figure out a little bit different= =20 way of dealing with it," he said.=20 Even without the three strikes provision, the bill raises certain=20 constitutional issues, said Clark Kelso, a professor at the McGeorge School= =20 of Law in Sacramento.=20 For instance, he said, it's not clear whether the state can legally base a= =20 fine on an out-of-state company's gross assets.=20 And the measure, which requires a two-thirds vote for passage, already has= =20 generated Republican opposition.=20 "To the extent this bill is onerous toward power producers, it may deter th= em=20 from selling here rather than risk fines and prison," said James Fisfis, a= =20 spokesman for the Assembly Republican Caucus. "We haven't seen the details,= =20 but it sounds like it may be a piece of legislation that goes too far."=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . ---------------------------------------------------------------------------= --- ------------------------ Dan Walters: It's time for politicians to be honest about the energy crisis (Published April 25, 2001)=20 Gov. Gray Davis is continuing to tell Californians that he's on top of the= =20 state's energy crisis and, as he said at one gathering last week, "in three= =20 years, this problem will be a distant memory." Fat chance. All major aspect= s=20 of the situation are growing worse, not better, minute by minute.=20 Politicians took over the crisis in January as the state's major utilities= =20 exhausted their cash reserves and lines of credit. Davis began what he said= =20 then would be a short-term emergency program of power purchases to keep=20 electrons flowing into homes and businesses.=20 From that moment forward, the situation has steadily deteriorated, moving= =20 toward a three-pronged disaster: severe summer blackouts, the bankruptcy of= =20 the utilities and sharply escalating power bills. With the bankruptcy filin= g=20 by Pacific Gas and Electric Co. and decisions by Davis and the state Public= =20 Utilities Commission to begin ratcheting up utility rates, two of the three= =20 negative scenarios are now in place. And everyone involved in the crisis=20 expects blackouts this summer as demands for power soar and supplies dwindl= e.=20 The Davis strategy, if there is one, is to continue the state's massive pow= er=20 purchases while negotiating longer-term and presumably cheaper supply=20 contracts, encourage conservation, help utilities pay off their debts by=20 selling their intercity transmission system to the state and tapping=20 ratepayers, and build more power plants to ease the supply crunch.=20 Currently, the governor is touting his deal with Edison International, pare= nt=20 company of Southern California Edison, to sell its portion of the power gri= d=20 and is working on a similar deal with Sempra, the parent of San Diego Gas &= =20 and Electric. But PG&E's bankruptcy filing casts doubt on the viability of= =20 the cash-for-grid concept, and legislators, particularly Davis' fellow=20 Democrats, are very skeptical of the Edison deal.=20 Clearly, Davis rushed into the Edison deal just three days after PG&E made= =20 its bankruptcy filing, in hopes of erasing the political stain of the latte= r=20 action, but its provisions are being labeled a bailout by critics. It place= s=20 only a token financial burden on Edison International while guaranteeing th= e=20 profitability of its utility subsidiary by charging its customers whatever = is=20 required to cover its costs and past debts.=20 Meanwhile, the state is spending -- by Davis' own account -- about $70=20 million a day or $2 billion-plus a month on spot power purchases, paying=20 roughly five times what consumers are being charged at the retail level. An= d=20 the futures market for power indicates that wholesale power prices will jum= p=20 50 percent by midsummer; higher prices and greater purchases could increase= =20 the drain on the state treasury to as much as $5 billion a month.=20 State Treasurer Phil Angelides is desperately trying to arrange a bridge lo= an=20 to relieve pressure on the state's rapidly vanishing reserves, but Wall=20 Street is reluctant to lend without a fuller explanation of what's happenin= g=20 and a specific authorization from a suspicious Legislature. Meanwhile,=20 bankers are sending strong signals that the state government is becoming as= =20 poor a lending risk as the utilities.=20 Davis, for some reason, is unwilling to declare this situation the emergenc= y=20 that it is truly becoming -- one that could take a toll on human life if=20 major blackouts shut down air conditioners, respirators and traffic lights.= =20 He insists on issuing his periodic -- and wholly unrealistic -- assurances= =20 that things will turn out all right, even declaring to reporters on Tuesday= ,=20 "We think we'll have this thing licked by the end of fall."=20 It's time for someone -- the governor, preferably, but someone -- to lay ou= t=20 for Californians exactly what's happening, the downside financial and power= =20 supply risks, and what's being done to deal with the looming disaster facin= g=20 this state. It's time for politicians to treat us as adults who can face=20 reality, not as children to be fed sugar-coated sound bites and slogans.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . ---------------------------------------------------------------------------= --- ------------------------ Bond-rating agency delivers reprimand, downgrade=20 By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 April 25, 2001=20 SACRAMENTO -- An influential Wall Street firm yesterday gave Gov. Gray Davi= s=20 and the Legislature poor marks for handling the electricity crisis,=20 downgrading state bonds because of the drain on the state treasury and=20 warning of long-term damage to the state economy.=20 The bad news from Standard & Poor's came as state Treasurer Phil Angelides= =20 urged the Legislature to pass a bill this week needed to begin repaying the= =20 state general fund with a bond of $10 billion or more.=20 The bond would be paid off by ratepayers over 15 years. "From a small problem that could have been solved in a short period of time= =20 this is escalating into a big problem," said David Hitchcock of Standard &= =20 Poor's. "Even if they issue revenue bonds, it could stay with them for a lo= ng=20 period of time."=20 Standard & Poor's lowered its rating on state of California general=20 obligation bonds from AA to A+, which means it will cost the state more to= =20 borrow money.=20 The firm left California on credit watch with a negative outlook, a ranking= =20 applied after the state began buying power for utility customers in January= .=20 The state general fund has spent more than $5 billion buying power so far.= =20 There are predictions that spending will sharply increase this summer as he= at=20 drives up the demand for electricity.=20 "The fact is, we can't allow the general fund to be depleted," Angelides=20 said. "There are limits to it. It will begin to affect very dramatically th= e=20 ability of the state to provide core programs for education, health care,= =20 public safety."=20 Developments:=20 WEDNESDAY:=20 =01) No power alerts are called in the early morning, as electricity reserv= es=20 stay above 7 percent.=20 =01) The state Public Utilities Commission continues hearing energy experts= =20 evaluate ideas for implementing a recent rate increase. The panel includes= =20 George Sterzinger, a Washington-based renewable energy consultant; Peter=20 Bradford, an energy and regulatory adviser; and Severin Borenstein, directo= r=20 of the University of California, Berkeley's energy institute.=20 =01) Assembly Energy Committee holds a hearing on Gov. Gray Davis' proposal= to=20 keep Southern California Edison out of bankruptcy.=20 TUESDAY:=20 =01) Gov. Gray Davis says California will build enough power plants by 2003= to=20 end the state's power crisis, and have a 15 percent supply surplus by 2004.= =20 He names former U.S. diplomat Richard Sklar to be the state's new energy cz= ar=20 and head a Generation Implementation Task Force to speed up power plant=20 siting and construction.=20 =01) The Independent System Operator, which runs the state's power grid,=20 declares a Stage 2 alert, meaning the state is within 5 percent of running= =20 out of power. It warns rising temperatures could create problems later this= =20 week unless Californians conserve electricity.=20 =01) Standard and Poors lowers its rating on California state bonds, citing= the=20 growing financial drain from the continuing energy emergency. The state mus= t=20 quickly replenish its coffers if it is to avoid further damage, the rating= =20 agency says.=20 WHAT'S NEXT:=20 =01) Davis' representatives continue negotiating with Sempra, the parent co= mpany=20 of San Diego Gas and Electric Co., to buy the utility's transmission lines.= =20 Davis says he expects to have an agreement within two weeks.=20 =01) Senate Select Committee to Investigate Price Manipulation of the Whole= sale=20 Energy Market continues its investigation Thursday.=20 Standard & Poor's said that if the sale of a state revenue bond is delayed,= =20 the potential impact on the state general fund could be "severe" without a= =20 rate hike much larger than the increase of more than 40 percent approved by= =20 the state Public Utilities Commission last month.=20 "Rate increases appear difficult in the present political environment, and= =20 related voter initiatives, although none are currently on the ballot, remai= n=20 a possibility," said Standard & Poor's.=20 The state began buying power after the two largest utilities, Pacific Gas a= nd=20 Electric and Southern California Edison, were nearly bankrupt. The rates th= ey=20 could charge customers were frozen under deregulation as the cost of=20 wholesale power soared, producing a debt of $13 billion.=20 Standard & Poor's said the state expected in January to spend less than $1= =20 billion and resolve the problem in a few months with long-term power=20 contracts at lower prices. But most of the contracts do not begin until thi= s=20 fall or later.=20 "In addition," said Standard & Poor's, "it is not unreasonable to expect pa= st=20 and future blackouts to affect business location decisions, and hence the= =20 ultimate direction of the state's economy."=20 A spokesman for the governor said that Standard & Poor's view of how the=20 California economy will fare during the electricity crisis is far too dim.= =20 "California's economy is still fundamentally strong," said spokesman Roger= =20 Salazar. "We expect that in 2001 we will continue to lead the nation in=20 economic growth and job creation."=20 Another Wall Street credit-rating firm, Moody's, has a more positive view o= f=20 how the governor and the Legislature have handled the crisis and expects th= e=20 state general fund to be repaid by the ratepayer bond.=20 "We are still at our AA2 with a negative outlook," said Ray Murphy, Moody's= =20 vice president. "Nothing that we have learned over the last week or so has= =20 led us to change that opinion."=20 Angelides said legislation is needed because PG&E and Edison are challengin= g=20 a PUC action last month that gives the state some revenue from monthly=20 ratepayer bills, which is needed to finance the bond to repay the state=20 general fund.=20 The utilities say they need more of the ratepayer revenue.=20 The treasurer said the legislation would bypass the lengthy PUC process and= =20 authorize the state to issue a ratepayer bond of $10 billion or more. The= =20 governor said again yesterday that he believes a bond of $12.4 billion will= =20 cover state power costs this year.=20 Angelides said legislation is urgent because a commitment from three lender= s=20 to give the state a $4.1 billion short-term loan expires May 8.=20 He said the short-term bridge loan would ease the strain on the state gener= al=20 fund until the main bond can be issued, probably in late June.=20 The treasurer said that failure to obtain the short-term loan could lead to= =20 more credit downgrades and "create perception issues about who we are and= =20 where we are in terms of the economy of this state."=20 Davis has been criticized on Wall Street for not pushing for an early rate= =20 hike to stabilize the utilities and avoid the need for the state to begin= =20 buying power.=20 The governor said earlier this year that he could have solved the problem i= n=20 "20 minutes" with a rate hike, but refused to do so.=20 While addressing the California Chamber of Commerce yesterday, Davis said= =20 that the long-term contracts will spread the cost of buying power over a=20 decade, causing ratepayers to pay less than market rates in the early years= =20 and a little above the market rate in later years.=20 "I do not want to shock this economy into recession," Davis said. "I do not= =20 want to burden small business with more than they can sustain."=20 Davis wants the state to purchase the transmission systems of the utilities= =20 in exchange for giving them part of the ratepayer revenue to finance a bond= =20 to pay off their debts. That would enable the utilities to resume buying=20 power by the end of next year.=20 But negotiations to buy the transmission systems has taken much longer than= =20 expected. PG&E filed for bankruptcy earlier this month, and an agreement to= =20 buy the Edison transmission system announced a few days later faces=20 opposition in the Legislature.=20 Some legislators, who think Edison receives too much under the complex=20 agreement, have suggested that Edison join PG&E in bankruptcy, where=20 generators accused of price-gouging may not have all of their bills paid.= =20 "If they go into bankruptcy, the state will be buying power for three or fo= ur=20 years," Davis told the Chamber yesterday. "That is all we will be doing up= =20 here."=20 A Stage 2 emergency alert was called yesterday when two power plants=20 unexpectedly stopped operating with temperatures around the state rising.= =20 Meanwhile, Davis announced that Richard Sklar, a former ambassador to the= =20 war-torn Balkans, will lead a task force to speed up the construction of ne= w=20 power plants.=20 The governor acknowledged while speaking to reporters that he has not met h= is=20 earlier goals of avoiding blackouts, rate increases and keeping the utiliti= es=20 out of bankruptcy.=20 "This is probably the most complicated challenge the state has faced in 50= =20 years," Davis said. "But we are providing steady and reliable leadership, a= nd=20 I believe we will have this thing behind us by the end of this fall."=20 ---------------------------------------------------------------------------= --- --------------- FERC to weigh limited curbs on electricity prices=20 Caps would apply in Stage 3 shortages By Toby Eckert=20 COPLEY NEWS SERVICE=20 April 25, 2001=20 CALIFORNIA'S POWER CRISIS=20 WASHINGTON -- Federal regulators are expected to consider limited wholesale= =20 price curbs for California's chaotic electricity market today, but the=20 approach falls far short of the controls sought by many state officials.=20 Federal Energy Regulatory Commission staffers have proposed limiting the=20 price that power sellers can charge for wholesale electricity in California= =20 only during the most severe shortages, known as Stage 3 emergencies. The=20 "price mitigation" would be pegged to "the marginal cost of the=20 highest-priced (generating) unit called upon to run," according to a staff= =20 report.=20 Producers also would be required to sell their excess power to the state's= =20 grid operator.=20 The price controls would last one year and would not apply to other Western= =20 states suffering from gyrations in power costs and electricity shortages.= =20 FERC Chairman Curtis Hebert has been an implacable foe of price controls, b= ut=20 is under considerable political pressure to do more to help California as t= he=20 peak power-consuming summer months approach. Commissioner William Massey ha= s=20 advocated far-reaching price limits, while Commissioner Linda Breathitt has= =20 wavered on the issue.=20 Gov. Gray Davis and other California officials have called for broad price= =20 controls that also would include 10 other Western states. Yesterday, Sen.= =20 Dianne Feinstein, D-Calif., formally introduced legislation that would=20 require FERC to impose regional price limits through March 1, 2003.=20 Feinstein said the FERC staff proposal was inadequate.=20 "Once you put the cap just on Stage 3, you force the heavier pricing on=20 stages 1 and 2," she said.=20 Other critics have noted that wholesale power prices in California are=20 abnormally high during periods other than Stage 3 emergencies.=20 Feinstein's legislation, first outlined in March, would require FERC to set= =20 price caps or impose "cost-based" rates that would limit prices to the cost= =20 of producing the power, plus a set profit margin. New generating plants and= =20 power bought through long-term contracts would be exempt.=20 However, any state covered by the price controls would have to allow=20 utilities to recover their wholesale power costs from consumers. The clause= =20 helped draw a Republican co-sponsor to the bill, Sen. Gordon Smith of Orego= n.=20 Smith and other Western lawmakers have complained about the reluctance of= =20 California officials to raise retail rates while consumers in neighboring= =20 states have seen their power bills soar. In recent months, the California= =20 Public Utilities Commission twice has increased rates for customers of=20 Southern California Edison and Pacific Gas and Electric, the utilities hit= =20 hardest by skyrocketing wholesale power prices.=20 The FERC staff proposal rejected price caps or cost-based rates.=20 It would be hard to devise price caps that are low enough to provide price= =20 relief, but high enough to adequately compensate generators, the proposal= =20 said.=20 The Bush administration and top congressional Republicans are opposed to=20 price controls, so it is uncertain how far Feinstein's legislation will get= .=20 ---------------------------------------------------------------------------= --- ------------------------------- Grid officials declare a Stage 2 alert=20 ASSOCIATED PRESS=20 April 24, 2001=20 SACRAMENTO =01) The state's electric grid operator declared a Stage 2 power= =20 alert Tuesday after two power plants suddenly went offline.=20 Higher-than-forecasted temperatures in Southern California also caused dema= nd=20 to increase, said Lorie O'Donley, spokeswoman for the Independent System=20 Operator, keeper of the state power grid.=20 A Stage 2 alert is declared when electricity reserves fall or are expected = to=20 fall below 5 percent.=20 The two power plants that went offline had been producing about 1,080=20 megawatts, or roughly enough power for 810,000 homes.=20 "We think we may need to request interruptible customers, but barring any= =20 other big problems, we probably won't need to go to a Stage 3," said=20 O'Donley. Stage 3 alerts are called when the reserves drop below 1.5 percen= t=20 and could result in rolling blackouts like the state has seen on four days= =20 since January.=20 The ISO said 9,900 megawatts were unavailable Tuesday morning because of=20 power plants that were down for scheduled or unplanned maintenance. Another= =20 3,000 megawatts from alternative generators, such as solar, wind and=20 geothermal, was also not available, O'Donley said.=20 About half of the alternative generators say they can't afford to keep=20 operating because they are owed about $1 billion by Pacific Gas and Electri= c=20 Co. and Southern California Edison.=20 ---------------------------------------------------------------------------= --- -------------------------------------------------------------------- Top credit agency lowers California's bond rating=20 ASSOCIATED PRESS=20 April 24, 2001=20 SACRAMENTO =01) A top credit agency lowered its rating on California state = bonds=20 Tuesday, citing the growing financial drain from the continuing energy=20 emergency.=20 "The downgrade reflects the mounting and uncertain cost to the state of the= =20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy," Standard and Poors said.=20 The state's ability to repay is debts has been reduced, though it is still= =20 adequate, S&P said.=20 It dropped the rating on general obligation bonds from double-A to=20 single-A-plus. It similarly revised other lease ratings, and ratings for th= e=20 California Health Facilities Construction Loan Insurance Fund, known as Cal= =20 Mortgage.=20 S&P said it didn't drop the rating farther because the state still has mone= y,=20 because of California's diverse economy, and because a proposed revenue bon= d=20 is slated to reimburse the state's treasury for money California is current= ly=20 using to buy power for two financially strapped utilities.=20 If the state can't quickly sell its revenue bond, the impact on the treasur= y=20 could be severe unless electricity rates are substantially increased beyond= =20 the large increases already scheduled to kick in, S&P warned.=20 S&P has had the state's general obligation bonds on a credit-watch "with=20 negative implications" since January, when the state began buying power for= =20 Southern California Edison and Pacific Gas and Electric.=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------- State's Bond Rating Downgraded to A+=20 Finance: Reduction of 2 notches puts it among states with the lowest credit= =20 ratings. Move could cost California hundreds of millions in borrowing fees.= =20 By LIZ PULLIAM WESTON and MIGUEL BUSTILLO, Times Staff Writers=20 ?????A major credit rating agency downgraded $25 billion of California bond= s=20 Tuesday in a move that could add hundreds of millions of dollars to the=20 state's borrowing costs and saddles California with one of the lowest state= =20 credit ratings in the nation. ?????Standard & Poor's Corp. cut California's bond rating by two notches,= =20 from AA to A-plus, citing "the mounting and uncertain cost . . . of the=20 current electrical power crisis," which has forced the state to spend=20 billions on electricity to keep the lights on. ?????S&P, one of three major rating agencies monitoring California's=20 financial health, said a further downgrade could occur if the state fails t= o=20 follow through on plans to issue at least $10 billion in revenue bonds to= =20 help pay off energy-related debts. ?????"S&P is saying, 'We don't have any faith that what you say you're goin= g=20 to do, you're going to do,' " said Zane Mann, publisher of the California= =20 Municipal Bond Advisor, a newsletter that tracks government debt. ?????Wall Street is concerned by delays surrounding the electricity bond=20 issue, but lawmakers hope to pass legislation this week to put the bond iss= ue=20 on a fast track and speed up return of the money to the state's general fun= d. ?????Credit ratings help determine how much states and other borrowers have= =20 to pay when issuing bonds. The lower the rating, the higher the interest ra= te=20 the state must pay to entice investors to buy. ?????The state Treasurer's Office concluded in a preliminary estimate that = as=20 a result of the downgrade, California could have to pay $190 million to $57= 0=20 million more on the $12 billion in general obligation bonds the state has= =20 authorized to pay for ongoing expenses such as school and road-building=20 projects, but has yet to issue.=20 ?????State revenue bonds should not be affected by the downgrade, the=20 officials said. However, some bond experts disagree. ?????California's energy crisis already has driven down prices of a wide=20 range of the state's bonds, from general obligation issues that depend on t= he=20 state's ability to repay to small issues by school districts and cities tha= t=20 could be hurt by rising electricity prices. Bond traders said S&P's downgra= de=20 probably would cause prices to fall further. ?????"All California bond holders are going to lose value in their bonds=20 because the state's credit has been downgraded," said John Fitzgerald,=20 managing partner of Seidler-Fitzgerald, a Los Angeles municipal debt=20 underwriter. ?????The downgrade most affects investors who want to sell their bonds now,= =20 before the issues mature. Investors who hold onto their bonds are still=20 almost certain to get the face value when their securities reach maturity,= =20 because the state is unlikely to miss any interest payments or otherwise=20 default on its bonds, traders said. ?????S&P analysts said the state's continuing surplus and "deep and diverse= "=20 economy helped prevent a further downgrade. ?????Still, the downgrade places California below most other states on S&P'= s=20 rating scale and on par with Hawaii. Among states rated by S&P, only=20 Louisiana has a lower rating, at A-minus, according to Bloomberg News.=20 ?????In addition, the two other major credit rating agencies have indicated= =20 they may downgrade California's bonds. Fitch Inc. said last week that it wa= s=20 contemplating such a move, and Moody's Investors Service earlier this month= =20 changed its outlook on California bonds to "negative" from "stable." ?????Some politicians Tuesday accused S&P of overreacting. ?????"It's just unfair, premature and inappropriate for them to do that. We= =20 do have reserves, we do have good revenue projections, we do have a plan to= =20 get us out of this," said Assemblyman Gil Cedillo (D-Los Angeles). ?????In a statement, Gov. Gray Davis said California's economy "is still=20 fundamentally strong, period. We expect that in 2001 we will continue to le= ad=20 the nation in economic growth and job creation." ?????State Treasurer Phil Angelides has been pleading with lawmakers to pas= s=20 legislation to speed up repayment of $5 billion drained from the state's=20 general fund to buy electricity this year. That figure is expected to reach= =20 $15 billion by year's end, according to the governor. ?????The consequences of a downgrade are profound, Angelides said, noting= =20 that it took California years to overcome the downgrades spurred by the=20 recession of the early 1990s. ?????"It is critical that the Legislature act immediately to clearly=20 establish our legal authority to sell bonds and replenish the state's gener= al=20 fund," Angelides said. ?????California began buying massive quantities of electricity in January= =20 because the state's three major investor-owned utilities could no longer=20 afford to do so. Since then, the state has been purchasing roughly one-thir= d=20 of the electricity the utilities need to service their customers, according= =20 to state officials. ?????Under a plan approved by the Legislature and signed into law by Davis,= =20 the general fund is supposed to be reimbursed for the power purchases with= =20 what is expected to be the largest municipal bond issue in U.S. history. Th= e=20 bond issue is to be repaid by utility ratepayers through a monthly charge o= n=20 their electricity bills. ?????However, obstacles that threaten timely repayment of the fund are=20 causing consternation among Wall Street analysts about California's financi= al=20 status. ?????The bankruptcy filing of Pacific Gas & Electric Co., the state's large= st=20 investor-owned utility, has thwarted the state's plan to restore the=20 utilities to financial health. ?????But it is a dispute over the state's formula for repaying the bonds th= at=20 has raised the most concern among state officials. The state and the=20 utilities are at odds over how much of consumers' electricity payments shou= ld=20 go to reimburse the state for its power purchases. ?????The state's two major utilities, Pacific Gas & Electric and Southern= =20 California Edison, have challenged the Public Utilities Commission's plan f= or=20 splitting up the money--a legal move that threatens to delay issuance of th= e=20 bonds. The firms contend the allotment granted to the state is too generous= =20 and could make it harder for them to recover from the energy crisis. ?????Hoping to sidestep the controversy, Angelides is urging state lawmaker= s=20 to pass an emergency measure this week that sets the bond amount and the=20 amount the state will receive from utility payments. The revenue bond was= =20 initially expected to be $10 billion, but the Davis administration has sinc= e=20 proposed a $12.4-billion issue. ---=20 ?????Times staff writers James Flanigan, Jenifer Warren and Julie Tamaki=20 contributed to this report. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------------- Price Controls Spark Deja Vu=20 Energy: The specter of Richard Nixon's actions 30 years ago hangs over=20 current debate on how to check the state's surging power costs.=20 By JAMES F. PELTZ, Times Staff Writer=20 ?????A debate now rages in California over whether price controls should be= =20 adopted to stem the state's soaring power costs and help consumers who are= =20 bracing for huge spikes in their electric bills. ?????But price controls are one of the most controversial actions in=20 economics--and in politics, for that matter. And now the caps are more in= =20 dispute than ever because they run counter to the nation's move over the la= st=20 two decades to deregulate more and more industries, from airlines to=20 railroads to energy. ?????Yet California is a good example of deregulation gone haywire, so=20 controls are again being demanded by lawmakers, consumer advocates and othe= rs=20 as a way to check surging prices. On the other side is a chorus of critics= =20 who ridicule price caps as being ineffective and, at times, making matters= =20 worse for consumers. ?????Case in point: the Golden State itself, which tried last summer to use= =20 temporary price caps to keep a lid on skyrocketing wholesale electricity=20 prices. ?????Critics claim that the caps drove power sales out of state, thus=20 widening the imbalance between supply and demand, reinforcing the existing= =20 shortages and contributing to this winter's rolling blackouts. ?????But defenders of the caps note that the dysfunctional California marke= t=20 had no way to self-correct. The utilities couldn't simply refuse to buy=20 electricity in the face of higher prices, and with no price ceiling in sigh= t,=20 something had to be done. ?????And now Gov. Gray Davis and others are again calling for temporary=20 controls until more electricity supplies can be added, especially as the=20 state enters the peak-power summer season. On Tuesday, Sens. Dianne Feinste= in=20 (D-Calif.) and Gordon Smith (R-Ore.) introduced legislation that would impo= se=20 price controls on wholesale energy throughout 11 Western states. ?????Mindful of the controversial history of controls, Feinstein and Smith= =20 stressed that the caps would last only through March 1, 2003. But they also= =20 argued that the economic damage to industries and consumers from escalating= =20 power costs would exceed any harm caused by price controls. ?????"I have a strong preference for markets, but it's a mistake to believe= =20 that we have a free market when it comes to energy," said Smith, the only G= OP=20 co-sponsor of the legislation. ?????Their bill would require the Federal Energy Regulatory Commission, whi= ch=20 regulates U.S. wholesale electricity prices, either to impose a regional=20 price cap or institute a rate schedule for each power generator, tying the= =20 price of electricity to the cost of producing it. ?????Coincidentally, FERC today is expected to decide on various other=20 proposals to again limit California's power costs--but without explicitly= =20 stating that the plans include price controls. Why? Because the Bush=20 administration and FERC Chairman Curt Hebert Jr., among others, are on the= =20 record as adamantly opposing price caps. ?????That's not surprising. Price controls often are tagged as a liberal=20 maneuver that flies in the face of conservatives' free-market ideology. Yet= ,=20 ironically, hanging over the California debate is the legacy of a Republica= n=20 president who was the last one to mandate price controls on a nationwide=20 level: Richard M. Nixon. ?????The late president took that rare step 30 years ago this August to try= =20 to quell inflation and spark an economic rebound. His actions were so=20 dramatic that they are still invoked by those wanting to criticize or, in= =20 some cases, endorse setting limits on prices. ?????"What he did is almost larger than life now," said Shannon Burchett,= =20 chief executive of RiskLimited Corp., a strategic consulting firm in Dallas= . ?????Nixon's controls were the most far-reaching since World War II, when= =20 prices were capped so that profiteers couldn't reap huge sums for scarce=20 commodities being used for the war and simultaneously rationed at home. ?????In most cases, price controls have been much less sweeping and targete= d=20 at specific products or services. They don't always involve changing the la= w,=20 either. In 1962, President Kennedy publicly rebuked the then-U.S. Steel Cor= p.=20 and its chairman, Roger Blough, for starting an industrywide move to raise= =20 steel prices. The price hikes were rolled back a few days later. ?????Since Nixon, price controls have become rarer as industries that were= =20 once regulated--which means their prices were government-controlled--have= =20 been deregulated. ?????So it is in California, where electric utilities' prices were controll= ed=20 for decades until the state's deregulation law in 1996. But now that the la= w=20 has been blamed for the soaring wholesale prices, power shortages, crippled= =20 utilities and the need for a huge jump in ratepayers' costs, some again wan= t=20 price controls on electricity until the crisis eases. ?????Which brings everyone back to Nixon. ?????Some Nixon Controls Were Lifted by Reagan ?????"I've heard people make the analogy to what happened . . . when Nixon= =20 put on controls," but in California "this is fundamentally different," said= =20 Mike Florio, a board member of the California Independent System Operator,= =20 which oversees most of the state's electricity grid. ?????"When you get into a situation of shortage [of supplies], there is=20 really no restraint at all on prices," said Florio, who said he normally=20 prefers unfettered markets but also defended the state's caps last summer.= =20 Such government intervention "on a temporary basis is better than nothing,= =20 but I don't think it's ideal." ?????The reverberations from Nixon's fiat aren't just felt in California=20 either. When New York Mayor Rudolph Giuliani recently proposed more stringe= nt=20 controls on wholesale electricity costs in New York state, critics promptly= =20 pointed to Nixon's controls. "They were a disaster," one columnist wrote. ?????Even Federal Reserve Chairman Alan Greenspan, who was in the private= =20 sector in the early 1970s, turned down several requests to take high-level= =20 White House jobs in part because he was disgusted with Nixon's price contro= ls. ?????Many economists and historians also judge Nixon's controls as a mistak= e.=20 But some maintain that his decision--which began with a 90-day freeze on=20 prices, wages and rents--wasn't entirely a failure and even provided "shock= =20 value" that, for a while at least, arrested higher inflation. ?????In addition, part of Nixon's move involved taking the dollar off the= =20 gold standard--which in effect meant its price was controlled--and letting = it=20 float in value against other major currencies. And that, many believe, is t= he=20 base upon which today's global financial markets operate. ?????Others disagree. ?????"There really isn't an example of where they've [price controls]=20 worked," said Robert Goldberg, a senior fellow at the National Center for= =20 Policy Analysis, a nonpartisan think tank in New York. ?????"Controls always lead to an underproduction" of the commodity involved= =20 because producers don't have any incentive to spend more on additional=20 output, he said. When the caps ultimately are lifted, prices typically soar= =20 anyway as producers move to quickly recoup the profit they lost when the=20 controls were in place, Goldberg added. ?????Others note that although most of Nixon's price controls lasted only a= =20 couple of years, various forms of controls over crude oil and natural gas= =20 lasted for another decade until they were removed by President Ronald Reaga= n. ?????In the meantime, the controls--aggravated by embargoes and other suppl= y=20 cuts by the Organization of Petroleum Exporting Countries--distorted the fr= ee=20 market for energy, critics say. The controls kept U.S. oil prices=20 artificially low, which in turn kept demand for oil high, giving OPEC more= =20 power over world production and prices in the 1970s, they contend. ?????Nonetheless, proponents keep calling for controls when prices for=20 certain items seem to be spiraling out of control. ?????Critics Say Controls Worsen the Problems ?????President Clinton's massive health-reform proposal in the early 1990s= =20 included price controls on drugs. But the idea set off howls of protest fro= m=20 the pharmaceutical and biotechnology industries, and ultimately the entire= =20 proposal was shelved. Consumer advocates and others also demanded federal= =20 controls on rising cable TV rates in 1997 and 1998, again contending that t= he=20 cable operators were hiking prices at a much faster rate than inflation.=20 Cable firms were allowed to keep passing certain costs on to their=20 subscribers, but specific price caps weren't enacted. ?????But proponents of temporary price controls on California power emphasi= ze=20 that electricity isn't in the same category as an airplane seat, steel or= =20 other commodities that don't have to be bought if the price soars too high. ?????"In soybeans maybe the market can adjust quickly" to changes in supply= =20 and demand, "but in electric generation in California it can't," said Flori= o,=20 who also serves as an attorney for the Utility Reform Network, a consumer= =20 group. "For most products, one of the ways prices get determined is if buye= rs=20 refuse to buy when the price gets too high. But that's generally not an=20 option for people when it comes to electricity." ?????Critics of California's attempt to cap prices last summer said the=20 controls instead prompted many power suppliers to sell their electricity to= =20 other states. That "actually made the tight-supply problem worse [in=20 California] by driving imports out of the state," the Bay Area Economic=20 Forum, a research group funded by regional business and government agencies= ,=20 said in a report last week. ?????Indeed, the temporary caps were basically abandoned by year's end to= =20 keep enough electricity in the state. ?????Frank Wolak, a Stanford University economics professor who heads the= =20 Independent System Operator's market surveillance committee, said there are= =20 ways to mitigate the state's power prices without having to set rigid=20 controls. One proposal: Have FERC require that generators supply 75% of the= ir=20 expected future sales to California under long-term contracts at "just and= =20 reasonable" prices set by the federal agency, he said. ?????That would "send the right [price] signal to suppliers to come into th= e=20 state," Wolak said. ?????And because it will take time for California to get more of its own=20 power-generating plants up and running, the state's electricity crisis isn'= t=20 unlike a natural disaster in which "normal public service is disrupted" and= =20 short-term controls serve a purpose, Florio said. ?????"Over time, market forces will work" and controls shouldn't be need, h= e=20 said. "But does that mean we're supposed to pay $10,000 per kilowatt-hour= =20 until something gets done?" ---=20 ?????Times staff writer Ricardo Alonso-Zaldivar in Washington contributed t= o=20 this report. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------ Davis Names Executive to Speed Construction of Power Plants in State=20 Energy: Richard Sklar headed a building firm and worked for Clinton in=20 Bosnia. Governor sees the crisis abating by fall.=20 By DAN MORAIN, Times Staff Writer=20 ?????SACRAMENTO--With temperatures rising and electrical supplies strained,= =20 Gov. Gray Davis on Tuesday tapped a former Clinton administration official= =20 and executives from major construction firms to help speed completion of=20 power plants. ?????Davis, who predicted that the worst of the energy crisis will abate by= =20 the fall, announced that he has retained Richard Sklar, 67, former presiden= t=20 of a construction firm, to head a team that will help accelerate the buildi= ng=20 of power plants. ?????Speaking to business leaders at a California Chamber of Commerce=20 convention in Sacramento, Davis said Sklar's job will be "to make sure ther= e=20 are no hurdles [and] to cut red tape." ?????"Richard Sklar knows electricity," Davis said. "He knows how to find= =20 megawatts." ?????Former President Bill Clinton sent Sklar to the Balkans in 1996 to try= =20 to help resolve the war in Bosnia-Herzegovina. Sklar arrived in Sarajevo to= =20 find that power was on for only two hours a day and set about expanding=20 electricity generation. ?????In an interview, Sklar said his father was a mechanical engineer who= =20 designed power stations. ?????"This power world is my world," Sklar said, adding that he had an=20 electric car and solar panels in the mid-1970s. ?????This Feb. 8, Davis announced at a news conference that he was appointi= ng=20 Larry Hamlin, a vice president of Southern California Edison, as his=20 "construction czar." Hamlin's job was to speed power plant construction. ?????Davis spokesman Roger Salazar said that Hamlin's stint was temporary a= nd=20 that the executive must return to Edison. Sklar's contract is for a longer= =20 period, Salazar said, but it is unclear how long. ?????Sklar is being retained as a consultant, paid $100,000 initially. Othe= r=20 firms, Salazar said, are loaning employees as volunteers. Joining Sklar wil= l=20 be representatives of the engineering and construction firms Bechtel, URS= =20 Corp. Engineering, Fluor Daniel, Parsons Brinckerhoff Quade & Douglas, and = A.=20 Teichert & Sons. At least one Bechtel subsidiary is involved in power plant= =20 construction in California. ?????"There is no conflict of interest," Sklar said, adding that no one in= =20 the group will have authority to decide who gets contracts. ?????A mechanical engineer, Sklar was president of the San Francisco-based= =20 construction management firm O'Brien Kreitzberg Inc. Sklar's firm also=20 oversaw construction of the Metro Rail Green Line in Los Angeles and the=20 rebuilding of the Los Angeles Central Library. ?????He was also chairman of the San Francisco Public Utilities Commission= =20 under then-Mayor Dianne Feinstein. In that role, he oversaw rebuilding of t= he=20 cable car system, completing the work ahead of schedule--in time for the 19= 84=20 Democratic National Convention there. Feinstein's husband is a major invest= or=20 in URS, one of the firms that will loan employees to Sklar's team. ?????"He's very competent," said state Senate President Pro Tem John Burton= =20 (D-San Francisco) of Sklar, whom he met in 1972. "He's a very good problem= =20 solver and he brooks no nonsense. . . . He's a renaissance man. He loves=20 music, he loves politics and he's a gourmet cook." ?????Sklar has also displayed a sense of humor, once donating to San=20 Francisco Zoo two capybaras, rodents the size of a hog. He named one Quenti= n=20 and the other Kopp, after a former San Francisco city supervisor and state= =20 senator who is now a Superior Court judge. ?????"I'm 67; I've made all the money I need to make," said Sklar, who owns= a=20 vineyard near the Napa Valley town of Rutherford and has a home in San=20 Francisco. ?????"My reputation is what's going to be at stake in this, not the=20 governor's," he said. "I have a 40-year history of delivering--and that's= =20 what I'm going to do. I don't like to lose." ?????As Davis announced Sklar's appointment, one of the governor's top ener= gy=20 advisors, John Stevens, resigned, effective Friday. The governor praised=20 Stevens as a tireless worker. ?????Stevens worked on several energy-related tasks, among them Davis'=20 efforts to keep utilities out of bankruptcy. Davis appointed him for a day = in=20 January to the state Public Utilities Commission, on which he cast a key vo= te=20 to raise rates. ?????The state's power grid operators declared a Stage 2 emergency Tuesday= =20 afternoon, as temperatures hit 90 degrees in downtown Los Angeles and two= =20 major power plants in Southern California unexpectedly shut down. Power=20 reserves dropped to nearly 5%, below the minimum 7% that the California=20 Independent System Operator seeks to maintain. ?????Tuesday's emergency is not a predictor of worse electricity troubles t= o=20 come, said Cal-ISO's Stephanie McCorkle, because an unusually high number o= f=20 power plants are down for repairs that were planned months ago. ?????The plants not running Tuesday would be capable of supplying 10,000=20 megawatts, she said, or about a third of Tuesday's peak demand. By mid-June= ,=20 no power plants should be shut off for scheduled maintenance, McCorkle said= . ?????The state will lose more than 1,000 megawatts of production starting= =20 this weekend when a unit of the Diablo Canyon nuclear power plant near San= =20 Luis Obispo is shut down for refueling. The shutdown, planned a year ago,= =20 will last 35 days, according to Pacific Gas & Electric. ?????In his remarks Tuesday, Davis said his goal is to boost the state's=20 energy supply to exceed demand 15% by 2003.=20 ?????"This is probably the most complicated challenge the state has faced i= n=20 50 years," Davis said. "But we are providing steady and reliable leadership= ,=20 and I believe this thing will be behind us by the end of fall." ---=20 ?????Times staff writers Nancy Vogel and Jenifer Warren contributed to this= =20 story. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------------- Power Plant Emits Tons of Fumes=20 Round-the-clock operation of old generators in Glendale and elsewhere=20 produces more than twice the old limits of pollution.=20 By JEAN GUCCIONE, Times Staff Writer=20 ?????For the past five weeks, Glendale's Grayson power plant has been=20 belching a half-ton of pollutants into the air almost daily, more than twic= e=20 previous limits. ?????The same is true for many of the other 14 power plants in Southern=20 California as the "haves" generate power, sometimes round-the-clock, for th= e=20 "have-nots." ?????The generators, some of them nearly 50 years old and once considered t= oo=20 dirty for regular use, now keep electricity flowing to fellow residents=20 around the state. And those living downwind are subjected to twice as much= =20 air pollution as before California's energy crunch. ?????Not every Glendale resident is happy. ?????"You don't want anyone to get stuck with a rolling blackout, but we ge= t=20 struck with the pollution," Jerold Petrosian said as he and his family boug= ht=20 plants at a nursery across the street from the power plant. "It is a tough= =20 decision." ?????Not so for Ignacio Troncoso, director of Glendale Water & Power. "Ther= e=20 is a pretty decent trade-off, helping our neighbors in the state to keep=20 their lights on," he said. ?????A USC specialist warned that increased power plant emissions raise the= =20 risks of asthma and other lung ailments in the young and old. ?????"There is a potential for more emergency room visits, more people seei= ng=20 their doctors and more hospitalizations this summer," said Dr. Henry Gong,= =20 professor of medicine and a specialist in the health effects of air polluti= on. ?????With extended hours, the Glendale generators are emitting as much as 9= 95=20 pounds of pollutants into the air during peak demand, more than double the= =20 old limit of 390 pounds a day, city and air-quality officials said. ?????The other 14 power plants in Southern California also have more than= =20 doubled their overall emissions, according to preliminary figures from the= =20 South Coast Air Quality Management District. As a group, the plants emitted= a=20 total of 2,045 tons of smog-forming nitrogen oxide in the first three month= s=20 of 2001, compared with 905 tons for the same period last year. ?????The AQMD hearing board on Tuesday eased pollution controls so Glendale= =20 may continue to generate excess electricity for sale to the energy-starved= =20 state. Under the plan, Glendale may run three of its old steam boilers=20 around-the-clock to meet the state's energy demand. Usually, these boilers,= =20 hidden behind a tall brick wall, sit idle except during the peak summer=20 demand because they are inefficient and costly. ?????Glendale, like Burbank and the Los Angeles Department of Water and=20 Power, continues to produce electricity at its city-owned plant. The three= =20 cities opted against participating in a scheme of deregulation, a decision= =20 that has shielded their residents, by and large, from the huge utility rate= =20 hikes and rolling power outages experienced elsewhere. But they also will= =20 contribute to easing the state's energy emergency in the dirtier air they= =20 will be forced to breathe. ?????Air-quality officials said power plants contribute just about 3% of th= e=20 900 tons of pollution emitted into the air daily, with about 70% of the=20 pollution coming from vehicles, not factories. And in recent years, many of= =20 the region's municipal power generators have been updated with=20 pollution-control devices that reduce emissions. ?????Glendale's three steam generators, built between 1953 and 1963, are=20 inefficient by today's standards, but they are 85% cleaner since the city= =20 pumped millions of dollars into upgrades. They will be even cleaner, city= =20 officials say, with more retrofitting. ?????Under the plan, Glendale must reinvest profits from energy sales,=20 estimated at $3 million to $5 million this year, in equipment to reduce=20 future emissions at the plant and in community-based programs, such as mobi= le=20 asthma clinics and programs to reduce school bus emissions. ?????The city plans to sell as much as 50 megawatts of power, enough to ser= ve=20 50,000 homes. Under the decision Tuesday, pollution limits resume Jan. 1,= =20 2002, or when the energy emergency ends. ?????In Los Angeles, power officials said they don't expect to exceed AQMD= =20 caps, because they are adding pollution controls at two of the city's four= =20 power plants. Although they will produce more electricity, they should not= =20 produce any more nitrogen oxide, which in sunlight and heat form ozone, sai= d=20 Angelina Galiteva, LADWP's director of strategic planning. ?????"We will have much cleaner equipment in place by June," she said. ?????Even the environmentalists are trying to balance the risks. ?????"We realize we have a problem this summer. We have to run these plants= ,"=20 said Sheryl Carter, a senior policy analyst for the National Resources=20 Defense Council. ?????Carter said natural-gas-powered generators, like the ones in Glendale,= =20 are "a far superior solution to diesel generators," which produce 50 to 100= =20 times the emissions and would be turned on in businesses across the state i= f=20 energy is unavailable from other sources. ?????"We are trying to make sure the environment overall is made whole," sh= e=20 said. ?????Carl Zichella, regional staff director for the Sierra Club, said the= =20 generators should be run as a last resort. He also urged consumers to unplu= g=20 spare refrigerators and use energy-efficient light bulbs to reduce the=20 state's overall energy demand. ?????"The only thing that is going to work to offset air pollution is=20 efficiency," he said. Otherwise, "we will pay not only with higher rates bu= t=20 also with our health." ?????In neighboring Burbank, city officials are preparing for peak summer= =20 energy demands, when they expect to sell about 10% of their locally produce= d=20 electricity outside the city. ?????"For four or five years, we have been polluting Utah, Arizona, Nevada,= =20 Washington and Oregon, importing power to Los Angeles," said Ron Davis,=20 general manager of Burbank Water & Power, listing the energy-producing stat= es=20 that typically produce the bulk of Southern California's power. "We are=20 returning the favor." ?????Profits from those outside sales, Davis said, will help hold down=20 utility costs for local users. ?????"I think most people would take a little more smog to guarantee there= =20 are no rolling blackouts," he said. "But it's not an easy question." Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------- Power Plant Plan Worries Neighbors=20 Energy crisis: Regulators will decide next week whether to allow Huntington= =20 Beach facility to boost output. Noise and pollution are concerns.=20 By CHRISTINE HANLEY, Times Staff Writer=20 ?????On Hula Circle in Huntington Beach, families have tried to live with= =20 their two very different neighbors. They live steps from the Pacific Ocean= =20 but next door to the mechanical shrieks and foul smells of the massive AES= =20 Corp. power plant. ?????But California's power crisis is rapidly unhinging life in the=20 neighborhood of ranch houses and bungalows. ?????State regulators will decide next week whether to allow the company to= =20 double the plant's operations by July, providing much-needed electricity bu= t=20 taking what residents fear will be a heavy toll on them. ?????It's one of several proposals to restart or build new power plants in= =20 the wake of the power crisis using a "fast track" process that allows the= =20 projects to go forward before environmental and pollution studies are=20 completed. ?????"The plant is so close. We want to know if it is impacting our kids in= =20 ways we won't know about until 10 years from now," said Janette Mortimer, w= ho=20 lives with her husband and their two young children in one of the homes=20 closest to the plant. ?????Already, residents say, the AES plant is casting a mightier shadow.=20 There are the ear-ringing rumbles and roars. There are the mysterious plume= s=20 of smoke that waft over the neighborhood. Then there is the grime that seem= s=20 never to go away. ?????If the California Energy Commission approves the permit for AES, the= =20 facility could run at full capacity for the first time in memory. Officials= =20 said the plant's previous owner, Southern California Edison, typically ran = it=20 at 30% of capacity. ?????AES could be allowed to run the four gas-fired boilers and a "peaker"= =20 unit whenever California hits a Stage 3 alert--which is expected to happen= =20 often this summer. The "peaker" plant alone is powered by eight jet=20 engines--and sounds like it. ?????Currently, only two boilers are operating. ?????But residents say they are most worried about the air they breathe and= =20 the water they swim in. ?????Under the fast-tracking process designed to get more electricity for t= he=20 state as soon as possible, several key environmental questions have yet to = be=20 studied. ?????Scientists studying the cause of ocean pollution that closed much of= =20 Huntington Beach's shoreline in the summer of 1999 said that the plant, alo= ng=20 with other factors, played a role by drawing partially treated sewage that = is=20 discharged miles offshore back toward the coast. ?????AES Inc. will pay $1.5 million to further study the issue, but the=20 research won't be complete for some time. ?????"So much is uncertain," said Huntington Beach Councilwoman Shirley=20 Dettloff. "These are big, big things." ?????For now, residents say they are bracing for more noise, smoke and=20 disruption. ?????To begin with, AES' proposal calls for 20 hours a day of nonstop=20 construction to get the two mothballed generators in service by July. ?????Then there are the sizzling summer temperatures. Residents usually ope= n=20 their windows to let the ocean breezes cool their homes. But the noise and= =20 smells from the plants may make that impossible. ?????"It's going to be bad. There's no escape," said Bryan Visnoski. ?????The plant has towered over the Huntington Beach coastline for nearly 4= 0=20 years. The housing tracts came later, but most inhabitants of Hula Circle a= nd=20 surrounding streets seemed to make peace with their industrial neighbor. ?????Some have installed double-paned windows to dampen the sound. Others= =20 have remodeled their homes to obstruct ugly views. The Mortimers grew tall= =20 trees and trained vines past the windows. ?????The problems, they say, began with the energy crisis. ?????The plant was owned by Edison until 1998, when it was sold to=20 AES--California's largest private electricity producer--at the dawn of=20 deregulation. ?????The two gas-fired boilers that AES wants to restart have been dormant= =20 since 1995 and were slated for demolition until the power crisis struck. ?????But a few months ago as rolling blackouts hit the state, Gov. Gray Dav= is=20 signed an executive order allowing "peaker plants" to operate at extended= =20 hours. "Peaker plants" can produce electricity in quick bursts but guzzle= =20 large amounts of natural gas and are noisy. ?????Hulu Circle residents said the order has resulted in more hours of lou= d=20 jet noises that make then feel like they live by an airport. ?????Whenever the peaker plant goes on, residents call the Air Quality=20 Management District to send someone to test the plume of smoke. The=20 inspections have not detected any violations. ?????The proposal before the state Energy Commission would allow AES to=20 double its electricity output in Huntington Beach from 500 megawatts to 1,0= 00=20 megawatts. ?????The company's two 40-year-old units represent about 10% of the 5,000= =20 additional megawatts Davis has promised to meet an expected energy shortfal= l=20 this summer. ?????Despite the fast-tracking process, the company has vowed that it would= =20 safeguard against environmental damage and remedy any problems from plant= =20 operations. ?????If the plant is identified as drawing bacteria back to shore, AES woul= d=20 have to pay the costs deemed necessary to fix problems. ?????This is little consolation to residents, who would prefer a full=20 environmental review. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- Federal plan called 'too little, too late'=20 Limited price control seen as step in right direction, but officials renew= =20 call for price ceiling Zachary Coile, Chronicle Political Writer Wednesday, April 25, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/04= /25/M N104049.DTL=20 As federal energy regulators consider a plan intended to ease the state's= =20 worsening energy crisis, California officials and some energy experts are= =20 already criticizing it as inadequate.=20 The Federal Energy Regulatory Commission is scheduled today to debate a=20 proposal that would force power generators to sell electricity at a=20 discounted price to California during severe power emergencies.=20 The proposal would require producers to sell energy to the state's power gr= id=20 during Stage 3 emergencies. Stage 3 emergencies are declared when energy=20 resources are almost depleted, allowing utilities to cut off power to=20 customers at any time.=20 The plan also would limit how much energy firms could profit off such sales= .=20 But Gov. Gray Davis and Sen. Dianne Feinstein, among others, say stronger= =20 remedies -- including the temporary regional price limits they have advocat= ed=20 for months -- are needed to stave off a summer of blackouts and power=20 shortages.=20 "I think the plan before FERC is too little, too late," Davis said yesterda= y=20 in Sacramento.=20 "We need help all the time. The regulatory commission plan excludes 95=20 percent of the purchases of power. A Stage 3 situation is, by definition,= =20 chaotic as we scramble to find the megawatts to keep the lights on."=20 The commission ordered its staff in December to come up with remedies to=20 California's energy woes. The commissioners are expected to make their=20 decision by May 1, a self-imposed deadline to help the Golden State.=20 The proposal to be debated today would require producers to sell electricit= y=20 to California at a price based on the costs of the least-efficient plant=20 providing the energy. More efficient plants sending energy to the state wou= ld=20 still be able to make a sizable profit.=20 The plan has also drawn criticism because it applies only to California, no= t=20 other Western states that are also feeling the pinch of higher energy price= s.=20 But California officials say the proposal does signal a shift in the hard-= =20 line position of the commission's majority against any form of price=20 controls. The plan would set some form of price ceiling, even if only durin= g=20 extreme conditions.=20 In regulatory commission documents, the plan is referred to as "price=20 mitigation" -- not price limits.=20 "I sincerely don't believe that FERC would even be considering the Stage 3 = if=20 it were not for us making substantial noise about a temporary cap," said=20 Feinstein, D-Calif., who introduced a bill with other Western senators=20 yesterday to require the agency to impose temporary price controls on energ= y=20 sold to Western states.=20 Severin Borenstein, director of the University of California Energy=20 Institute, said the regulatory commission has yet to make a compelling case= =20 for why its "Stage 3" plan would help lower sky-high prices.=20 "The argument being made to support this is that firms are only able to=20 exercise market power during Stage 3 emergencies," Borenstein said. "And th= e=20 evidence is quite clear that's just not true.=20 "It's unfortunate that FERC thinks this is solving some problem for=20 California, because it won't."=20 E-mail Zachary Coile at zcoile@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- S&P lowers California's bond rating=20 First cut since '94 could cost taxpayers millions=20 Kathleen Pender, Chronicle Staff Writer Wednesday, April 25, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/04= /25/M N211494.DTL=20 Citing the "rapidly escalating uncertainty" surrounding the power crisis,= =20 Standard & Poor's slashed California's credit rating yesterday for the firs= t=20 time since 1994, when the state was still climbing out of a recession.=20 The downgrade -- and the energy debacle that led up to it -- will cost=20 taxpayers tens or hundreds of millions of dollars a year by raising the=20 state's borrowing costs. Investors will probably see the market price of=20 California municipal bonds and bond funds decline further.=20 But the biggest blow may be to the state's ego. S&P downgraded the state's= =20 general obligation bonds two notches -- to A+ from AA. The only other state= =20 currently rated A+ is Hawaii. The only state with a lower credit rating is= =20 Louisiana, according to S&P.=20 Most states are rated AA. Some states don't have a credit rating because th= ey=20 don't have bonds.=20 California's credit rating is still "investment grade," which means it is n= ot=20 expected to default on its bonds. However, the state's ability to repay its= =20 debt "isn't as strong as it used to be," said Steve Zimmermann, a managing= =20 director with Standard & Poor's. "This is a very speculative situation."=20 States hire companies like S&P to give them an independent credit rating wh= en=20 they borrow money by selling bonds. The rating reflects the state's ability= =20 to repay its debt in full, on time.=20 When they sell new bonds, states with lower credit ratings usually pay high= er=20 interest than higher-rated states, to make up for the added risk.=20 A rating change does not affect the interest rate states pay on bonds that= =20 have already been issued, but it can affect the price of bonds when they=20 trade on the open market among investors.=20 Yesterday's downgrade "reflects the mounting and uncertain cost to the stat= e=20 of the current electrical power crisis, as well as its likely long-term=20 detrimental effect on the state's economy," S&P said in a news release.=20 "Given the large magnitude of the problem in relation to the size of fund= =20 balances the state typically budgets, the capacity to pay debt service, whi= le=20 still adequate, has been reduced."=20 In January, S&P placed the state's debt on "CreditWatch with negative=20 implications," a signal that it might lower the rating.=20 In an unusual move, S&P kept the state on CreditWatch after yesterday's=20 downgrade, which means the rating could fall even lower.=20 Zimmermann said S&P is keeping California on CreditWatch pending its abilit= y=20 to sell $10 billion to $14 billion worth of bonds to reimburse the state's= =20 general fund for past and future power purchases.=20 "If they did the bond issue, they'd replenish the fund, at least for the=20 short term. If they don't do it, then it's more of a concern," Zimmermann= =20 said.=20 Unfortunately, the downgrade could make it harder for the state to sell the= =20 bonds.=20 "If they could have gotten the deal done before the downgrade, they would= =20 have had a stronger deal," said Kelly Mainelli, a municipal bond fund manag= er=20 with Montgomery Asset Management.=20 California must obtain an investment-grade rating (BBB- or higher) on the= =20 bonds before it can sell them.=20 Mainelli said California municipal bond prices have already fallen in=20 anticipation of a ratings cut. When prices fall, bond yields go up.=20 "The downgrade is the culmination of everything that's happened since early= =20 December," he said.=20 In November, California municipal bonds yields were 0.4 to 0.5 percentage= =20 points below the national average. Today, they're 0.1 to 0.2 percentage=20 points above the national average, and Mainelli thinks they could go up 0.1= =20 to 0.2 percentage points more because of the downgrade.=20 The total difference -- about 0.7 percentage points -- doesn't sound like= =20 much, but it adds up.=20 Last year, the state itself sold $4.6 billion in new bonds (excluding bonds= =20 sold to replace existing bonds). If it sells the same amount this year, plu= s=20 $12 billion in energy bonds, that 0.7 percentage point difference on $16.6= =20 billion in bonds would cost the state $116 million a year in additional=20 interest costs.=20 Yesterday's downgrade only affected the state's general obligation bonds an= d=20 others secured by the "full faith and credit of the state," such as the=20 California Health Facilities Construction Loan Insurance Fund (Cal Mortgage= ).=20 But the energy debacle could wind up costing other municipal bond issuers i= n=20 California -- such as cities, counties, school and water districts -- more= =20 money when they sell bonds. Although their ratings have not changed because= =20 of the energy crisis, analysts say the yields on most California municipal= =20 bonds have gone up, and will go up some more, as a result of the state's=20 downgrade.=20 "The values of all California bonds will be hurt by this downgrade, whether= =20 they should be or not. Psychologically, it's just how the market reacts,"= =20 says Richard Goldstein, a San Ramon financial planner.=20 Investors who have to sell their California bonds on the open market before= =20 they mature may not get all their principal back. But investors who hold=20 their bonds until maturity will probably get paid in full, Goldstein said.= =20 No matter how bad the energy crisis gets, most experts believe the state wi= ll=20 continue making principal and interest payments on its bonds, even if it ha= s=20 to raise taxes, cut expenditures or run a temporary deficit to do so.=20 "There's also the prospect at some point of federal help," Goldstein said.= =20 "The federal government does not want California to default or even come=20 close.=20 Do you know what that would do to the national economy and the world=20 economy?"=20 California's bond-rating history=20 S&P cut its rating on California debt yesterday for the first time since=20 1994.=20 What credit ratings mean=20 -- AAA: Extremely strong capacity to meet financial commitments.=20 -- AA: Very strong capacity to meet financial commitments.=20 -- A: Strong capacity to meet financial commitments but somewhat more=20 susceptible to adverse circumstances and economic conditions.=20 -- BBB: Adequate capacity to meet financial commitments. However, adverse= =20 economic conditions could weaken ability to pay debts.=20 Note: Ratings below BBB are considered poor investment risks, and the issue= s=20 sometimes are called "junk bonds."=20 Source: Standard & Poor's=20 Chronicle Graphic=20 E-mail Kathleen Pender at kpender@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- NEWSMAKER PROFILE=20 Richard Sklar=20 Ex-Muni boss becomes energy czar=20 Davis' pick to oversee power plant construction=20 Greg Lucas, Sacramento Bureau Chief Wednesday, April 25, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/04= /25/M N232441.DTL=20 Sacramento -- San Franciscan Richard Sklar, onetime trouble-shooter for the= =20 Municipal Railway and later a figure in the U.S. aid effort for Bosnia, wil= l=20 head a team of construction experts working to build power plants faster,= =20 Gov. Gray Davis said yesterday.=20 Sklar, 66, is the second energy "czar" the governor has appointed in a week= .=20 Last week he named S. David Freeman, head of the Los Angeles Department of= =20 Water and Power, to lead the state's conservation efforts.=20 "Mr. Sklar is with us for the long haul," Davis said after speaking to the= =20 State Chamber of Commerce. "He's a no-nonsense person."=20 Sklar will work with representatives of some of the largest construction=20 firms in the world, such as Bechtel, to map out timelines and identify=20 potential problems in building power plants.=20 Under the Davis administration, 13 power plants have been approved, eight o= f=20 which are under construction.=20 "This is the red meat I chew on, my friend," Sklar said yesterday in a=20 telephone interview from New York.=20 "We're going to be getting these projects under way and follow them from th= e=20 'let's do it' stage to the day we cut the ribbon."=20 Sklar has already had a chance to study the energy situation in California= =20 from afar. In January, while serving as then-President Bill Clinton's point= =20 man for helping southeast Europe move toward capitalism, Sklar said,=20 "California is an object lesson in how not to deregulate. You've got to hav= e=20 both capitalism and regulation."=20 The way California worked deregulation, Sklar said, was a "colossal mistake= .=20 "=20 Sklar has more than 35 years of public and private management experience,= =20 much of it in San Francisco.=20 He came to the city from Cleveland in the mid-1970s and soon joined the=20 mayoral campaign of the late George Moscone. Impressed by Sklar's drive,=20 Moscone handed him the reins to the city's huge wastewater program.=20 Sklar, known as a man of limitless self-confidence, quickly made a name for= =20 himself as a head-knocking administrator with an abrupt management style, b= ut=20 he got the languishing program moving.=20 Citing Sklar's "vigor and force," then-Mayor Dianne Feinstein appointed him= =20 general manager of the San Francisco Public Utilities Commission, which=20 oversees the city's Water Department. He held the post until 1983 while als= o=20 leading the Muni for three years.=20 Sklar soon earned a reputation at City Hall for flamboyance. Critics said= =20 Sklar enjoyed seeing his name in print and his face on TV a bit too much. H= e=20 took the criticism in stride.=20 "I inspire intense feelings," he told The Chronicle in 1982. "You love me o= r=20 you hate me -- and probably for good reason."=20 By the end of his tenure, Feinstein and Sklar were feuding openly over=20 everything from the Muni to high-rise development. The mayor called him=20 "arrogant." He, in turn, called her a "lightweight" who was no great=20 political star.=20 From 1983 through 1996, Sklar worked for San Francisco-based O'Brien-=20 Kreitzberg, one of the largest construction management firms in the United= =20 States. The firm specializes in public works projects.=20 Sklar became the company's president in May 1995 after running O'Brien-=20 Kreitzberg's Eastern and international operations, a job that led to=20 Clinton's naming him to coordinate the rebuilding of war-ravaged Bosnia in= =20 1996.=20 During Sklar's year on the job, the Sarajevo airport was quickly reopened,= =20 and round-the-clock electricity was restored in the city before winter.=20 In 1997, Clinton named Sklar ambassador to the United Nations for reform an= d=20 management. His primary task was to shake loose from a reluctant GOP-=20 controlled Congress more than $1 billion in delinquent dues owed by the=20 United States.=20 In June 1999, he moved to Rome to serve as Clinton's point man on economic= =20 development of southeast Europe. He is now a mediator specializing in=20 construction cases.=20 E-mail Greg Lucas at glucas@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Will price caps deter investment, as federal regulators say?=20 KAREN GAUDETTE, Associated Press Writer Wednesday, April 25, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/04/25/s= tate0 343EDT0117.DTL=20 (04-25) 00:43 PDT SAN FRANCISCO (AP) -- Some key power generators say=20 California's dearth of energy supplies, and its growing demand, make it a= =20 good place to build more plants and sell more power in the years to come --= =20 even if dreaded price caps are imposed.=20 ``Regardless of what the (market) structure turns out to be, the state's=20 going to need electricity and it's going to need to buy it from somebody,''= =20 said Bill Highlander, spokesman for San Jose-based Calpine Corp.=20 Calpine is investing about $4 billion in power plants over the next four=20 years that will generate 9,000 megawatts, enough for more than 6 million=20 homes. The state's current energy crisis ``hasn't really changed our plans = or=20 our strategy,'' he said.=20 But Chief federal energy regulator Curtis Hebert says price caps on wholesa= le=20 electricity will hinder, not help, California's energy crisis.=20 Energy wholesalers seeking higher prices than California is willing to pay= =20 will invest in other states, warns Hebert, the chairman of the Federal Ener= gy=20 Regulatory Commission. And any regulations that cut into future profits wil= l=20 scare away desperately needed new power plants, he says.=20 Eight of the 13 new power plants approved in California already are under= =20 construction. Twelve more are under review, according to the California=20 Energy Commission, which approves power plants.=20 CEC spokesman Rob Schlichting said that's a huge boost over the last decade= ,=20 when uncertainty over the rules of deregulation -- not a threat of price ca= ps=20 -- kept applications down. No companies have withdrawn plans to build plant= s=20 since December.=20 ``The only way price caps would scare away investment is if they were set s= o=20 low you couldn't make a profit,'' Schlichting said. ``It's still a market= =20 that people seem to want to come in and produce power for.''=20 Other companies still planning to invest in California include North=20 Carolina-based Duke Energy, which has two plants in the works, and=20 Houston-based Reliant Energy, which is negotiating with the state to sell= =20 power on long-term contracts.=20 Reliant's spokesman, Richard Wheatley, wouldn't say whether price caps alon= e=20 would inhibit them from building more plants. What he did say is that=20 California's power politics leave a lot of room for improvement.=20 The state has considered taking over power plants through eminent domain an= d=20 implementing a windfall profits tax to take some of their earnings away.=20 Meanwhile, Attorney General Bill Lockyer is offering a bounty for any=20 information that could prove wholesalers worked together to drive up prices= ,=20 which could lead to more lawsuits and investigations.=20 If California wants to encourage construction, it's got to tone down its=20 vilification and stop adding more restrictions, Wheatley said.=20 ``Whenever we go into an area and consider building a power plant, we have = to=20 look at the economics of the facility, we have to look at the regulatory=20 situation, esoteric things like what the mindset is like,'' he said.=20 ``California is not the easiest place in which to do business.''=20 Some power companies have invested so much in pipelines, gas reserves and= =20 plants already under construction that it's folly to turn back now.=20 ``We want to build in California, but we need to have regulatory stability = or=20 at least regulatory clarity to move these things forward because they're=20 half-billion dollar projects in some cases,'' said Tom Williams, a spokesma= n=20 for Duke. ``That's a lot of bananas.''=20 Senators Dianne Feinstein, D-Calif., and Gordon Smith, R-Ore., plan this we= ek=20 to introduce legislation urging FERC to impose a temporary price cap over t= he=20 11 Western states. They hope to keep prices down in the short-term and give= =20 California and other troubled states a breather to make long-term decisions= .=20 Feinstein's bill does not yet specify a price. Some economists say $150 to= =20 $250 per megawatt hour would be just and reasonable, yet provide generators= a=20 profit. Prices have gone as high as $1,500 for the same amount of power in= =20 the past year.=20 Tying the price cap to the cost of making power could make it easier for=20 generators to swallow, said Severin Borenstein, director of the University = of=20 California, Berkeley's energy institute. Such a cap would account for=20 variables such as the wildly fluctuating cost of natural gas used to genera= te=20 much of the energy in California's power plants.=20 Price caps can be effective, but only if they are very carefully designed,= =20 warned Frank Wolak, chairman of the Independent System Operator's market=20 surveillance committee. The ISO manages the state's power grid.=20 Set them too high, and companies will only bid that amount, saving little= =20 money, Wolak said. Too low, and the generators could choose to sell elsewhe= re=20 unless all other nearby states have the same price limits.=20 Also, capping the most expensive energy sales -- power sold on the spot=20 market at times of high demand -- won't lower prices for other key componen= ts=20 of the state's energy supply, such as electricity bought for the next day's= =20 power needs.=20 ``Suppose you're paying $150 every single (megawatt) hour. That still puts = us=20 in big trouble with wholesale energy costs,'' Wolak said.=20 The state already has spent $5.1 billion buying power for customers of=20 California's three largest investor-owned utilities, which lost their credi= t=20 -- and thus their ability to buy power -- after paying sharply higher costs= =20 for wholesale energy.=20 Borenstein said paying even $250 a megawatt hour is still preferable to the= =20 unknown, particularly since economists have warned that there is virtually = no=20 upper limit to what energy companies can charge.=20 ``This summer we are going to be truly short of power and at those times th= e=20 price is going to be at the price cap, and if we don't have a price cap, th= ey=20 will be way above the price cap,'' Borenstein said.=20 FERC remains opposed to price caps, but after months of complaints, the boa= rd=20 this week is considering a limited cap on the most expensive last-minute=20 power buys.=20 The proposal would cap California but not the rest of the West, and order= =20 wholesalers to sell to the state during the most extreme power shortages.= =20 Though it provides some cushioning, it does not address the high prices=20 California swallows the rest of the time. That's the point of Feinstein's= =20 bill.=20 ``The crisis point is this summer to next summer and we need some federal= =20 assistance,'' said Howard Gantman, spokesman for Feinstein. ``This would=20 assure the generators a reasonable profit and continue to spur on further= =20 investment into new plants.''=20 On the Net:=20 California Energy Commission: www.energy.ca.gov=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Credit agency cites power troubles; lowers state's bond rating=20 Wednesday, April 25, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/04/25/s= tate0 552EDT0127.DTL=20 (04-25) 02:52 PDT SACRAMENTO, Calif. (AP) -- A major credit rating agency h= as=20 downgraded California's state bonds, citing the financial drain from the=20 continuing energy crisis.=20 ``The downgrade reflects the mounting and uncertain cost to the state of th= e=20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy,'' Standard & Poors said Tuesday.=20 The state's ability to repay its debts, while still considered adequate, ha= s=20 been reduced, S&P said in dropping the rating on California's general=20 obligation bonds by two notches from AA to A+. It similarly revised other= =20 lease ratings, and ratings for the California Health Facilities Constructio= n=20 Loan Insurance Fund, known as Cal Mortgage.=20 S&P is one of three major rating agencies watching the state's financial=20 performance. Credit ratings help determine how much states and other=20 borrowers must pay when issuing bonds. The lower the rating, the higher the= =20 interest rate the state must pay to attract bond investors.=20 The downgrade now puts California's credit rating behind many other states= =20 and on par with Hawaii, which also has an A+ rating from S&P.=20 Preliminary estimates from the state's Treasurer's Office estimated that th= e=20 downgrade would cost the state an additional $190 million to $570 million o= n=20 the $12 billion in general obligation bonds that have been authorized, but= =20 not yet issued, for ongoing expenses, including school and transportation= =20 projects.=20 The agency said the rating was not reduced further because of California's= =20 diverse economy and a proposed revenue bond slated to reimburse the state's= =20 treasury. S&P said a further downgrade could occur if California does not= =20 follow through on plans to issue more than $10 billion in revenue bonds to= =20 pay off its energy-related debts.=20 The agency put the state's general obligation bonds on a credit-watch ``wit= h=20 negative implications'' Jan. 19, shortly after California began buying powe= r=20 for its two largest utilities, Southern California Edison and Pacific Gas a= nd=20 Electric Co.=20 On the Net:=20 Standard & Poors www.standardandpoor.com=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- S&P downgrades California's bonds citing energy troubles=20 Wednesday, April 25, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/04/25/n= ation al0443EDT0483.DTL=20 (04-25) 01:43 PDT SACRAMENTO (AP) -- A major credit rating agency has=20 downgraded California's state bonds, citing the financial drain from its=20 continuing energy crisis.=20 ``The downgrade reflects the mounting and uncertain cost to the state of th= e=20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy,'' Standard & Poors said Tuesday.=20 The state's ability to repay its debts, while still considered adequate, ha= s=20 been reduced, S&P said in dropping the rating on California's general=20 obligation bonds by two notches from AA to A+.=20 The agency said the rating was not reduced further because of California's= =20 diverse economy and a proposed revenue bond slated to reimburse the state's= =20 treasury. S&P said a further downgrade could occur if California does not= =20 follow through on plans to issue more than $10 billion in revenue bonds to= =20 pay off its energy-related debts.=20 The agency put the state's general obligation bonds on a credit-watch ``wit= h=20 negative implications'' Jan. 19, shortly after California began buying powe= r=20 for its two largest utilities, Southern California Edison and Pacific Gas a= nd=20 Electric Co.=20 On the Net:=20 Standard & Poors www.standardandpoor.com=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- State bond rating lowered=20 Posted at 10:53 p.m. PDT Tuesday, April 24, 2001=20 BY JENNIFER BJORHUS=20 Mercury News=20 One of Wall Street's top credit-rating houses has downgraded California's= =20 bonds because of the state's handling of the energy crisis, a move that cou= ld=20 ultimately cost taxpayers tens of millions of dollars.=20 Saying that mounting and uncertain power costs are likely to do lasting har= m=20 to California's economy, New York-based Standard & Poor's on Tuesday lowere= d=20 the state's credit rating on its ``general obligation'' bonds two notches,= =20 from AA to A+ with a negative outlook. That puts California near the bottom= =20 of the state bond heap with only one state -- Louisiana -- rated lower.=20 Standard & Poor's said the rating could go lower if the state cannot resolv= e=20 the power crisis.=20 The downgrade will cost California millions of dollars in coming years=20 because a lower rating makes it more expensive for the state to issue gener= al=20 obligation bonds to finance projects such as school construction.=20 The interest on those bonds, which will rise from an estimated 5 to perhaps= =20 5.25 percent, is paid from the state's tax-financed general fund. Although= =20 the rating change doesn't apply technically to the different type of bond t= he=20 state plans to issue by June for power purchases, it will probably make tho= se=20 bonds more expensive for the state, too, bond experts say.=20 Heightened urgency=20 ``There's a sense of urgency that this problem has been escalating,=20 particularly since the PG&E bankruptcy,'' said David Hitchcock, California= =20 analyst for Standard & Poor's. ``This problem could move quickly.''=20 At least one bond expert said the downgrade was surprising.=20 ``To me it's clear that S&P doesn't have much faith in this power-bailout= =20 plan of the Legislature and the governor. To me that's the reason they did= =20 it,'' said Zane Mann, publisher of the monthly California Bond Advisor=20 newsletter.=20 No single new piece of information triggered the downgrade, Hitchcock said.= =20 The major factor, he said, was simply spiraling costs and no long-term plan= =20 for paying the bills. Last week Gov. Gray Davis said the state had been=20 spending $73 million a day to buy electricity, up from $45.8 million a day = in=20 late March. Hitchcock said some energy traders suspect the actual costs are= =20 higher.=20 All three major Wall Street credit-rating agencies have California on=20 so-called ``credit watch,'' but only Standard & Poor's has downgraded. One= =20 municipal bond expert said Standard & Poor's had been ``trigger happy'' and= =20 eager to downgrade. Raymond Murphy, Moody's California analyst, said he had= =20 no immediate plans to change California's bond rating, but that he's anxiou= s=20 to see officials produce a long-term plan for financing power purchases.=20 Murphy said he had a conference call with state officials about the issue= =20 Tuesday morning.=20 ``We want the state to develop the plan that gets the general fund out of= =20 power purchasing,'' Murphy said.=20 The state says it's working on that, but there's a roadblock.=20 Revenue bonds=20 A major piece of the state's plan is to have the Department of Water=20 Resources issue $10 billion to $14 billion in revenue bonds to pay back the= =20 general fund for what has been taken to buy power in recent months. But tha= t=20 portion of the plan is tied up in a dispute between PG&E and the California= =20 Public Utilities Commission over how to spend the extra money generated by= =20 electricity rate increases. The dispute has also held up the $4.13 billion = in=20 financing the state had arranged to pay down the advances it took out of th= e=20 general fund to buy power.=20 To break the logjam, officials from the state treasurer's office have asked= =20 lawmakers to pass emergency legislation to allow the state to issue the=20 revenue bonds.=20 ``California's credit rating and financial strength will be in jeopardy unt= il=20 the state's general fund is repaid for energy costs,'' state Treasurer Phil= ip=20 Angelides said in a statement Tuesday.=20 State Finance Director Tim Gage and Gov. Davis both downplayed the=20 significance of the rate change. Through a press officer, Davis said the=20 state's economy remains fundamentally strong.=20 The state was downgraded to a lower A rating in 1994 and went on to see=20 tremendous economic growth.=20 Mounting pressure=20 Still, a downgrade is bad news that sends a psychological signal in both th= e=20 finance and real worlds. Some industry watchers said they hope the downgrad= e=20 pushes lawmakers and state officials, whom they perceive to be too slow in= =20 responding to the crisis.=20 ``It sounds like the bond market might be out ahead of some of the=20 policy-makers in California,'' said Severin Borenstein, director of the=20 University of California Energy Institute. ``We're facing a real emergency= =20 here.''=20 John Hallacy, managing director of municipal research at Merrill Lynch, sai= d=20 a lower credit rating puts more pressure on the state to issue the revenue= =20 bonds fast, and to conserve cash.=20 ``We're kind of at the critical juncture now where the pieces are still all= =20 over the floor,'' Hallacy said of the state's efforts to build and approve = a=20 long-term solution to the power crisis.=20 To Nettie Hoge, executive director of the Utility Reform Network and a=20 leading critic of the state's efforts to bail out PG&E and Southern=20 California Edison, the downgrade means ``the analysts are watching.'' She= =20 said she hopes that President Bush and the Federal Energy Regulatory=20 Commission are watching, too.=20 ``Hopefully, this is a wake-up call for FERC. Those guys could solve this i= n=20 a nanosecond,'' Hoge said. ``This is just another milepost on the downward= =20 spiral to economic catastrophe.''=20 Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----- Q&A with Gov. Gray Davis on energy issues=20 Gov. Gray Davis visited the Mercury News editorial board Monday. On the=20 subject of electricity, Davis talked about increasing the number of power= =20 plants, the rejection of price caps by the Federal Energy Regulatory=20 Commission, and the condition of the state's two largest utilities, Souther= n=20 California Edison and Pacific Gas & Electric. Davis has proposed a deal to= =20 rescue Edison, and the Legislature is considering it. PG&E has filed for=20 bankruptcy.=20 Here is a condensed version of Davis' remarks.=20 Q: What would you like to say by way of introduction about the state's=20 electricity problems?=20 Davis: There are really two problems. One is the amount of power available= =20 and the other is the price of power.=20 In 2002, we'll have more megawatts on line, at least 5,000 more. By 2003,= =20 we'll have a slight excess of power over demand. That's very important.=20 Because at the moment, we import 20 percent of our power. We have no=20 leverage. We are at the mercy of forces that show no mercy. That will never= =20 change until we have more power than we need.=20 OK, price. As you know, the only entity that can influence the [wholesale]= =20 price of electricity is the Federal Energy Regulatory Commission.=20 Deregulation surrendered the ability of the state to do that.=20 In 1999, this state for all power, including municipal power, spent roughly= =20 $7 billion. In 2000, we spent $32.5 billion. I don't know what it will be= =20 this year, but it will be substantially higher.=20 Through all this the Federal Energy Regulatory Commission has refused to do= a=20 thing, zero, zippo. Lest you think I'm being partisan, that commission=20 consists entirely of Clinton appointees.=20 The final piece is the financial consequences of what's happened to date. I= t=20 is our hope that if we can keep Southern California Edison credit-worthy an= d=20 able to re-enter the power purchasing market Jan. 1, 2003, we can then go t= o=20 the PG&E creditors committee [the generators to whom PG&E owes money] and s= ay=20 to them: ``Look at the arrangement we made with Southern California Edison.= =20 We believe that this is a far better deal than PG&E can give you.''=20 I think this is a fair plan. We get every electron that Edison's utility ow= ns=20 committed for 10 years, at a cost-of-service basis. Under [current law] the= y=20 could sell that next March at market rates. We got $400 million returned fr= om=20 the holding company, a $3 billion investment in the transmission and delive= ry=20 systems .?.?. a permanent easement on about 20,000 acres of environmental= =20 property around all their hydro facilities.=20 Q: Do you have in mind a finished product for the changes that are happenin= g=20 in the electric system? What will it look like in a couple of years?=20 Davis: It is my expectation that the utilities will be purchasing the power= =20 entirely, commencing Jan. 1, 2003. Our goal is to get them back in business= .=20 In addition to investor-owned utilities, I believe we also need a public=20 power authority. At some point I believe the private sector will say to=20 itself, ``I want to build new plants to replace the 40-year-old plants, but= =20 do I really want to get the state to a 15 percent margin over supply, there= by=20 reducing the value of the electrons I already own?'' If they do, God bless= =20 them. But if they don't, at least we'll have the opportunity to build them= =20 ourselves.=20 Once we have even a slight margin of capacity over demand, the spot market= =20 prices will come down dramatically.=20 Q: You said in February that you could have solved the electricity problem = in=20 20 minutes if you'd been willing to raise rates. Now, rates are going to be= =20 raised. Should you have favored a rate increase earlier?=20 Davis: I should have been more specific. I should have said I could have=20 solved it in 20 minutes if I wanted to triple rates. I think the rate=20 increase I proposed is fair. It rewards people who are the most energy=20 efficient, the people who only use up to 130 percent of their baseline. The= y=20 are approximately half the state. So half the state will see no rate=20 increase, beyond the 10 percent that everyone saw in January.=20 Q: Is the state willing to spend anything it costs to keep the lights on, o= r=20 at some point, would it stiff the generators and just say we will accept a= =20 blackout?=20 Davis: We have to provide power. There are many people who have medical=20 devices that have to keep running. Blackouts can cause deaths, traffic=20 accidents, all kinds of calamities that I wouldn't want to happen.=20 I'm reluctant to tell the generators we'll pay any price, so I'm not going = to=20 say we'll pay absolutely any price, but my bias obviously is to find a way = to=20 keep the lights on.=20 Q: When will you reveal how much electricity the state has bought, from wha= t=20 companies, at what prices and what this will cost the state this year and i= n=20 coming years?=20 Davis: We'll reveal an awful lot of information as soon as the bonds go to= =20 market. [The state plans a bond issue to cover the upfront costs of=20 purchasing electricity.] That information has to be made public. That will= =20 probably be in less than two months.=20 Believe me, I don't like going around getting beat up for hiding informatio= n.=20 I'm doing it for one reason only, which is that I know every additional edg= e=20 I give the generators will result in higher prices for customers.=20 Q: There's an impression that the state budget is being drained by the powe= r=20 crisis. Is that right?=20 Davis: The simple answer to that is no, because the state will be fully=20 reimbursed with interest as soon as these bonds are sold.=20 At the moment, in the short term, it is crowding out other spending. But I= =20 think everyone understands that's a temporary phenomenon, until the state i= s=20 reimbursed by bonds that are repaid over time through the rate structure th= at=20 I proposed.=20 Q: Would it be your pledge that ratepayers, not taxpayers, will fully repay= =20 the state's cost in purchasing electricity?=20 Davis: That is the assumption underlying these bonds. That's right as it=20 relates to electricity, but obviously the conservation incentives came out = of=20 the general fund.=20 Q: Have you talked to President Bush about this?=20 Davis: I hear all these rumors as to why the Bush administration doesn't wa= nt=20 to be helpful, but this state, and particularly this region, has been=20 disproportionately helpful in America's economic growth and technological= =20 productivity. If he wants America to grow, it behooves him to keep Californ= ia=20 growing. To date, I think it's fair to say that of my public requests,=20 President Bush has been responsive to all but the price caps.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------- Davis: Power surplus by 2003=20 Published Wednesday, April 25, 2001, in the San Jose Mercury News=20 BY DON THOMPSON=20 Associated Press=20 SACRAMENTO -- Even as power grid operators warned the state's lights could= =20 flicker again by week's end, Gov. Gray Davis on Tuesday pledged that=20 Californians will be wallowing in electricity by the end of 2003.=20 Davis compared the emergency to fighting a large forest fire -- in a few=20 years, the fire will be out and the state will be out of the energy-buying= =20 business.=20 Just in case Davis' plans fail, however, an Assembly task force is=20 considering options, including having the state buy Southern California=20 Edison.=20 Critics have hammered Davis for his handling of the power crisis, and his= =20 predictions have faltered before.=20 In January, Davis set three goals as energy prices spiraled upward and shor= t=20 supply endangered the state's large investor-owned utilities: to avoid=20 blackouts, bankruptcies and rate increases.=20 All three have since happened.=20 On Tuesday, Davis lowered the bar substantially: ``If the lights stay on, w= e=20 will have succeeded. Our goal is to keep the power flowing in this state, t= o=20 avoid blackouts, to moderate the price increases in a fair and reasonable w= ay=20 and reward those who conserve the most, and to chart a steady course.''=20 Even keeping the lights on may be difficult as temperatures climb this week= ,=20 warned the Independent System Operator, which runs the state's power grid.= =20 The ISO declared a Stage 2 emergency Tuesday afternoon when the state came= =20 within 5 percent of running out of electricity after two power plants went= =20 off-line unexpectedly.=20 Spring's first warm spell is likely to boost demand by 2,000 megawatts -- t= he=20 equivalent of two large power plants able to power 1.5 million homes -- the= =20 ISO said in calling for more energy conservation.=20 The increase comes as hydroelectric power runs low across the dry Northwest= ,=20 and as 13,000 megawatts of power remain unavailable due to planned or=20 unplanned plant shutdowns.=20 Davis insisted that statewide conservation this summer can stave off=20 widespread blackouts as the state rushes to build its way out of the supply= =20 shortage.=20 ``At the end of 2003 we will have more power than we need, we will have=20 regained control of our energy destiny,'' Davis promised in a speech to the= =20 California Chamber of Commerce. ``By the end of 2003 you can have all the= =20 appliances on. You can, you know, don't turn anything off, you can just=20 luxuriate in all your electricity.''=20 Davis promised a 15 percent supply surplus by 2004.=20 To that end, he named former diplomat Richard Sklar to head a new=20 ``generation implementation task force'' of business consultants charged wi= th=20 speeding up power plant siting and construction. Before entering public=20 service, Sklar was president of San Francisco-based construction machinery= =20 manufacturer O'Brien Kreitzberg.=20 Standard and Poors dropped California's credit rating Tuesday, warning that= =20 continued purchases could hurt the state treasury. ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------- Great America to avoid blackouts=20 Published Wednesday, April 25, 2001, in the San Jose Mercury News=20 Associated Press=20 Paramount's Great America amusement park in Santa Clara has struck a deal= =20 with the municipal utility to keep the power on even during rolling blackou= ts=20 this summer.=20 The park will cut electricity usage by 10 percent on ``high-demand days'' -= -=20 which could be nearly every day this summer -- by turning off fountains,=20 decorative lighting and air conditioning in some buildings.=20 Santa Clara's city-owned utility, Silicon Valley Power, will use the power= =20 savings to help avert blackouts, said Larry Owens, customer service manager= =20 for the utility. Even if the situation gets dire and blackouts are required= ,=20 the park will be exempt because of the arrangement, Owens said.=20 About 20 companies with facilities in Santa Clara, including Intel Corp., S= un=20 Microsystems Inc. and Agilent Technologies Inc., have agreed to the same=20 arrangement, as has Santa Clara University. ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------- State's bond rating is lowered=20 The energy crisis brings an A+ designation, which likely will mean higher= =20 borrowing costs.=20 April 25, 2001=20 By JOHN HOWARD The Orange County Register=20 SACRAMENTO California's electricity crisis prompted a top credit agency to= =20 downgrade the state's credit rating by two notches to its lowest level in= =20 seven years. The move is likely to force the state to pay millions of dolla= rs=20 more in interest when it borrows.=20 "It's a statement from Wall Street to California to get your act together,"= =20 said Assemblyman George Runner, R-Lancaster, a GOP energy- finance expert i= n=20 the Assembly.=20 "The ratings action is serious and should be a warning to the state that it= =20 is on the wrong course," added Mark McCray, a municipal-bonds manager at=20 Newport Beach-based Pimco. "This downgrade will cost the state a lot in ter= ms=20 of increased financing and costs until, if ever, it is upgraded."=20 Standard and Poor's Corp., concerned about the $5 billion drained from the= =20 state's coffers to buy power this year, cut California's credit rating from= =20 AA to A+. The reduction applies to voter-approved bonds, called general=20 obligation, or G.O., bonds, that typically provide funds for schools, parks= ,=20 water projects and highways.=20 About $19.3 billion worth of G.O. bonds have been approved by voters. About= =20 $12 billion have not yet been sold.=20 The credit-rating cut would force the state to pay higher interest rates to= =20 attract buyers to the unsold bonds. If the state were to sell all $12 billi= on=20 under the lower credit rating, it could be forced to pay an additional $190= =20 million to $500 million annually in interest, depending on market condition= s.=20 Shortly after Standard and Poor's announcement, state Treasurer Phil=20 Angelides urged lawmakers to limit the size of the state's looming=20 electricity-bond sale to $10 billion - or $2.4 billion less than Gov. Gray= =20 Davis wants.=20 Angelides said capping the revenue bond at $10 billion would head off legal= =20 challenges from utilities, expedite the passage of the bond plan through th= e=20 Legislature and allow the sale to go forward.=20 "At a minimum, we need an authorization of $10 billion," Angelides said. If= =20 Davis and lawmakers want more, they should do it later, Angelides added.=20 Davis has sought $12.4 billion. The rift between the governor and the=20 treasurer, both Democrats, marks their sharpest political divergence since= =20 the energy crisis erupted last year.=20 A Davis spokesman declined to comment on the difference. "We are working wi= th=20 the treasurer and others to draft legislation for that bond bill, and we'll= =20 continue to work with him," said Roger Salazar.=20 The Davis administration hopes to raise the money by selling revenue bonds,= =20 backed by a charge on consumers' utility bills. The sale had been planned f= or=20 May but has since been pushed back to June or July at the earliest.=20 But there is a clock ticking: The state has been spending $45 million to $6= 0=20 million a day for electricity. The longer the delay in selling the bonds, t= he=20 less money will be available to buy cheaper energy for the state under=20 long-term contracts.=20 Before funding future power purchases, the bond proceeds must go to pay bac= k=20 the $5 billion the state has spent on electricity purchased since January o= n=20 behalf of California's three big cash-strapped utilities.=20 While the Standard and Poor's downgrade won't directly affect the electrici= ty=20 bonds, since they won't be G.O. bonds, it does reflect Wall Street's concer= n=20 about the unstanched outflow of state funds.=20 "In my mind there's no doubt that S&P is doing this because they simply don= 't=20 have faith in the proposed bailout and what the state is going to have to g= o=20 through to solve its power problems,' said Zane Mann, the editor of a=20 newsletter that tracks California's general-obligation bonds.=20 Mann said the A+ rating puts California "below average" nationally. The=20 rating downgrade sliced the value of an existing 30-year California G.O. bo= nd=20 by 3.5 percent, he said. But since most investors who buy California bonds= =20 hold them to maturity, Mann said the losses would be largely confined to=20 paper.=20 Assemblyman Fred Keeley, D-Boulder Creek, who authored the bill that=20 authorized the power bonds, said the sale should be limited to the $10=20 billion originally provided for in the bill. The bill provides for the=20 utilities to forward money collected from ratepayers to the state Departmen= t=20 of Water Resources, which purchases the power.=20 As the state spent more than anticipated on emergency electricity purchases= ,=20 Davis sought to increase the size of the bond sale. But that suggestion has= =20 led the utilities to challenge the bill's rate- diversion mechanism, which= =20 has "put a cloud on our ability to acquire financing," Keeley said.=20 Assembly Republican Leader Dave Cox of Fair Oaks said he would strongly=20 support any move to cap the amount of borrowing the state would do to buy= =20 electricity.=20 His staff said Republicans are skeptical that the ratepayers' revenues are= =20 sufficient to cover the costs in the Davis administration's electricity-=20 rescue plan.=20 "Nobody believes that the revenue stream is wide enough to cover all the=20 governor's energy solutions. It's still being sucked up by the state's=20 utilities," said Cox spokesman Jaime Fis Fis.=20 Register staff writers James B. Kelleher and Diana McCabe and the Associate= d=20 Press contributed to this report.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- --------------------------- Fire stokes wholesale gas cost=20 The question is whether the retail price will climb, too.=20 April 25, 2001=20 By ANNE C. MULKERN The Orange County Register=20 The Tosco refinery fire may fuel rising prices on the gasoline retail marke= t.=20 The spot-market price rose 10 cents within hours of the fire. Photo: Leonard Ortiz / The Register ? ? Wholesale gasoline prices jumped Tuesday, a day after fire erupted at Tosco= =20 Corp.'s Carson refinery.=20 But energy experts said it is too soon to know whether the fire will drive= =20 retail gas prices higher.=20 Gas prices already are climbing because of increased demand heading into=20 summer, higher costs for additives that make cleaner-burning fuel and a shi= ft=20 in marketing strategy by Tosco, which wants to sell less gas at a higher=20 price.=20 The refinery fire has the ability to worsen an already bleak situation,=20 energy experts said.=20 "It doesn't take much in this market,'' said Suzanne Garfield, California= =20 Energy Commission spokeswoman. "It's very volatile.''=20 Tosco said it will shift any lost gasoline production to its Wilmington=20 refinery. It was unclear, however, how long the Carson refinery would be do= wn=20 for repairs. Tosco spokesman Clark Wrigley couldn't say whether the=20 Wilmington plant could make enough gasoline to meet the company's needs in= =20 Southern California.=20 Within hours of the fire, gas prices had jumped 10 cents per gallon on the= =20 spot market, a daily market where refiners sell surplus supplies. That was= =20 driven mainly by speculation, as those with gas to sell waited to see how= =20 high the price would go. Prices later fell back to an increase of about 3= =20 cents from a day before.=20 "Just the fact that there is a hiccup in the refinery makes everyone cringe= =20 and say, 'I'm not going to sell,''' said Bob van der Valk, manager at Cosby= =20 Oil, a Santa Fe Springs gasoline wholesaler.=20 A day or so of higher spot prices probably won't affect retail costs. But i= f=20 wholesale prices stay up for several days, retailers will pass on those cos= ts=20 to consumers.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- --------------------------- Power Companies and Regulators Must Take Steps To Avoid Spread of=20 California Power Virus/ Andersen Analysis WASHINGTON--(BUSINESS WIRE)--April 24, 2001 via NewsEdge Corporation - A "new virus spawned in California" poses formidable challenges requiring new strategies on the part of power companies, regulators and policymakers to contain and reverse its damage, according to "Energy Crisis in the Western United States: Lessons for Navigating Regulatory and Market Minefields," a new Andersen report released today. "The implications for the development of competitive energy markets go far beyond the Western United States," Andersen's national utility practice head Matthew D. Smith told a Washington briefing. "Unfortunately, California has taught the nation that regulatory and political barriers can create and sustain an energy crisis." "California has demonstrated that the risks in the electricity industry, if not properly acknowledged and managed, can simultaneously and profoundly impact all market participants. To be effectively managed, these risks need to be exposed, assumed or shared, measured and monitored. When they are hidden or ignored, all parties can potentially suffer. A shared, integrated view of these risks, and a strategy for their assumption and management, is critical to avoiding rapid value destruction within the energy market," Smith said. An Andersen survey of senior utility executives outside California, also released at the briefing, indicates most utility companies believe they inoculated themselves against the California virus so that it is unlikely to affect their operations beyond slowing the pace of deregulation and increasing investor scrutiny. However, based on the potential implications it sees of the California situation, Andersen believes a series of booster shots are advisable for power companies and regulators. "To deliver reliable service at a predictable cost in today's environment, companies must focus on market integration by developing new and innovative relationships between suppliers, customers, employees and investors -- while working with government officials and regulators to chart a smoother transition to a deregulated power market," according to Smith. Eight Implications The Andersen report identified eight overriding implications emanating from the Western energy crisis that are shaping the longer-term operations of the Western grid, the regional and national economy, domestic energy policy and the industry's evolution: 1. Increased deregulation uncertainty and risk -- Tension and differences between state and federal regulators raise the specter of repeating the regulatory and political conundrum California's investor-owned utilities have faced. If federal initiatives open wholesale markets while retail markets remain regulated, a crucial question is raised: Will state regulators pass-through higher wholesale costs if they should materialize? Tensions between state and federal regulators over policies on deregulation will grow if states delay or abandon retail competition. As wholesale markets are deregulated and RTOs begin operating, the prudence principles that state regulators have used for many years may have to be changed. For example, if FERC and RTO monitors determine that deregulated wholesale markets operate fairly, prices derived from those markets must be considered reasonable. If so, these costs should be allowed into state-regulated retail rates without regard to the prudence principles state regulators have used for years. Therefore, utilities' traditional burden of proving costs are or are not justifiable shifts to regulators. 2. Reduced investor confidence -- Prior to deregulation, stringent prudence review and disallowance of generation costs in the rate base made regulatory risk largely uncontrollable, killing IOU interests in most new investment. A major purpose of deregulation was to create an environment in which risk could be managed, but California's political and regulatory environment provides only a limited ability to manage risks. The confidence and perceptions needed to support investment decision-making will be slow to return given the approach of the state to remedy the crisis. 3. Contributing factor in economic softening -- Uncertain energy reliability and higher costs can drive-out marginal businesses, cause healthy companies to constrain expansion, and lead new entrants to question whether to make new investments. As such, an extended energy crisis contributes to inflation pressures and may slow economic growth. 4. Increased pressure on the Western grid -- Even as capacity increases and demand reductions work to resolve the California crisis, these solutions have long-term implications for the Western Grid. These include a realistic possibility of California becoming an "energy island" as a result of near-term reduction in available regional resources for export to California; increased emphasis on security control to protect against overall Western grid failure as sub-regions have problems; RTO requirements to strengthen locally available supplies to bolster overall system reliability; longer-term development of new plants using plentiful coal resources and clean coal technology will alter the pattern of imports into California; and the emergence of Mexico as a major supplier to southern California and Arizona, contributing to a bifurcation of the Western Grid into northern and southern markets. 5. Unbundling failures that push companies back to portfolio strategies -- For California investor-owned utilities, unbundling has achieved neither the least-cost solution sought by regulators nor value maximization targeted by investors. This necessitates a reevaluation of portfolio management strategies potentially involving generation, transmission, power trading and marketing, and retail businesses in multiple geographies serving multiple markets. 6. Ineffectiveness in changing siting and development restrictions -- California's retail price caps and multiple explanations for the crisis have left accelerated siting processes and environmental standards changes open to challenge by various interests. In addition, limiting application of new siting orders only to small generators contributes to uncertainty and investor hesitancy. 7. Procurement management that alters user-utility negotiating leverage -- Competitive markets compel participants -- suppliers, marketers, large industrial buyers, etc. -- to strategically manage procurement as a critical value-driver. Because risk is explicitly shared and always has the potential of shifting advantage to either seller or buyer, the sophistication of negotiations and contracts increases as competitive markets evolve. 8. Increased emphasis on distributed generation and new technologies -- California's reliability and price challenges have triggered a re-emergence of energy crisis measures from the 1970s. End-users are investing in solutions they control, and the distributed generation market is being aggressively developed among large retailers, industrial users and residential customers. This makes possible the development of microgrids connecting consumers in local areas and related changes in traditional grid systems, from modifications in interconnection agreements to changing definitions of reserve margins and system reliability. Industry Executives' Response Senior executives from sixteen non-California utilities with a combined market capitalization over $120 billion and $145 billion in revenues responded to an Andersen survey with their views of the implications of the California power crisis for their companies and for the industry. The survey, conducted between February 19, 2001 and March 2, 2001 by Knowledge Systems &amp; Research, Inc. of Syracuse, found that the companies are observing the California situation carefully, expect a slowing -- but not a turnaround -- of deregulation, and believe their internal plans and preparations are on-target for the changing environment: -- Deregulation -- Nearly all executives believe recent California events will slow the pace of deregulation over the next five years for states that have not begun or finished writing restructuring legislation. None believe that it will cause advanced states to re-regulate markets, although many states will review their legislation to assess their risk of duplicating California's current situation and make any changes necessary to avoid it. -- National legislation -- Few executives suggest the situation will initiate national energy policy/legislation; others believe it will be a continuing issue but, because of state-to-state variances, Congress will be unable to pass any comprehensive measures or force states to a restructuring timeline. Some expect additional state-level legislation. -- Company strategies -- Most do not see any changes to their business models or strategies for generation, distribution or supply procurement as a response to the situation in California. However, many have expanded their risk management programs, reduced spot market purchases, begun emphasizing long-term supply contracts, planning new power generation capacity, and started hedging with futures trades. Those facing price caps are rethinking their stance on them. -- Investor scrutiny -- Many executives indicate their shareholders are aware of the situation and investors -- particularly institutional investors -- are more heavily scrutinizing their actions. Many say news coverage has prompted retail, commercial and industrial customer skepticism of industry restructuring. -- Transmission deregulation -- Many executives agree the California situation will increase interest in FERC's regional transmission organizations (RTO) deregulation effort. Utility Company Action Items Both to guard against a sudden California cascade and as a potentially powerful competitive thrust, forward-thinking utilities should bolster their basic preparedness with a variety of tactics -- or inoculations -- specifically aimed to combat a potential California power virus, according to Andersen partner Mark Moskovitz: -- Improve procurement management and risk management capabilities -- To manage exposure to volatile supply and demand shifts, organizations must be sure that comprehensive and clear supply procedures, controls, decision points, risk limits and communications are in place. -- Plan and design innovative rate and pricing structures -- Companies and regulators must focus on communicating price signals that create value for both the customer and the provider. Innovative rate and pricing structures that more closely tie the customer's price to the real cost of supply will better signal the value of the service as well as providing more accurate information upon which both end user and supplier can make decisions. -- Increase emphasis on demand side management (DSM) strategies -- In addition to new pricing strategies to help achieve and maintain supply-demand equilibrium, companies must now focus on employing more extensive and innovative demand side management programs. These programs may offer significant benefits with limited risk to both the customer and energy supplier. -- Assess the supply and generation dynamics in adjacent jurisdictions -- Companies must take a broader view -- beyond typical geographic market definitions -- of the economics of generation and related business decisions in an increasingly volatile market in which supply will follow the best prices. -- Develop contingency plans for the continued deferral of new generation capacity -- In the face of potential ongoing generation capacity shortages, companies and regulators must be prepared to move with a portfolio of strategies to meet demand, including for example DSM, flexible pricing and distributed generation. In addition, they should explore efficiency-improving upgrades to existing facilities and seize any opportunity to accelerate near-term construction plans. -- Proactively address potential organizational disruption -- As regulatory and economic changes continue to churn the industry waters and companies adjust and/or restructure, they must be highly cogniscent of, sensitive to, and directly address employees' concerns with information about the company's future and theirs'. Industry/Regulatory Lessons There are also a number of broad primary lessons the electric power industry -- nationally and internationally -- should take away from its first major domestic test case in deregulation and restructuring, according to Andersen principal David O. Jermain: -- Simplify market design. -- Build a continuing role for regulators. -- Maintain communications with multiple constituent interests. -- Prepare contingency plans for extreme stress conditions. -- Couple real-time retail pricing with transparently priced wholesale competition. -- Provide special incentives for RTO investment, formation and development. -- Break down regulatory and political barriers to market signals and responses. Andersen is a global leader in professional services. It provides integrated solutions that draw on diverse and deep competencies in consulting, assurance, tax, corporate finance, and in some countries, legal services. Andersen employs 85,000 people in 84 countries. Andersen is frequently rated among the best places to work by leading publications around the world. It is also consistently ranked first in client satisfaction in independent surveys. Andersen has enjoyed uninterrupted growth since its founding in 1913. Its 2000 revenues totaled US$8.4 billion. Learn more at www.andersen.com. Copies of the "Energy Crisis in the Western United States: Lessons for Navigating Regulatory and Market Minefields" report can be obtained at www.andersen.com/energyandutilities. A PDF copy of the report can be obtained by contacting Melanie Fahey at 713/222-1600 or mfahey@sommersassoc.com CONTACT: Sommers &amp; Associates, Houston | Tom Sommers, 713/222-1600 |=20 tsommers@sommersassoc.com |=20 or | Andersen, Houston | Melissa Spradley, 713/237-2385 |=20 melissa.l.spradley@us.andersen.com ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------------------------------ Soaring Temperatures Produce Call for Conservation;=20 California ISO Also Announces New Outage Notification System and On-call=20 Number FOLSOM, Calif.--(BUSINESS WIRE)--April 24, 2001 via NewsEdge Corporation - As the mercury climbs this week, the California Independent System Operator (California ISO) is reminding consumers to curb their electricity use in order to minimize the strain on the power grid. The first warm spell of the season is expected to cause temperatures to jump 10 degrees, leading to a 2,000 megawatt increase in electricity consumption -- the equivalent of two large power plants. The week started out with a peak demand of 28,835 megawatts, but by tomorrow it is forecasted to top 30,500 megawatts. This comes as hydroelectricity resources (both Northwest and California) run low, more than 10,000 megawatts of power plants remain off line due to planned and unplanned maintenance, and some 3,000 megawatts of Qualifying Facilities or alternative energy suppliers are not operating. The California ISO's renewed call for conservation precedes a forecast of 90 degree highs in the inland areas that may tempt many Californians to flip on air conditioners. For conservation tips -- such as using fans instead of air conditioners, setting thermostat at 78 degrees, etc. -- please see the California ISO's web site www.caiso.com. New Notification System: With a challenging summer around the corner, the California ISO wants to do all it can to bring information to the public as quickly as possible. For that reason, a new notification system is being brought on line. Media and the public can now access the Internet to keep current if rotating blackouts are issued. Navigation: Visit www.caiso.com Click on System Conditions for current information on rotating outages (will appear only when activated) For previous outage information (last hour, etc.), click on Market Notices, scroll to bottom of page and click on Notice Log The California ISO is also testing a new service to notify newsrooms immediately by email should the ISO initiate electrical emergencies (Stage One - Three) or rotating outages. If you would like to participate, please email kwerst@caiso.com with a maximum of one email address per newsroom. Additionally, a single on-call media pager number has been established: 916/815-0679. To make it easier on media, ISO Communications will no longer be posting on-call schedules for media spokespersons on the web site. Simply call the on-call pager after hours. News releases alerting the media to electrical emergencies will continue, as will news conferences held on-site in Folsom and via telephone. As a reminder, if you wish to visit the ISO control rooms (in Folsom or Alhambra) always call ISO Communications first at 888/516-NEWS to make an appointment. Access to the control rooms may be limited on certain days, depending on system conditions and/or level of requests from media. CONTACT: California ISO | Patrick Dorinson, 888/516-NEWS | Media Hotline:= =20 888/516-NEWS

dasovich-j/all_documents/11551.

dasovich-j

Subject: Re: Energy Issues Sender: joseph.alamo@enron.com Recipients: ['miyung.buster@enron.com', 'jeff.dasovich@enron.com'] File: dasovich-j/all_documents/11551. ===================================== Miyung, You seem to be finding these okay by yourself so I guess I don't need to be= =20 forwarding the articles I find to you anymore? I don't mind doing it, but I can't see duplicating effort, either! :--) Either way...let me know,=20 Thanks! Joseph Miyung Buster@ENRON_DEVELOPMENT 04/25/2001 08:25 AM To: Ann M Schmidt/Corp/Enron@ENRON, Bryan Seyfried/LON/ECT@ECT,=20 dg27@pacbell.net, Elizabeth Linnell/NA/Enron@Enron, filuntz@aol.com, James = D=20 Steffes/NA/Enron@Enron, Janet Butler/ET&S/Enron@ENRON, Jeannie=20 Mandelker/HOU/ECT@ECT, Jeff Dasovich/NA/Enron@Enron, Joe=20 Hartsoe/Corp/Enron@ENRON, John Neslage/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT,= =20 John Sherriff/LON/ECT@ECT, Joseph Alamo/NA/Enron@Enron, Karen=20 Denne/Corp/Enron@ENRON, Lysa Akin/PDX/ECT@ECT, Margaret=20 Carson/Corp/Enron@ENRON, Mark Palmer/Corp/Enron@ENRON, Mark=20 Schroeder/Enron@EnronXGate, Markus Fiala/LON/ECT@ECT, Michael R=20 Brown/LON/ECT@ECT, Mike Dahlke/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mona L= =20 Petrochko/NA/Enron@Enron, Nicholas O'Day/AP/Enron@Enron, Peggy=20 Mahoney/HOU/EES@EES, Peter Styles/LON/ECT@ECT, Richard=20 Shapiro/NA/Enron@Enron, Rob Bradley/Corp/Enron@ENRON, Sandra=20 McCubbin/NA/Enron@Enron, Shelley Corman/ET&S/Enron@ENRON, Stella=20 Chan/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Steven J Kean/NA/Enron@Enron, Sus= an=20 J Mara/NA/Enron@Enron, Mike Roan/ENRON@enronXgate, Alex=20 Parsons/EU/Enron@Enron, Andrew Morrison/LON/ECT@ECT, lipsen@cisco.com, Jane= l=20 Guerrero/Corp/Enron@Enron, Shirley A Hudler/HOU/ECT@ECT, Kathleen=20 Sullivan/NA/Enron@ENRON, Tom Briggs/NA/Enron@Enron, Linda=20 Robertson/NA/Enron@ENRON, Lora Sullivan/Corp/Enron@ENRON, Jennifer=20 Thome/NA/Enron@Enron, jkradin@marathon-com.com,=20 rlichtenstein@marathon-com.com, syamane@marathon-com.com,=20 ken@kdscommunications.com, hgovenar@govadv.com, sgovenar@govadv.com,=20 bhansen@lhom.com, Carin Nersesian/NA/Enron@Enron cc: =20 Subject: Energy Issues Please see the following articles: Sac Bee, Wed, 4/25: "State's credit takes hit" Sac Bee, Wed, 4/25: "Top energy adviser to quit as Davis pushes for plants= " Sac Bee, Wed, 4/25: "Senators offer bill to put a lid on power prices: Sen= .=20 Dianne Feinstein says there's a good chance the proposal can get out of committee" Sac Bee, Wed, 4/25: "Energy price gouging might end up felony" Sac Bee, Wed, 4/25: "Dan Walters: It's time for politicians to be honest= =20 about the energy crisis" SD Union, Wed, 4/25: "Bond-rating agency delivers reprimand, downgrade" SD Union, Wed, 4/25: "FERC to weigh limited curbs on electricity prices" SD Union, Tues, 4/24: "Grid officials declare a Stage 2 alert" SD Union (AP), Tues, 4/24: "Top credit agency lowers California's bond=20 rating" LA Times,Wed, 4/25: "State's Bond Rating Downgraded to A+" LA Times, Wed, 4/25: "Price Controls Spark Deja Vu" LA Times, Wed, 4/25: "Davis Names Executive to Speed Construction of Power= =20 Plants in State" LA Times, Wed, 4/25: "Power Plant Emits Tons of Fumes" LA Times,Wed, 4/25: "Power Plant Plan Worries Neighbors" SF Chron, Wed, 4/25: "Federal plan called 'too little, too late'=20 Limited price control seen as step in right direction, but officials renew= =20 call for price ceiling" SF Chron, Wed, 4/25: "S&P lowers California's bond rating=20 First cut since '94 could cost taxpayers millions" SF Chron, Wed, 4/25: "Richard Sklar=20 Ex-Muni boss becomes energy czar=20 Davis' pick to oversee power plant construction" SF Chron (AP), Wed, 4/25: "Will price caps deter investment, as federal=20 regulators say?" SF Chron (AP), Wed, 4/25: "Credit agency cites power troubles; lowers=20 state's bond rating"=20 SF Chron (AP), Wed, 4/25: "S&P downgrades California's bonds citing energy= =20 troubles"=20 Mercury News, Wed, 4/25: "State bond rating lowered" Mercury News, Wed, 4/25: "Q&A with Gov. Gray Davis on energy issues" =20 (Opinions/Commentary) Mercury News (AP), Wed, 4/25: "Davis: Power surplus by 2003" Mercury News (AP), Wed, 4/25: "Great America to avoid blackouts" OC Register, Wed, 4/25: "State's bond rating is lowered The energy crisis brings an A+ designation, which likely will mean higher= =20 borrowing costs" =20 OC Register, Wed, 4/25: "Fire stokes wholesale gas cost" Individual.com (Business wire), Wed, 4/25: "Power Companies and Regulators= =20 Must Take=20 Steps To Avoid Spread of California Power Virus/ Andersen Analysis" Individual.com(Business wire), Wed, 4/25: "Soaring Temperatures Produce Ca= ll=20 for Conservation; California ISO Also Announces New Outage Notification System and On-call=20 Number" ---------------------------------------------------------------------------= --- --------------------------------------------------------------------------- State's credit takes hit=20 By Dale Kasler and John Hill Bee Staff Writers (Published April 25, 2001)=20 Alarmed by the drain on California's treasury from more than $5 billion of= =20 electricity purchases, a leading Wall Street credit agency lowered its rati= ng=20 on state bonds Tuesday.=20 Standard & Poor's downgraded California's credit rating by two notches, a= =20 move that will increase the state's borrowing costs and illustrates a growi= ng=20 fear that the state's power expenditures could mushroom during a summer of= =20 blackouts and price spikes.=20 Although the state remains creditworthy, S&P said it has less confidence in= =20 California's ability to repay its debts. It said the state could be=20 downgraded further if electricity purchases spiral out of control and the= =20 economy suffers because of blackouts.=20 "This reflects the mounting uncertainty and the cost to the state of the=20 power purchases," said S&P analyst Steven Zimmermann. "The state is still= =20 strong -- it's just not as strong going forward."=20 Bond ratings are a benchmark of a state's finances, and California official= s=20 have been proud of their ability to restore the state's ratings since they= =20 bottomed out during the recession and budget deficits of the mid-1990s. S&P= 's=20 downgrade is the first for California since July 1994 and comes as a slowdo= wn=20 in the high-tech industry adds to the budgetary anxiety caused by electrici= ty=20 costs.=20 Still, Gov. Gray Davis' office downplayed the significance of S&P's decisio= n.=20 "California's economy is still fundamentally strong, period," said Davis=20 spokesman Roger Salazar. "We expect that in 2001 California will continue t= o=20 lead the nation in economic growth and job creation."=20 S&P lowered California from "AA" to "A-plus" status. That means California'= s=20 debt-payment ability has been reduced from "very strong" to "still strong"= =20 but "somewhat more susceptible to the adverse effects of the changes in=20 circumstances and economic conditions."=20 While it won't directly hamper Davis' plan for solving the energy crisis, t= he=20 downgrade increases the pressure on Davis to issue $10 billion to $15 billi= on=20 worth of bonds this summer as part of his rescue package.=20 The bonds are intended to replenish the state treasury as well as finance= =20 future power purchases. Since mid-January the state has committed $5.7=20 billion to buy electricity for troubled Pacific Gas and Electric Co. and=20 Southern California Edison. The commitment has chewed up a significant=20 portion of a budget surplus estimated by state Treasurer Phil Angelides at= =20 nearly $6 billion; Davis and other state officials have pegged the surplus = at=20 $8 billion.=20 Either way, it's clear that the power expenditures have left Wall Street an= d=20 many state officials nervous. S&P and other rating agencies have had=20 California on a ratings "watch" for some time, signifying that a downgrade= =20 was possible.=20 "The fact is that the state's credit rating and financial strength will=20 continue to be in jeopardy until the state's general fund is repaid for=20 energy costs," said Angelides, who's responsible for selling the bonds.=20 "We have to get the general fund out of the business of purchasing energy.= =20 (The budgetary drain) will begin to affect very dramatically the ability of= =20 the state to provide for core programs, from education to health care to=20 public safety."=20 Angelides spent much of the day urging legislators to pass legislation to g= et=20 the bond offering rolling.=20 The Legislature already authorized the bonds, but Angelides said it must do= =20 so again because PG&E and Edison are challenging the formula the state has= =20 developed for bond repayment. The bond will be repaid with money from a rat= e=20 hike passed by state regulators, but PG&E and Edison say the repayment=20 formula will siphon too much money from their coffers.=20 Angelides said lawmakers must quickly pass the new bill -- which requires a= =20 two-thirds majority -- or he might miss a make-or-break May 8 deadline for= =20 closing on a crucial $4.1 billion bridge loan. That loan is designed to tid= e=20 the state over until the bonds are sold later this summer. But the lenders= =20 won't fork over the funds until they're assured the bonds will be sold,=20 because the state will use the bond proceeds in part to pay off that loan, = he=20 said.=20 Ironically, the sale of those bonds won't be hurt by the S&P downgrade=20 because customer revenue instead of taxpayer dollars are being used to pay= =20 them off, analysts said.=20 "What's important for the bonds is how the (utility) rates are structured t= o=20 pay them off," said analyst Susan Abbott of Moody's Inc. in New York.=20 But the downgrade will raise the interest rate on a host of other bonds=20 issued by the state in the coming months. The likely increase is as much as= =20 one-quarter of 1 percent, said chief economist Ted Gibson of the state=20 Department of Finance.=20 With the state authorized to sell $12 billion worth of general obligation= =20 bonds, the downgrade could add $50 million to $100 million in borrowing cos= ts=20 over the life of those bonds, Angelides said.=20 The S&P action also could raise a red flag to anyone thinking of investing = in=20 a public or private-sector project in California.=20 It "will create perception issues about who we are and where we are in term= s=20 of the economy of the state," Angelides said. "The real issue here is the= =20 reputational damage to the state of California."=20 The two other leading credit agencies, Moody's and Fitch Investors Service,= =20 still have California on a credit watch but haven't issued downgrades.=20 S&P acted the same day the Independent System Operator, which manages=20 California's power grid, declared a Stage 2 power alert. Warm weather and t= he=20 unexpected shutdown of two key power plants caused electricity reserves to= =20 fall below 5 percent.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Bee Deputy Capitol Bureau Chief Dan Smith contributed to this report. ---------------------------------------------------------------------------= --- ------------------------ Top energy adviser to quit as Davis pushes for plants Bee Capitol Bureau (Published April 25, 2001)=20 John Stevens, Gov. Gray Davis' staff director and top energy adviser, is=20 leaving the governor's office at the end of the week, Davis announced=20 Tuesday.=20 Stevens, of Carmichael, joined the administration a year ago as staff=20 director after working 13 years as a top staffer in the Legislature,=20 including a stint as chief of staff to former Assembly Speaker Antonio=20 Villaraigosa.=20 He is the second top Davis adviser to leave in the past two weeks as the=20 Democratic governor struggles to deal with California's energy woes.=20 Like Phil Trounstine, the governor's communications director who announced= =20 his resignation two weeks ago, Stevens said he needed more time with his=20 family.=20 "It's an immense issue," he said of the energy crisis. "I've given what I c= an=20 to it, and I need to take a break."=20 Davis called Stevens, 54, "one of the most dedicated and loyal people that= =20 I've ever had working for me," but acknowledged long hours and intensity to= ok=20 its toll.=20 "This is tough work. This wears people out," Davis said. "He's so self-driv= en=20 that he needs a break, but I venture a guess that down the road, he'll be= =20 willing to come back and help us in some meaningful way on this energy=20 situation."=20 Davis also announced the appointment of Richard Sklar to head a Generation= =20 Implementation Task Force intended to speed up permitting and constructing= =20 power plants.=20 Sklar was the Clinton administration's representative in southeast Europe= =20 helping to rebuild war-torn Bosnia and Kosovo. ---------------------------------------------------------------------------= --- ------------------------ Senators offer bill to put a lid on power prices: Sen. Dianne Feinstein say= s=20 there's a good chance the proposal can get out of committee. By Les Blumenthal Bee Washington Bureau (Published April 25, 2001)=20 WASHINGTON -- West Coast senators formally introduced legislation Tuesday t= o=20 temporarily cap wholesale electric rates and expressed hope that their=20 proposal to ease the huge run-up in energy prices might clear the committee= =20 and make it to a vote on the Senate floor.=20 "I think we are very close to having the votes in committee," Sen. Dianne= =20 Feinstein, D-Calif., said of the Energy and Natural Resources Committee tha= t=20 has jurisdiction over the bill. "I am taking nothing for granted, but the= =20 committee is 50-50."=20 There are 11 Democrats and 11 Republicans on the committee, including=20 Feinstein and the other primary sponsor of the bill, Oregon Sen. Gordon=20 Smith.=20 Smith, a Republican, is the swing vote.=20 Feinstein said the committee chairman, Sen. Frank Murkowski, R-Alaska, has= =20 shown an increasing willingness to help her and Smith move the legislation,= =20 though some differences remain.=20 "He (Murkowski) has told me he'd like to help," Feinstein said. "I think we= =20 are very close to a markup and this could move quickly."=20 Murkowski did not rule out price caps but said he thought the bill sacrific= ed=20 long-term solutions for short-term gains.=20 "I have concerns about the proposal put forward today and the impact it may= =20 have in distorting the market," he said. "It is time to address the=20 underlying causes -- not just the symptoms."=20 Feinstein's comments came at a news conference during which she, Smith,=20 Washington state Democratic Sens. Patty Murray and Maria Cantwell, and New= =20 Mexico Sen. Jeff Bingaman, the ranking Democrat on the Senate Energy=20 Committee, unveiled details of the bill and criticized the Bush=20 administration and federal regulators for failing to take action to cap=20 rates.=20 If approved by Congress and signed by President Bush, the bill would give t= he=20 Federal Energy Regulatory Commission 60 days to impose price caps or set up= a=20 cost-based rate structure that would allow electricity generators to recove= r=20 their costs and earn a fair return.=20 The controls would apply in 11 Western states, including California, Oregon= =20 and Washington. Similar legislation has been introduced in the House of=20 Representatives.=20 The lawmakers said the price controls would remain in effect until March=20 2003, when, they said, enough new generating plants will have come on line = to=20 overcome the West's current electricity shortage.=20 Under federal law, FERC has the authority to ensure wholesale rates are jus= t=20 and reasonable.=20 Feinstein said that during a warm day this summer California may fall 2,000= =20 megawatts short of meeting demand and on a hot day with air conditioners=20 cranked up, there could be a 10,000-megawatt shortfall.=20 Feinstein said that in 1999 California utilities paid $7 billion for=20 electricity, in 2000 more than $32 billion and, according to some estimates= ,=20 the price tag could reach $65 billion this year.=20 "There has been a very strong element of price gouging in this," Feinstein= =20 said.=20 "We should not have to pass legislation to compensate for a federal agency= =20 not doing its job," Murray said, adding that Northwest utilities were payin= g=20 the highest prices in the country for next-day delivery of wholesale power.= =20 "This (bill) will bring the market under control until new generation comes= =20 on line."=20 Cantwell, who is also a committee member, said wholesale rates have risen= =20 11-fold over the past several months, resulting in thousands of layoffs in= =20 the region and the shutdown of the aluminum industry.=20 "We cannot allow our government to sit idly by and allow a tragically flawe= d=20 and easily manipulated power market to wreak havoc on our economy and quali= ty=20 of life," Cantwell said.=20 The Bonneville Power Administration has indicated it may have to raise its= =20 wholesale rates by 250 percent this fall as it is forced to buy power on=20 expensive spot markets because a severe drought in the Pacific Northwest ha= s=20 reduced electricity production at the region's vast hydropower system. BPA= =20 supplies 45 percent of the Northwest's wholesale electricity.=20 Smith said that, as a Republican, he was initially reluctant to support pri= ce=20 control and would have preferred the market sort out its own problems.=20 But, he said, "Hard-nosed business practices that generate big profits are= =20 not always good politics. It's a mistake to defend a system that some can= =20 game to make incredible profits."=20 The Oregon senator said he knew his decision to sponsor the bill was not=20 well-received at the White House.=20 "I know I'm not making any friends down the street," he said. "It's importa= nt=20 to keep this bipartisan, and I'm not going to attack the Bush=20 administration."=20 Both Smith and Feinstein said a FERC staff proposal to cap wholesale electr= ic=20 rates in California when rolling blackouts are imminent falls well short of= =20 what's needed. FERC will consider the proposal at a meeting today.=20 "California is not the only state affected," said Smith. "This is not a=20 California problem alone."=20 Feinstein said the proposal was inadequate.=20 "I'm not sure that is the right way to go," she said. "The only reason they= =20 are considering action is we are putting the heat on them."=20 The Bee's Les Blumenthal can be reached at (202) 383-0008 or=20 lblumenthal@mcclatchydc.com. ---------------------------------------------------------------------------= --- ------------------------ Energy price gouging might end up felony By Emily Bazar Bee Capitol Bureau (Published April 25, 2001)=20 Democratic lawmakers this week will unveil a proposal to make energy price= =20 gouging a felony -- punishable by stiff fines and possible jail time -- tha= t=20 could be subject to the state's controversial "three strikes" law.=20 The measure, sponsored by Lt. Gov. Cruz Bustamante, would punish companies= =20 that sell electricity or natural gas in California at "unjust or unreasonab= le=20 rates."=20 "There is a tremendous amount of wealth that is being transferred from=20 California to five companies, mostly in Texas," Bustamante said. "If what= =20 they're doing isn't illegal, it ought to be."=20 Though lawmakers are expected to introduce the measure Thursday, it already= =20 has generated opposition from Republican lawmakers and constitutional=20 questions from legal experts.=20 Several aspects of the bill, AB 67x, are unresolved and could change.=20 But the intent will remain the same, and energy companies that take advanta= ge=20 of Californians will still face significant penalties, said the bill's=20 author, Assemblyman Dennis Cardoza, D-Merced.=20 According to a draft version of the bill and some proposed amendments, a=20 corporation, or a person with decision-making authority at the corporation,= =20 would be found guilty of a felony if "they collude or conspire to manipulat= e=20 the market to achieve unjust or unreasonable rates for electricity or natur= al=20 gas."=20 A state or federal regulatory agency -- such as the Federal Energy Regulato= ry=20 Commission -- would determine whether rates were unjust or unreasonable. If= =20 that happened, the bill would open the door for prosecution by the state=20 attorney general or local district attorneys.=20 In addition, if found guilty, companies would be forced to pay restitution= =20 and could face fines as high as 10 percent of their gross corporate assets.= =20 Lawmakers are debating whether to make the felony a "three strikes" offense= ,=20 which requires 25 years to life sentences for some people convicted of thre= e=20 felonies.=20 Though the provision was in an early draft of the bill, Cardoza said it's= =20 "not likely" to show up in the final version.=20 "While I think this crime is every bit as abhorrent as going in and stealin= g=20 money from a bank, we're going to have to figure out a little bit different= =20 way of dealing with it," he said.=20 Even without the three strikes provision, the bill raises certain=20 constitutional issues, said Clark Kelso, a professor at the McGeorge School= =20 of Law in Sacramento.=20 For instance, he said, it's not clear whether the state can legally base a= =20 fine on an out-of-state company's gross assets.=20 And the measure, which requires a two-thirds vote for passage, already has= =20 generated Republican opposition.=20 "To the extent this bill is onerous toward power producers, it may deter th= em=20 from selling here rather than risk fines and prison," said James Fisfis, a= =20 spokesman for the Assembly Republican Caucus. "We haven't seen the details,= =20 but it sounds like it may be a piece of legislation that goes too far."=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . ---------------------------------------------------------------------------= --- ------------------------ Dan Walters: It's time for politicians to be honest about the energy crisis (Published April 25, 2001)=20 Gov. Gray Davis is continuing to tell Californians that he's on top of the= =20 state's energy crisis and, as he said at one gathering last week, "in three= =20 years, this problem will be a distant memory." Fat chance. All major aspect= s=20 of the situation are growing worse, not better, minute by minute.=20 Politicians took over the crisis in January as the state's major utilities= =20 exhausted their cash reserves and lines of credit. Davis began what he said= =20 then would be a short-term emergency program of power purchases to keep=20 electrons flowing into homes and businesses.=20 From that moment forward, the situation has steadily deteriorated, moving= =20 toward a three-pronged disaster: severe summer blackouts, the bankruptcy of= =20 the utilities and sharply escalating power bills. With the bankruptcy filin= g=20 by Pacific Gas and Electric Co. and decisions by Davis and the state Public= =20 Utilities Commission to begin ratcheting up utility rates, two of the three= =20 negative scenarios are now in place. And everyone involved in the crisis=20 expects blackouts this summer as demands for power soar and supplies dwindl= e.=20 The Davis strategy, if there is one, is to continue the state's massive pow= er=20 purchases while negotiating longer-term and presumably cheaper supply=20 contracts, encourage conservation, help utilities pay off their debts by=20 selling their intercity transmission system to the state and tapping=20 ratepayers, and build more power plants to ease the supply crunch.=20 Currently, the governor is touting his deal with Edison International, pare= nt=20 company of Southern California Edison, to sell its portion of the power gri= d=20 and is working on a similar deal with Sempra, the parent of San Diego Gas &= =20 and Electric. But PG&E's bankruptcy filing casts doubt on the viability of= =20 the cash-for-grid concept, and legislators, particularly Davis' fellow=20 Democrats, are very skeptical of the Edison deal.=20 Clearly, Davis rushed into the Edison deal just three days after PG&E made= =20 its bankruptcy filing, in hopes of erasing the political stain of the latte= r=20 action, but its provisions are being labeled a bailout by critics. It place= s=20 only a token financial burden on Edison International while guaranteeing th= e=20 profitability of its utility subsidiary by charging its customers whatever = is=20 required to cover its costs and past debts.=20 Meanwhile, the state is spending -- by Davis' own account -- about $70=20 million a day or $2 billion-plus a month on spot power purchases, paying=20 roughly five times what consumers are being charged at the retail level. An= d=20 the futures market for power indicates that wholesale power prices will jum= p=20 50 percent by midsummer; higher prices and greater purchases could increase= =20 the drain on the state treasury to as much as $5 billion a month.=20 State Treasurer Phil Angelides is desperately trying to arrange a bridge lo= an=20 to relieve pressure on the state's rapidly vanishing reserves, but Wall=20 Street is reluctant to lend without a fuller explanation of what's happenin= g=20 and a specific authorization from a suspicious Legislature. Meanwhile,=20 bankers are sending strong signals that the state government is becoming as= =20 poor a lending risk as the utilities.=20 Davis, for some reason, is unwilling to declare this situation the emergenc= y=20 that it is truly becoming -- one that could take a toll on human life if=20 major blackouts shut down air conditioners, respirators and traffic lights.= =20 He insists on issuing his periodic -- and wholly unrealistic -- assurances= =20 that things will turn out all right, even declaring to reporters on Tuesday= ,=20 "We think we'll have this thing licked by the end of fall."=20 It's time for someone -- the governor, preferably, but someone -- to lay ou= t=20 for Californians exactly what's happening, the downside financial and power= =20 supply risks, and what's being done to deal with the looming disaster facin= g=20 this state. It's time for politicians to treat us as adults who can face=20 reality, not as children to be fed sugar-coated sound bites and slogans.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . ---------------------------------------------------------------------------= --- ------------------------ Bond-rating agency delivers reprimand, downgrade=20 By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 April 25, 2001=20 SACRAMENTO -- An influential Wall Street firm yesterday gave Gov. Gray Davi= s=20 and the Legislature poor marks for handling the electricity crisis,=20 downgrading state bonds because of the drain on the state treasury and=20 warning of long-term damage to the state economy.=20 The bad news from Standard & Poor's came as state Treasurer Phil Angelides= =20 urged the Legislature to pass a bill this week needed to begin repaying the= =20 state general fund with a bond of $10 billion or more.=20 The bond would be paid off by ratepayers over 15 years. "From a small problem that could have been solved in a short period of time= =20 this is escalating into a big problem," said David Hitchcock of Standard &= =20 Poor's. "Even if they issue revenue bonds, it could stay with them for a lo= ng=20 period of time."=20 Standard & Poor's lowered its rating on state of California general=20 obligation bonds from AA to A+, which means it will cost the state more to= =20 borrow money.=20 The firm left California on credit watch with a negative outlook, a ranking= =20 applied after the state began buying power for utility customers in January= .=20 The state general fund has spent more than $5 billion buying power so far.= =20 There are predictions that spending will sharply increase this summer as he= at=20 drives up the demand for electricity.=20 "The fact is, we can't allow the general fund to be depleted," Angelides=20 said. "There are limits to it. It will begin to affect very dramatically th= e=20 ability of the state to provide core programs for education, health care,= =20 public safety."=20 Developments:=20 WEDNESDAY:=20 =01) No power alerts are called in the early morning, as electricity reserv= es=20 stay above 7 percent.=20 =01) The state Public Utilities Commission continues hearing energy experts= =20 evaluate ideas for implementing a recent rate increase. The panel includes= =20 George Sterzinger, a Washington-based renewable energy consultant; Peter=20 Bradford, an energy and regulatory adviser; and Severin Borenstein, directo= r=20 of the University of California, Berkeley's energy institute.=20 =01) Assembly Energy Committee holds a hearing on Gov. Gray Davis' proposal= to=20 keep Southern California Edison out of bankruptcy.=20 TUESDAY:=20 =01) Gov. Gray Davis says California will build enough power plants by 2003= to=20 end the state's power crisis, and have a 15 percent supply surplus by 2004.= =20 He names former U.S. diplomat Richard Sklar to be the state's new energy cz= ar=20 and head a Generation Implementation Task Force to speed up power plant=20 siting and construction.=20 =01) The Independent System Operator, which runs the state's power grid,=20 declares a Stage 2 alert, meaning the state is within 5 percent of running= =20 out of power. It warns rising temperatures could create problems later this= =20 week unless Californians conserve electricity.=20 =01) Standard and Poors lowers its rating on California state bonds, citing= the=20 growing financial drain from the continuing energy emergency. The state mus= t=20 quickly replenish its coffers if it is to avoid further damage, the rating= =20 agency says.=20 WHAT'S NEXT:=20 =01) Davis' representatives continue negotiating with Sempra, the parent co= mpany=20 of San Diego Gas and Electric Co., to buy the utility's transmission lines.= =20 Davis says he expects to have an agreement within two weeks.=20 =01) Senate Select Committee to Investigate Price Manipulation of the Whole= sale=20 Energy Market continues its investigation Thursday.=20 Standard & Poor's said that if the sale of a state revenue bond is delayed,= =20 the potential impact on the state general fund could be "severe" without a= =20 rate hike much larger than the increase of more than 40 percent approved by= =20 the state Public Utilities Commission last month.=20 "Rate increases appear difficult in the present political environment, and= =20 related voter initiatives, although none are currently on the ballot, remai= n=20 a possibility," said Standard & Poor's.=20 The state began buying power after the two largest utilities, Pacific Gas a= nd=20 Electric and Southern California Edison, were nearly bankrupt. The rates th= ey=20 could charge customers were frozen under deregulation as the cost of=20 wholesale power soared, producing a debt of $13 billion.=20 Standard & Poor's said the state expected in January to spend less than $1= =20 billion and resolve the problem in a few months with long-term power=20 contracts at lower prices. But most of the contracts do not begin until thi= s=20 fall or later.=20 "In addition," said Standard & Poor's, "it is not unreasonable to expect pa= st=20 and future blackouts to affect business location decisions, and hence the= =20 ultimate direction of the state's economy."=20 A spokesman for the governor said that Standard & Poor's view of how the=20 California economy will fare during the electricity crisis is far too dim.= =20 "California's economy is still fundamentally strong," said spokesman Roger= =20 Salazar. "We expect that in 2001 we will continue to lead the nation in=20 economic growth and job creation."=20 Another Wall Street credit-rating firm, Moody's, has a more positive view o= f=20 how the governor and the Legislature have handled the crisis and expects th= e=20 state general fund to be repaid by the ratepayer bond.=20 "We are still at our AA2 with a negative outlook," said Ray Murphy, Moody's= =20 vice president. "Nothing that we have learned over the last week or so has= =20 led us to change that opinion."=20 Angelides said legislation is needed because PG&E and Edison are challengin= g=20 a PUC action last month that gives the state some revenue from monthly=20 ratepayer bills, which is needed to finance the bond to repay the state=20 general fund.=20 The utilities say they need more of the ratepayer revenue.=20 The treasurer said the legislation would bypass the lengthy PUC process and= =20 authorize the state to issue a ratepayer bond of $10 billion or more. The= =20 governor said again yesterday that he believes a bond of $12.4 billion will= =20 cover state power costs this year.=20 Angelides said legislation is urgent because a commitment from three lender= s=20 to give the state a $4.1 billion short-term loan expires May 8.=20 He said the short-term bridge loan would ease the strain on the state gener= al=20 fund until the main bond can be issued, probably in late June.=20 The treasurer said that failure to obtain the short-term loan could lead to= =20 more credit downgrades and "create perception issues about who we are and= =20 where we are in terms of the economy of this state."=20 Davis has been criticized on Wall Street for not pushing for an early rate= =20 hike to stabilize the utilities and avoid the need for the state to begin= =20 buying power.=20 The governor said earlier this year that he could have solved the problem i= n=20 "20 minutes" with a rate hike, but refused to do so.=20 While addressing the California Chamber of Commerce yesterday, Davis said= =20 that the long-term contracts will spread the cost of buying power over a=20 decade, causing ratepayers to pay less than market rates in the early years= =20 and a little above the market rate in later years.=20 "I do not want to shock this economy into recession," Davis said. "I do not= =20 want to burden small business with more than they can sustain."=20 Davis wants the state to purchase the transmission systems of the utilities= =20 in exchange for giving them part of the ratepayer revenue to finance a bond= =20 to pay off their debts. That would enable the utilities to resume buying=20 power by the end of next year.=20 But negotiations to buy the transmission systems has taken much longer than= =20 expected. PG&E filed for bankruptcy earlier this month, and an agreement to= =20 buy the Edison transmission system announced a few days later faces=20 opposition in the Legislature.=20 Some legislators, who think Edison receives too much under the complex=20 agreement, have suggested that Edison join PG&E in bankruptcy, where=20 generators accused of price-gouging may not have all of their bills paid.= =20 "If they go into bankruptcy, the state will be buying power for three or fo= ur=20 years," Davis told the Chamber yesterday. "That is all we will be doing up= =20 here."=20 A Stage 2 emergency alert was called yesterday when two power plants=20 unexpectedly stopped operating with temperatures around the state rising.= =20 Meanwhile, Davis announced that Richard Sklar, a former ambassador to the= =20 war-torn Balkans, will lead a task force to speed up the construction of ne= w=20 power plants.=20 The governor acknowledged while speaking to reporters that he has not met h= is=20 earlier goals of avoiding blackouts, rate increases and keeping the utiliti= es=20 out of bankruptcy.=20 "This is probably the most complicated challenge the state has faced in 50= =20 years," Davis said. "But we are providing steady and reliable leadership, a= nd=20 I believe we will have this thing behind us by the end of this fall."=20 ---------------------------------------------------------------------------= --- --------------- FERC to weigh limited curbs on electricity prices=20 Caps would apply in Stage 3 shortages By Toby Eckert=20 COPLEY NEWS SERVICE=20 April 25, 2001=20 CALIFORNIA'S POWER CRISIS=20 WASHINGTON -- Federal regulators are expected to consider limited wholesale= =20 price curbs for California's chaotic electricity market today, but the=20 approach falls far short of the controls sought by many state officials.=20 Federal Energy Regulatory Commission staffers have proposed limiting the=20 price that power sellers can charge for wholesale electricity in California= =20 only during the most severe shortages, known as Stage 3 emergencies. The=20 "price mitigation" would be pegged to "the marginal cost of the=20 highest-priced (generating) unit called upon to run," according to a staff= =20 report.=20 Producers also would be required to sell their excess power to the state's= =20 grid operator.=20 The price controls would last one year and would not apply to other Western= =20 states suffering from gyrations in power costs and electricity shortages.= =20 FERC Chairman Curtis Hebert has been an implacable foe of price controls, b= ut=20 is under considerable political pressure to do more to help California as t= he=20 peak power-consuming summer months approach. Commissioner William Massey ha= s=20 advocated far-reaching price limits, while Commissioner Linda Breathitt has= =20 wavered on the issue.=20 Gov. Gray Davis and other California officials have called for broad price= =20 controls that also would include 10 other Western states. Yesterday, Sen.= =20 Dianne Feinstein, D-Calif., formally introduced legislation that would=20 require FERC to impose regional price limits through March 1, 2003.=20 Feinstein said the FERC staff proposal was inadequate.=20 "Once you put the cap just on Stage 3, you force the heavier pricing on=20 stages 1 and 2," she said.=20 Other critics have noted that wholesale power prices in California are=20 abnormally high during periods other than Stage 3 emergencies.=20 Feinstein's legislation, first outlined in March, would require FERC to set= =20 price caps or impose "cost-based" rates that would limit prices to the cost= =20 of producing the power, plus a set profit margin. New generating plants and= =20 power bought through long-term contracts would be exempt.=20 However, any state covered by the price controls would have to allow=20 utilities to recover their wholesale power costs from consumers. The clause= =20 helped draw a Republican co-sponsor to the bill, Sen. Gordon Smith of Orego= n.=20 Smith and other Western lawmakers have complained about the reluctance of= =20 California officials to raise retail rates while consumers in neighboring= =20 states have seen their power bills soar. In recent months, the California= =20 Public Utilities Commission twice has increased rates for customers of=20 Southern California Edison and Pacific Gas and Electric, the utilities hit= =20 hardest by skyrocketing wholesale power prices.=20 The FERC staff proposal rejected price caps or cost-based rates.=20 It would be hard to devise price caps that are low enough to provide price= =20 relief, but high enough to adequately compensate generators, the proposal= =20 said.=20 The Bush administration and top congressional Republicans are opposed to=20 price controls, so it is uncertain how far Feinstein's legislation will get= .=20 ---------------------------------------------------------------------------= --- ------------------------------- Grid officials declare a Stage 2 alert=20 ASSOCIATED PRESS=20 April 24, 2001=20 SACRAMENTO =01) The state's electric grid operator declared a Stage 2 power= =20 alert Tuesday after two power plants suddenly went offline.=20 Higher-than-forecasted temperatures in Southern California also caused dema= nd=20 to increase, said Lorie O'Donley, spokeswoman for the Independent System=20 Operator, keeper of the state power grid.=20 A Stage 2 alert is declared when electricity reserves fall or are expected = to=20 fall below 5 percent.=20 The two power plants that went offline had been producing about 1,080=20 megawatts, or roughly enough power for 810,000 homes.=20 "We think we may need to request interruptible customers, but barring any= =20 other big problems, we probably won't need to go to a Stage 3," said=20 O'Donley. Stage 3 alerts are called when the reserves drop below 1.5 percen= t=20 and could result in rolling blackouts like the state has seen on four days= =20 since January.=20 The ISO said 9,900 megawatts were unavailable Tuesday morning because of=20 power plants that were down for scheduled or unplanned maintenance. Another= =20 3,000 megawatts from alternative generators, such as solar, wind and=20 geothermal, was also not available, O'Donley said.=20 About half of the alternative generators say they can't afford to keep=20 operating because they are owed about $1 billion by Pacific Gas and Electri= c=20 Co. and Southern California Edison.=20 ---------------------------------------------------------------------------= --- -------------------------------------------------------------------- Top credit agency lowers California's bond rating=20 ASSOCIATED PRESS=20 April 24, 2001=20 SACRAMENTO =01) A top credit agency lowered its rating on California state = bonds=20 Tuesday, citing the growing financial drain from the continuing energy=20 emergency.=20 "The downgrade reflects the mounting and uncertain cost to the state of the= =20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy," Standard and Poors said.=20 The state's ability to repay is debts has been reduced, though it is still= =20 adequate, S&P said.=20 It dropped the rating on general obligation bonds from double-A to=20 single-A-plus. It similarly revised other lease ratings, and ratings for th= e=20 California Health Facilities Construction Loan Insurance Fund, known as Cal= =20 Mortgage.=20 S&P said it didn't drop the rating farther because the state still has mone= y,=20 because of California's diverse economy, and because a proposed revenue bon= d=20 is slated to reimburse the state's treasury for money California is current= ly=20 using to buy power for two financially strapped utilities.=20 If the state can't quickly sell its revenue bond, the impact on the treasur= y=20 could be severe unless electricity rates are substantially increased beyond= =20 the large increases already scheduled to kick in, S&P warned.=20 S&P has had the state's general obligation bonds on a credit-watch "with=20 negative implications" since January, when the state began buying power for= =20 Southern California Edison and Pacific Gas and Electric.=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------- State's Bond Rating Downgraded to A+=20 Finance: Reduction of 2 notches puts it among states with the lowest credit= =20 ratings. Move could cost California hundreds of millions in borrowing fees.= =20 By LIZ PULLIAM WESTON and MIGUEL BUSTILLO, Times Staff Writers=20 ?????A major credit rating agency downgraded $25 billion of California bond= s=20 Tuesday in a move that could add hundreds of millions of dollars to the=20 state's borrowing costs and saddles California with one of the lowest state= =20 credit ratings in the nation. ?????Standard & Poor's Corp. cut California's bond rating by two notches,= =20 from AA to A-plus, citing "the mounting and uncertain cost . . . of the=20 current electrical power crisis," which has forced the state to spend=20 billions on electricity to keep the lights on. ?????S&P, one of three major rating agencies monitoring California's=20 financial health, said a further downgrade could occur if the state fails t= o=20 follow through on plans to issue at least $10 billion in revenue bonds to= =20 help pay off energy-related debts. ?????"S&P is saying, 'We don't have any faith that what you say you're goin= g=20 to do, you're going to do,' " said Zane Mann, publisher of the California= =20 Municipal Bond Advisor, a newsletter that tracks government debt. ?????Wall Street is concerned by delays surrounding the electricity bond=20 issue, but lawmakers hope to pass legislation this week to put the bond iss= ue=20 on a fast track and speed up return of the money to the state's general fun= d. ?????Credit ratings help determine how much states and other borrowers have= =20 to pay when issuing bonds. The lower the rating, the higher the interest ra= te=20 the state must pay to entice investors to buy. ?????The state Treasurer's Office concluded in a preliminary estimate that = as=20 a result of the downgrade, California could have to pay $190 million to $57= 0=20 million more on the $12 billion in general obligation bonds the state has= =20 authorized to pay for ongoing expenses such as school and road-building=20 projects, but has yet to issue.=20 ?????State revenue bonds should not be affected by the downgrade, the=20 officials said. However, some bond experts disagree. ?????California's energy crisis already has driven down prices of a wide=20 range of the state's bonds, from general obligation issues that depend on t= he=20 state's ability to repay to small issues by school districts and cities tha= t=20 could be hurt by rising electricity prices. Bond traders said S&P's downgra= de=20 probably would cause prices to fall further. ?????"All California bond holders are going to lose value in their bonds=20 because the state's credit has been downgraded," said John Fitzgerald,=20 managing partner of Seidler-Fitzgerald, a Los Angeles municipal debt=20 underwriter. ?????The downgrade most affects investors who want to sell their bonds now,= =20 before the issues mature. Investors who hold onto their bonds are still=20 almost certain to get the face value when their securities reach maturity,= =20 because the state is unlikely to miss any interest payments or otherwise=20 default on its bonds, traders said. ?????S&P analysts said the state's continuing surplus and "deep and diverse= "=20 economy helped prevent a further downgrade. ?????Still, the downgrade places California below most other states on S&P'= s=20 rating scale and on par with Hawaii. Among states rated by S&P, only=20 Louisiana has a lower rating, at A-minus, according to Bloomberg News.=20 ?????In addition, the two other major credit rating agencies have indicated= =20 they may downgrade California's bonds. Fitch Inc. said last week that it wa= s=20 contemplating such a move, and Moody's Investors Service earlier this month= =20 changed its outlook on California bonds to "negative" from "stable." ?????Some politicians Tuesday accused S&P of overreacting. ?????"It's just unfair, premature and inappropriate for them to do that. We= =20 do have reserves, we do have good revenue projections, we do have a plan to= =20 get us out of this," said Assemblyman Gil Cedillo (D-Los Angeles). ?????In a statement, Gov. Gray Davis said California's economy "is still=20 fundamentally strong, period. We expect that in 2001 we will continue to le= ad=20 the nation in economic growth and job creation." ?????State Treasurer Phil Angelides has been pleading with lawmakers to pas= s=20 legislation to speed up repayment of $5 billion drained from the state's=20 general fund to buy electricity this year. That figure is expected to reach= =20 $15 billion by year's end, according to the governor. ?????The consequences of a downgrade are profound, Angelides said, noting= =20 that it took California years to overcome the downgrades spurred by the=20 recession of the early 1990s. ?????"It is critical that the Legislature act immediately to clearly=20 establish our legal authority to sell bonds and replenish the state's gener= al=20 fund," Angelides said. ?????California began buying massive quantities of electricity in January= =20 because the state's three major investor-owned utilities could no longer=20 afford to do so. Since then, the state has been purchasing roughly one-thir= d=20 of the electricity the utilities need to service their customers, according= =20 to state officials. ?????Under a plan approved by the Legislature and signed into law by Davis,= =20 the general fund is supposed to be reimbursed for the power purchases with= =20 what is expected to be the largest municipal bond issue in U.S. history. Th= e=20 bond issue is to be repaid by utility ratepayers through a monthly charge o= n=20 their electricity bills. ?????However, obstacles that threaten timely repayment of the fund are=20 causing consternation among Wall Street analysts about California's financi= al=20 status. ?????The bankruptcy filing of Pacific Gas & Electric Co., the state's large= st=20 investor-owned utility, has thwarted the state's plan to restore the=20 utilities to financial health. ?????But it is a dispute over the state's formula for repaying the bonds th= at=20 has raised the most concern among state officials. The state and the=20 utilities are at odds over how much of consumers' electricity payments shou= ld=20 go to reimburse the state for its power purchases. ?????The state's two major utilities, Pacific Gas & Electric and Southern= =20 California Edison, have challenged the Public Utilities Commission's plan f= or=20 splitting up the money--a legal move that threatens to delay issuance of th= e=20 bonds. The firms contend the allotment granted to the state is too generous= =20 and could make it harder for them to recover from the energy crisis. ?????Hoping to sidestep the controversy, Angelides is urging state lawmaker= s=20 to pass an emergency measure this week that sets the bond amount and the=20 amount the state will receive from utility payments. The revenue bond was= =20 initially expected to be $10 billion, but the Davis administration has sinc= e=20 proposed a $12.4-billion issue. ---=20 ?????Times staff writers James Flanigan, Jenifer Warren and Julie Tamaki=20 contributed to this report. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------------- Price Controls Spark Deja Vu=20 Energy: The specter of Richard Nixon's actions 30 years ago hangs over=20 current debate on how to check the state's surging power costs.=20 By JAMES F. PELTZ, Times Staff Writer=20 ?????A debate now rages in California over whether price controls should be= =20 adopted to stem the state's soaring power costs and help consumers who are= =20 bracing for huge spikes in their electric bills. ?????But price controls are one of the most controversial actions in=20 economics--and in politics, for that matter. And now the caps are more in= =20 dispute than ever because they run counter to the nation's move over the la= st=20 two decades to deregulate more and more industries, from airlines to=20 railroads to energy. ?????Yet California is a good example of deregulation gone haywire, so=20 controls are again being demanded by lawmakers, consumer advocates and othe= rs=20 as a way to check surging prices. On the other side is a chorus of critics= =20 who ridicule price caps as being ineffective and, at times, making matters= =20 worse for consumers. ?????Case in point: the Golden State itself, which tried last summer to use= =20 temporary price caps to keep a lid on skyrocketing wholesale electricity=20 prices. ?????Critics claim that the caps drove power sales out of state, thus=20 widening the imbalance between supply and demand, reinforcing the existing= =20 shortages and contributing to this winter's rolling blackouts. ?????But defenders of the caps note that the dysfunctional California marke= t=20 had no way to self-correct. The utilities couldn't simply refuse to buy=20 electricity in the face of higher prices, and with no price ceiling in sigh= t,=20 something had to be done. ?????And now Gov. Gray Davis and others are again calling for temporary=20 controls until more electricity supplies can be added, especially as the=20 state enters the peak-power summer season. On Tuesday, Sens. Dianne Feinste= in=20 (D-Calif.) and Gordon Smith (R-Ore.) introduced legislation that would impo= se=20 price controls on wholesale energy throughout 11 Western states. ?????Mindful of the controversial history of controls, Feinstein and Smith= =20 stressed that the caps would last only through March 1, 2003. But they also= =20 argued that the economic damage to industries and consumers from escalating= =20 power costs would exceed any harm caused by price controls. ?????"I have a strong preference for markets, but it's a mistake to believe= =20 that we have a free market when it comes to energy," said Smith, the only G= OP=20 co-sponsor of the legislation. ?????Their bill would require the Federal Energy Regulatory Commission, whi= ch=20 regulates U.S. wholesale electricity prices, either to impose a regional=20 price cap or institute a rate schedule for each power generator, tying the= =20 price of electricity to the cost of producing it. ?????Coincidentally, FERC today is expected to decide on various other=20 proposals to again limit California's power costs--but without explicitly= =20 stating that the plans include price controls. Why? Because the Bush=20 administration and FERC Chairman Curt Hebert Jr., among others, are on the= =20 record as adamantly opposing price caps. ?????That's not surprising. Price controls often are tagged as a liberal=20 maneuver that flies in the face of conservatives' free-market ideology. Yet= ,=20 ironically, hanging over the California debate is the legacy of a Republica= n=20 president who was the last one to mandate price controls on a nationwide=20 level: Richard M. Nixon. ?????The late president took that rare step 30 years ago this August to try= =20 to quell inflation and spark an economic rebound. His actions were so=20 dramatic that they are still invoked by those wanting to criticize or, in= =20 some cases, endorse setting limits on prices. ?????"What he did is almost larger than life now," said Shannon Burchett,= =20 chief executive of RiskLimited Corp., a strategic consulting firm in Dallas= . ?????Nixon's controls were the most far-reaching since World War II, when= =20 prices were capped so that profiteers couldn't reap huge sums for scarce=20 commodities being used for the war and simultaneously rationed at home. ?????In most cases, price controls have been much less sweeping and targete= d=20 at specific products or services. They don't always involve changing the la= w,=20 either. In 1962, President Kennedy publicly rebuked the then-U.S. Steel Cor= p.=20 and its chairman, Roger Blough, for starting an industrywide move to raise= =20 steel prices. The price hikes were rolled back a few days later. ?????Since Nixon, price controls have become rarer as industries that were= =20 once regulated--which means their prices were government-controlled--have= =20 been deregulated. ?????So it is in California, where electric utilities' prices were controll= ed=20 for decades until the state's deregulation law in 1996. But now that the la= w=20 has been blamed for the soaring wholesale prices, power shortages, crippled= =20 utilities and the need for a huge jump in ratepayers' costs, some again wan= t=20 price controls on electricity until the crisis eases. ?????Which brings everyone back to Nixon. ?????Some Nixon Controls Were Lifted by Reagan ?????"I've heard people make the analogy to what happened . . . when Nixon= =20 put on controls," but in California "this is fundamentally different," said= =20 Mike Florio, a board member of the California Independent System Operator,= =20 which oversees most of the state's electricity grid. ?????"When you get into a situation of shortage [of supplies], there is=20 really no restraint at all on prices," said Florio, who said he normally=20 prefers unfettered markets but also defended the state's caps last summer.= =20 Such government intervention "on a temporary basis is better than nothing,= =20 but I don't think it's ideal." ?????The reverberations from Nixon's fiat aren't just felt in California=20 either. When New York Mayor Rudolph Giuliani recently proposed more stringe= nt=20 controls on wholesale electricity costs in New York state, critics promptly= =20 pointed to Nixon's controls. "They were a disaster," one columnist wrote. ?????Even Federal Reserve Chairman Alan Greenspan, who was in the private= =20 sector in the early 1970s, turned down several requests to take high-level= =20 White House jobs in part because he was disgusted with Nixon's price contro= ls. ?????Many economists and historians also judge Nixon's controls as a mistak= e.=20 But some maintain that his decision--which began with a 90-day freeze on=20 prices, wages and rents--wasn't entirely a failure and even provided "shock= =20 value" that, for a while at least, arrested higher inflation. ?????In addition, part of Nixon's move involved taking the dollar off the= =20 gold standard--which in effect meant its price was controlled--and letting = it=20 float in value against other major currencies. And that, many believe, is t= he=20 base upon which today's global financial markets operate. ?????Others disagree. ?????"There really isn't an example of where they've [price controls]=20 worked," said Robert Goldberg, a senior fellow at the National Center for= =20 Policy Analysis, a nonpartisan think tank in New York. ?????"Controls always lead to an underproduction" of the commodity involved= =20 because producers don't have any incentive to spend more on additional=20 output, he said. When the caps ultimately are lifted, prices typically soar= =20 anyway as producers move to quickly recoup the profit they lost when the=20 controls were in place, Goldberg added. ?????Others note that although most of Nixon's price controls lasted only a= =20 couple of years, various forms of controls over crude oil and natural gas= =20 lasted for another decade until they were removed by President Ronald Reaga= n. ?????In the meantime, the controls--aggravated by embargoes and other suppl= y=20 cuts by the Organization of Petroleum Exporting Countries--distorted the fr= ee=20 market for energy, critics say. The controls kept U.S. oil prices=20 artificially low, which in turn kept demand for oil high, giving OPEC more= =20 power over world production and prices in the 1970s, they contend. ?????Nonetheless, proponents keep calling for controls when prices for=20 certain items seem to be spiraling out of control. ?????Critics Say Controls Worsen the Problems ?????President Clinton's massive health-reform proposal in the early 1990s= =20 included price controls on drugs. But the idea set off howls of protest fro= m=20 the pharmaceutical and biotechnology industries, and ultimately the entire= =20 proposal was shelved. Consumer advocates and others also demanded federal= =20 controls on rising cable TV rates in 1997 and 1998, again contending that t= he=20 cable operators were hiking prices at a much faster rate than inflation.=20 Cable firms were allowed to keep passing certain costs on to their=20 subscribers, but specific price caps weren't enacted. ?????But proponents of temporary price controls on California power emphasi= ze=20 that electricity isn't in the same category as an airplane seat, steel or= =20 other commodities that don't have to be bought if the price soars too high. ?????"In soybeans maybe the market can adjust quickly" to changes in supply= =20 and demand, "but in electric generation in California it can't," said Flori= o,=20 who also serves as an attorney for the Utility Reform Network, a consumer= =20 group. "For most products, one of the ways prices get determined is if buye= rs=20 refuse to buy when the price gets too high. But that's generally not an=20 option for people when it comes to electricity." ?????Critics of California's attempt to cap prices last summer said the=20 controls instead prompted many power suppliers to sell their electricity to= =20 other states. That "actually made the tight-supply problem worse [in=20 California] by driving imports out of the state," the Bay Area Economic=20 Forum, a research group funded by regional business and government agencies= ,=20 said in a report last week. ?????Indeed, the temporary caps were basically abandoned by year's end to= =20 keep enough electricity in the state. ?????Frank Wolak, a Stanford University economics professor who heads the= =20 Independent System Operator's market surveillance committee, said there are= =20 ways to mitigate the state's power prices without having to set rigid=20 controls. One proposal: Have FERC require that generators supply 75% of the= ir=20 expected future sales to California under long-term contracts at "just and= =20 reasonable" prices set by the federal agency, he said. ?????That would "send the right [price] signal to suppliers to come into th= e=20 state," Wolak said. ?????And because it will take time for California to get more of its own=20 power-generating plants up and running, the state's electricity crisis isn'= t=20 unlike a natural disaster in which "normal public service is disrupted" and= =20 short-term controls serve a purpose, Florio said. ?????"Over time, market forces will work" and controls shouldn't be need, h= e=20 said. "But does that mean we're supposed to pay $10,000 per kilowatt-hour= =20 until something gets done?" ---=20 ?????Times staff writer Ricardo Alonso-Zaldivar in Washington contributed t= o=20 this report. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------ Davis Names Executive to Speed Construction of Power Plants in State=20 Energy: Richard Sklar headed a building firm and worked for Clinton in=20 Bosnia. Governor sees the crisis abating by fall.=20 By DAN MORAIN, Times Staff Writer=20 ?????SACRAMENTO--With temperatures rising and electrical supplies strained,= =20 Gov. Gray Davis on Tuesday tapped a former Clinton administration official= =20 and executives from major construction firms to help speed completion of=20 power plants. ?????Davis, who predicted that the worst of the energy crisis will abate by= =20 the fall, announced that he has retained Richard Sklar, 67, former presiden= t=20 of a construction firm, to head a team that will help accelerate the buildi= ng=20 of power plants. ?????Speaking to business leaders at a California Chamber of Commerce=20 convention in Sacramento, Davis said Sklar's job will be "to make sure ther= e=20 are no hurdles [and] to cut red tape." ?????"Richard Sklar knows electricity," Davis said. "He knows how to find= =20 megawatts." ?????Former President Bill Clinton sent Sklar to the Balkans in 1996 to try= =20 to help resolve the war in Bosnia-Herzegovina. Sklar arrived in Sarajevo to= =20 find that power was on for only two hours a day and set about expanding=20 electricity generation. ?????In an interview, Sklar said his father was a mechanical engineer who= =20 designed power stations. ?????"This power world is my world," Sklar said, adding that he had an=20 electric car and solar panels in the mid-1970s. ?????This Feb. 8, Davis announced at a news conference that he was appointi= ng=20 Larry Hamlin, a vice president of Southern California Edison, as his=20 "construction czar." Hamlin's job was to speed power plant construction. ?????Davis spokesman Roger Salazar said that Hamlin's stint was temporary a= nd=20 that the executive must return to Edison. Sklar's contract is for a longer= =20 period, Salazar said, but it is unclear how long. ?????Sklar is being retained as a consultant, paid $100,000 initially. Othe= r=20 firms, Salazar said, are loaning employees as volunteers. Joining Sklar wil= l=20 be representatives of the engineering and construction firms Bechtel, URS= =20 Corp. Engineering, Fluor Daniel, Parsons Brinckerhoff Quade & Douglas, and = A.=20 Teichert & Sons. At least one Bechtel subsidiary is involved in power plant= =20 construction in California. ?????"There is no conflict of interest," Sklar said, adding that no one in= =20 the group will have authority to decide who gets contracts. ?????A mechanical engineer, Sklar was president of the San Francisco-based= =20 construction management firm O'Brien Kreitzberg Inc. Sklar's firm also=20 oversaw construction of the Metro Rail Green Line in Los Angeles and the=20 rebuilding of the Los Angeles Central Library. ?????He was also chairman of the San Francisco Public Utilities Commission= =20 under then-Mayor Dianne Feinstein. In that role, he oversaw rebuilding of t= he=20 cable car system, completing the work ahead of schedule--in time for the 19= 84=20 Democratic National Convention there. Feinstein's husband is a major invest= or=20 in URS, one of the firms that will loan employees to Sklar's team. ?????"He's very competent," said state Senate President Pro Tem John Burton= =20 (D-San Francisco) of Sklar, whom he met in 1972. "He's a very good problem= =20 solver and he brooks no nonsense. . . . He's a renaissance man. He loves=20 music, he loves politics and he's a gourmet cook." ?????Sklar has also displayed a sense of humor, once donating to San=20 Francisco Zoo two capybaras, rodents the size of a hog. He named one Quenti= n=20 and the other Kopp, after a former San Francisco city supervisor and state= =20 senator who is now a Superior Court judge. ?????"I'm 67; I've made all the money I need to make," said Sklar, who owns= a=20 vineyard near the Napa Valley town of Rutherford and has a home in San=20 Francisco. ?????"My reputation is what's going to be at stake in this, not the=20 governor's," he said. "I have a 40-year history of delivering--and that's= =20 what I'm going to do. I don't like to lose." ?????As Davis announced Sklar's appointment, one of the governor's top ener= gy=20 advisors, John Stevens, resigned, effective Friday. The governor praised=20 Stevens as a tireless worker. ?????Stevens worked on several energy-related tasks, among them Davis'=20 efforts to keep utilities out of bankruptcy. Davis appointed him for a day = in=20 January to the state Public Utilities Commission, on which he cast a key vo= te=20 to raise rates. ?????The state's power grid operators declared a Stage 2 emergency Tuesday= =20 afternoon, as temperatures hit 90 degrees in downtown Los Angeles and two= =20 major power plants in Southern California unexpectedly shut down. Power=20 reserves dropped to nearly 5%, below the minimum 7% that the California=20 Independent System Operator seeks to maintain. ?????Tuesday's emergency is not a predictor of worse electricity troubles t= o=20 come, said Cal-ISO's Stephanie McCorkle, because an unusually high number o= f=20 power plants are down for repairs that were planned months ago. ?????The plants not running Tuesday would be capable of supplying 10,000=20 megawatts, she said, or about a third of Tuesday's peak demand. By mid-June= ,=20 no power plants should be shut off for scheduled maintenance, McCorkle said= . ?????The state will lose more than 1,000 megawatts of production starting= =20 this weekend when a unit of the Diablo Canyon nuclear power plant near San= =20 Luis Obispo is shut down for refueling. The shutdown, planned a year ago,= =20 will last 35 days, according to Pacific Gas & Electric. ?????In his remarks Tuesday, Davis said his goal is to boost the state's=20 energy supply to exceed demand 15% by 2003.=20 ?????"This is probably the most complicated challenge the state has faced i= n=20 50 years," Davis said. "But we are providing steady and reliable leadership= ,=20 and I believe this thing will be behind us by the end of fall." ---=20 ?????Times staff writers Nancy Vogel and Jenifer Warren contributed to this= =20 story. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------------- Power Plant Emits Tons of Fumes=20 Round-the-clock operation of old generators in Glendale and elsewhere=20 produces more than twice the old limits of pollution.=20 By JEAN GUCCIONE, Times Staff Writer=20 ?????For the past five weeks, Glendale's Grayson power plant has been=20 belching a half-ton of pollutants into the air almost daily, more than twic= e=20 previous limits. ?????The same is true for many of the other 14 power plants in Southern=20 California as the "haves" generate power, sometimes round-the-clock, for th= e=20 "have-nots." ?????The generators, some of them nearly 50 years old and once considered t= oo=20 dirty for regular use, now keep electricity flowing to fellow residents=20 around the state. And those living downwind are subjected to twice as much= =20 air pollution as before California's energy crunch. ?????Not every Glendale resident is happy. ?????"You don't want anyone to get stuck with a rolling blackout, but we ge= t=20 struck with the pollution," Jerold Petrosian said as he and his family boug= ht=20 plants at a nursery across the street from the power plant. "It is a tough= =20 decision." ?????Not so for Ignacio Troncoso, director of Glendale Water & Power. "Ther= e=20 is a pretty decent trade-off, helping our neighbors in the state to keep=20 their lights on," he said. ?????A USC specialist warned that increased power plant emissions raise the= =20 risks of asthma and other lung ailments in the young and old. ?????"There is a potential for more emergency room visits, more people seei= ng=20 their doctors and more hospitalizations this summer," said Dr. Henry Gong,= =20 professor of medicine and a specialist in the health effects of air polluti= on. ?????With extended hours, the Glendale generators are emitting as much as 9= 95=20 pounds of pollutants into the air during peak demand, more than double the= =20 old limit of 390 pounds a day, city and air-quality officials said. ?????The other 14 power plants in Southern California also have more than= =20 doubled their overall emissions, according to preliminary figures from the= =20 South Coast Air Quality Management District. As a group, the plants emitted= a=20 total of 2,045 tons of smog-forming nitrogen oxide in the first three month= s=20 of 2001, compared with 905 tons for the same period last year. ?????The AQMD hearing board on Tuesday eased pollution controls so Glendale= =20 may continue to generate excess electricity for sale to the energy-starved= =20 state. Under the plan, Glendale may run three of its old steam boilers=20 around-the-clock to meet the state's energy demand. Usually, these boilers,= =20 hidden behind a tall brick wall, sit idle except during the peak summer=20 demand because they are inefficient and costly. ?????Glendale, like Burbank and the Los Angeles Department of Water and=20 Power, continues to produce electricity at its city-owned plant. The three= =20 cities opted against participating in a scheme of deregulation, a decision= =20 that has shielded their residents, by and large, from the huge utility rate= =20 hikes and rolling power outages experienced elsewhere. But they also will= =20 contribute to easing the state's energy emergency in the dirtier air they= =20 will be forced to breathe. ?????Air-quality officials said power plants contribute just about 3% of th= e=20 900 tons of pollution emitted into the air daily, with about 70% of the=20 pollution coming from vehicles, not factories. And in recent years, many of= =20 the region's municipal power generators have been updated with=20 pollution-control devices that reduce emissions. ?????Glendale's three steam generators, built between 1953 and 1963, are=20 inefficient by today's standards, but they are 85% cleaner since the city= =20 pumped millions of dollars into upgrades. They will be even cleaner, city= =20 officials say, with more retrofitting. ?????Under the plan, Glendale must reinvest profits from energy sales,=20 estimated at $3 million to $5 million this year, in equipment to reduce=20 future emissions at the plant and in community-based programs, such as mobi= le=20 asthma clinics and programs to reduce school bus emissions. ?????The city plans to sell as much as 50 megawatts of power, enough to ser= ve=20 50,000 homes. Under the decision Tuesday, pollution limits resume Jan. 1,= =20 2002, or when the energy emergency ends. ?????In Los Angeles, power officials said they don't expect to exceed AQMD= =20 caps, because they are adding pollution controls at two of the city's four= =20 power plants. Although they will produce more electricity, they should not= =20 produce any more nitrogen oxide, which in sunlight and heat form ozone, sai= d=20 Angelina Galiteva, LADWP's director of strategic planning. ?????"We will have much cleaner equipment in place by June," she said. ?????Even the environmentalists are trying to balance the risks. ?????"We realize we have a problem this summer. We have to run these plants= ,"=20 said Sheryl Carter, a senior policy analyst for the National Resources=20 Defense Council. ?????Carter said natural-gas-powered generators, like the ones in Glendale,= =20 are "a far superior solution to diesel generators," which produce 50 to 100= =20 times the emissions and would be turned on in businesses across the state i= f=20 energy is unavailable from other sources. ?????"We are trying to make sure the environment overall is made whole," sh= e=20 said. ?????Carl Zichella, regional staff director for the Sierra Club, said the= =20 generators should be run as a last resort. He also urged consumers to unplu= g=20 spare refrigerators and use energy-efficient light bulbs to reduce the=20 state's overall energy demand. ?????"The only thing that is going to work to offset air pollution is=20 efficiency," he said. Otherwise, "we will pay not only with higher rates bu= t=20 also with our health." ?????In neighboring Burbank, city officials are preparing for peak summer= =20 energy demands, when they expect to sell about 10% of their locally produce= d=20 electricity outside the city. ?????"For four or five years, we have been polluting Utah, Arizona, Nevada,= =20 Washington and Oregon, importing power to Los Angeles," said Ron Davis,=20 general manager of Burbank Water & Power, listing the energy-producing stat= es=20 that typically produce the bulk of Southern California's power. "We are=20 returning the favor." ?????Profits from those outside sales, Davis said, will help hold down=20 utility costs for local users. ?????"I think most people would take a little more smog to guarantee there= =20 are no rolling blackouts," he said. "But it's not an easy question." Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------- Power Plant Plan Worries Neighbors=20 Energy crisis: Regulators will decide next week whether to allow Huntington= =20 Beach facility to boost output. Noise and pollution are concerns.=20 By CHRISTINE HANLEY, Times Staff Writer=20 ?????On Hula Circle in Huntington Beach, families have tried to live with= =20 their two very different neighbors. They live steps from the Pacific Ocean= =20 but next door to the mechanical shrieks and foul smells of the massive AES= =20 Corp. power plant. ?????But California's power crisis is rapidly unhinging life in the=20 neighborhood of ranch houses and bungalows. ?????State regulators will decide next week whether to allow the company to= =20 double the plant's operations by July, providing much-needed electricity bu= t=20 taking what residents fear will be a heavy toll on them. ?????It's one of several proposals to restart or build new power plants in= =20 the wake of the power crisis using a "fast track" process that allows the= =20 projects to go forward before environmental and pollution studies are=20 completed. ?????"The plant is so close. We want to know if it is impacting our kids in= =20 ways we won't know about until 10 years from now," said Janette Mortimer, w= ho=20 lives with her husband and their two young children in one of the homes=20 closest to the plant. ?????Already, residents say, the AES plant is casting a mightier shadow.=20 There are the ear-ringing rumbles and roars. There are the mysterious plume= s=20 of smoke that waft over the neighborhood. Then there is the grime that seem= s=20 never to go away. ?????If the California Energy Commission approves the permit for AES, the= =20 facility could run at full capacity for the first time in memory. Officials= =20 said the plant's previous owner, Southern California Edison, typically ran = it=20 at 30% of capacity. ?????AES could be allowed to run the four gas-fired boilers and a "peaker"= =20 unit whenever California hits a Stage 3 alert--which is expected to happen= =20 often this summer. The "peaker" plant alone is powered by eight jet=20 engines--and sounds like it. ?????Currently, only two boilers are operating. ?????But residents say they are most worried about the air they breathe and= =20 the water they swim in. ?????Under the fast-tracking process designed to get more electricity for t= he=20 state as soon as possible, several key environmental questions have yet to = be=20 studied. ?????Scientists studying the cause of ocean pollution that closed much of= =20 Huntington Beach's shoreline in the summer of 1999 said that the plant, alo= ng=20 with other factors, played a role by drawing partially treated sewage that = is=20 discharged miles offshore back toward the coast. ?????AES Inc. will pay $1.5 million to further study the issue, but the=20 research won't be complete for some time. ?????"So much is uncertain," said Huntington Beach Councilwoman Shirley=20 Dettloff. "These are big, big things." ?????For now, residents say they are bracing for more noise, smoke and=20 disruption. ?????To begin with, AES' proposal calls for 20 hours a day of nonstop=20 construction to get the two mothballed generators in service by July. ?????Then there are the sizzling summer temperatures. Residents usually ope= n=20 their windows to let the ocean breezes cool their homes. But the noise and= =20 smells from the plants may make that impossible. ?????"It's going to be bad. There's no escape," said Bryan Visnoski. ?????The plant has towered over the Huntington Beach coastline for nearly 4= 0=20 years. The housing tracts came later, but most inhabitants of Hula Circle a= nd=20 surrounding streets seemed to make peace with their industrial neighbor. ?????Some have installed double-paned windows to dampen the sound. Others= =20 have remodeled their homes to obstruct ugly views. The Mortimers grew tall= =20 trees and trained vines past the windows. ?????The problems, they say, began with the energy crisis. ?????The plant was owned by Edison until 1998, when it was sold to=20 AES--California's largest private electricity producer--at the dawn of=20 deregulation. ?????The two gas-fired boilers that AES wants to restart have been dormant= =20 since 1995 and were slated for demolition until the power crisis struck. ?????But a few months ago as rolling blackouts hit the state, Gov. Gray Dav= is=20 signed an executive order allowing "peaker plants" to operate at extended= =20 hours. "Peaker plants" can produce electricity in quick bursts but guzzle= =20 large amounts of natural gas and are noisy. ?????Hulu Circle residents said the order has resulted in more hours of lou= d=20 jet noises that make then feel like they live by an airport. ?????Whenever the peaker plant goes on, residents call the Air Quality=20 Management District to send someone to test the plume of smoke. The=20 inspections have not detected any violations. ?????The proposal before the state Energy Commission would allow AES to=20 double its electricity output in Huntington Beach from 500 megawatts to 1,0= 00=20 megawatts. ?????The company's two 40-year-old units represent about 10% of the 5,000= =20 additional megawatts Davis has promised to meet an expected energy shortfal= l=20 this summer. ?????Despite the fast-tracking process, the company has vowed that it would= =20 safeguard against environmental damage and remedy any problems from plant= =20 operations. ?????If the plant is identified as drawing bacteria back to shore, AES woul= d=20 have to pay the costs deemed necessary to fix problems. ?????This is little consolation to residents, who would prefer a full=20 environmental review. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- Federal plan called 'too little, too late'=20 Limited price control seen as step in right direction, but officials renew= =20 call for price ceiling Zachary Coile, Chronicle Political Writer Wednesday, April 25, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/04= /25/M N104049.DTL=20 As federal energy regulators consider a plan intended to ease the state's= =20 worsening energy crisis, California officials and some energy experts are= =20 already criticizing it as inadequate.=20 The Federal Energy Regulatory Commission is scheduled today to debate a=20 proposal that would force power generators to sell electricity at a=20 discounted price to California during severe power emergencies.=20 The proposal would require producers to sell energy to the state's power gr= id=20 during Stage 3 emergencies. Stage 3 emergencies are declared when energy=20 resources are almost depleted, allowing utilities to cut off power to=20 customers at any time.=20 The plan also would limit how much energy firms could profit off such sales= .=20 But Gov. Gray Davis and Sen. Dianne Feinstein, among others, say stronger= =20 remedies -- including the temporary regional price limits they have advocat= ed=20 for months -- are needed to stave off a summer of blackouts and power=20 shortages.=20 "I think the plan before FERC is too little, too late," Davis said yesterda= y=20 in Sacramento.=20 "We need help all the time. The regulatory commission plan excludes 95=20 percent of the purchases of power. A Stage 3 situation is, by definition,= =20 chaotic as we scramble to find the megawatts to keep the lights on."=20 The commission ordered its staff in December to come up with remedies to=20 California's energy woes. The commissioners are expected to make their=20 decision by May 1, a self-imposed deadline to help the Golden State.=20 The proposal to be debated today would require producers to sell electricit= y=20 to California at a price based on the costs of the least-efficient plant=20 providing the energy. More efficient plants sending energy to the state wou= ld=20 still be able to make a sizable profit.=20 The plan has also drawn criticism because it applies only to California, no= t=20 other Western states that are also feeling the pinch of higher energy price= s.=20 But California officials say the proposal does signal a shift in the hard-= =20 line position of the commission's majority against any form of price=20 controls. The plan would set some form of price ceiling, even if only durin= g=20 extreme conditions.=20 In regulatory commission documents, the plan is referred to as "price=20 mitigation" -- not price limits.=20 "I sincerely don't believe that FERC would even be considering the Stage 3 = if=20 it were not for us making substantial noise about a temporary cap," said=20 Feinstein, D-Calif., who introduced a bill with other Western senators=20 yesterday to require the agency to impose temporary price controls on energ= y=20 sold to Western states.=20 Severin Borenstein, director of the University of California Energy=20 Institute, said the regulatory commission has yet to make a compelling case= =20 for why its "Stage 3" plan would help lower sky-high prices.=20 "The argument being made to support this is that firms are only able to=20 exercise market power during Stage 3 emergencies," Borenstein said. "And th= e=20 evidence is quite clear that's just not true.=20 "It's unfortunate that FERC thinks this is solving some problem for=20 California, because it won't."=20 E-mail Zachary Coile at zcoile@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- S&P lowers California's bond rating=20 First cut since '94 could cost taxpayers millions=20 Kathleen Pender, Chronicle Staff Writer Wednesday, April 25, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/04= /25/M N211494.DTL=20 Citing the "rapidly escalating uncertainty" surrounding the power crisis,= =20 Standard & Poor's slashed California's credit rating yesterday for the firs= t=20 time since 1994, when the state was still climbing out of a recession.=20 The downgrade -- and the energy debacle that led up to it -- will cost=20 taxpayers tens or hundreds of millions of dollars a year by raising the=20 state's borrowing costs. Investors will probably see the market price of=20 California municipal bonds and bond funds decline further.=20 But the biggest blow may be to the state's ego. S&P downgraded the state's= =20 general obligation bonds two notches -- to A+ from AA. The only other state= =20 currently rated A+ is Hawaii. The only state with a lower credit rating is= =20 Louisiana, according to S&P.=20 Most states are rated AA. Some states don't have a credit rating because th= ey=20 don't have bonds.=20 California's credit rating is still "investment grade," which means it is n= ot=20 expected to default on its bonds. However, the state's ability to repay its= =20 debt "isn't as strong as it used to be," said Steve Zimmermann, a managing= =20 director with Standard & Poor's. "This is a very speculative situation."=20 States hire companies like S&P to give them an independent credit rating wh= en=20 they borrow money by selling bonds. The rating reflects the state's ability= =20 to repay its debt in full, on time.=20 When they sell new bonds, states with lower credit ratings usually pay high= er=20 interest than higher-rated states, to make up for the added risk.=20 A rating change does not affect the interest rate states pay on bonds that= =20 have already been issued, but it can affect the price of bonds when they=20 trade on the open market among investors.=20 Yesterday's downgrade "reflects the mounting and uncertain cost to the stat= e=20 of the current electrical power crisis, as well as its likely long-term=20 detrimental effect on the state's economy," S&P said in a news release.=20 "Given the large magnitude of the problem in relation to the size of fund= =20 balances the state typically budgets, the capacity to pay debt service, whi= le=20 still adequate, has been reduced."=20 In January, S&P placed the state's debt on "CreditWatch with negative=20 implications," a signal that it might lower the rating.=20 In an unusual move, S&P kept the state on CreditWatch after yesterday's=20 downgrade, which means the rating could fall even lower.=20 Zimmermann said S&P is keeping California on CreditWatch pending its abilit= y=20 to sell $10 billion to $14 billion worth of bonds to reimburse the state's= =20 general fund for past and future power purchases.=20 "If they did the bond issue, they'd replenish the fund, at least for the=20 short term. If they don't do it, then it's more of a concern," Zimmermann= =20 said.=20 Unfortunately, the downgrade could make it harder for the state to sell the= =20 bonds.=20 "If they could have gotten the deal done before the downgrade, they would= =20 have had a stronger deal," said Kelly Mainelli, a municipal bond fund manag= er=20 with Montgomery Asset Management.=20 California must obtain an investment-grade rating (BBB- or higher) on the= =20 bonds before it can sell them.=20 Mainelli said California municipal bond prices have already fallen in=20 anticipation of a ratings cut. When prices fall, bond yields go up.=20 "The downgrade is the culmination of everything that's happened since early= =20 December," he said.=20 In November, California municipal bonds yields were 0.4 to 0.5 percentage= =20 points below the national average. Today, they're 0.1 to 0.2 percentage=20 points above the national average, and Mainelli thinks they could go up 0.1= =20 to 0.2 percentage points more because of the downgrade.=20 The total difference -- about 0.7 percentage points -- doesn't sound like= =20 much, but it adds up.=20 Last year, the state itself sold $4.6 billion in new bonds (excluding bonds= =20 sold to replace existing bonds). If it sells the same amount this year, plu= s=20 $12 billion in energy bonds, that 0.7 percentage point difference on $16.6= =20 billion in bonds would cost the state $116 million a year in additional=20 interest costs.=20 Yesterday's downgrade only affected the state's general obligation bonds an= d=20 others secured by the "full faith and credit of the state," such as the=20 California Health Facilities Construction Loan Insurance Fund (Cal Mortgage= ).=20 But the energy debacle could wind up costing other municipal bond issuers i= n=20 California -- such as cities, counties, school and water districts -- more= =20 money when they sell bonds. Although their ratings have not changed because= =20 of the energy crisis, analysts say the yields on most California municipal= =20 bonds have gone up, and will go up some more, as a result of the state's=20 downgrade.=20 "The values of all California bonds will be hurt by this downgrade, whether= =20 they should be or not. Psychologically, it's just how the market reacts,"= =20 says Richard Goldstein, a San Ramon financial planner.=20 Investors who have to sell their California bonds on the open market before= =20 they mature may not get all their principal back. But investors who hold=20 their bonds until maturity will probably get paid in full, Goldstein said.= =20 No matter how bad the energy crisis gets, most experts believe the state wi= ll=20 continue making principal and interest payments on its bonds, even if it ha= s=20 to raise taxes, cut expenditures or run a temporary deficit to do so.=20 "There's also the prospect at some point of federal help," Goldstein said.= =20 "The federal government does not want California to default or even come=20 close.=20 Do you know what that would do to the national economy and the world=20 economy?"=20 California's bond-rating history=20 S&P cut its rating on California debt yesterday for the first time since=20 1994.=20 What credit ratings mean=20 -- AAA: Extremely strong capacity to meet financial commitments.=20 -- AA: Very strong capacity to meet financial commitments.=20 -- A: Strong capacity to meet financial commitments but somewhat more=20 susceptible to adverse circumstances and economic conditions.=20 -- BBB: Adequate capacity to meet financial commitments. However, adverse= =20 economic conditions could weaken ability to pay debts.=20 Note: Ratings below BBB are considered poor investment risks, and the issue= s=20 sometimes are called "junk bonds."=20 Source: Standard & Poor's=20 Chronicle Graphic=20 E-mail Kathleen Pender at kpender@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- NEWSMAKER PROFILE=20 Richard Sklar=20 Ex-Muni boss becomes energy czar=20 Davis' pick to oversee power plant construction=20 Greg Lucas, Sacramento Bureau Chief Wednesday, April 25, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/04= /25/M N232441.DTL=20 Sacramento -- San Franciscan Richard Sklar, onetime trouble-shooter for the= =20 Municipal Railway and later a figure in the U.S. aid effort for Bosnia, wil= l=20 head a team of construction experts working to build power plants faster,= =20 Gov. Gray Davis said yesterday.=20 Sklar, 66, is the second energy "czar" the governor has appointed in a week= .=20 Last week he named S. David Freeman, head of the Los Angeles Department of= =20 Water and Power, to lead the state's conservation efforts.=20 "Mr. Sklar is with us for the long haul," Davis said after speaking to the= =20 State Chamber of Commerce. "He's a no-nonsense person."=20 Sklar will work with representatives of some of the largest construction=20 firms in the world, such as Bechtel, to map out timelines and identify=20 potential problems in building power plants.=20 Under the Davis administration, 13 power plants have been approved, eight o= f=20 which are under construction.=20 "This is the red meat I chew on, my friend," Sklar said yesterday in a=20 telephone interview from New York.=20 "We're going to be getting these projects under way and follow them from th= e=20 'let's do it' stage to the day we cut the ribbon."=20 Sklar has already had a chance to study the energy situation in California= =20 from afar. In January, while serving as then-President Bill Clinton's point= =20 man for helping southeast Europe move toward capitalism, Sklar said,=20 "California is an object lesson in how not to deregulate. You've got to hav= e=20 both capitalism and regulation."=20 The way California worked deregulation, Sklar said, was a "colossal mistake= .=20 "=20 Sklar has more than 35 years of public and private management experience,= =20 much of it in San Francisco.=20 He came to the city from Cleveland in the mid-1970s and soon joined the=20 mayoral campaign of the late George Moscone. Impressed by Sklar's drive,=20 Moscone handed him the reins to the city's huge wastewater program.=20 Sklar, known as a man of limitless self-confidence, quickly made a name for= =20 himself as a head-knocking administrator with an abrupt management style, b= ut=20 he got the languishing program moving.=20 Citing Sklar's "vigor and force," then-Mayor Dianne Feinstein appointed him= =20 general manager of the San Francisco Public Utilities Commission, which=20 oversees the city's Water Department. He held the post until 1983 while als= o=20 leading the Muni for three years.=20 Sklar soon earned a reputation at City Hall for flamboyance. Critics said= =20 Sklar enjoyed seeing his name in print and his face on TV a bit too much. H= e=20 took the criticism in stride.=20 "I inspire intense feelings," he told The Chronicle in 1982. "You love me o= r=20 you hate me -- and probably for good reason."=20 By the end of his tenure, Feinstein and Sklar were feuding openly over=20 everything from the Muni to high-rise development. The mayor called him=20 "arrogant." He, in turn, called her a "lightweight" who was no great=20 political star.=20 From 1983 through 1996, Sklar worked for San Francisco-based O'Brien-=20 Kreitzberg, one of the largest construction management firms in the United= =20 States. The firm specializes in public works projects.=20 Sklar became the company's president in May 1995 after running O'Brien-=20 Kreitzberg's Eastern and international operations, a job that led to=20 Clinton's naming him to coordinate the rebuilding of war-ravaged Bosnia in= =20 1996.=20 During Sklar's year on the job, the Sarajevo airport was quickly reopened,= =20 and round-the-clock electricity was restored in the city before winter.=20 In 1997, Clinton named Sklar ambassador to the United Nations for reform an= d=20 management. His primary task was to shake loose from a reluctant GOP-=20 controlled Congress more than $1 billion in delinquent dues owed by the=20 United States.=20 In June 1999, he moved to Rome to serve as Clinton's point man on economic= =20 development of southeast Europe. He is now a mediator specializing in=20 construction cases.=20 E-mail Greg Lucas at glucas@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Will price caps deter investment, as federal regulators say?=20 KAREN GAUDETTE, Associated Press Writer Wednesday, April 25, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/04/25/s= tate0 343EDT0117.DTL=20 (04-25) 00:43 PDT SAN FRANCISCO (AP) -- Some key power generators say=20 California's dearth of energy supplies, and its growing demand, make it a= =20 good place to build more plants and sell more power in the years to come --= =20 even if dreaded price caps are imposed.=20 ``Regardless of what the (market) structure turns out to be, the state's=20 going to need electricity and it's going to need to buy it from somebody,''= =20 said Bill Highlander, spokesman for San Jose-based Calpine Corp.=20 Calpine is investing about $4 billion in power plants over the next four=20 years that will generate 9,000 megawatts, enough for more than 6 million=20 homes. The state's current energy crisis ``hasn't really changed our plans = or=20 our strategy,'' he said.=20 But Chief federal energy regulator Curtis Hebert says price caps on wholesa= le=20 electricity will hinder, not help, California's energy crisis.=20 Energy wholesalers seeking higher prices than California is willing to pay= =20 will invest in other states, warns Hebert, the chairman of the Federal Ener= gy=20 Regulatory Commission. And any regulations that cut into future profits wil= l=20 scare away desperately needed new power plants, he says.=20 Eight of the 13 new power plants approved in California already are under= =20 construction. Twelve more are under review, according to the California=20 Energy Commission, which approves power plants.=20 CEC spokesman Rob Schlichting said that's a huge boost over the last decade= ,=20 when uncertainty over the rules of deregulation -- not a threat of price ca= ps=20 -- kept applications down. No companies have withdrawn plans to build plant= s=20 since December.=20 ``The only way price caps would scare away investment is if they were set s= o=20 low you couldn't make a profit,'' Schlichting said. ``It's still a market= =20 that people seem to want to come in and produce power for.''=20 Other companies still planning to invest in California include North=20 Carolina-based Duke Energy, which has two plants in the works, and=20 Houston-based Reliant Energy, which is negotiating with the state to sell= =20 power on long-term contracts.=20 Reliant's spokesman, Richard Wheatley, wouldn't say whether price caps alon= e=20 would inhibit them from building more plants. What he did say is that=20 California's power politics leave a lot of room for improvement.=20 The state has considered taking over power plants through eminent domain an= d=20 implementing a windfall profits tax to take some of their earnings away.=20 Meanwhile, Attorney General Bill Lockyer is offering a bounty for any=20 information that could prove wholesalers worked together to drive up prices= ,=20 which could lead to more lawsuits and investigations.=20 If California wants to encourage construction, it's got to tone down its=20 vilification and stop adding more restrictions, Wheatley said.=20 ``Whenever we go into an area and consider building a power plant, we have = to=20 look at the economics of the facility, we have to look at the regulatory=20 situation, esoteric things like what the mindset is like,'' he said.=20 ``California is not the easiest place in which to do business.''=20 Some power companies have invested so much in pipelines, gas reserves and= =20 plants already under construction that it's folly to turn back now.=20 ``We want to build in California, but we need to have regulatory stability = or=20 at least regulatory clarity to move these things forward because they're=20 half-billion dollar projects in some cases,'' said Tom Williams, a spokesma= n=20 for Duke. ``That's a lot of bananas.''=20 Senators Dianne Feinstein, D-Calif., and Gordon Smith, R-Ore., plan this we= ek=20 to introduce legislation urging FERC to impose a temporary price cap over t= he=20 11 Western states. They hope to keep prices down in the short-term and give= =20 California and other troubled states a breather to make long-term decisions= .=20 Feinstein's bill does not yet specify a price. Some economists say $150 to= =20 $250 per megawatt hour would be just and reasonable, yet provide generators= a=20 profit. Prices have gone as high as $1,500 for the same amount of power in= =20 the past year.=20 Tying the price cap to the cost of making power could make it easier for=20 generators to swallow, said Severin Borenstein, director of the University = of=20 California, Berkeley's energy institute. Such a cap would account for=20 variables such as the wildly fluctuating cost of natural gas used to genera= te=20 much of the energy in California's power plants.=20 Price caps can be effective, but only if they are very carefully designed,= =20 warned Frank Wolak, chairman of the Independent System Operator's market=20 surveillance committee. The ISO manages the state's power grid.=20 Set them too high, and companies will only bid that amount, saving little= =20 money, Wolak said. Too low, and the generators could choose to sell elsewhe= re=20 unless all other nearby states have the same price limits.=20 Also, capping the most expensive energy sales -- power sold on the spot=20 market at times of high demand -- won't lower prices for other key componen= ts=20 of the state's energy supply, such as electricity bought for the next day's= =20 power needs.=20 ``Suppose you're paying $150 every single (megawatt) hour. That still puts = us=20 in big trouble with wholesale energy costs,'' Wolak said.=20 The state already has spent $5.1 billion buying power for customers of=20 California's three largest investor-owned utilities, which lost their credi= t=20 -- and thus their ability to buy power -- after paying sharply higher costs= =20 for wholesale energy.=20 Borenstein said paying even $250 a megawatt hour is still preferable to the= =20 unknown, particularly since economists have warned that there is virtually = no=20 upper limit to what energy companies can charge.=20 ``This summer we are going to be truly short of power and at those times th= e=20 price is going to be at the price cap, and if we don't have a price cap, th= ey=20 will be way above the price cap,'' Borenstein said.=20 FERC remains opposed to price caps, but after months of complaints, the boa= rd=20 this week is considering a limited cap on the most expensive last-minute=20 power buys.=20 The proposal would cap California but not the rest of the West, and order= =20 wholesalers to sell to the state during the most extreme power shortages.= =20 Though it provides some cushioning, it does not address the high prices=20 California swallows the rest of the time. That's the point of Feinstein's= =20 bill.=20 ``The crisis point is this summer to next summer and we need some federal= =20 assistance,'' said Howard Gantman, spokesman for Feinstein. ``This would=20 assure the generators a reasonable profit and continue to spur on further= =20 investment into new plants.''=20 On the Net:=20 California Energy Commission: www.energy.ca.gov=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Credit agency cites power troubles; lowers state's bond rating=20 Wednesday, April 25, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/04/25/s= tate0 552EDT0127.DTL=20 (04-25) 02:52 PDT SACRAMENTO, Calif. (AP) -- A major credit rating agency h= as=20 downgraded California's state bonds, citing the financial drain from the=20 continuing energy crisis.=20 ``The downgrade reflects the mounting and uncertain cost to the state of th= e=20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy,'' Standard & Poors said Tuesday.=20 The state's ability to repay its debts, while still considered adequate, ha= s=20 been reduced, S&P said in dropping the rating on California's general=20 obligation bonds by two notches from AA to A+. It similarly revised other= =20 lease ratings, and ratings for the California Health Facilities Constructio= n=20 Loan Insurance Fund, known as Cal Mortgage.=20 S&P is one of three major rating agencies watching the state's financial=20 performance. Credit ratings help determine how much states and other=20 borrowers must pay when issuing bonds. The lower the rating, the higher the= =20 interest rate the state must pay to attract bond investors.=20 The downgrade now puts California's credit rating behind many other states= =20 and on par with Hawaii, which also has an A+ rating from S&P.=20 Preliminary estimates from the state's Treasurer's Office estimated that th= e=20 downgrade would cost the state an additional $190 million to $570 million o= n=20 the $12 billion in general obligation bonds that have been authorized, but= =20 not yet issued, for ongoing expenses, including school and transportation= =20 projects.=20 The agency said the rating was not reduced further because of California's= =20 diverse economy and a proposed revenue bond slated to reimburse the state's= =20 treasury. S&P said a further downgrade could occur if California does not= =20 follow through on plans to issue more than $10 billion in revenue bonds to= =20 pay off its energy-related debts.=20 The agency put the state's general obligation bonds on a credit-watch ``wit= h=20 negative implications'' Jan. 19, shortly after California began buying powe= r=20 for its two largest utilities, Southern California Edison and Pacific Gas a= nd=20 Electric Co.=20 On the Net:=20 Standard & Poors www.standardandpoor.com=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- S&P downgrades California's bonds citing energy troubles=20 Wednesday, April 25, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/04/25/n= ation al0443EDT0483.DTL=20 (04-25) 01:43 PDT SACRAMENTO (AP) -- A major credit rating agency has=20 downgraded California's state bonds, citing the financial drain from its=20 continuing energy crisis.=20 ``The downgrade reflects the mounting and uncertain cost to the state of th= e=20 current electrical power crisis, as well as its likely long-term detrimenta= l=20 effect on the state's economy,'' Standard & Poors said Tuesday.=20 The state's ability to repay its debts, while still considered adequate, ha= s=20 been reduced, S&P said in dropping the rating on California's general=20 obligation bonds by two notches from AA to A+.=20 The agency said the rating was not reduced further because of California's= =20 diverse economy and a proposed revenue bond slated to reimburse the state's= =20 treasury. S&P said a further downgrade could occur if California does not= =20 follow through on plans to issue more than $10 billion in revenue bonds to= =20 pay off its energy-related debts.=20 The agency put the state's general obligation bonds on a credit-watch ``wit= h=20 negative implications'' Jan. 19, shortly after California began buying powe= r=20 for its two largest utilities, Southern California Edison and Pacific Gas a= nd=20 Electric Co.=20 On the Net:=20 Standard & Poors www.standardandpoor.com=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- State bond rating lowered=20 Posted at 10:53 p.m. PDT Tuesday, April 24, 2001=20 BY JENNIFER BJORHUS=20 Mercury News=20 One of Wall Street's top credit-rating houses has downgraded California's= =20 bonds because of the state's handling of the energy crisis, a move that cou= ld=20 ultimately cost taxpayers tens of millions of dollars.=20 Saying that mounting and uncertain power costs are likely to do lasting har= m=20 to California's economy, New York-based Standard & Poor's on Tuesday lowere= d=20 the state's credit rating on its ``general obligation'' bonds two notches,= =20 from AA to A+ with a negative outlook. That puts California near the bottom= =20 of the state bond heap with only one state -- Louisiana -- rated lower.=20 Standard & Poor's said the rating could go lower if the state cannot resolv= e=20 the power crisis.=20 The downgrade will cost California millions of dollars in coming years=20 because a lower rating makes it more expensive for the state to issue gener= al=20 obligation bonds to finance projects such as school construction.=20 The interest on those bonds, which will rise from an estimated 5 to perhaps= =20 5.25 percent, is paid from the state's tax-financed general fund. Although= =20 the rating change doesn't apply technically to the different type of bond t= he=20 state plans to issue by June for power purchases, it will probably make tho= se=20 bonds more expensive for the state, too, bond experts say.=20 Heightened urgency=20 ``There's a sense of urgency that this problem has been escalating,=20 particularly since the PG&E bankruptcy,'' said David Hitchcock, California= =20 analyst for Standard & Poor's. ``This problem could move quickly.''=20 At least one bond expert said the downgrade was surprising.=20 ``To me it's clear that S&P doesn't have much faith in this power-bailout= =20 plan of the Legislature and the governor. To me that's the reason they did= =20 it,'' said Zane Mann, publisher of the monthly California Bond Advisor=20 newsletter.=20 No single new piece of information triggered the downgrade, Hitchcock said.= =20 The major factor, he said, was simply spiraling costs and no long-term plan= =20 for paying the bills. Last week Gov. Gray Davis said the state had been=20 spending $73 million a day to buy electricity, up from $45.8 million a day = in=20 late March. Hitchcock said some energy traders suspect the actual costs are= =20 higher.=20 All three major Wall Street credit-rating agencies have California on=20 so-called ``credit watch,'' but only Standard & Poor's has downgraded. One= =20 municipal bond expert said Standard & Poor's had been ``trigger happy'' and= =20 eager to downgrade. Raymond Murphy, Moody's California analyst, said he had= =20 no immediate plans to change California's bond rating, but that he's anxiou= s=20 to see officials produce a long-term plan for financing power purchases.=20 Murphy said he had a conference call with state officials about the issue= =20 Tuesday morning.=20 ``We want the state to develop the plan that gets the general fund out of= =20 power purchasing,'' Murphy said.=20 The state says it's working on that, but there's a roadblock.=20 Revenue bonds=20 A major piece of the state's plan is to have the Department of Water=20 Resources issue $10 billion to $14 billion in revenue bonds to pay back the= =20 general fund for what has been taken to buy power in recent months. But tha= t=20 portion of the plan is tied up in a dispute between PG&E and the California= =20 Public Utilities Commission over how to spend the extra money generated by= =20 electricity rate increases. The dispute has also held up the $4.13 billion = in=20 financing the state had arranged to pay down the advances it took out of th= e=20 general fund to buy power.=20 To break the logjam, officials from the state treasurer's office have asked= =20 lawmakers to pass emergency legislation to allow the state to issue the=20 revenue bonds.=20 ``California's credit rating and financial strength will be in jeopardy unt= il=20 the state's general fund is repaid for energy costs,'' state Treasurer Phil= ip=20 Angelides said in a statement Tuesday.=20 State Finance Director Tim Gage and Gov. Davis both downplayed the=20 significance of the rate change. Through a press officer, Davis said the=20 state's economy remains fundamentally strong.=20 The state was downgraded to a lower A rating in 1994 and went on to see=20 tremendous economic growth.=20 Mounting pressure=20 Still, a downgrade is bad news that sends a psychological signal in both th= e=20 finance and real worlds. Some industry watchers said they hope the downgrad= e=20 pushes lawmakers and state officials, whom they perceive to be too slow in= =20 responding to the crisis.=20 ``It sounds like the bond market might be out ahead of some of the=20 policy-makers in California,'' said Severin Borenstein, director of the=20 University of California Energy Institute. ``We're facing a real emergency= =20 here.''=20 John Hallacy, managing director of municipal research at Merrill Lynch, sai= d=20 a lower credit rating puts more pressure on the state to issue the revenue= =20 bonds fast, and to conserve cash.=20 ``We're kind of at the critical juncture now where the pieces are still all= =20 over the floor,'' Hallacy said of the state's efforts to build and approve = a=20 long-term solution to the power crisis.=20 To Nettie Hoge, executive director of the Utility Reform Network and a=20 leading critic of the state's efforts to bail out PG&E and Southern=20 California Edison, the downgrade means ``the analysts are watching.'' She= =20 said she hopes that President Bush and the Federal Energy Regulatory=20 Commission are watching, too.=20 ``Hopefully, this is a wake-up call for FERC. Those guys could solve this i= n=20 a nanosecond,'' Hoge said. ``This is just another milepost on the downward= =20 spiral to economic catastrophe.''=20 Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----- Q&A with Gov. Gray Davis on energy issues=20 Gov. Gray Davis visited the Mercury News editorial board Monday. On the=20 subject of electricity, Davis talked about increasing the number of power= =20 plants, the rejection of price caps by the Federal Energy Regulatory=20 Commission, and the condition of the state's two largest utilities, Souther= n=20 California Edison and Pacific Gas & Electric. Davis has proposed a deal to= =20 rescue Edison, and the Legislature is considering it. PG&E has filed for=20 bankruptcy.=20 Here is a condensed version of Davis' remarks.=20 Q: What would you like to say by way of introduction about the state's=20 electricity problems?=20 Davis: There are really two problems. One is the amount of power available= =20 and the other is the price of power.=20 In 2002, we'll have more megawatts on line, at least 5,000 more. By 2003,= =20 we'll have a slight excess of power over demand. That's very important.=20 Because at the moment, we import 20 percent of our power. We have no=20 leverage. We are at the mercy of forces that show no mercy. That will never= =20 change until we have more power than we need.=20 OK, price. As you know, the only entity that can influence the [wholesale]= =20 price of electricity is the Federal Energy Regulatory Commission.=20 Deregulation surrendered the ability of the state to do that.=20 In 1999, this state for all power, including municipal power, spent roughly= =20 $7 billion. In 2000, we spent $32.5 billion. I don't know what it will be= =20 this year, but it will be substantially higher.=20 Through all this the Federal Energy Regulatory Commission has refused to do= a=20 thing, zero, zippo. Lest you think I'm being partisan, that commission=20 consists entirely of Clinton appointees.=20 The final piece is the financial consequences of what's happened to date. I= t=20 is our hope that if we can keep Southern California Edison credit-worthy an= d=20 able to re-enter the power purchasing market Jan. 1, 2003, we can then go t= o=20 the PG&E creditors committee [the generators to whom PG&E owes money] and s= ay=20 to them: ``Look at the arrangement we made with Southern California Edison.= =20 We believe that this is a far better deal than PG&E can give you.''=20 I think this is a fair plan. We get every electron that Edison's utility ow= ns=20 committed for 10 years, at a cost-of-service basis. Under [current law] the= y=20 could sell that next March at market rates. We got $400 million returned fr= om=20 the holding company, a $3 billion investment in the transmission and delive= ry=20 systems .?.?. a permanent easement on about 20,000 acres of environmental= =20 property around all their hydro facilities.=20 Q: Do you have in mind a finished product for the changes that are happenin= g=20 in the electric system? What will it look like in a couple of years?=20 Davis: It is my expectation that the utilities will be purchasing the power= =20 entirely, commencing Jan. 1, 2003. Our goal is to get them back in business= .=20 In addition to investor-owned utilities, I believe we also need a public=20 power authority. At some point I believe the private sector will say to=20 itself, ``I want to build new plants to replace the 40-year-old plants, but= =20 do I really want to get the state to a 15 percent margin over supply, there= by=20 reducing the value of the electrons I already own?'' If they do, God bless= =20 them. But if they don't, at least we'll have the opportunity to build them= =20 ourselves.=20 Once we have even a slight margin of capacity over demand, the spot market= =20 prices will come down dramatically.=20 Q: You said in February that you could have solved the electricity problem = in=20 20 minutes if you'd been willing to raise rates. Now, rates are going to be= =20 raised. Should you have favored a rate increase earlier?=20 Davis: I should have been more specific. I should have said I could have=20 solved it in 20 minutes if I wanted to triple rates. I think the rate=20 increase I proposed is fair. It rewards people who are the most energy=20 efficient, the people who only use up to 130 percent of their baseline. The= y=20 are approximately half the state. So half the state will see no rate=20 increase, beyond the 10 percent that everyone saw in January.=20 Q: Is the state willing to spend anything it costs to keep the lights on, o= r=20 at some point, would it stiff the generators and just say we will accept a= =20 blackout?=20 Davis: We have to provide power. There are many people who have medical=20 devices that have to keep running. Blackouts can cause deaths, traffic=20 accidents, all kinds of calamities that I wouldn't want to happen.=20 I'm reluctant to tell the generators we'll pay any price, so I'm not going = to=20 say we'll pay absolutely any price, but my bias obviously is to find a way = to=20 keep the lights on.=20 Q: When will you reveal how much electricity the state has bought, from wha= t=20 companies, at what prices and what this will cost the state this year and i= n=20 coming years?=20 Davis: We'll reveal an awful lot of information as soon as the bonds go to= =20 market. [The state plans a bond issue to cover the upfront costs of=20 purchasing electricity.] That information has to be made public. That will= =20 probably be in less than two months.=20 Believe me, I don't like going around getting beat up for hiding informatio= n.=20 I'm doing it for one reason only, which is that I know every additional edg= e=20 I give the generators will result in higher prices for customers.=20 Q: There's an impression that the state budget is being drained by the powe= r=20 crisis. Is that right?=20 Davis: The simple answer to that is no, because the state will be fully=20 reimbursed with interest as soon as these bonds are sold.=20 At the moment, in the short term, it is crowding out other spending. But I= =20 think everyone understands that's a temporary phenomenon, until the state i= s=20 reimbursed by bonds that are repaid over time through the rate structure th= at=20 I proposed.=20 Q: Would it be your pledge that ratepayers, not taxpayers, will fully repay= =20 the state's cost in purchasing electricity?=20 Davis: That is the assumption underlying these bonds. That's right as it=20 relates to electricity, but obviously the conservation incentives came out = of=20 the general fund.=20 Q: Have you talked to President Bush about this?=20 Davis: I hear all these rumors as to why the Bush administration doesn't wa= nt=20 to be helpful, but this state, and particularly this region, has been=20 disproportionately helpful in America's economic growth and technological= =20 productivity. If he wants America to grow, it behooves him to keep Californ= ia=20 growing. To date, I think it's fair to say that of my public requests,=20 President Bush has been responsive to all but the price caps.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------- Davis: Power surplus by 2003=20 Published Wednesday, April 25, 2001, in the San Jose Mercury News=20 BY DON THOMPSON=20 Associated Press=20 SACRAMENTO -- Even as power grid operators warned the state's lights could= =20 flicker again by week's end, Gov. Gray Davis on Tuesday pledged that=20 Californians will be wallowing in electricity by the end of 2003.=20 Davis compared the emergency to fighting a large forest fire -- in a few=20 years, the fire will be out and the state will be out of the energy-buying= =20 business.=20 Just in case Davis' plans fail, however, an Assembly task force is=20 considering options, including having the state buy Southern California=20 Edison.=20 Critics have hammered Davis for his handling of the power crisis, and his= =20 predictions have faltered before.=20 In January, Davis set three goals as energy prices spiraled upward and shor= t=20 supply endangered the state's large investor-owned utilities: to avoid=20 blackouts, bankruptcies and rate increases.=20 All three have since happened.=20 On Tuesday, Davis lowered the bar substantially: ``If the lights stay on, w= e=20 will have succeeded. Our goal is to keep the power flowing in this state, t= o=20 avoid blackouts, to moderate the price increases in a fair and reasonable w= ay=20 and reward those who conserve the most, and to chart a steady course.''=20 Even keeping the lights on may be difficult as temperatures climb this week= ,=20 warned the Independent System Operator, which runs the state's power grid.= =20 The ISO declared a Stage 2 emergency Tuesday afternoon when the state came= =20 within 5 percent of running out of electricity after two power plants went= =20 off-line unexpectedly.=20 Spring's first warm spell is likely to boost demand by 2,000 megawatts -- t= he=20 equivalent of two large power plants able to power 1.5 million homes -- the= =20 ISO said in calling for more energy conservation.=20 The increase comes as hydroelectric power runs low across the dry Northwest= ,=20 and as 13,000 megawatts of power remain unavailable due to planned or=20 unplanned plant shutdowns.=20 Davis insisted that statewide conservation this summer can stave off=20 widespread blackouts as the state rushes to build its way out of the supply= =20 shortage.=20 ``At the end of 2003 we will have more power than we need, we will have=20 regained control of our energy destiny,'' Davis promised in a speech to the= =20 California Chamber of Commerce. ``By the end of 2003 you can have all the= =20 appliances on. You can, you know, don't turn anything off, you can just=20 luxuriate in all your electricity.''=20 Davis promised a 15 percent supply surplus by 2004.=20 To that end, he named former diplomat Richard Sklar to head a new=20 ``generation implementation task force'' of business consultants charged wi= th=20 speeding up power plant siting and construction. Before entering public=20 service, Sklar was president of San Francisco-based construction machinery= =20 manufacturer O'Brien Kreitzberg.=20 Standard and Poors dropped California's credit rating Tuesday, warning that= =20 continued purchases could hurt the state treasury. ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------- Great America to avoid blackouts=20 Published Wednesday, April 25, 2001, in the San Jose Mercury News=20 Associated Press=20 Paramount's Great America amusement park in Santa Clara has struck a deal= =20 with the municipal utility to keep the power on even during rolling blackou= ts=20 this summer.=20 The park will cut electricity usage by 10 percent on ``high-demand days'' -= -=20 which could be nearly every day this summer -- by turning off fountains,=20 decorative lighting and air conditioning in some buildings.=20 Santa Clara's city-owned utility, Silicon Valley Power, will use the power= =20 savings to help avert blackouts, said Larry Owens, customer service manager= =20 for the utility. Even if the situation gets dire and blackouts are required= ,=20 the park will be exempt because of the arrangement, Owens said.=20 About 20 companies with facilities in Santa Clara, including Intel Corp., S= un=20 Microsystems Inc. and Agilent Technologies Inc., have agreed to the same=20 arrangement, as has Santa Clara University. ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------- State's bond rating is lowered=20 The energy crisis brings an A+ designation, which likely will mean higher= =20 borrowing costs.=20 April 25, 2001=20 By JOHN HOWARD The Orange County Register=20 SACRAMENTO California's electricity crisis prompted a top credit agency to= =20 downgrade the state's credit rating by two notches to its lowest level in= =20 seven years. The move is likely to force the state to pay millions of dolla= rs=20 more in interest when it borrows.=20 "It's a statement from Wall Street to California to get your act together,"= =20 said Assemblyman George Runner, R-Lancaster, a GOP energy- finance expert i= n=20 the Assembly.=20 "The ratings action is serious and should be a warning to the state that it= =20 is on the wrong course," added Mark McCray, a municipal-bonds manager at=20 Newport Beach-based Pimco. "This downgrade will cost the state a lot in ter= ms=20 of increased financing and costs until, if ever, it is upgraded."=20 Standard and Poor's Corp., concerned about the $5 billion drained from the= =20 state's coffers to buy power this year, cut California's credit rating from= =20 AA to A+. The reduction applies to voter-approved bonds, called general=20 obligation, or G.O., bonds, that typically provide funds for schools, parks= ,=20 water projects and highways.=20 About $19.3 billion worth of G.O. bonds have been approved by voters. About= =20 $12 billion have not yet been sold.=20 The credit-rating cut would force the state to pay higher interest rates to= =20 attract buyers to the unsold bonds. If the state were to sell all $12 billi= on=20 under the lower credit rating, it could be forced to pay an additional $190= =20 million to $500 million annually in interest, depending on market condition= s.=20 Shortly after Standard and Poor's announcement, state Treasurer Phil=20 Angelides urged lawmakers to limit the size of the state's looming=20 electricity-bond sale to $10 billion - or $2.4 billion less than Gov. Gray= =20 Davis wants.=20 Angelides said capping the revenue bond at $10 billion would head off legal= =20 challenges from utilities, expedite the passage of the bond plan through th= e=20 Legislature and allow the sale to go forward.=20 "At a minimum, we need an authorization of $10 billion," Angelides said. If= =20 Davis and lawmakers want more, they should do it later, Angelides added.=20 Davis has sought $12.4 billion. The rift between the governor and the=20 treasurer, both Democrats, marks their sharpest political divergence since= =20 the energy crisis erupted last year.=20 A Davis spokesman declined to comment on the difference. "We are working wi= th=20 the treasurer and others to draft legislation for that bond bill, and we'll= =20 continue to work with him," said Roger Salazar.=20 The Davis administration hopes to raise the money by selling revenue bonds,= =20 backed by a charge on consumers' utility bills. The sale had been planned f= or=20 May but has since been pushed back to June or July at the earliest.=20 But there is a clock ticking: The state has been spending $45 million to $6= 0=20 million a day for electricity. The longer the delay in selling the bonds, t= he=20 less money will be available to buy cheaper energy for the state under=20 long-term contracts.=20 Before funding future power purchases, the bond proceeds must go to pay bac= k=20 the $5 billion the state has spent on electricity purchased since January o= n=20 behalf of California's three big cash-strapped utilities.=20 While the Standard and Poor's downgrade won't directly affect the electrici= ty=20 bonds, since they won't be G.O. bonds, it does reflect Wall Street's concer= n=20 about the unstanched outflow of state funds.=20 "In my mind there's no doubt that S&P is doing this because they simply don= 't=20 have faith in the proposed bailout and what the state is going to have to g= o=20 through to solve its power problems,' said Zane Mann, the editor of a=20 newsletter that tracks California's general-obligation bonds.=20 Mann said the A+ rating puts California "below average" nationally. The=20 rating downgrade sliced the value of an existing 30-year California G.O. bo= nd=20 by 3.5 percent, he said. But since most investors who buy California bonds= =20 hold them to maturity, Mann said the losses would be largely confined to=20 paper.=20 Assemblyman Fred Keeley, D-Boulder Creek, who authored the bill that=20 authorized the power bonds, said the sale should be limited to the $10=20 billion originally provided for in the bill. The bill provides for the=20 utilities to forward money collected from ratepayers to the state Departmen= t=20 of Water Resources, which purchases the power.=20 As the state spent more than anticipated on emergency electricity purchases= ,=20 Davis sought to increase the size of the bond sale. But that suggestion has= =20 led the utilities to challenge the bill's rate- diversion mechanism, which= =20 has "put a cloud on our ability to acquire financing," Keeley said.=20 Assembly Republican Leader Dave Cox of Fair Oaks said he would strongly=20 support any move to cap the amount of borrowing the state would do to buy= =20 electricity.=20 His staff said Republicans are skeptical that the ratepayers' revenues are= =20 sufficient to cover the costs in the Davis administration's electricity-=20 rescue plan.=20 "Nobody believes that the revenue stream is wide enough to cover all the=20 governor's energy solutions. It's still being sucked up by the state's=20 utilities," said Cox spokesman Jaime Fis Fis.=20 Register staff writers James B. Kelleher and Diana McCabe and the Associate= d=20 Press contributed to this report.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- --------------------------- Fire stokes wholesale gas cost=20 The question is whether the retail price will climb, too.=20 April 25, 2001=20 By ANNE C. MULKERN The Orange County Register=20 The Tosco refinery fire may fuel rising prices on the gasoline retail marke= t.=20 The spot-market price rose 10 cents within hours of the fire. Photo: Leonard Ortiz / The Register ? ? Wholesale gasoline prices jumped Tuesday, a day after fire erupted at Tosco= =20 Corp.'s Carson refinery.=20 But energy experts said it is too soon to know whether the fire will drive= =20 retail gas prices higher.=20 Gas prices already are climbing because of increased demand heading into=20 summer, higher costs for additives that make cleaner-burning fuel and a shi= ft=20 in marketing strategy by Tosco, which wants to sell less gas at a higher=20 price.=20 The refinery fire has the ability to worsen an already bleak situation,=20 energy experts said.=20 "It doesn't take much in this market,'' said Suzanne Garfield, California= =20 Energy Commission spokeswoman. "It's very volatile.''=20 Tosco said it will shift any lost gasoline production to its Wilmington=20 refinery. It was unclear, however, how long the Carson refinery would be do= wn=20 for repairs. Tosco spokesman Clark Wrigley couldn't say whether the=20 Wilmington plant could make enough gasoline to meet the company's needs in= =20 Southern California.=20 Within hours of the fire, gas prices had jumped 10 cents per gallon on the= =20 spot market, a daily market where refiners sell surplus supplies. That was= =20 driven mainly by speculation, as those with gas to sell waited to see how= =20 high the price would go. Prices later fell back to an increase of about 3= =20 cents from a day before.=20 "Just the fact that there is a hiccup in the refinery makes everyone cringe= =20 and say, 'I'm not going to sell,''' said Bob van der Valk, manager at Cosby= =20 Oil, a Santa Fe Springs gasoline wholesaler.=20 A day or so of higher spot prices probably won't affect retail costs. But i= f=20 wholesale prices stay up for several days, retailers will pass on those cos= ts=20 to consumers.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- --------------------------- Power Companies and Regulators Must Take Steps To Avoid Spread of=20 California Power Virus/ Andersen Analysis WASHINGTON--(BUSINESS WIRE)--April 24, 2001 via NewsEdge Corporation - A "new virus spawned in California" poses formidable challenges requiring new strategies on the part of power companies, regulators and policymakers to contain and reverse its damage, according to "Energy Crisis in the Western United States: Lessons for Navigating Regulatory and Market Minefields," a new Andersen report released today. "The implications for the development of competitive energy markets go far beyond the Western United States," Andersen's national utility practice head Matthew D. Smith told a Washington briefing. "Unfortunately, California has taught the nation that regulatory and political barriers can create and sustain an energy crisis." "California has demonstrated that the risks in the electricity industry, if not properly acknowledged and managed, can simultaneously and profoundly impact all market participants. To be effectively managed, these risks need to be exposed, assumed or shared, measured and monitored. When they are hidden or ignored, all parties can potentially suffer. A shared, integrated view of these risks, and a strategy for their assumption and management, is critical to avoiding rapid value destruction within the energy market," Smith said. An Andersen survey of senior utility executives outside California, also released at the briefing, indicates most utility companies believe they inoculated themselves against the California virus so that it is unlikely to affect their operations beyond slowing the pace of deregulation and increasing investor scrutiny. However, based on the potential implications it sees of the California situation, Andersen believes a series of booster shots are advisable for power companies and regulators. "To deliver reliable service at a predictable cost in today's environment, companies must focus on market integration by developing new and innovative relationships between suppliers, customers, employees and investors -- while working with government officials and regulators to chart a smoother transition to a deregulated power market," according to Smith. Eight Implications The Andersen report identified eight overriding implications emanating from the Western energy crisis that are shaping the longer-term operations of the Western grid, the regional and national economy, domestic energy policy and the industry's evolution: 1. Increased deregulation uncertainty and risk -- Tension and differences between state and federal regulators raise the specter of repeating the regulatory and political conundrum California's investor-owned utilities have faced. If federal initiatives open wholesale markets while retail markets remain regulated, a crucial question is raised: Will state regulators pass-through higher wholesale costs if they should materialize? Tensions between state and federal regulators over policies on deregulation will grow if states delay or abandon retail competition. As wholesale markets are deregulated and RTOs begin operating, the prudence principles that state regulators have used for many years may have to be changed. For example, if FERC and RTO monitors determine that deregulated wholesale markets operate fairly, prices derived from those markets must be considered reasonable. If so, these costs should be allowed into state-regulated retail rates without regard to the prudence principles state regulators have used for years. Therefore, utilities' traditional burden of proving costs are or are not justifiable shifts to regulators. 2. Reduced investor confidence -- Prior to deregulation, stringent prudence review and disallowance of generation costs in the rate base made regulatory risk largely uncontrollable, killing IOU interests in most new investment. A major purpose of deregulation was to create an environment in which risk could be managed, but California's political and regulatory environment provides only a limited ability to manage risks. The confidence and perceptions needed to support investment decision-making will be slow to return given the approach of the state to remedy the crisis. 3. Contributing factor in economic softening -- Uncertain energy reliability and higher costs can drive-out marginal businesses, cause healthy companies to constrain expansion, and lead new entrants to question whether to make new investments. As such, an extended energy crisis contributes to inflation pressures and may slow economic growth. 4. Increased pressure on the Western grid -- Even as capacity increases and demand reductions work to resolve the California crisis, these solutions have long-term implications for the Western Grid. These include a realistic possibility of California becoming an "energy island" as a result of near-term reduction in available regional resources for export to California; increased emphasis on security control to protect against overall Western grid failure as sub-regions have problems; RTO requirements to strengthen locally available supplies to bolster overall system reliability; longer-term development of new plants using plentiful coal resources and clean coal technology will alter the pattern of imports into California; and the emergence of Mexico as a major supplier to southern California and Arizona, contributing to a bifurcation of the Western Grid into northern and southern markets. 5. Unbundling failures that push companies back to portfolio strategies -- For California investor-owned utilities, unbundling has achieved neither the least-cost solution sought by regulators nor value maximization targeted by investors. This necessitates a reevaluation of portfolio management strategies potentially involving generation, transmission, power trading and marketing, and retail businesses in multiple geographies serving multiple markets. 6. Ineffectiveness in changing siting and development restrictions -- California's retail price caps and multiple explanations for the crisis have left accelerated siting processes and environmental standards changes open to challenge by various interests. In addition, limiting application of new siting orders only to small generators contributes to uncertainty and investor hesitancy. 7. Procurement management that alters user-utility negotiating leverage -- Competitive markets compel participants -- suppliers, marketers, large industrial buyers, etc. -- to strategically manage procurement as a critical value-driver. Because risk is explicitly shared and always has the potential of shifting advantage to either seller or buyer, the sophistication of negotiations and contracts increases as competitive markets evolve. 8. Increased emphasis on distributed generation and new technologies -- California's reliability and price challenges have triggered a re-emergence of energy crisis measures from the 1970s. End-users are investing in solutions they control, and the distributed generation market is being aggressively developed among large retailers, industrial users and residential customers. This makes possible the development of microgrids connecting consumers in local areas and related changes in traditional grid systems, from modifications in interconnection agreements to changing definitions of reserve margins and system reliability. Industry Executives' Response Senior executives from sixteen non-California utilities with a combined market capitalization over $120 billion and $145 billion in revenues responded to an Andersen survey with their views of the implications of the California power crisis for their companies and for the industry. The survey, conducted between February 19, 2001 and March 2, 2001 by Knowledge Systems &amp; Research, Inc. of Syracuse, found that the companies are observing the California situation carefully, expect a slowing -- but not a turnaround -- of deregulation, and believe their internal plans and preparations are on-target for the changing environment: -- Deregulation -- Nearly all executives believe recent California events will slow the pace of deregulation over the next five years for states that have not begun or finished writing restructuring legislation. None believe that it will cause advanced states to re-regulate markets, although many states will review their legislation to assess their risk of duplicating California's current situation and make any changes necessary to avoid it. -- National legislation -- Few executives suggest the situation will initiate national energy policy/legislation; others believe it will be a continuing issue but, because of state-to-state variances, Congress will be unable to pass any comprehensive measures or force states to a restructuring timeline. Some expect additional state-level legislation. -- Company strategies -- Most do not see any changes to their business models or strategies for generation, distribution or supply procurement as a response to the situation in California. However, many have expanded their risk management programs, reduced spot market purchases, begun emphasizing long-term supply contracts, planning new power generation capacity, and started hedging with futures trades. Those facing price caps are rethinking their stance on them. -- Investor scrutiny -- Many executives indicate their shareholders are aware of the situation and investors -- particularly institutional investors -- are more heavily scrutinizing their actions. Many say news coverage has prompted retail, commercial and industrial customer skepticism of industry restructuring. -- Transmission deregulation -- Many executives agree the California situation will increase interest in FERC's regional transmission organizations (RTO) deregulation effort. Utility Company Action Items Both to guard against a sudden California cascade and as a potentially powerful competitive thrust, forward-thinking utilities should bolster their basic preparedness with a variety of tactics -- or inoculations -- specifically aimed to combat a potential California power virus, according to Andersen partner Mark Moskovitz: -- Improve procurement management and risk management capabilities -- To manage exposure to volatile supply and demand shifts, organizations must be sure that comprehensive and clear supply procedures, controls, decision points, risk limits and communications are in place. -- Plan and design innovative rate and pricing structures -- Companies and regulators must focus on communicating price signals that create value for both the customer and the provider. Innovative rate and pricing structures that more closely tie the customer's price to the real cost of supply will better signal the value of the service as well as providing more accurate information upon which both end user and supplier can make decisions. -- Increase emphasis on demand side management (DSM) strategies -- In addition to new pricing strategies to help achieve and maintain supply-demand equilibrium, companies must now focus on employing more extensive and innovative demand side management programs. These programs may offer significant benefits with limited risk to both the customer and energy supplier. -- Assess the supply and generation dynamics in adjacent jurisdictions -- Companies must take a broader view -- beyond typical geographic market definitions -- of the economics of generation and related business decisions in an increasingly volatile market in which supply will follow the best prices. -- Develop contingency plans for the continued deferral of new generation capacity -- In the face of potential ongoing generation capacity shortages, companies and regulators must be prepared to move with a portfolio of strategies to meet demand, including for example DSM, flexible pricing and distributed generation. In addition, they should explore efficiency-improving upgrades to existing facilities and seize any opportunity to accelerate near-term construction plans. -- Proactively address potential organizational disruption -- As regulatory and economic changes continue to churn the industry waters and companies adjust and/or restructure, they must be highly cogniscent of, sensitive to, and directly address employees' concerns with information about the company's future and theirs'. Industry/Regulatory Lessons There are also a number of broad primary lessons the electric power industry -- nationally and internationally -- should take away from its first major domestic test case in deregulation and restructuring, according to Andersen principal David O. Jermain: -- Simplify market design. -- Build a continuing role for regulators. -- Maintain communications with multiple constituent interests. -- Prepare contingency plans for extreme stress conditions. -- Couple real-time retail pricing with transparently priced wholesale competition. -- Provide special incentives for RTO investment, formation and development. -- Break down regulatory and political barriers to market signals and responses. Andersen is a global leader in professional services. It provides integrated solutions that draw on diverse and deep competencies in consulting, assurance, tax, corporate finance, and in some countries, legal services. Andersen employs 85,000 people in 84 countries. Andersen is frequently rated among the best places to work by leading publications around the world. It is also consistently ranked first in client satisfaction in independent surveys. Andersen has enjoyed uninterrupted growth since its founding in 1913. Its 2000 revenues totaled US$8.4 billion. Learn more at www.andersen.com. Copies of the "Energy Crisis in the Western United States: Lessons for Navigating Regulatory and Market Minefields" report can be obtained at www.andersen.com/energyandutilities. A PDF copy of the report can be obtained by contacting Melanie Fahey at 713/222-1600 or mfahey@sommersassoc.com CONTACT: Sommers &amp; Associates, Houston | Tom Sommers, 713/222-1600 |=20 tsommers@sommersassoc.com |=20 or | Andersen, Houston | Melissa Spradley, 713/237-2385 |=20 melissa.l.spradley@us.andersen.com ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------------------------------ Soaring Temperatures Produce Call for Conservation;=20 California ISO Also Announces New Outage Notification System and On-call=20 Number FOLSOM, Calif.--(BUSINESS WIRE)--April 24, 2001 via NewsEdge Corporation - As the mercury climbs this week, the California Independent System Operator (California ISO) is reminding consumers to curb their electricity use in order to minimize the strain on the power grid. The first warm spell of the season is expected to cause temperatures to jump 10 degrees, leading to a 2,000 megawatt increase in electricity consumption -- the equivalent of two large power plants. The week started out with a peak demand of 28,835 megawatts, but by tomorrow it is forecasted to top 30,500 megawatts. This comes as hydroelectricity resources (both Northwest and California) run low, more than 10,000 megawatts of power plants remain off line due to planned and unplanned maintenance, and some 3,000 megawatts of Qualifying Facilities or alternative energy suppliers are not operating. The California ISO's renewed call for conservation precedes a forecast of 90 degree highs in the inland areas that may tempt many Californians to flip on air conditioners. For conservation tips -- such as using fans instead of air conditioners, setting thermostat at 78 degrees, etc. -- please see the California ISO's web site www.caiso.com. New Notification System: With a challenging summer around the corner, the California ISO wants to do all it can to bring information to the public as quickly as possible. For that reason, a new notification system is being brought on line. Media and the public can now access the Internet to keep current if rotating blackouts are issued. Navigation: Visit www.caiso.com Click on System Conditions for current information on rotating outages (will appear only when activated) For previous outage information (last hour, etc.), click on Market Notices, scroll to bottom of page and click on Notice Log The California ISO is also testing a new service to notify newsrooms immediately by email should the ISO initiate electrical emergencies (Stage One - Three) or rotating outages. If you would like to participate, please email kwerst@caiso.com with a maximum of one email address per newsroom. Additionally, a single on-call media pager number has been established: 916/815-0679. To make it easier on media, ISO Communications will no longer be posting on-call schedules for media spokespersons on the web site. Simply call the on-call pager after hours. News releases alerting the media to electrical emergencies will continue, as will news conferences held on-site in Folsom and via telephone. As a reminder, if you wish to visit the ISO control rooms (in Folsom or Alhambra) always call ISO Communications first at 888/516-NEWS to make an appointment. Access to the control rooms may be limited on certain days, depending on system conditions and/or level of requests from media. CONTACT: California ISO | Patrick Dorinson, 888/516-NEWS | Media Hotline:= =20 888/516-NEWS =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Tues, 6/26: Energy-refund talks open on divisive note Sac Bee, Tues, 6/26: Daniel Weintraub: Davis' energy contracts preserve=20 long-term pain Sac Bee, Tues, 6/26: State, generators lock horns in talks Sac Bee, Tues, 6/26: Davis commends 3 'heroes' in generator refunds fight Sac Bee, Tues, 6/26: San Onofre blast released no radiation, spokesman says Sac Bee, Mon, 6/25: Congress demands list of participants in Cheney energy= =20 meetings Sac Bee, Mon, 6/25: Creditor expects no quick fix in PG&E's venture into=20 bankruptcy LA Times, Tues, 6/26: State, Power Firms Urged to Make a Deal LA Times, Tues, 6/26: Commerical Real Estate Apartments to Provide Own Powe= r LA Times, Tues, 6/26: Officials Oppose Utility Choice Power SF Chron, Tues, 6/26: Billions of dollars at stake as power talks begin SF Chron, Tues, 6/26: Compromise urged in electricity refund talks SF Chron, Tues, 6/26: Developments in California's energy crisis=20 SF Chron, Tues, 6/26: News briefs on California's power crisis Mercury News, Tues, 6/26: The haggling over refunds is under way=20 OC Register, Tues, 6/26: Power workers supported OC Register, Tues, 6/26: Judge sets tone at energy talks NY Times, Tues, 6/26: California and Energy Providers in Talks Over Electri= c=20 Fees NY Times, Tues, 6/26: Cheney Withholds List of Those Who Spoke to Energy Pa= nel WSJ, Tues, 6/26: Love, War and California Electricity=20 ---------------------------------------------------------------------------= --- -----------------------------------------=20 Energy-refund talks open on divisive note=20 By David Whitney Bee Washington Bureau (Published June 26, 2001)=20 WASHINGTON -- More than 130 lawyers and corporate chiefs crowded into a=20 courtroom Monday to begin secret talks aimed at ending months of bitterness= =20 and accusations over who should pay for California's haywire energy market.= =20 But the largely closed-door sessions before a Federal Energy Regulatory=20 Commission judge could be doomed from the start by sharply divided estimate= s=20 of how much money it will take to leave the past behind and launch Californ= ia=20 toward a new energy future.=20 The state says its consumers have been overcharged by at least $8.9 billion= ,=20 but Curtis Wagner, FERC's chief administrative law judge who is presiding= =20 over the settlement negotiations, said he believes at most it will be $2=20 billion to $2.5 billion.=20 "We told everyone that $8.9 billion is the floor. It is the most conservati= ve=20 possible number," Michael Kahn, a power grid official who is heading the=20 state's delegation, told reporters after Monday's talks.=20 The state's firm stance and Wagner's 15-day deadline for results had many= =20 predicting that little would come of the talks.=20 "I believe California is going to scuttle the talks. I believe that nothing= =20 will be good enough for them," said Arthur O'Donnell, editor of California= =20 Energy Markets, an industry newsletter.=20 More than $6 billion of the state's claims involve deals that are ineligibl= e=20 for refunds because of the seller or the date sold, O'Donnell said. FERC=20 doesn't have jurisdiction over all traders, and it already has excluded man= y=20 months of trades from refunds.=20 If the parties fail to settle within 15 days, Wagner has another week to=20 submit his own recommendations to the five FERC commissioners on how he=20 thinks they should resolve the disputes.=20 Wagner warned the parties that settlement would be the far preferable cours= e.=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement proceedings," the blunt-speaking judge said. "The time = to=20 put California's past energy problems to rest and (to) structure a new=20 arrangement for California's energy future is now."=20 Wagner held out a carrot to the generators, who have been pummeled by Gov.= =20 Gray Davis and state Attorney General Bill Lockyer over allegations of mark= et=20 manipulation to drive up prices and their profits. "There are questions=20 concerning whether the settlement should offer immunity from existing and= =20 future lawsuits and prosecutions against generators," Wagner said.=20 California argues that power plant owners and traders manipulated a badly= =20 flawed market to drive up prices, racking up $9 billion in overcharges from= =20 May 2000 until May 2001. But electricity sellers say they obeyed the law, a= nd=20 they contend it's unfair to change the rules retroactively.=20 Assuming the refund issue is resolved, Wagner said there are at least six= =20 other issues on the table. They include agreement on moving power out of th= e=20 volatile spot market and selling it under long-term contracts; eliminating= =20 natural gas transmission constraints blamed for the high cost of gas in=20 California; and settlement of financial issues connected with PG&E's=20 bankruptcy filing.=20 Wagner began the brief, public opening of the negotiations by reading a=20 statement from FERC's two newest members, Patrick Wood III and Nora Mead=20 Brownell, the forces behind the order convening the talks.=20 Wood and Brownell said in a statement that it is in "everyone's best intere= st=20 to bring closure" to the crisis, and urged the participants to resist tryin= g=20 to blame each other for the power debacle. "Everyone must leave (the=20 negotiations) with more than they came in with," they said.=20 But skepticism remained high Monday. "We didn't take two weeks to get into= =20 this," said one participant late in the day. "It's hard to see how we'll ge= t=20 out of this in two weeks."=20 Among the participants are legal teams representing about 50 government=20 agencies, utilities and power generators, including Pacific Gas and Electri= c=20 Co., Southern California Edison, San Diego Gas & Electric and their corpora= te=20 parents and subsidiaries.=20 The talks also include municipal utilities such as the Sacramento Municipal= =20 Utility District, more than a dozen California towns and irrigation=20 districts, and utilities in Washington, Montana, Idaho, Colorado, New Mexic= o=20 and Arizona.=20 Meanwhile, FERC commissioners Wood and Brownell were in Sacramento to confe= r=20 with Davis and legislative leaders, then conduct a fact-finding hearing wit= h=20 California regulators on the high price of natural gas.=20 Brownell and Wood, Davis said, are "committed to working together with us t= o=20 drive down the price of natural gas in California to get it closer to what= =20 the rest of the country is paying."=20 "I think we are turning a corner," he said. "Conservation has been=20 spectacular. The outlook looks much more positive than it did two months=20 ago."=20 For more information: For the latest information on the state's energy=20 crisis, including rolling blackouts, visit www.sacbee.com. Also, sign up fo= r=20 the latest news headlines and Stage 3 power alerts at=20 www.sacbee.com/news/news2go=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com.=20 Bee Staff Writers Carrie Peyton and Emily Bazar contributed to this report. Daniel Weintraub: Davis' energy contracts preserve long-term pain (Published June 26, 2001)=20 With blackouts held at bay, federal price controls taking effect and the sp= ot=20 market cost for wholesale electricity declining toward historic lows, thing= s=20 are looking good for Gov. Gray Davis. If current trends continue, the=20 governor's public approval ratings might soon resemble one of those fever= =20 charts tracking the meteoric rise in electricity prices last winter.=20 But even if his strategy turns out to be a political success, a major probl= em=20 created by the governor's approach will loom as a quiet threat to the state= 's=20 economy for years to come.=20 The centerpiece of his solution to the energy crisis was a series of 38=20 agreements with electricity generators under which the state will buy power= =20 for the next 10 years. Davis signed those deals in desperation, just when= =20 prices were peaking, with the very companies he has been accusing of gougin= g=20 the state.=20 Now that prices have begun to fall, Davis is taking credit. His advisers ar= e=20 even trying to suggest that the existence of the long-term contracts has=20 contributed to the more favorable conditions in the market.=20 "It's economics 101," says David Freeman, one of the governor's closest=20 energy advisers.=20 But the most famous rule of economics 101 -- the law of supply and demand -= -=20 suggests that the contracts have little, if anything, to do with the recent= =20 decline in electricity prices. In a properly functioning market, prices=20 decline when supply exceeds demand. When demand chases a limited supply,=20 prices climb. It's true that the contracts have reduced the state's demand= =20 for power on the spot market. But they also have reduced, by an identical= =20 amount, the supply of electricity available on the spot market. That=20 shouldn't have any effect on the price.=20 Long-term contracts, used prudently, are a fine idea, but they are not=20 necessary for a stable market to exist. For two years after California's=20 deregulation plan took effect, the state's utilities bought power at=20 rock-bottom prices without the benefit of any contracts at all. By state=20 edict, all electricity was bought and sold on the spot market, and as long = as=20 supply was plentiful, the price was low. The generators were standing in li= ne=20 to sell us their electricity.=20 Then, a little more than a year ago, things went haywire. Demand caught up= =20 with supply, and at the same time, the price of natural gas, which is used = to=20 produce most of our electricity, rose rapidly. The design of the electricit= y=20 system created by the state also appears to have allowed the private=20 generators to game the market. It's still not clear whether their behavior= =20 was legal or not, but they did gain the upper hand. We needed their=20 electrons, and the generators suddenly were in the position to demand any= =20 price they liked.=20 It was at just this moment that Davis decided to lock up as much electricit= y=20 as he could under contract. Wanting to avoid a retail rate increase that he= =20 feared would prove unpopular, Davis sought the lowest possible price. To ge= t=20 it, he signed contracts with the longest possible terms. Shorter terms woul= d=20 have preserved the state's flexibility for the future. But the governor sai= d=20 he was willing to pay a price for stability, and so he locked every custome= r=20 of Pacific Gas & Electric and Southern California Edison into his plan.=20 Some suggest it's unfair to second-guess Davis now that prices have begun t= o=20 decline and his contracts are starting to look expensive. Severin Borenstei= n,=20 an economist and energy expert at UC Berkeley, compares the governor's=20 strategy to buying homeowners insurance.=20 "If your house doesn't burn down," Borenstein says, "that doesn't mean it w= as=20 a mistake to buy the insurance."=20 The trouble is that Davis bought his policy after the house was already on= =20 fire. Peter Navarro, a UC Irvine economics professor and consumer advocate,= =20 warned at the time that the governor was pursuing a faulty strategy. He=20 correctly saw then that the same private generators on whom Davis was=20 declaring war were rubbing their hands at the prospect of signing deals wit= h=20 the governor at top-of-the-market prices.=20 "They know there is going to be a highly competitive market in a couple of= =20 years," Navarro told me in March. "Rather than have to fight it out in the= =20 spot market at that point, of course they'd want to lock in 10-year=20 contracts. The governor is adopting a long-term strategy to address what is= =20 essentially a short-term problem."=20 Now, with prices drifting back down even sooner than expected, Navarro is= =20 more convinced than ever that Davis erred.=20 "The contracts were bargained in a panic from the utmost position of=20 weakness," Navarro said last week. "The cumulative effect of this strategic= =20 error will be a cost in the billions. It will be like driving the Californi= a=20 economy with the emergency brake on."=20 Voters may never notice the drag. But if companies start eyeing lower=20 electricity rates in Nevada and Arizona, and jobs get harder to come by, al= l=20 of California will be paying a long-term price for the governor's desire to= =20 avoid some short-term pain.=20 The Bee's Daniel Weintraub can be reached at (916) 321-1914 or at=20 dweintraub@sacbee.com. State, generators lock horns in talks=20 Davis' $8.9 billion refund call too high, judge says By Toby Eckert=20 COPLEY NEWS SERVICE=20 June 26, 2001=20 WASHINGTON -- California officials staked out a tough bargaining position= =20 yesterday at the start of talks aimed at resolving disputes over refunds an= d=20 other thorny issues arising from the state's power crisis.=20 California's lead negotiator, Michael Kahn, called the $8.9 billion in=20 refunds Gov. Gray Davis has demanded from power sellers "an extremely=20 conservative estimate" and indicated the state would reserve the right to= =20 press for more in court.=20 The judge overseeing the hearings has called the state's refund estimate to= o=20 high.=20 Some power industry sources, meanwhile, were pessimistic about whether the= =20 negotiations would lead to a settlement between the long-warring sides, giv= en=20 the state's position.=20 Some 150 representatives from state agencies, cities, utilities and numerou= s=20 power-generating and marketing firms packed a hearing room at the Federal= =20 Energy Regulatory Commission for the first day of the talks. The negotiator= s=20 will attempt to settle the state's claim that power sellers have gouged=20 California for more than a year, and the sellers' contention that they are= =20 still owed billions of dollars for power they provided.=20 Pacific Northwest states were also invited into the discussions and are=20 seeking $6 billion in refunds from the power companies.=20 The electricity sellers deny wrongdoing, saying several factors converged t= o=20 drive up prices, including California's faulty power deregulation law, a hu= ge=20 spike in the price of natural gas that is used to generate most electricity= =20 in the state, and a short supply of electricity.=20 Speaking to reporters during a break in the closed-door session, Kahn said= =20 the state would not trim its estimate of what it believes it is owed for=20 electricity overcharges. Kahn chairs the Independent System Operator, the= =20 organization that manages most of California's power grid.=20 "Let there be no mistake. We are not going to ask the courts or FERC in=20 proceedings for $9 billion. We're going to ask for a lot more money than th= at=20 in our litigation position," he said. "The governor has said that he believ= es=20 FERC should order refunds at $8.9 billion now."=20 FERC Chief Administrative Law Judge Curtis Wagner Jr., who is mediating the= =20 talks, has said he believes the refund amount the state is seeking is far t= oo=20 high. A more realistic figure would be around $1 billion to $2.5 billion, h= e=20 said.=20 Wagner also said that one of the issues up for discussion would be whether= =20 power generators should be offered immunity from current and future legal= =20 action if a settlement is reached.=20 Kahn argued that the time period subject to refunds should start in May 200= 0,=20 when power prices started a dramatic upward spiral in California. Wagner ha= d=20 indicated he would scrutinize prices going back only to October, when FERC= =20 started examining the market.=20 When California officials took the price curbs that FERC approved last week= =20 for future power sales and applied them to power charges going back to May= =20 2000, the refunds owed to the state would came to roughly $9 billion, out o= f=20 $43.8 billion in total sales, Kahn said.=20 "I am absolutely confident that we have valid legal claims back to May. The= re=20 is no way that we are going to do anything to compromise those claims. That= =20 includes last summer, when San Diegans were terribly overcharged," Kahn sai= d.=20 "Last summer is a very important period to Californians that are seeking=20 redress. And we are not going to abandon those claims just because .?.?. FE= RC=20 has decided not to include them," he added.=20 Wagner asked the California officials to provide more information to back= =20 their numbers.=20 Power sellers continued to maintain that Davis' estimates of excessive powe= r=20 charges are wildly inflated. One group that represents generators gave a=20 bleak prognosis on the chances for a settlement.=20 "It's hard for us to contemplate how we're going to come to some agreement= =20 with 130 players in the room," said Gary Ackerman, executive director of th= e=20 Western Power Trading Forum.=20 "We stand by our business dealings in California," said Richard Wheatley, a= =20 spokesman for Reliant Energy, one of the companies targeted by the state fo= r=20 refunds. "Our power was priced competitively."=20 But Wagner, a courtly veteran of such complex discussions, appeared to take= =20 the sparring in stride.=20 "Everybody has to stick to their guns for a while," he told reporters after= =20 the first day of talks ended. "Everybody has their say, and now we're getti= ng=20 ready to get down to brass tacks."=20 Still, the starkly different positions taken by the state and the power=20 sellers illustrate the daunting task facing Wagner after months of bitter= =20 charges and countercharges between the two sides. FERC, which ordered the= =20 settlement talks as part of its price-curb order, gave the parties 15 days = to=20 reach an agreement.=20 If they fail, Wagner will have an additional seven days to make a=20 recommendation to FERC.=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement proceedings," Wagner admonished the parties before the= =20 hearing room doors were closed to the media. "The time to put California's= =20 past energy problems to rest and structure a new arrangement for California= 's=20 energy future is now."=20 Wagner, who underlined his role as a broker by sitting among the parties to= =20 the talks instead of presiding from the bench, also warned the participants= =20 not to talk to reporters about specific negotiations.=20 While most of the attention has focused on refunds, Wagner laid out a broad= =20 agenda for the talks, including:=20 ?Moving more power sales in California into long-term contracts and away fr= om=20 the volatile spot market.=20 ?Ensuring there is a "creditworthy party" to pay for power in California.= =20 ?Resolving concerns about the independence of the California grid manager,= =20 the Independent System Operator, whose board is appointed by Davis.=20 ?Exploring natural gas issues, including transportation constraints and hig= h=20 prices in Southern California.=20 ?The bankruptcy of California's largest utility, Pacific Gas and Electric,= =20 which sought protection from creditors after it was unable to pay soaring= =20 wholesale power costs.=20 Davis commends 3 'heroes' in generator refunds fight=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 June 26, 2001=20 SACRAMENTO -- Gov. Gray Davis praised three former employees at Duke Energy= 's=20 Chula Vista plant as "heroes" yesterday for coming forward with allegations= =20 that Duke policies created power shortages that raised electricity prices.= =20 For the second time in recent days, the three plant veterans dominated even= ts=20 in Sacramento with explosive allegations of mismanagement and market=20 manipulation by a company that has reaped enormous profits in California.= =20 Ed Edwards, Glenn Johnson and Jimmy Olkjer made those claims, under oath, o= n=20 Friday before a state Senate committee.=20 Davis and other Democratic politicians yesterday said these first insider= =20 accounts of how power plant operations might have manipulated prices will= =20 help the state in its attempt to get $9 billion in refunds from Duke and=20 other energy generating companies.=20 "There's no question in my mind a lot of money has been stolen from=20 California, and these men are going to help us get it back," said=20 Assemblywoman Barbara Matthews, D-Tracy.=20 The ex-employees told Davis that Duke risked jeopardizing equipment by=20 constantly powering the 706-megawatt plant up and down, dumped new spare=20 parts and took working turbines off-line for "economic reasons."=20 Davis said the power plant workers confirmed his suspicions that North=20 Carolina-based Duke and other companies engaged in price gouging.=20 "There's a concerted effort to suck every dime out of California and send i= t=20 back to Houston or North Carolina," he said.=20 Davis cautioned that he hadn't yet heard Duke's version of events. "The=20 company is entitled to their point of view," he said. "But they've got some= =20 explaining to do."=20 Duke Energy spokesman Tom Williams called the governor's meeting with the= =20 former workers "unfair and unproductive."=20 Williams said a review of company logs shows that during a Stage 3 energy= =20 alert the Chula Vista plant powered down under orders from California's=20 electricity grid manager, the Independent System Operator.=20 He said the company was doing its job by supplying the state with "spinning= =20 reserves" that could be added to the system in 10 minutes to balance the lo= ad=20 -- that is, to make sure that supply equaled demand.=20 ISO spokeswoman Stephanie McCorkle said the agency buys four types of=20 ancillary services to balance the load, including spinning reserves.=20 But she said only Duke can release information from Jan. 16. Williams said= =20 Duke soon plans to release logs from that day and several others.=20 Meanwhile, another former Chula Vista plant employee confirmed the=20 allegations of the other three workers. All of them had worked for San Dieg= o=20 Gas & Electric when the utility owned the plant before Duke took over its= =20 operation. Duke was required to keep the SDG&E employees on for two years,= =20 but it then let many of them go.=20 Rick Connors, a former operator who turned down an offer from Duke to stay = on=20 at the South Bay plant, said the plant output frequently was down for=20 "economic reasons."=20 The governor brought up those allegations during a subsequent meeting with= =20 two new FERC commissioners, Pat Wood and Nora Brownell. Davis asked the=20 federal regulators to look into possible price gouging, the high price of= =20 natural gas and the $9 billion in refunds he is seeking.=20 After meeting with Davis, Wood said he thinks California will emerge from t= he=20 energy crisis in 2003 or 2004 and become an energy trendsetter. He said he= =20 believes California leaders have the will to build more power plants and=20 improve natural gas pipelines that fuel new generators. But he cautioned th= at=20 there will be "some short-term pain."=20 "I think you folks will seem some blackouts this summer," he said.=20 Staff writer Ed Mendel contributed to this report.=20 San Onofre blast released no radiation, spokesman says=20 But motorists on I-5 weren't so sure By Bruce Lieberman=20 UNION-TRIBUNE STAFF WRITER=20 June 26, 2001=20 SAN ONOFRE -- Charlene Engel was driving with a few friends up Interstate 5= =20 Sunday when she saw flames and smoke shoot suddenly skyward from the nuclea= r=20 power plant.=20 Pieces of silvery material were fluttering through the air and drifting=20 toward the freeway. Traffic began speeding up.=20 "Everybody sort of saw it and thought, 'Oh my God, have we just been=20 irradiated or what?'?" said Engel, a Rancho Bernardo artist.=20 In fact, the explosion of a transformer was far outside the twin reactors a= t=20 the San Onofre Nuclear Generating Station, and posed no radiation danger, R= ay=20 Golden, a plant spokesman, said yesterday.=20 But Engel and her friends, who were heading to the Los Angeles County Museu= m=20 of Art for a Winslow Homer exhibit, didn't know that. "You don't actually= =20 know how things are hooked up, so you don't want to hang around," Engel sai= d.=20 "We moved north pretty quickly."=20 Santee resident Richard Carrico, whose niece was driving him to Dana Point,= =20 said the fireball rose about 50 feet. "My God, I thought she was going to= =20 faint," said Carrico, 93.=20 No one was injured in the explosion, which occurred at 11:03 a.m. and was= =20 followed by a fire that lasted about 40 minutes. The transformer was=20 destroyed, but no other equipment at the plant was damaged and the twin=20 reactors continued to operate at full power without interruption, Golden=20 said.=20 Yesterday, San Onofre investigators were still trying to figure out why the= =20 transformer failed. They should have some answers, and a new transformer=20 installed, in about a week.=20 The transformer was one of 54 in the plant's switching yard used to reduce= =20 the voltage of a sample of outgoing electricity. The so-called "potential= =20 transformers" step down the current sample to 115 volts so instruments can= =20 test the amperage and wattage. Electricity leaves San Onofre at 238,000 vol= ts=20 in transmission lines.=20 The explosion scattered shards of ceramic and aluminum debris, and 90 gallo= ns=20 of burning insulation oil, hundreds of feet, Golden said. Pieces of the=20 transformer, some as large as one foot square, landed on Old Highway 101.= =20 Plant operators feared debris would land on I-5, but the California Highway= =20 Patrol did not report any there, a dispatcher said. The CHP received severa= l=20 911 calls from drivers reporting a fireball.=20 The last time a potential transformer exploded at the plant's switching yar= d=20 was in 1994, Golden said. Plant workers discovered that corrosion caused by= =20 ocean air rusted the transformer's carbon-steel casing, allowing water to= =20 enter and contaminate the insulation oil.=20 After that, the plant replaced four transformers and repaired three. All ar= e=20 periodically washed down with high-pressure fire hoses to prevent corrosion= ,=20 Golden said. He would not speculate on the cause of the latest explosion, o= r=20 whether it could lead to the replacement of other transformers.=20 "If the root cause shows that it needs to be repaired or replaced, it will,= "=20 he said.=20 Although Sunday's explosion did not shut down the plant or release any=20 radiation, it was the latest in a string of mishaps this year. On Feb. 2, a= =20 faulty circuit breaker ignited a fire and cut off lubricating oil to Unit 3= 's=20 turbine generators, causing about $45 million in damage and shutting the=20 reactor down for four months.=20 On May 30, a portable crane dropped 40 feet to the ground when a sling on a= =20 large gantry crane failed. On June 6, workers inadvertently overfilled a=20 300-gallon steel bin with hydrazine, a toxic chemical used to purify water = in=20 the plant's cooling systems, spilling about 20 gallons.=20 Golden said the four accidents this year do not indicate that the plant is= =20 unsafe. "We perform hundreds, if not thousands, of work activities a day," = he=20 said.=20 Congress demands list of participants in Cheney energy meetings=20 By Scott Lindlaw ASSOCIATED PRESS=20 June 25, 2001=20 WASHINGTON =01) Congressional investigators are intensifying pressure on th= e=20 White House to identify who met privately with Vice President Dick Cheney's= =20 energy task force.=20 The General Accounting Office has sent Cheney's lawyer a 10-page letter=20 asserting a legal right to the lists and advising Cheney that it may make a= =20 formal demand for the information, rather than the polite requests it has= =20 made in recent weeks.=20 Comptroller General David M. Walker "is prepared to issue a demand letter .= ..=20 if we do not receive timely access to the information," the GAO said in a= =20 10-page letter dated Friday from office General Counsel Anthony H. Gamboa t= o=20 David S. Addington, attorney for the vice president.=20 The GAO is the investigative arm of Congress, and it has legal authority to= =20 federal agency records under the law. A demand letter could begin a legal= =20 battle: It would give Cheney's office 20 days to respond, either by turning= =20 over the names, or providing a reason why it is not compelled to do so, sai= d=20 Lynn Gibson, a lawyer for the GAO.=20 If Cheney declined to turn over the records, the GAO would notify Congress= =20 and Attorney General John Ashcroft, among others. The GAO would also be=20 authorized to file a civil action in court seeking the record, Gibson said.= =20 She knew of no previous case in which the GAO was forced to go to court to= =20 obtain agency records.=20 The White House team that developed the national energy plan, released last= =20 month, met with more than 130 interest groups, from environmentalists and= =20 unions, often at odds with Republicans, to major Bush supporters who got=20 private sessions with Cheney.=20 Reps. Henry Waxman, D-Calif., and John Dingell, D-Mich., in April asked the= =20 GAO to provide information on who served on the task force, what informatio= n=20 was presented to the panel, who presented it and what the task force spent.= =20 The White House has asserted that the GAO does not have the authority to as= k=20 for names of participants. However, it agreed that the GAO is entitled to= =20 financial records of the task force, and two administration officials said= =20 the vice president's office provided 77 pages of financial documents to the= =20 GAO last week.=20 The GAO contends it is entitled to a wider range of records. Federal law=20 "extends GAO's audit authority to all matters related to the use of public= =20 money, not just matters related to costs of activities," it argued in its= =20 letter to Cheney. "Over the years, GAO has conducted many reviews that=20 involve a wide range of White House programs and activities."=20 Juleanna Glover Weiss, a spokeswoman for Cheney, declined to comment on the= =20 GAO's assertions, other than to say, "I'm sure the GAO and the vice=20 president's office will be talking about that."=20 Waxman and Dingell called on Cheney to provide the information they seek.= =20 "The vice president should stop stonewalling and start cooperating with GAO= 's=20 investigation," Waxman said Monday. "Congress is entitled to know the=20 identity of the special interests that met with the Cheney energy task=20 force."=20 Creditor expects no quick fix in PG&E's venture into bankruptcy=20 By Ed Mendel=20 June 25, 2001=20 SACRAMENTO -- California's biggest utility, Pacific Gas and Electric, thoug= ht=20 it was moving toward an early exit from the power crisis by filing for=20 Chapter 11 bankruptcy in early April.=20 The top PG&E executive, Robert Glynn, optimistically told a Wall Street=20 publication that he hoped a settlement might be negotiated with creditors i= n=20 four to six months.=20 But an official with one of the 12 parties on the PG&E creditors committee,= =20 which includes the Bank of America and the state of Tennessee, said he does= =20 not see a quick end to the bankruptcy.=20 "My personal opinion," David Adante, executive vice president of Davey Tree= =20 Surgery, said last week, "is that it's going to take longer than everyone= =20 would like."=20 Adante said he thinks a resolution is likely to go beyond the bankruptcy=20 court and involve the state Public Utilities Commission, Gov. Gray Davis an= d=20 perhaps the Legislature.=20 "The rate part won't be resolved in the bankruptcy process," said Adante.= =20 Davey Tree Surgery, which is based in Kent, Ohio, trims trees that encroach= =20 on power lines for several California utilities.=20 PG&E owes Davey Tree $13 million, making it one of the smallest creditors o= n=20 a committee that includes big power providers, Enron and Dynegy, and big Wa= ll=20 Street firms, Morgan Guaranty and Merrill Lynch.=20 A turning point in the PG&E bankruptcy may have come earlier this month whe= n=20 the federal bankruptcy judge, Dennis Montali, declared that electricity rat= es=20 should be set by state regulators.=20 Experts disagreed about whether a bankruptcy judge could order a rate chang= e=20 for a utility without the approval of state regulators, in this case the PU= C.=20 "The public interest is better served by deference to the regulatory scheme= =20 and leaving the entire regulatory function to the regulator," Montali ruled= .=20 PG&E said it entered bankruptcy because the regulatory process failed,=20 denying a rate increase last fall that might have prevented the utility fro= m=20 running up what it says is a debt of at least $8 billion.=20 PG&E also said the political process failed when, among other things, the= =20 governor's negotiator broke a handshake agreement that included the state= =20 purchase of PG&E's transmission system.=20 "But we have said all along that intersection with the regulatory and=20 political process would probably reoccur," a PG&E spokesman said last week.= =20 The Legislature, after months of delay, held a hearing last week on the=20 governor's plan to keep Southern California Edison out of bankruptcy, which= =20 includes the state purchase of the Edison transmission system.=20 Legislative leaders say the plan is too generous to Edison. Undaunted, Davi= s=20 hopes to win legislative approval of some version of his Edison plan, and= =20 then persuade the PG&E creditors committee to accept a similar plan. But ev= en=20 if Davis can get his rescue plan approved by the Legislature and the PG&E= =20 committee, it's likely to be challenged with a ballot initiative by consume= r=20 groups, who denounce the proposal as a "bailout" for utilities.=20 Meanwhile, the period in which only PG&E can file a bankruptcy reorganizati= on=20 plan ends Aug. 5, allowing creditors or other parties to make proposals. An= d=20 if the Legislature does not act by Aug. 15, the agreement that the governor= =20 negotiated with Edison can be waived by either party.=20 But of course, as with most things in the electricity crisis, the deadlines= =20 could be extended.=20 ED MENDEL is Capitol bureau chief for the Union-Tribune.=20 State, Power Firms Urged to Make a Deal=20 Energy: Mediator says a refund pact would benefit both sides. Meanwhile,=20 Davis tones down his rhetoric as regulators come calling.=20 By MEGAN GARVEY and DAN MORAIN, Times Staff Writers=20 ?????WASHINGTON--After being vilified for months by Gov. Gray Davis, federa= l=20 energy regulators here and in Sacramento took steps Monday to show they are= =20 determined to respond to California's energy crisis. ?????A top federal regulator began mediating Davis' demand for nearly $9=20 billion in what the governor says are overcharges by power generators--and= =20 warned a room full of dark-suited lawyers, energy executives and state=20 officials here that they will be "far better off" if they decide among=20 themselves how big a refund the state is due. ?????Meanwhile, in Sacramento, Patrick H. Wood III and Nora M. Brownell,=20 President Bush's first appointees to the five-member Federal Energy=20 Regulatory Commission, spent the afternoon conferring with Davis and=20 legislative leaders. Then they held a fact-finding hearing with California= =20 regulators on the high price of natural gas, the fuel that spins most new= =20 electricity turbines in California. ?????"We're going to be working together through tough issues," Brownell=20 said. "We're going to work through them and solve them and move forward. It= =20 is a lot easier when people have sat down and gotten to know each other." ?????Davis has been attacking federal energy regulators--a majority of whom= =20 are holdovers from the Clinton administration--for failing to take a variet= y=20 of steps to bail California out of its energy woes. ?????On Monday, however, Davis toned down his bellicose attacks on the=20 federal commission. Brownell and Wood, Davis said, are "committed to workin= g=20 together with us to drive down the price of natural gas in California to ge= t=20 it closer to what the rest of the country is paying." ?????"I think we are turning a corner," Davis said, as temperatures across= =20 the state were moderate and electricity demand was low. "Conservation has= =20 been spectacular. Californians have responded heroically. The federal=20 government is now finally taking some positive actions. The outlook looks= =20 much more positive than it did two months ago." ?????The developments in Washington and Sacramento come as Davis issues=20 campaign-style demands for more aid from the federal government and as poll= s=20 show that voters are skeptical of how Davis and Bush are handling=20 California's energy crisis. ?????Republican lawmakers in Sacramento contend that the regulatory=20 commission has granted Davis virtually everything he has sought. The=20 commission earlier this month imposed temporary price restraints, a step=20 Davis said is helping to lower wholesale electricity prices paid by the sta= te. ?????Senate Republican leader Jim Brulte said Monday that he has "no doubt"= =20 the commission, known as FERC, will order power generators to issue refunds= =20 to California, as Davis has requested. ?????But Brulte, of Rancho Cucamonga, also predicted that Davis will find t= he=20 order wanting: "The governor's game is a political one. . . . The Davis=20 administration has a clear strategy--that no matter what FERC does, it isn'= t=20 enough." ?????In Washington, the roughly 150 participants who showed up for day one = of=20 a 15-day settlement conference on refunds showed little sign they were read= y=20 to agree, at least not yet. ?????For now, the differences remain considerable: about $9 billion in=20 refunds demanded by California's representatives at the talks, plus $6=20 billion more that other Western states say they have been unfairly charged.= =20 Power generators hotly dispute those figures. ?????"The time to put California's past energy problems to rest and structu= re=20 a new arrangement for California's energy future is now," said Curtis L.=20 Wagner, the chief administrative law judge for FERC. "We can do it if we tr= y." ?????Wagner, who told reporters last week he believed refunds of about $2= =20 billion were probably justified, is mediating the closed-door talks. Davis = is=20 asking that the refunds cover the period since May 2000. ?????"These out-of-state energy companies are taking us for a ride," Davis= =20 said in a brief interview in Sacramento on Monday. "I am determined to get= =20 every penny back that California is owed. The generators have bilked us=20 mercilessly, and I'm fighting back. I'm not giving up nothing." ?????Consumers wouldn't see refunds directly. Rather, the money would go to= =20 the state or to private utilities, such as Southern California Edison, for= =20 electricity purchases made during the energy crisis. ?????Participants in the Washington meeting represent about 70 entities wit= h=20 stakes in the electricity dispute. If they fail to reach agreement among=20 themselves within the allotted 15 days, Wagner will have seven days to make= a=20 formal recommendation of his own to FERC's five-member governing board. ?????The settlement negotiations are confidential; Wagner promised those=20 present he would shred his notes and transcripts at their completion. He=20 allowed reporters in the hearing room, where oversized pots of coffee perch= ed=20 on every table, only long enough to listen to his opening remarks and to a= =20 prepared statement he read from two of the five FERC commissioners. ?????Wagner, who asked that all sides send advocates with the authority to= =20 reach an agreement, said the issues to be resolved include: ?????* Refunds for past electricity purchases, including how much money is= =20 involved and who needs to be paid. ?????* Moving additional quantities of electricity off the spot market and= =20 into long-term contracts. ?????* Ensuring that generators receive payment for electricity already=20 provided. ?????* The bankruptcy of Pacific Gas & Electric. ?????Wagner said the talks also should address whether any settlement=20 provides generators with immunity from existing and future lawsuits and=20 prosecutions. ?????The statement from FERC commissioners Wood and Brownell encouraged=20 participants to "focus on what they absolutely need and not what they want.= "=20 But sorting out which is which may prove challenging. ?????The head of California's delegation, for example, reiterated Davis'=20 demands for $8.9 billion in refunds. ?????"We want our refunds. We want them now," Michael Kahn, one of Davis' t= op=20 energy advisors, told reporters during a break in the negotiations. ?????Kahn said the officials he is representing--the governor, state=20 legislators, the Electricity Oversight Board and the Public Utilities=20 Commission--consider the $8.9 billion figure to be an "extremely conservati= ve=20 estimate." ?????He indicated the delegation had little interest in relinquishing the= =20 right to sue for additional funds, even if power generators offered to make= =20 refunds for time periods before the Oct. 2 cutoff that FERC has proposed. ?????As they have in the past, electricity generators staked out a far=20 different position, characterizing as "absurd" the state's overcharge=20 estimate. ?????"We've done absolutely nothing wrong," said Tom Williams, a spokesman= =20 for Duke Energy Co., adding that his company was "gratified that all the=20 parties are at the table to discuss this." ?????The settlement negotiations were mandated by FERC last week as the=20 agency put in place an expanded "price mitigation plan" for Western=20 electricity markets. ---=20 ?????Garvey reported from Washington, and Morain from Sacramento. Copyright 2001 Los Angeles Times=20 Business; Financial Desk=20 Commerical Real Estate Apartments to Provide Own Power MORRIS NEWMAN ?=20 06/26/2001=20 Los Angeles Times=20 Home Edition=20 Page C-1=20 Copyright 2001 / The Times Mirror Company=20 With its wall of fins, abstract patterns and varying surfaces and colors,= =20 Colorado Court in Santa Monica is shaping up to be a real head-turner.=20 But the apartment complex is no mere exercise in style over substance. What= =20 makes the project groundbreaking in power-starved California is that it wil= l=20 generate nearly all its own energy: electricity , heat and hot water, all= =20 from alternative technologies.=20 The 44-unit complex at 5th Street and Colorado Avenue, scheduled to open in= =20 October, will be adorned with 199 solar panels, which will supply about a= =20 third of the building's electricity . The rest of the power will come=20 primarily from a micro-turbine, a generator that runs on clean-burning=20 natural gas. Southern California Edison will supply only a fraction of the= =20 building's energy needs.=20 "Colorado Court is unique because the building will produce 92% of its own= =20 power, which is very significant," said Bob Johnson, managing director of= =20 California Energy Coalition, a nonprofit energy conservation group based in= =20 Laguna Beach. In comparison, solar power sources for a proposed single-fami= ly=20 subdivision in Placer County would supply 30% to 50% of household energy=20 needs.=20 Intended as "single-room occupancy" housing for low-income renters, the=20 $5.8-million Santa Monica project has become a closely watched test case of= =20 still-experimental electricity generation equipment.=20 Though not outlandish, the Colorado Court building probably will make many= =20 driving down 5th Street look twice: Framed inside a rectangular shell of=20 light-colored plaster and concrete is a giant window of dark glass; the=20 "window" is an assemblage of many solar panels. The rear of the building is= =20 covered in an abstract pattern of vertical fins; the fins shade the=20 building's southern face from direct sunlight.=20 Sensible Concept for Low-Income Tenants=20 Although some may be surprised that a building intended for low-income=20 residents is the beneficiary of expensive energy technology, the concept=20 makes sense for people with limited incomes, said Robin Raida, project=20 manager for the builder, Community Corp. of Santa Monica. Energy efficiency= =20 is "especially important in affordable housing, because our tenants don't= =20 have extra money to spend on high utility bills," she said.=20 A host of public and private entities--including the cities of Santa Monica= =20 and Irvine, Southern California Edison and the California Energy=20 Coalition--are involved in planning, funding and monitoring the innovative= =20 building. The two cities, the conservation group and the utility have forme= d=20 a group known as Regional Energy Efficiency Initiative, which has contribut= ed=20 about $250,000 to energy-saving devices in the building. In addition, Santa= =20 Monica itself is contributing about $250,000 toward electricity generators.= =20 The building will be loaded with energy-saving and environmentally benign o= r=20 "sustainable" devices. Heat from the micro-turbine will produce hot water,= =20 eliminating the need for a conventional water heater.=20 The project also uses compact fluorescent lighting throughout the building,= =20 insulation made from recycled material and double-pane windows with a layer= =20 of heat-retardant krypton gas. Each apartment will be equipped with=20 energy-saving refrigerators that do not use chlorofluorocarbons, the widely= =20 used refrigerant linked to damage in the Earth's ozone layer.=20 Prevailing breezes will cool the building, which will have no mechanical ai= r=20 conditioners. The U-shaped structure "acts like a giant wind scoop," said= =20 architect Larry Scarpa, a principal of Santa Monica-based Pugh & Scarpa.=20 In yet another "green" flourish, the building will collect all the rainwate= r=20 from the alley behind the property and funnel it into a series of undergrou= nd=20 chambers. The water will slowly percolate back into the soil, which will=20 filter the pollutants from the water while preventing contaminated water fr= om=20 spilling into Santa Monica Bay. The drainage system was paid for separately= =20 by the city of Santa Monica.=20 The concept of a building that would be energy self-sufficient emerged abou= t=20 two years ago, when Santa Monica officials met with members of the Californ= ia=20 Energy Coalition. The city's Housing Division, which funds construction of= =20 low-income housing, chose to make a low-income housing project into a dream= =20 project of "green" construction, and Colorado Court became the target.=20 "We needed a demonstration project because a lot of developers feel that th= e=20 technologies are unproven," Raida said.=20 A number of apartment buildings in Santa Monica and Irvine are to be equipp= ed=20 with energy-saving technology by the Regional Energy Efficiency Initiative,= =20 but the Santa Monica building is the only project attempting to provide its= =20 own power as well.=20 Rebates from the state Energy Commission helped defray the high cost of the= =20 energy-generating equipment. The state's rebate on the solar panels, which= =20 cost about $225,000, will be about $62,000. The $57,000 micro-turbine and= =20 heat exchanger will yield a $15,000 rebate from Southern California Gas Co.= =20 If recent research and development has yielded new ways of conserving energ= y=20 and producing electricity , regulations and building codes have not kept=20 pace.=20 Prospects Uncertain for Conventional Buildings=20 In one instance, architects had to obtain special permission from the city = to=20 hang solar panels outside the exterior stairwells because building inspecto= rs=20 said the solar panels "enclosed" the stairwells and triggered requirements= =20 for floors, ceilings and fire-rated walls.=20 If energy-saving devices and electrical generators make sense for a buildin= g=20 that has $500,000 in subsidies, do the same costly materials make sense for= a=20 conventional apartment building? Opinions vary.=20 Even with rebates, the added cost of the conservation and energy-generating= =20 equipment may be a hard sell for developers of market-rate apartment units.= =20 Such developers often sell their projects shortly after completion and migh= t=20 not be able to fetch a higher price for energy-efficient buildings.=20 For a nonprofit like Community Corp., which plans to retain ownership of it= s=20 buildings for 80 years, the added front-end cost could be worthwhile becaus= e=20 the equipment will hold down energy costs for low-income tenants for years. California ; Metro Desk=20 Officials Oppose Utility Choice Power: They say users leaving traditional= =20 firms could jeopardize state's repayment of $50 billion in energy purchases= . TIM REITERMAN ?=20 06/26/2001=20 Los Angeles Times=20 Home Edition=20 Page B-1=20 Copyright 2001 / The Times Mirror Company=20 Consumer choice was a mantra when California moved in 1996 to restructure i= ts=20 electricity industry. But the right of utility customers to shop around for= =20 power is falling victim to the state's own strategy to drag itself from the= =20 energy debacle.=20 Warning of a "spiral of declining customers and rising power rates," top=20 state officials are calling for swift action to curtail the freedom of=20 utility patrons to buy from alternative electricity providers.=20 They fear that California 's ability to pay for nearly $50 billion in past= =20 and future electricity purchases would be jeopardized unless regulators or= =20 legislators suspend or restrict the state's so-called direct-access program= .=20 A flight of customers from the traditional utilities, the officials say,=20 would saddle the remaining businesses and consumers with paying off an unfa= ir=20 share of those billions.=20 Under direct access, thousands of utility customers--ranging from big=20 commercial and industrial users to environmentally aware residential=20 consumers who wanted "green power"--signed up with companies promising lowe= r=20 prices, better service or the security of long-term contracts.=20 But the energy crisis changed all that.=20 In January, the state's Department of Water Resources became the major=20 electricity purchaser for most Californians, as skyrocketing wholesale pric= es=20 put Pacific Gas & Electric Co. and Southern California Edison deeply into= =20 debt and many suppliers refused to sell to them. The same legislation that= =20 authorized the department's purchases called on the California Public=20 Utilities Commission to suspend direct access until the state stops buying= =20 power--which could be almost two decades under some of the long-term=20 contracts the state has signed with suppliers.=20 The commission is poised to vote Thursday on a proposal to suspend direct= =20 access by July 1, and it is expected to pass. Bills in the Legislature woul= d=20 resurrect the program while requiring new customers to pay "exit fees"=20 designed to protect the state's planned $13.4-billion bond sale for=20 electricity purchases, but the proposals have been mired in negotiations.= =20 In any case, state officials say they can ill afford to lose big commercial= =20 and industrial users as utility customers help pay off the state's current= =20 $8-billion power tab and more than $40 billion in long-term power contracts= .=20 "If such customers are permitted to 'exit the system' without [paying] thei= r=20 share of costs incurred by DWR . . . the burden of covering debt service=20 payments will fall on a smaller base of remaining customers, significantly= =20 and unfairly increasing their power rates," said a June 12 memo from state= =20 Treasurer Phil Angelides and the heads of the Finance and Water Resources= =20 departments to the PUC and the Legislature.=20 "There is a concern that as power rates paid by the remaining customers wou= ld=20 rise, customers would have additional economic incentive to abandon DWR=20 power, creating a spiral of declining customers and rising power rates," th= e=20 memo said.=20 Statewide, the total number of direct-access customers has fallen from a pe= ak=20 of more than 200,000 to about 88,000 in mid-May. Figures from the Californi= a=20 Energy Commission show that these customers--including hotel and hospital= =20 chains, factories, farms, the state's university systems and about 78,000= =20 residences--accounted for about 2.1% of the power consumed in California .= =20 The level of participation by residential customers was 1.1%--about a third= =20 as high as for large commercial and industrial customers.=20 The penetration rates were much higher early this year, when about 13% of= =20 industrial users had direct-access contracts. But many providers sent their= =20 customers back to Edison, PG&E and San Diego Gas & Electric, as wholesale= =20 energy costs soared and they could not compete with the utilities, whose=20 rates were frozen by the 1996 deregulation law.=20 One provider, AES NewEnergy, claims 60 to 70 customers, ranging from=20 mom-and-pop stores to grocery chains. About a year ago, the company had 150= =20 to 200 customers.=20 "Direct access is at the heart of the concept of competition and choice,"= =20 said Aaron Thomas, the company's manager of government relations. "The [PUC= ]=20 order stinks, and it is not necessary to put a stake in the heart of direct= =20 access to float a bond."=20 Said Rick Counihan, a spokesman for Green Mountain Energy: "Unless we see a= =20 legislative solution, direct access is dead. We're being driven out of=20 California ."=20 Green Mountain, a Vermont-based company that sells power from renewable=20 sources, has seen its California customer base shrink from 60,000 to 7,000,= =20 all in San Diego and Orange counties.=20 Although they have never fled en masse to direct access, many businesses an= d=20 institutions want to maintain direct access as an option, especially becaus= e=20 it is uncertain whether the state's power contracts will prove to be a=20 bargain or a bust in the long run.=20 Bill Dombrowski, president of the California Retailers Assn., representing= =20 more than 50 large companies, said it is important to maintain direct acces= s=20 as an option because "the market is in a shambles."=20 "At its peak, before the market was dysfunctional, you saw 5% to 10%=20 reductions [in electricity rates] compared to local utilities, which is=20 significant dollars when you are talking about larger companies," he said.= =20 Like other proponents, Dombrowski maintains that the fears expressed by sta= te=20 officials and Wall Street bond underwriters are exaggerated.=20 "Realistically, you will not see a wave of people going to direct access," = he=20 said.=20 The utilities commission measure, which would halt new direct-access=20 enrollments, was put off until this week in hopes that a solution could be= =20 worked out in Sacramento. PUC Commissioner Jeff Brown, one of three=20 appointees of Gov. Gray Davis on the five-member commission, said that, lik= e=20 the governor, he favors direct access on philosophical grounds but sees no= =20 way to avoid suspending the program.=20 "We are tied up in the realities of the bond sale," he said. "If the=20 Legislature wants to do something in the future, fine."=20 Commissioner Richard Bilas, another supporter of direct access, acknowledge= s=20 that "it could at the margins jeopardize the bond sale." But direct access,= =20 he said, "is what restructuring was about in the first place. . . . Without= =20 it, you no longer have restructuring."=20 Advocates of direct access remain hopeful that a legislative solution could= =20 balance the desires of the business community and the bond underwriters. A= =20 bill by state Sen. Debra Bowen (D-Marina del Rey) would require exit fees a= nd=20 other provisions sought by state finance officials. Billions of dollars at stake as power talks begin=20 MARK SHERMAN, Associated Press Writer Tuesday, June 26, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/26/f= inanc ial0338EDT0014.DTL=20 (06-26) 00:38 PDT WASHINGTON (AP) --=20 Energy users and providers are billions of dollars apart in their estimates= =20 of how much the power crisis in the Western states has cost. The federal=20 official overseeing confidential settlement talks wants them to come to ter= ms=20 quickly.=20 With just two weeks to reach agreement, Federal Energy Regulatory Commissio= n=20 chief administrative law judge Curtis L. Wagner said he wants all sides to= =20 start using realistic numbers when they meet Tuesday for the second day of= =20 negotiations.=20 "Now we're getting ready to get down to brass tacks," Wagner said Monday,= =20 after the first day of talks.=20 Led by California, Western states say power-generating companies overcharge= d=20 them by $15 billion in the past year.=20 Michael Kahn, California's chief negotiator, said the $9 billion in refunds= =20 his state claims it is owed should be the first order of business. "We want= =20 our refunds. We want them now," said Kahn, chairman of the California=20 Independent System Operator, which manages the state's power grid.=20 The states claim that the companies unfairly drove up prices to take=20 advantage of a power shortage. Prices frequently surpassed $300 a=20 megawatt-hour, 10 times what they were in 1999. One megawatt is enough to= =20 power about 750 homes.=20 The power companies argue that the charges were justified. In some cases,= =20 older, more costly power plants were pressed into service to deal with the= =20 high demand and tight supply.=20 Wagner attributed the states' claims to the rhetorical flourishes that ofte= n=20 accompany the start of negotiations. "Everybody has to stick to their guns= =20 for a while," he said.=20 The judge, who is playing a mediator's role in the negotiations, said he ha= s=20 seen nothing to change his previously stated view that refunds in any=20 settlement probably would not exceed $2.5 billion.=20 He cautioned all sides that a brokered settlement would be preferable to a= =20 plan he would recommend to federal regulators should talks fail.=20 More than 150 people representing about six dozen entities gathered in a=20 government hearing room for negotiations. The talks were one result of a=20 federal order last week extending price controls on spot power sales in=20 California and imposing limits in 10 other Western states.=20 Wagner laid out several issues negotiators will have to tackle, including h= ow=20 much generators are owed for power they supplied to California without=20 getting paid.=20 The size of the refunds and the unpaid bills "must be, both ways, resolved = at=20 the outset to put everyone on the same playing field," Wagner said. Any=20 settlement probably would also have to answer whether the generators should= =20 have immunity from existing and future lawsuits and prosecution, he said.= =20 The parties also have to try to reach agreement on additional long-term pow= er=20 contracts, which would reduce the amount of power California would have to= =20 purchase on the volatile spot market.=20 The attendees included representatives from California and a dozen city and= =20 county governments, investor-owned and municipal utilities, power generator= s=20 and natural gas companies.=20 On the Net: Federal Energy Regulatory Commission: www.ferc.gov/=20 ,2001 Associated Press ?=20 Compromise urged in electricity refund talks=20 Zachary Coile, Chronicle Washington Bureau Tuesday, June 26, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /26/M N122522.DTL=20 Washington -- With armies of lawyers on each side, California officials and= =20 representatives of the nation's power generators began the first day of=20 federally ordered settlement talks yesterday far apart on the issue of=20 electricity refunds.=20 California officials, including attorneys for the investor-owned utilities,= =20 stuck to their claim that the state was owed nearly $9 billion in alleged= =20 overcharges by the generators.=20 But electricity suppliers were equally adamant in their opposition to=20 refunds, arguing the prices they charged were legitimate. Suppliers are=20 demanding payment for billions of dollars they are owed for electricity=20 already sold into the state.=20 The mediator in the talks, veteran Federal Energy Regulatory Commission=20 administrative law Judge Curtis L. Wagner Jr., warned both sides they would= =20 have to compromise -- or accept a settlement imposed by federal regulators.= =20 "The time to put California's past energy problems to rest and structure a= =20 new arrangement for California's energy future is now," Wagner said. "We ca= n=20 do it if we try."=20 The difficulty of the task was made clear when the judge asked those in the= =20 hearing room yesterday to stand and identify themselves. About 140 people -= -=20 nearly all lawyers -- stood to declare which state, city, power exchange or= =20 generator they represented.=20 In addition to a host of energy firms, other Western states are involved in= =20 the talks. Officials in Washington and Oregon say they may ask for up to $6= =20 billion in refunds.=20 Wagner opened the talks by reading a letter from new FERC Commissioners=20 Patrick Wood and Nora Mead Brownell urging both sides to compromise.=20 "Parties must only focus on what they absolutely need, not what they want,"= =20 the statement read. "This is not the place to debate the shopping list, nor= =20 is it the place to assign blame."=20 If the parties can't settle the money fight in 15 days, Wagner will have=20 seven days to recommend action to FERC's five commissioners.=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement proceedings than to have me recommend an answer to the= =20 commission," Wagner said.=20 As the talks started in Washington, Wood and Brownell met yesterday in=20 Sacramento with Gov. Gray Davis, legislative leaders and other groups=20 involved in solving the energy crisis.=20 Davis said in a statement that he was more encouraged by FERC's actions=20 recently since the two joined the regulatory body.=20 "In a refreshing change . . . these commissioners offered a problem-solving= =20 approach in resolving California's energy challenge," Davis said.=20 Wood expressed optimism the settlement talks would be fruitful.=20 "I think it is far better to settle than to stretch out through litigation,= =20 even if the state were to ultimately prevail," he said. "This is really=20 (about) businesspeople who need to re-establish a business relationship tha= t=20 has been poisoned."=20 Although the divide between California officials and the generators is vast= ,=20 some have faith in the mediator, a 72-year-old judge with a track record of= =20 reaching settlements in difficult cases.=20 "He's a miracle worker," said FERC commissioner William Massey. "He's very= =20 good at persuading parties that it's in their best interests to settle rath= er=20 than proceed" with lawsuits.=20 Wagner set the tone yesterday by ordering reporters out of the hearing room= =20 after half an hour explaining the ground rules. And Wagner warned=20 participants to keep the discussions confidential.=20 "I would hate to read something in the business section tomorrow that=20 somebody said here today," Wagner said.=20 Michael Kahn, chairman of California's Independent System Operator, said th= e=20 state would hold firm to its request for $8.9 billion in refunds. Any refun= ds=20 would go to the electricity buyers -- the utilities and the Department of= =20 Water Resources, which has bought energy on behalf of the state since=20 January.=20 But to suppliers, even the word "refund" is an unacceptable term.=20 "Certainly, you will not find a supplier who will agree that they have been= =20 overcharging anyone in California, so clearly any refund obligation will be= =20 contested," said Mark Stultz, a vice president of the Electric Power Supply= =20 Association, which represents the generators. "The suppliers will argue the= =20 charges were appropriate for the market conditions."=20 State officials may face difficulty recovering the full amount, based on=20 electricity sales from May 2000 to May 2001. Under FERC rules, overcharges= =20 can only be authorized after a formal investigation is ordered, which began= =20 Oct. 2,=20 2000.=20 "There is no way that we're going to do anything to compromise those claims= ,=20 " Kahn said. "That includes last summer, when San Diegans were terribly=20 overcharged. That includes last summer, when there were no credit problems,= =20 and the gas situation was not anywhere near as severe as it was later in th= e=20 year, and still there were hideous (electricity) prices."=20 POWER ISSUES These are some of the items administrative law Judge Curtis L. Wagner Jr.= =20 expects to tackle during settlement talks between Western state officials a= nd=20 power generators:=20 -- -- California's claim that the generators overcharged the state by nearl= y=20 $9 billion for electricity.=20 -- Generators' claims of overdue payments, estimated at several billion=20 dollars, due them from PG&E and other utilities.=20 -- Long-term power contracts, which would reduce the amount of power=20 California must purchase on the volatile spot market.=20 -- Ensuring a creditworthy party to pay for power.=20 -- Natural gas prices and pipeline capacity, particularly in Southern=20 California.=20 -- PG&E's bankruptcy proceedings. Source: Chronicle staff and news services= =20 Chronicle staff writer Lynda Gledhill contributed to this report from=20 Sacramento. / E-mail Zachary Coile at zcoile@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 3=20 Developments in California's energy crisis=20 The Associated Press Tuesday, June 26, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/26/s= tate1 039EDT0149.DTL=20 (06-26) 07:39 PDT (AP) --=20 Developments in California's energy crisis:=20 TUESDAY: * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 MONDAY: * Gov. Gray Davis meets with three former energy company employees he calls= =20 "heroes" for testifying that Duke Energy reduced power production at times= =20 when the state needed it most, charges the Charlotte, N.C.-based company=20 denies.=20 * A Federal Energy Regulatory Commission hearing officer begins attempting = to=20 negotiate a settlement between the state and energy producers over the $9= =20 billion Davis says the state is owed for overcharges.=20 * FERC commissioners Pat Wood and Nora Brownell meet with Davis and attend= =20 California Energy Commission meeting.=20 * The Senate, by a 34-0 vote, gives final approval to a resolution asking= =20 Congress to allow states to extend daylight-saving time to the full year to= =20 save energy. The resolution by Sen. Betty Karnette, D-Long Beach, will be= =20 sent to Congress and President Bush.=20 * A bill to give customers a one-month schedule of when they might be=20 vulnerable to rolling blackouts is rejected by the Assembly Energy Costs an= d=20 Availability Committee.=20 * In a pre-emptive strike against rolling blackouts, Azusa's city-owned=20 utility encourages industries to shut down before power supplies get tight.= =20 * No power alerts Monday as electricity reserves stay above 7 percent.=20 * Edison International stock drops 41 cents to $11.57. PG&E Corp. falls 25= =20 cents to $11.70. Sempra Energy rises 19 cents to $26.94.=20 WHAT'S NEXT: * Three Senate committees plan hearings on Davis' proposal to aid financial= ly=20 strapped Southern California Edison: Natural Resources Committee Tuesday,= =20 Energy Committee Wednesday and Judiciary Thursday.=20 * Senate Select Committee to Investigate Price Manipulation sets a Thursday= =20 deadline for power generators to comply with document subpoenas or face=20 contempt citations.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Southern California Edison and Pacific Gas and Electric say they've lost=20 nearly $14 billion since June to high wholesale prices the state's=20 electricity deregulation law bars them from passing on to consumers. PG&E,= =20 saying it hasn't received the help it needs from regulators or state=20 lawmakers, filed for federal bankruptcy protection April 6. Electricity and= =20 natural gas suppliers, scared off by the companies' poor credit ratings, ar= e=20 refusing to sell to them, leading the state in January to start buying powe= r=20 for the utilities' nearly 9 million residential and business customers. The= =20 state is also buying power for a third investor-owned utility, San Diego Ga= s=20 & Electric, which is in better financial shape than much larger Edison and= =20 PG&E but also struggling with high wholesale power costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 Track the state's blackout warnings on the Web at=20 www.caiso.com/SystemStatus.html.=20 ,2001 Associated Press ?=20 News briefs on California's power crisis=20 Tuesday, June 26, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/26/s= tate0 539EDT0120.DTL=20 (06-26) 02:39 PDT TEMECULA, Calif. (AP) --=20 Residents who live along a proposed power line through southwestern Riversi= de=20 County are infuriated that San Diego Gas & Electric Co. officials would ste= p=20 foot on their property to conduct land surveys without asking first.=20 The company recently mailed letters to residents who may be affected by the= =20 proposed 31-mile power line that will connect its grid to a unit operated b= y=20 Southern California Edison. The letter informed residents that crews would = be=20 conducting the surveys over the next few months.=20 Company officials said they are protected by law to survey the land. But=20 opponents said it is unclear if the company has access to the property=20 because legal questions have been raised about the utility's eminent domain= =20 powers.=20 Some residents have threatened to call police if SDG&E officials come on=20 their property.=20 "I was furious," said Eve Brehm, 73, who lives in the affected area. "They= =20 haven't bought it yet (her land) and they don't have my permission to be ou= t=20 there."=20 Company officials said the letters are giving residents proper notification= =20 for work that needs to be done.=20 "We are doing everything we can to avoid any inconvenience to property=20 owners," said SDG&E spokeswoman Jacqueline Howells. "There is no legal=20 requirement for notification, but we sent the letters out as a courtesy to= =20 keep the property owners informed."=20 SAN CLEMENTE, Calif. (AP) -- A transformer explosion at the San Onofre=20 Nuclear Generating Station caused a fire outside its twin reactors but no o= ne=20 was injured, said a plant spokesman.=20 Sunday's explosion posed no radiation danger to people, according to plant= =20 spokesman Ray Golden, but it did scare a few motorists who were driving by= =20 the reactors and saw a fireball rise 50 feet into the air.=20 "You don't actually know how things are hooked up, so you don't want to han= g=20 around," said Burt Engel, who was driving from San Diego to Los Angeles=20 County. "We moved north pretty quickly."=20 The explosion occurred shortly after 11 a.m. and was followed by a fire tha= t=20 lasted about 40 minutes. The transformer was destroyed but no other equipme= nt=20 was damaged, Golden said. The twin reactors continued to operate without=20 interruption.=20 The explosion sent shards of aluminum and ceramic debris skyward, some of i= t=20 landing on Old Highway 101. None of the debris fell on nearby Interstate 5,= =20 authorities said.=20 The transformer was one of several dozen that is used to reduce the voltage= =20 of a sample of outgoing electricity. The explosion was the fourth accident = at=20 the plant this year.=20 A faulty circuit breaker caused a fire in February that cut electricity to = an=20 oil pump which lubricates steam turbines. The accident forced the closure o= f=20 one of its generators for four months. Repair work cost nearly $50 million.= =20 ,2001 Associated Press ?=20 The haggling over refunds is under way=20 Posted at 9:40 p.m. PDT Monday, June 25, 2001=20 BY JIM PUZZANGHERA=20 Mercury News=20 WASHINGTON -- The warring parties in the California electricity crisis=20 funneled into a room here Monday morning to try to cut through the animosit= y=20 and agree how much in refunds the state will get from energy suppliers.=20 Billions of dollars are at stake as legal teams from California, its=20 utilities and dozens of power suppliers try to negotiate a settlement by Ju= ly=20 10. The Federal Energy Regulatory Commission set up the settlement conferen= ce=20 to resolve California's claims that energy suppliers have overcharged the= =20 state $8.9 billion for power since last spring.=20 The commission has ordered about $124 million in refunds for a small portio= n=20 of that time. Power companies balk at the suggestion they overcharged, sayi= ng=20 it is they who are owed billions by state utilities that haven't paid their= =20 bills for electricity purchases.=20 Deadlock warning=20 If the parties can't settle the dispute during the talks, Judge Curtis=20 Wagner, a straight-talking, 72-year-old administrative law judge, will=20 recommend a solution to the commission.=20 ``I can tell you now that you're far better off to work out the refund issu= es=20 in these settlement proceedings than to have me recommend an answer to the= =20 commission,'' Wagner warned the 150 participants before the confidential=20 talks began. ``The time to put California's past energy problems to rest an= d=20 structure a new arrangement for California's energy future is now. We can d= o=20 it if we try.''=20 Early indications were that a settlement will be difficult, although state= =20 and federal officials in Sacramento talked with optimism about a new level = of=20 cooperation.=20 But at the meeting in Washington, the head of California's team gave no=20 ground Monday, reiterating the state's position that it wants all of the $8= .9=20 billion Gov. Gray Davis demanded during congressional testimony last week.= =20 Michael Kahn, chairman of the state's Independent System Operator, said tha= t=20 all the parties in California -- the governor, the attorney general, the IS= O,=20 the Public Utilities Commission and the three investor-owned utilities -- a= re=20 presenting a unified front.=20 ``We are all together along with representatives from the Legislature,'' Ka= hn=20 said, ``in saying the same thing to FERC and saying the same thing to the= =20 generators: We want our refunds. We want them now, and we want that to be t= he=20 first order of business.''=20 Kahn said the $8.9 billion figure is bolstered by initial estimates by the= =20 state of overcharges if a new price-limit formula approved by the commissio= n=20 last week had been in effect since May 2000. The total is ``an extremely=20 conservative estimate,'' he said, and the state will ask for ``a lot more= =20 money'' if the issue is referred to the commission for action, or if the=20 whole dispute goes to court. The total amount of electricity purchases by= =20 California and its utilities during that 13-month period was $43.8 billion.= =20 But how far back the state could seek refunds is one of several issues Wagn= er=20 said must be determined in the settlement talks. The commission has said it= =20 has authority to order refunds only from last October, though everything is= =20 subject to negotiations. Wagner said last week he believes the amount=20 suppliers owe the state is about $2.5 billion.=20 The state estimates it was overcharged $2.94 billion from May 2000 to=20 September 2000, according to a confidential ISO breakdown obtained by the= =20 Mercury News. The breakdown of alleged overcharges by 44 suppliers goes onl= y=20 through February 2001, when the state estimated overcharges at $6.8 billion= ,=20 a figure recently updated through the end of May to $8.9 billion.=20 For the whole period from May 2000 to February 2001, the biggest=20 over-chargers were Williams Energy Services Corp., $861 million; Duke Energ= y=20 Trading and Marketing, $805 million; and Southern Company Energy Marketing,= =20 $754 million.=20 Other concerns=20 Among other subjects to be negotiated are who should get refunds and immuni= ty=20 for suppliers from future lawsuits for overcharges. In convening the=20 negotiations, FERC commissioners said they hoped many issues could be=20 addressed in addition to refunds, including more long-term contracts betwee= n=20 the state and power suppliers.=20 At the end of the first day of talks, Wagner said the state and some others= =20 were digging in. In all, about 50 parties sent representatives, ranging fro= m=20 energy suppliers to utilities to municipalities. Wagner admonished them all= =20 to keep the talks confidential.=20 ``Everybody has to stick to their guns for a while,'' he said, noting the= =20 negotiations may have to go late into the evenings and into weekends to mee= t=20 the deadline.=20 In Sacramento on Monday, the newest commissioners to join FERC -- Pat Wood= =20 and Nora Brownell -- praised California for its handling of the energy=20 crisis.=20 Wood, a Texan appointed by President Bush and expected to become the next= =20 FERC chairman, said he had come to California to help ``patch up'' the=20 state's strained relationship with federal regulators.=20 After meeting with Davis and legislative leaders, Wood said he was ``more= =20 hopeful today than I was at any time in the past year.''=20 ``They are very committed to getting this energy cowboy back on the bucking= =20 bronco,'' he said.=20 Davis, who has bashed Bush and federal regulators for weeks, also changed h= is=20 tone.=20 ``From my conversations with these commissioners, it appears that FERC may= =20 finally be poised to do its job controlling energy costs,'' he said in a=20 prepared statement.=20 Mercury News Staff Writer Dion Nissenbaum contributed to this report.=20 Power workers supported=20 Earlier testimony about deliberate manipulation of power plants is backed u= p=20 by a new group of employees.=20 June 26, 2001=20 By KIMBERLY KINDY The Orange County Register=20 SACRAMENTO A second wave of former power-plant workers stepped forward Mond= ay=20 to say they witnessed power merchants intentionally damage generators -=20 including some in Orange County - a practice they believe led to price=20 gouging of Californians.=20 The generating companies, Duke Energy and AES Corp., also denied the new=20 round of allegations, made by a half-dozen workers who took their stories= =20 public or contacted legislators with offers to provide sworn testimony.=20 One of those speaking out Monday, a former manager at Duke's Chula Vista=20 plant, told The Orange County Register that he supports the testimony of=20 three former colleagues who Friday told a Senate committee that new parts a= t=20 the plant were destroyed, routine maintenance was neglected and generators= =20 were unnecessarily throttled down.=20 Rick Connors said that unlike the three Chula Vista plant workers who=20 testified earlier, he was offered continued employment by Duke and cannot b= e=20 dismissed by the company as a terminated employee with an ax to grind.=20 "I listened to the entire hearing. I can tell you that everything they said= =20 was the truth; nothing they said was even a stretch,'' said Connors, who ha= s=20 decided to retire and become a card dealer instead of working for Duke, whi= ch=20 took over the plant from San Diego Gas & Electric and laid off many of his= =20 experienced co-workers.=20 Connors and another new witness, Dan Davis, a former electrician at the=20 AES-owned Huntington Beach plant, each on Monday said they saw maintenance= =20 schedules at their respective plants abandoned and generators constantly=20 turned on and off, which damaged them.=20 "They learned that they would operate one generator and make more money tha= n=20 if they were operating three,'' said Connors.=20 Conners had worked at the plant 20 years before Duke took it over in 1998 a= nd=20 said he was familiar with generation levels before and after the takeover.= =20 Conners said that even though Duke dramatically cut back on how much it ran= =20 its generators in the first year, Duke executives boasted to employees at a= =20 company party that they had made as much money in their first year as SDG&E= =20 had made in the previous five.=20 Similarly, Davis said, the generators at the AES plant in Huntington Beach= =20 would be ramped down and quickly ramped up again.=20 He believes this wear and tear coupled with a lack of maintenance not only= =20 helped create an immediate scarcity in the market but also created an=20 environment of constant breakdowns - which created further scarcity.=20 "At first I thought they were stupid,'' said Davis, who now works for the= =20 union representing plant workers. "I had been there 10 years and I was=20 watching them destroy the plant. But then I saw how it made them money.=20 Breakdowns made them money."=20 Both companies vigorously denied the allegations.=20 "Any talk of us intentionally breaking down equipment is ludicrous,'' said = Ed=20 Blackford, manager of the AES plant. "When our units break down, we lose=20 money. We have commitments and if we can't produce that electricity, we hav= e=20 to go out into the market and buy it."=20 Duke spokesman Tom Williams said he is sure the workers saw changes in the= =20 way the plants were operated after deregulation - but said their conclusion= s=20 of price-fixing and gouging are off base.=20 "It's highly offensive to us,'' said Williams. "They were seeing things fro= m=20 their own viewpoint and they don't see the full picture."=20 Duke took out a full page ad in today's Orange County Register and other=20 newspapers that says the powering up and down was done at the order of the= =20 Independent System Operator, which manages the state's power grid. Williams= =20 acknowledged, however, that some of those orders were made by Duke itself,= =20 but couldn't say what percentage.=20 The advertisement doesn't address the allegation that equipment was=20 intentionally mistreated or replacement parts scrapped, although Duke said= =20 earlier that the parts were obsolete and it was more cost-efficient to orde= r=20 parts as needed.=20 ISO spokeswoman Stephanie McCorkle said its orders to power suppliers to ra= mp=20 generators up and down are confidential and she could not verify Williams'= =20 explanation. However, the ISO, she said, would give Duke orders to ramp up= =20 and down no more often than every 10 minutes.=20 A review of three days of logs obtained by the Register showed that on more= =20 than a dozen occasions, orders were given in two-, three- or four-minute=20 intervals - the so-called dramatic "yo-yoing" of the generators that some= =20 legislators say indicates Duke was acting by itself.=20 Williams said the bottom line is that forced outages at the Chula Vista pla= nt=20 were done under Duke's control just 1.1 percent of the time, compared to 1.= 8=20 percent under SDG&E.=20 Those numbers, however, are disputed. Frank Wolak, a Stanford economics=20 professor who oversees the ISO's market-surveillance committee, said the=20 forced outage numbers have only been reliable for the past six months.=20 "There is no independent verification of these numbers until Jan. 1, 2000,= =20 until the governor required that they report this information every single= =20 day,'' Wolak said. "That information isn't any good."=20 Wolak also said the employees are correct about the destructive results of= =20 the constant ramping up and down, comparing it to the wear and tear on a ca= r=20 that travels through a succession of city traffic lights vs. a clear freewa= y.=20 The governor Monday stood by the three former Chula Vista workers who=20 testified Friday, calling them "brave individuals."=20 "I am enormously proud of these people who would step forward, risk the=20 harassment and retaliation these big energy companies are known for," Davis= =20 said just before having breakfast with the men. Judge sets tone at energy talks=20 He suggests that all sides, including the state delegation, would be better= =20 off settling.=20 June 26, 2001=20 By DENA BUNIS The Orange County Register=20 WASHINGTON On the first day of talks over how to settle billions of dollars= =20 of refund claims and other issues surrounding California's electricity=20 crisis, a federal energy judge gave a friendly warning to the more than 140= =20 people in his hearing room:=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement hearings than to have me recommend an answer to the=20 commission," Curtis L. Wagner, chief administrative law judge for the Feder= al=20 Energy Regulatory Commission, said Monday.=20 The FERC ordered a 15-day settlement conference for stakeholders in the=20 electricity crisis to resolve such issues as alleged generator overcharges,= =20 how much generators still have to sell to California and the future of=20 long-term contracts.=20 The first day ended where it began:=20 "California wants $8.9 billion worth of refunds," Michael Kahn, chairman of= =20 California's Independent System Operator and Gov. Gray Davis' representativ= e=20 at the talks, said during a break.=20 Kahn and the rest of the state delegation met for 90 minutes with Wagner on= =20 Monday afternoon. Kahn then got on a plane for California. The state has=20 until Wednesday to produce more information for the judge.=20 Wagner later met with power sellers in an effort to understand their=20 position, which is that the state's refund figure is laughable.=20 "Now we're ready to get down to brass tacks," Wagner said. The veteran ener= gy=20 jurist wasn't phased by Kahn's and Davis' hard line on the $9 billion refun= d=20 figure, even though Wagner signaled last week that a couple of billion in= =20 refunds is more likely.=20 "Everybody has to stick to their guns for a while," Wagner said. The judge= =20 wouldn't say how he arrived at his refund estimate. But within Davis' $9=20 billion estimate is more than $4 billion that he says is owed to the state = by=20 entities over which the FERC has no control, such as municipal power=20 companies. In addition, the state has calculated the $9 billion based on=20 alleged overcharges from May 2000 to May 2001. The FERC began calculating= =20 overcharges in October 2001.=20 There's no way, Kahn said, that the state will abandon its overcharge claim= s=20 for last summer.=20 The first day's proceedings were largely theater. The conference started wi= th=20 a statement from Wagner, including his reading of a letter from new FERC=20 Commissioners Patrick Wood and Nora Brownell, both of whom were in Sacramen= to=20 on Monday researching the natural-gas issue.=20 "This is not the place to debate the shopping list," the letter said. "Nor = is=20 it a place to assign blame. Everyone must leave with something more than th= ey=20 came in with."=20 Then representatives from the power sellers, the utilities, the state and= =20 interests from throughout the West introduced themselves to each other.=20 After that, Wagner closed the conference and admonished all the parties not= =20 to talk about what goes on in the closed hearing room. Business/Financial Desk; Section C=20 California and Energy Providers in Talks Over Electric Fees By JOSEPH KAHN ?=20 06/26/2001=20 The New York Times=20 Page 7, Column 1=20 c. 2001 New York Times Company=20 WASHINGTON, June 25 -- For the first time since the end of the Clinton=20 administration, California and the companies that sell it electricity sat a= t=20 the same table today to try to resolve a multibillion-dollar feud over the= =20 state's energy bills.=20 California is demanding that power companies refund as much as $9 billion f= or=20 what it says were overcharges, while power companies say that the state's= =20 nearly insolvent utilities owe them billions of dollars. City and state=20 officials from across the West are also participating in the negotiations.= =20 The Federal Energy Regulatory Commission convened the talks, which are=20 scheduled to last up to two weeks. The sessions are the first since top=20 Clinton administration officials tried and failed to broker a settlement to= =20 California 's electricity crisis in their waning days in office.=20 ''The time to put California 's past energy problems to rest and structure = a=20 new arrangement for California 's energy future is now,'' said Curtis Wagne= r,=20 an administrative law judge for the energy commission who is presiding over= =20 the settlement talks.=20 The proceeding, which was standing-room-only on opening day, attracted scor= es=20 of people representing multiple sides in the dispute. The main participants= =20 are electricity generating companies, electric utilities, and public=20 officials from state and local governments and regulatory agencies.=20 Mr. Wagner urged the public officials and companies involved to reach an=20 agreement on how much California and other states in the Western grid shoul= d=20 have paid for power over the last year, when California 's partly deregulat= ed=20 market broke down. He said that if they failed to do so by July 10, he woul= d=20 recommend a solution to the energy agency's five commissioners, who would= =20 then have the option of imposing a settlement.=20 Wholesale power costs in California , which totaled $7 billion in 1999,=20 soared to about $27 billion last year and, by some state estimates, could= =20 double again this year. The higher costs, which have not been fully passed= =20 along to consumers, have rendered California 's two main utility companies= =20 unable to pay their bills and forced the state to buy power in their place.= =20 The opening bid by Gov. Gray Davis, who set out his views in a letter sent = to=20 the energy commission today, is that the leading electricity generators=20 should refund about $9 billion that ''they have overcharged the people of t= he=20 state of California .'' Michael Kahn, chairman of the California Independen= t=20 System Operator, is leading the state delegation.=20 Generating companies have dismissed that figure as grossly inflated. They= =20 acknowledge that prices are high. But they say the charges are linked to=20 shortages of natural gas, a crucial fuel for electricity generation, and we= re=20 set fairly in a free market.=20 The companies also contend that a large proportion of what they have billed= =20 California is a credit premium justified because wobbly utilities owe them = as=20 much as $15 billion. Reliant Energy, Duke Energy, the Williams Companies, t= he=20 Enron Corporation and the Mirant Corporation are among the major sellers of= =20 electricity in the Western region.=20 The energy commission, which has the duty of determining ''just and=20 reasonable'' electricity prices under a New Deal-era law, long ago found th= at=20 the California market had become dysfunctional and that prices were=20 unjustified. But the agency has struggled to come up with a method for=20 determining fair rates, changing its method three times in recent months.= =20 So far, the agency has identified about $125 million in potential=20 overcharges. But that number was reached using a restrictive method that th= e=20 agency has since abandoned.=20 Last week, the agency adopted a new price control regime that is intended t= o=20 limit price spikes throughout the West. If the controls it is using now wer= e=20 retroactively applied to electricity sales made over the last year, the=20 generators would be asked to refund much more money. By some estimates, the= =20 refunds could total more than $1 billion but seem likely to fall well short= =20 of the $9 billion California is seeking. National Desk; Section A=20 Cheney Withholds List of Those Who Spoke to Energy Panel By JOSEPH KAHN ?=20 06/26/2001=20 The New York Times=20 Page 17, Column 1=20 c. 2001 New York Times Company=20 WASHINGTON, June 25 -- Vice President Dick Cheney has declined to identify= =20 the people who met privately with his energy task force, raising tensions= =20 with Congressional investigators who have repeatedly requested the=20 information.=20 The General Accounting Office, an investigative arm of Congress, sent Mr.= =20 Cheney's office a letter late last week complaining that a month had passed= =20 since it first submitted an inquiry about the workings of the task force. T= he=20 letter said the vice president had a legal obligation to provide the=20 information immediately.=20 Mr. Cheney's office said the letter was sent one day after it submitted 77= =20 pages of documents to the accounting office.=20 ''Our correspondence crossed in the mail,'' said Juleanna Glover Weiss, a= =20 spokeswoman for Mr. Cheney.=20 But Ms. Weiss said the vice president had not provided the names of people,= =20 including industry executives, who may have influenced the formation of the= =20 Bush administration's energy policy, which was released last month.=20 ''Our counsel and the G.A.O. will continue to talk about this,'' Ms. Weiss= =20 said.=20 The energy task force Mr. Cheney headed spent several months compiling a=20 lengthy energy strategy that contained about 150 recommendations for=20 administrative and legislative actions to address what it termed an energy= =20 crisis.=20 Administration officials have said that they met with a wide variety of=20 people concerned about energy issues, including executives of oil, natural= =20 gas, electricity , nuclear power and energy infrastructure companies. They= =20 have declined to provide a list of people who had access to the task force.= =20 Some Democrats have asserted that leading Republican donors had special=20 access to the task force and that the energy policy is skewed toward measur= es=20 favored by major corporations. Two Democratic representatives, Henry A.=20 Waxman of California and John D. Dingell of Michigan, asked the accounting= =20 office to report on the officials who served on the task force, what=20 information was collected by the panel, whom they met with and how much the= =20 task force spent.=20 The White House provided the G.A.O. with the financial records of the task= =20 force. But administration officials have told the investigative body that= =20 they are not compelled to provide the names of outsiders who met with the= =20 task force.=20 The accounting office's general counsel, Anthony H. Gamboa, said in a lette= r=20 to Mr. Cheney's office last week that the investigative body is entitled to= =20 more information.=20 The letter warned that if the White House does not provide the full range o= f=20 information the G.A.O. is seeking, it may issue a ''demand letter,'' a more= =20 formal request. Under the law, the White House would have 20 days to respon= d.=20 If the dispute continues, the accounting office could bring a civil action= =20 against the administration.=20 Love, War and California Electricity=20 By Susan Lee ?=20 06/26/2001=20 The Wall Street Journal=20 Page A22=20 (Copyright (c) 2001, Dow Jones & Company, Inc.)=20 California 's energy crisis presents at least a dozen major policy issues,= =20 but perhaps the most complicated question -- and the one with the least=20 satisfactory solution -- is who should pay for past power usage.=20 Specifically, who should pay wholesale electricity suppliers for juice that= =20 was consumed after wholesale prices rose fiercely above fixed retail prices= ?=20 Between May 2000 and January 2001, before the state of California intervene= d,=20 a $14 billion gap opened up between what the suppliers charged and the=20 utilities could pay.=20 Right now, nobody is paying. To be sure, Gov. Gray Davis has issued a=20 memorandum of understanding in which he suggests that ratepayers would bear= =20 part of the repayment burden in the form of a surcharge on their electricit= y=20 bills, and taxpayers would bear another part in helping fund the state's=20 purchase of utilities' transmission grids. But the memorandum is just a vag= ue=20 promise, and is already in deep political trouble.=20 It isn't fair to leave power suppliers hanging; the power was used and must= =20 be paid for. The problem is that, just as in love and war, the California= =20 energy mess no longer has a fair solution.=20 There are several groups of potential payers. The No. 1 target group is=20 consumers, or ratepayers, on the grounds that they used the power and thus= =20 should pay its market cost. Yet consumers demanded the amount of power they= =20 used based on its low retail price. It's hardly fair to now go back and rai= se=20 the price retroactively. After all, if the price had been higher, consumers= =20 would have used less of it.=20 A second group of potential payers are the taxpayers, on the grounds that= =20 this is a big political and regulatory problem for the entire state of=20 California . Since most taxpayers are voters and since voters are ultimatel= y=20 responsible for the acts of officials they elect, fairness dictates that=20 taxpayers ought to suffer the punishment for the botched deregulation schem= e.=20 But this solution, too, has flaws. Although sticking taxpayers with the bil= l=20 might result in taxpayers (to the extent they are voters) throwing the=20 political and regulatory bums out, it doesn't locate the economic burden=20 efficiently. As distinct groups, taxpayers and consumers may overlap, but= =20 they aren't identical.=20 And then there is a third group -- the utilities themselves -- on the groun= ds=20 that they shouldn't have been running around buying power they knew they=20 couldn't afford. Although this may satiate a certain blood lust (who doesn'= t=20 loathe utilities?), utilities are regulated companies and operate under=20 regulatory constraints and imperatives. Accordingly, they bought power on= =20 behalf of ratepayers and they bought it like mad until they went bankrupt.= =20 Too, it might be argued that shareholders have already "paid" -- shares of= =20 Pacific Gas & Electric and Southern California Edison have lost 50% to 60% = of=20 their value since the crisis began.=20 There is one other group of sitting ducks, the suppliers, on the grounds th= at=20 they are, in the words of Gov. Davis, pirates and marauders who profited fr= om=20 California 's crisis. But aside from basic questions of equity, suppliers= =20 have already paid a price in the form of (still mounting) legal bills to=20 defend themselves from charges of profiteering, as well as in the lost=20 opportunity to deploy the money owed to them. Moreover, suppliers already c= an=20 be expected to bear some of the payment burden since Mr. Davis has indicate= d=20 they will not be repaid dollar for dollar,=20 Finally, there is the group who is most at fault but the least likely to=20 suffer -- the regulators and politicians -- on the grounds that they pretty= =20 much created the mess and they surely haven't moved to clean it up.=20 Regulators, most pointedly, because they refused to let the utilities hedge= =20 their purchases of electricity when they pleaded to do so in 1999.=20 Politicians, in particular the governor, because they dithered for over a= =20 year, preferring to blame the problem on someone else. Although putting thi= s=20 group out of work might be the most satisfying civic outcome, the solution = is=20 a flop if financial restitution is the goal.=20 The latest, most popular approach to solving the mess is to look at the=20 transfer of wealth, required in any case, that would take place under each= =20 payment scenario. This is what some of California 's politicians mean when= =20 they complain that full restitution means transferring $14 billion from the= =20 state of California to the evil out-of-state power suppliers. But, as Irwin= =20 Stelzer, economist at the Hudson Institute, points out, there is a long=20 history of wealth transfers to tote up.=20 Initially, when the botched deregulation plan was agreed to several years= =20 ago, it involved a transfer of wealth from ratepayers to shareholders. That= =20 is, the utilities were concerned about making back their so-called stranded= =20 costs, mostly from overbudget nuclear power plants. Those stranded costs we= re=20 to be paid by fixing, or freezing, rates at a level that would provide "pay= =20 back" to the utilities for their nuclear construction. However, when=20 wholesale prices shot up a year ago, the utilities (and their shareholders)= =20 were caught paying much more money for power than the rates they were allow= ed=20 to charge. And so the transfer of wealth reversed itself -- shareholders=20 subsidized ratepayers.=20 Now, if Mr. Davis's memorandum of understanding becomes operative, the=20 transfer of wealth changes again. Ratepayers will get socked by a surcharge= =20 on their electricity bills and taxpayers by the state's purchase of=20 transmission lines. Taxpayers might also get hit if the bond issue goes off= =20 as planned in August and, as expected, erodes California 's credit quality.= =20 That erosion would mean that all state agencies that issue bonds would be= =20 required to pay higher interest rates. (In fact, California 's bond rating= =20 has already been downgraded by two major rating agencies.)=20 Simply put, looking at the transfers of wealth doesn't yield a clear-cut or= =20 fair solution to the payment problem either.=20 All this leaves politics to dictate the answer, and the shape of it is=20 already apparent. Suppliers, ratepayers, taxpayers and shareholders will be= ar=20 the cost while the politicians and regulators evade the consequences. In=20 short, the unfairness of love and war doesn't hold a candle to politics in= =20 California .=20 ---=20 Ms. Lee is a member of the Journal's editorial board.

dasovich-j/all_documents/28132.

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Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com', 'angela.wilson@enron.com'] File: dasovich-j/all_documents/28132. ===================================== Please see the following articles: Sac Bee, Tues, 6/26: Energy-refund talks open on divisive note Sac Bee, Tues, 6/26: Daniel Weintraub: Davis' energy contracts preserve=20 long-term pain Sac Bee, Tues, 6/26: State, generators lock horns in talks Sac Bee, Tues, 6/26: Davis commends 3 'heroes' in generator refunds fight Sac Bee, Tues, 6/26: San Onofre blast released no radiation, spokesman says Sac Bee, Mon, 6/25: Congress demands list of participants in Cheney energy= =20 meetings Sac Bee, Mon, 6/25: Creditor expects no quick fix in PG&E's venture into=20 bankruptcy LA Times, Tues, 6/26: State, Power Firms Urged to Make a Deal LA Times, Tues, 6/26: Commerical Real Estate Apartments to Provide Own Powe= r LA Times, Tues, 6/26: Officials Oppose Utility Choice Power SF Chron, Tues, 6/26: Billions of dollars at stake as power talks begin SF Chron, Tues, 6/26: Compromise urged in electricity refund talks SF Chron, Tues, 6/26: Developments in California's energy crisis=20 SF Chron, Tues, 6/26: News briefs on California's power crisis Mercury News, Tues, 6/26: The haggling over refunds is under way=20 OC Register, Tues, 6/26: Power workers supported OC Register, Tues, 6/26: Judge sets tone at energy talks NY Times, Tues, 6/26: California and Energy Providers in Talks Over Electri= c=20 Fees NY Times, Tues, 6/26: Cheney Withholds List of Those Who Spoke to Energy Pa= nel WSJ, Tues, 6/26: Love, War and California Electricity=20 ---------------------------------------------------------------------------= --- -----------------------------------------=20 Energy-refund talks open on divisive note=20 By David Whitney Bee Washington Bureau (Published June 26, 2001)=20 WASHINGTON -- More than 130 lawyers and corporate chiefs crowded into a=20 courtroom Monday to begin secret talks aimed at ending months of bitterness= =20 and accusations over who should pay for California's haywire energy market.= =20 But the largely closed-door sessions before a Federal Energy Regulatory=20 Commission judge could be doomed from the start by sharply divided estimate= s=20 of how much money it will take to leave the past behind and launch Californ= ia=20 toward a new energy future.=20 The state says its consumers have been overcharged by at least $8.9 billion= ,=20 but Curtis Wagner, FERC's chief administrative law judge who is presiding= =20 over the settlement negotiations, said he believes at most it will be $2=20 billion to $2.5 billion.=20 "We told everyone that $8.9 billion is the floor. It is the most conservati= ve=20 possible number," Michael Kahn, a power grid official who is heading the=20 state's delegation, told reporters after Monday's talks.=20 The state's firm stance and Wagner's 15-day deadline for results had many= =20 predicting that little would come of the talks.=20 "I believe California is going to scuttle the talks. I believe that nothing= =20 will be good enough for them," said Arthur O'Donnell, editor of California= =20 Energy Markets, an industry newsletter.=20 More than $6 billion of the state's claims involve deals that are ineligibl= e=20 for refunds because of the seller or the date sold, O'Donnell said. FERC=20 doesn't have jurisdiction over all traders, and it already has excluded man= y=20 months of trades from refunds.=20 If the parties fail to settle within 15 days, Wagner has another week to=20 submit his own recommendations to the five FERC commissioners on how he=20 thinks they should resolve the disputes.=20 Wagner warned the parties that settlement would be the far preferable cours= e.=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement proceedings," the blunt-speaking judge said. "The time = to=20 put California's past energy problems to rest and (to) structure a new=20 arrangement for California's energy future is now."=20 Wagner held out a carrot to the generators, who have been pummeled by Gov.= =20 Gray Davis and state Attorney General Bill Lockyer over allegations of mark= et=20 manipulation to drive up prices and their profits. "There are questions=20 concerning whether the settlement should offer immunity from existing and= =20 future lawsuits and prosecutions against generators," Wagner said.=20 California argues that power plant owners and traders manipulated a badly= =20 flawed market to drive up prices, racking up $9 billion in overcharges from= =20 May 2000 until May 2001. But electricity sellers say they obeyed the law, a= nd=20 they contend it's unfair to change the rules retroactively.=20 Assuming the refund issue is resolved, Wagner said there are at least six= =20 other issues on the table. They include agreement on moving power out of th= e=20 volatile spot market and selling it under long-term contracts; eliminating= =20 natural gas transmission constraints blamed for the high cost of gas in=20 California; and settlement of financial issues connected with PG&E's=20 bankruptcy filing.=20 Wagner began the brief, public opening of the negotiations by reading a=20 statement from FERC's two newest members, Patrick Wood III and Nora Mead=20 Brownell, the forces behind the order convening the talks.=20 Wood and Brownell said in a statement that it is in "everyone's best intere= st=20 to bring closure" to the crisis, and urged the participants to resist tryin= g=20 to blame each other for the power debacle. "Everyone must leave (the=20 negotiations) with more than they came in with," they said.=20 But skepticism remained high Monday. "We didn't take two weeks to get into= =20 this," said one participant late in the day. "It's hard to see how we'll ge= t=20 out of this in two weeks."=20 Among the participants are legal teams representing about 50 government=20 agencies, utilities and power generators, including Pacific Gas and Electri= c=20 Co., Southern California Edison, San Diego Gas & Electric and their corpora= te=20 parents and subsidiaries.=20 The talks also include municipal utilities such as the Sacramento Municipal= =20 Utility District, more than a dozen California towns and irrigation=20 districts, and utilities in Washington, Montana, Idaho, Colorado, New Mexic= o=20 and Arizona.=20 Meanwhile, FERC commissioners Wood and Brownell were in Sacramento to confe= r=20 with Davis and legislative leaders, then conduct a fact-finding hearing wit= h=20 California regulators on the high price of natural gas.=20 Brownell and Wood, Davis said, are "committed to working together with us t= o=20 drive down the price of natural gas in California to get it closer to what= =20 the rest of the country is paying."=20 "I think we are turning a corner," he said. "Conservation has been=20 spectacular. The outlook looks much more positive than it did two months=20 ago."=20 For more information: For the latest information on the state's energy=20 crisis, including rolling blackouts, visit www.sacbee.com. Also, sign up fo= r=20 the latest news headlines and Stage 3 power alerts at=20 www.sacbee.com/news/news2go=20 The Bee's David Whitney can be reached at (202) 383-0004 or=20 dwhitney@mcclatchydc.com.=20 Bee Staff Writers Carrie Peyton and Emily Bazar contributed to this report. Daniel Weintraub: Davis' energy contracts preserve long-term pain (Published June 26, 2001)=20 With blackouts held at bay, federal price controls taking effect and the sp= ot=20 market cost for wholesale electricity declining toward historic lows, thing= s=20 are looking good for Gov. Gray Davis. If current trends continue, the=20 governor's public approval ratings might soon resemble one of those fever= =20 charts tracking the meteoric rise in electricity prices last winter.=20 But even if his strategy turns out to be a political success, a major probl= em=20 created by the governor's approach will loom as a quiet threat to the state= 's=20 economy for years to come.=20 The centerpiece of his solution to the energy crisis was a series of 38=20 agreements with electricity generators under which the state will buy power= =20 for the next 10 years. Davis signed those deals in desperation, just when= =20 prices were peaking, with the very companies he has been accusing of gougin= g=20 the state.=20 Now that prices have begun to fall, Davis is taking credit. His advisers ar= e=20 even trying to suggest that the existence of the long-term contracts has=20 contributed to the more favorable conditions in the market.=20 "It's economics 101," says David Freeman, one of the governor's closest=20 energy advisers.=20 But the most famous rule of economics 101 -- the law of supply and demand -= -=20 suggests that the contracts have little, if anything, to do with the recent= =20 decline in electricity prices. In a properly functioning market, prices=20 decline when supply exceeds demand. When demand chases a limited supply,=20 prices climb. It's true that the contracts have reduced the state's demand= =20 for power on the spot market. But they also have reduced, by an identical= =20 amount, the supply of electricity available on the spot market. That=20 shouldn't have any effect on the price.=20 Long-term contracts, used prudently, are a fine idea, but they are not=20 necessary for a stable market to exist. For two years after California's=20 deregulation plan took effect, the state's utilities bought power at=20 rock-bottom prices without the benefit of any contracts at all. By state=20 edict, all electricity was bought and sold on the spot market, and as long = as=20 supply was plentiful, the price was low. The generators were standing in li= ne=20 to sell us their electricity.=20 Then, a little more than a year ago, things went haywire. Demand caught up= =20 with supply, and at the same time, the price of natural gas, which is used = to=20 produce most of our electricity, rose rapidly. The design of the electricit= y=20 system created by the state also appears to have allowed the private=20 generators to game the market. It's still not clear whether their behavior= =20 was legal or not, but they did gain the upper hand. We needed their=20 electrons, and the generators suddenly were in the position to demand any= =20 price they liked.=20 It was at just this moment that Davis decided to lock up as much electricit= y=20 as he could under contract. Wanting to avoid a retail rate increase that he= =20 feared would prove unpopular, Davis sought the lowest possible price. To ge= t=20 it, he signed contracts with the longest possible terms. Shorter terms woul= d=20 have preserved the state's flexibility for the future. But the governor sai= d=20 he was willing to pay a price for stability, and so he locked every custome= r=20 of Pacific Gas & Electric and Southern California Edison into his plan.=20 Some suggest it's unfair to second-guess Davis now that prices have begun t= o=20 decline and his contracts are starting to look expensive. Severin Borenstei= n,=20 an economist and energy expert at UC Berkeley, compares the governor's=20 strategy to buying homeowners insurance.=20 "If your house doesn't burn down," Borenstein says, "that doesn't mean it w= as=20 a mistake to buy the insurance."=20 The trouble is that Davis bought his policy after the house was already on= =20 fire. Peter Navarro, a UC Irvine economics professor and consumer advocate,= =20 warned at the time that the governor was pursuing a faulty strategy. He=20 correctly saw then that the same private generators on whom Davis was=20 declaring war were rubbing their hands at the prospect of signing deals wit= h=20 the governor at top-of-the-market prices.=20 "They know there is going to be a highly competitive market in a couple of= =20 years," Navarro told me in March. "Rather than have to fight it out in the= =20 spot market at that point, of course they'd want to lock in 10-year=20 contracts. The governor is adopting a long-term strategy to address what is= =20 essentially a short-term problem."=20 Now, with prices drifting back down even sooner than expected, Navarro is= =20 more convinced than ever that Davis erred.=20 "The contracts were bargained in a panic from the utmost position of=20 weakness," Navarro said last week. "The cumulative effect of this strategic= =20 error will be a cost in the billions. It will be like driving the Californi= a=20 economy with the emergency brake on."=20 Voters may never notice the drag. But if companies start eyeing lower=20 electricity rates in Nevada and Arizona, and jobs get harder to come by, al= l=20 of California will be paying a long-term price for the governor's desire to= =20 avoid some short-term pain.=20 The Bee's Daniel Weintraub can be reached at (916) 321-1914 or at=20 dweintraub@sacbee.com. State, generators lock horns in talks=20 Davis' $8.9 billion refund call too high, judge says By Toby Eckert=20 COPLEY NEWS SERVICE=20 June 26, 2001=20 WASHINGTON -- California officials staked out a tough bargaining position= =20 yesterday at the start of talks aimed at resolving disputes over refunds an= d=20 other thorny issues arising from the state's power crisis.=20 California's lead negotiator, Michael Kahn, called the $8.9 billion in=20 refunds Gov. Gray Davis has demanded from power sellers "an extremely=20 conservative estimate" and indicated the state would reserve the right to= =20 press for more in court.=20 The judge overseeing the hearings has called the state's refund estimate to= o=20 high.=20 Some power industry sources, meanwhile, were pessimistic about whether the= =20 negotiations would lead to a settlement between the long-warring sides, giv= en=20 the state's position.=20 Some 150 representatives from state agencies, cities, utilities and numerou= s=20 power-generating and marketing firms packed a hearing room at the Federal= =20 Energy Regulatory Commission for the first day of the talks. The negotiator= s=20 will attempt to settle the state's claim that power sellers have gouged=20 California for more than a year, and the sellers' contention that they are= =20 still owed billions of dollars for power they provided.=20 Pacific Northwest states were also invited into the discussions and are=20 seeking $6 billion in refunds from the power companies.=20 The electricity sellers deny wrongdoing, saying several factors converged t= o=20 drive up prices, including California's faulty power deregulation law, a hu= ge=20 spike in the price of natural gas that is used to generate most electricity= =20 in the state, and a short supply of electricity.=20 Speaking to reporters during a break in the closed-door session, Kahn said= =20 the state would not trim its estimate of what it believes it is owed for=20 electricity overcharges. Kahn chairs the Independent System Operator, the= =20 organization that manages most of California's power grid.=20 "Let there be no mistake. We are not going to ask the courts or FERC in=20 proceedings for $9 billion. We're going to ask for a lot more money than th= at=20 in our litigation position," he said. "The governor has said that he believ= es=20 FERC should order refunds at $8.9 billion now."=20 FERC Chief Administrative Law Judge Curtis Wagner Jr., who is mediating the= =20 talks, has said he believes the refund amount the state is seeking is far t= oo=20 high. A more realistic figure would be around $1 billion to $2.5 billion, h= e=20 said.=20 Wagner also said that one of the issues up for discussion would be whether= =20 power generators should be offered immunity from current and future legal= =20 action if a settlement is reached.=20 Kahn argued that the time period subject to refunds should start in May 200= 0,=20 when power prices started a dramatic upward spiral in California. Wagner ha= d=20 indicated he would scrutinize prices going back only to October, when FERC= =20 started examining the market.=20 When California officials took the price curbs that FERC approved last week= =20 for future power sales and applied them to power charges going back to May= =20 2000, the refunds owed to the state would came to roughly $9 billion, out o= f=20 $43.8 billion in total sales, Kahn said.=20 "I am absolutely confident that we have valid legal claims back to May. The= re=20 is no way that we are going to do anything to compromise those claims. That= =20 includes last summer, when San Diegans were terribly overcharged," Kahn sai= d.=20 "Last summer is a very important period to Californians that are seeking=20 redress. And we are not going to abandon those claims just because .?.?. FE= RC=20 has decided not to include them," he added.=20 Wagner asked the California officials to provide more information to back= =20 their numbers.=20 Power sellers continued to maintain that Davis' estimates of excessive powe= r=20 charges are wildly inflated. One group that represents generators gave a=20 bleak prognosis on the chances for a settlement.=20 "It's hard for us to contemplate how we're going to come to some agreement= =20 with 130 players in the room," said Gary Ackerman, executive director of th= e=20 Western Power Trading Forum.=20 "We stand by our business dealings in California," said Richard Wheatley, a= =20 spokesman for Reliant Energy, one of the companies targeted by the state fo= r=20 refunds. "Our power was priced competitively."=20 But Wagner, a courtly veteran of such complex discussions, appeared to take= =20 the sparring in stride.=20 "Everybody has to stick to their guns for a while," he told reporters after= =20 the first day of talks ended. "Everybody has their say, and now we're getti= ng=20 ready to get down to brass tacks."=20 Still, the starkly different positions taken by the state and the power=20 sellers illustrate the daunting task facing Wagner after months of bitter= =20 charges and countercharges between the two sides. FERC, which ordered the= =20 settlement talks as part of its price-curb order, gave the parties 15 days = to=20 reach an agreement.=20 If they fail, Wagner will have an additional seven days to make a=20 recommendation to FERC.=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement proceedings," Wagner admonished the parties before the= =20 hearing room doors were closed to the media. "The time to put California's= =20 past energy problems to rest and structure a new arrangement for California= 's=20 energy future is now."=20 Wagner, who underlined his role as a broker by sitting among the parties to= =20 the talks instead of presiding from the bench, also warned the participants= =20 not to talk to reporters about specific negotiations.=20 While most of the attention has focused on refunds, Wagner laid out a broad= =20 agenda for the talks, including:=20 ?Moving more power sales in California into long-term contracts and away fr= om=20 the volatile spot market.=20 ?Ensuring there is a "creditworthy party" to pay for power in California.= =20 ?Resolving concerns about the independence of the California grid manager,= =20 the Independent System Operator, whose board is appointed by Davis.=20 ?Exploring natural gas issues, including transportation constraints and hig= h=20 prices in Southern California.=20 ?The bankruptcy of California's largest utility, Pacific Gas and Electric,= =20 which sought protection from creditors after it was unable to pay soaring= =20 wholesale power costs.=20 Davis commends 3 'heroes' in generator refunds fight=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 June 26, 2001=20 SACRAMENTO -- Gov. Gray Davis praised three former employees at Duke Energy= 's=20 Chula Vista plant as "heroes" yesterday for coming forward with allegations= =20 that Duke policies created power shortages that raised electricity prices.= =20 For the second time in recent days, the three plant veterans dominated even= ts=20 in Sacramento with explosive allegations of mismanagement and market=20 manipulation by a company that has reaped enormous profits in California.= =20 Ed Edwards, Glenn Johnson and Jimmy Olkjer made those claims, under oath, o= n=20 Friday before a state Senate committee.=20 Davis and other Democratic politicians yesterday said these first insider= =20 accounts of how power plant operations might have manipulated prices will= =20 help the state in its attempt to get $9 billion in refunds from Duke and=20 other energy generating companies.=20 "There's no question in my mind a lot of money has been stolen from=20 California, and these men are going to help us get it back," said=20 Assemblywoman Barbara Matthews, D-Tracy.=20 The ex-employees told Davis that Duke risked jeopardizing equipment by=20 constantly powering the 706-megawatt plant up and down, dumped new spare=20 parts and took working turbines off-line for "economic reasons."=20 Davis said the power plant workers confirmed his suspicions that North=20 Carolina-based Duke and other companies engaged in price gouging.=20 "There's a concerted effort to suck every dime out of California and send i= t=20 back to Houston or North Carolina," he said.=20 Davis cautioned that he hadn't yet heard Duke's version of events. "The=20 company is entitled to their point of view," he said. "But they've got some= =20 explaining to do."=20 Duke Energy spokesman Tom Williams called the governor's meeting with the= =20 former workers "unfair and unproductive."=20 Williams said a review of company logs shows that during a Stage 3 energy= =20 alert the Chula Vista plant powered down under orders from California's=20 electricity grid manager, the Independent System Operator.=20 He said the company was doing its job by supplying the state with "spinning= =20 reserves" that could be added to the system in 10 minutes to balance the lo= ad=20 -- that is, to make sure that supply equaled demand.=20 ISO spokeswoman Stephanie McCorkle said the agency buys four types of=20 ancillary services to balance the load, including spinning reserves.=20 But she said only Duke can release information from Jan. 16. Williams said= =20 Duke soon plans to release logs from that day and several others.=20 Meanwhile, another former Chula Vista plant employee confirmed the=20 allegations of the other three workers. All of them had worked for San Dieg= o=20 Gas & Electric when the utility owned the plant before Duke took over its= =20 operation. Duke was required to keep the SDG&E employees on for two years,= =20 but it then let many of them go.=20 Rick Connors, a former operator who turned down an offer from Duke to stay = on=20 at the South Bay plant, said the plant output frequently was down for=20 "economic reasons."=20 The governor brought up those allegations during a subsequent meeting with= =20 two new FERC commissioners, Pat Wood and Nora Brownell. Davis asked the=20 federal regulators to look into possible price gouging, the high price of= =20 natural gas and the $9 billion in refunds he is seeking.=20 After meeting with Davis, Wood said he thinks California will emerge from t= he=20 energy crisis in 2003 or 2004 and become an energy trendsetter. He said he= =20 believes California leaders have the will to build more power plants and=20 improve natural gas pipelines that fuel new generators. But he cautioned th= at=20 there will be "some short-term pain."=20 "I think you folks will seem some blackouts this summer," he said.=20 Staff writer Ed Mendel contributed to this report.=20 San Onofre blast released no radiation, spokesman says=20 But motorists on I-5 weren't so sure By Bruce Lieberman=20 UNION-TRIBUNE STAFF WRITER=20 June 26, 2001=20 SAN ONOFRE -- Charlene Engel was driving with a few friends up Interstate 5= =20 Sunday when she saw flames and smoke shoot suddenly skyward from the nuclea= r=20 power plant.=20 Pieces of silvery material were fluttering through the air and drifting=20 toward the freeway. Traffic began speeding up.=20 "Everybody sort of saw it and thought, 'Oh my God, have we just been=20 irradiated or what?'?" said Engel, a Rancho Bernardo artist.=20 In fact, the explosion of a transformer was far outside the twin reactors a= t=20 the San Onofre Nuclear Generating Station, and posed no radiation danger, R= ay=20 Golden, a plant spokesman, said yesterday.=20 But Engel and her friends, who were heading to the Los Angeles County Museu= m=20 of Art for a Winslow Homer exhibit, didn't know that. "You don't actually= =20 know how things are hooked up, so you don't want to hang around," Engel sai= d.=20 "We moved north pretty quickly."=20 Santee resident Richard Carrico, whose niece was driving him to Dana Point,= =20 said the fireball rose about 50 feet. "My God, I thought she was going to= =20 faint," said Carrico, 93.=20 No one was injured in the explosion, which occurred at 11:03 a.m. and was= =20 followed by a fire that lasted about 40 minutes. The transformer was=20 destroyed, but no other equipment at the plant was damaged and the twin=20 reactors continued to operate at full power without interruption, Golden=20 said.=20 Yesterday, San Onofre investigators were still trying to figure out why the= =20 transformer failed. They should have some answers, and a new transformer=20 installed, in about a week.=20 The transformer was one of 54 in the plant's switching yard used to reduce= =20 the voltage of a sample of outgoing electricity. The so-called "potential= =20 transformers" step down the current sample to 115 volts so instruments can= =20 test the amperage and wattage. Electricity leaves San Onofre at 238,000 vol= ts=20 in transmission lines.=20 The explosion scattered shards of ceramic and aluminum debris, and 90 gallo= ns=20 of burning insulation oil, hundreds of feet, Golden said. Pieces of the=20 transformer, some as large as one foot square, landed on Old Highway 101.= =20 Plant operators feared debris would land on I-5, but the California Highway= =20 Patrol did not report any there, a dispatcher said. The CHP received severa= l=20 911 calls from drivers reporting a fireball.=20 The last time a potential transformer exploded at the plant's switching yar= d=20 was in 1994, Golden said. Plant workers discovered that corrosion caused by= =20 ocean air rusted the transformer's carbon-steel casing, allowing water to= =20 enter and contaminate the insulation oil.=20 After that, the plant replaced four transformers and repaired three. All ar= e=20 periodically washed down with high-pressure fire hoses to prevent corrosion= ,=20 Golden said. He would not speculate on the cause of the latest explosion, o= r=20 whether it could lead to the replacement of other transformers.=20 "If the root cause shows that it needs to be repaired or replaced, it will,= "=20 he said.=20 Although Sunday's explosion did not shut down the plant or release any=20 radiation, it was the latest in a string of mishaps this year. On Feb. 2, a= =20 faulty circuit breaker ignited a fire and cut off lubricating oil to Unit 3= 's=20 turbine generators, causing about $45 million in damage and shutting the=20 reactor down for four months.=20 On May 30, a portable crane dropped 40 feet to the ground when a sling on a= =20 large gantry crane failed. On June 6, workers inadvertently overfilled a=20 300-gallon steel bin with hydrazine, a toxic chemical used to purify water = in=20 the plant's cooling systems, spilling about 20 gallons.=20 Golden said the four accidents this year do not indicate that the plant is= =20 unsafe. "We perform hundreds, if not thousands, of work activities a day," = he=20 said.=20 Congress demands list of participants in Cheney energy meetings=20 By Scott Lindlaw ASSOCIATED PRESS=20 June 25, 2001=20 WASHINGTON =01) Congressional investigators are intensifying pressure on th= e=20 White House to identify who met privately with Vice President Dick Cheney's= =20 energy task force.=20 The General Accounting Office has sent Cheney's lawyer a 10-page letter=20 asserting a legal right to the lists and advising Cheney that it may make a= =20 formal demand for the information, rather than the polite requests it has= =20 made in recent weeks.=20 Comptroller General David M. Walker "is prepared to issue a demand letter .= ..=20 if we do not receive timely access to the information," the GAO said in a= =20 10-page letter dated Friday from office General Counsel Anthony H. Gamboa t= o=20 David S. Addington, attorney for the vice president.=20 The GAO is the investigative arm of Congress, and it has legal authority to= =20 federal agency records under the law. A demand letter could begin a legal= =20 battle: It would give Cheney's office 20 days to respond, either by turning= =20 over the names, or providing a reason why it is not compelled to do so, sai= d=20 Lynn Gibson, a lawyer for the GAO.=20 If Cheney declined to turn over the records, the GAO would notify Congress= =20 and Attorney General John Ashcroft, among others. The GAO would also be=20 authorized to file a civil action in court seeking the record, Gibson said.= =20 She knew of no previous case in which the GAO was forced to go to court to= =20 obtain agency records.=20 The White House team that developed the national energy plan, released last= =20 month, met with more than 130 interest groups, from environmentalists and= =20 unions, often at odds with Republicans, to major Bush supporters who got=20 private sessions with Cheney.=20 Reps. Henry Waxman, D-Calif., and John Dingell, D-Mich., in April asked the= =20 GAO to provide information on who served on the task force, what informatio= n=20 was presented to the panel, who presented it and what the task force spent.= =20 The White House has asserted that the GAO does not have the authority to as= k=20 for names of participants. However, it agreed that the GAO is entitled to= =20 financial records of the task force, and two administration officials said= =20 the vice president's office provided 77 pages of financial documents to the= =20 GAO last week.=20 The GAO contends it is entitled to a wider range of records. Federal law=20 "extends GAO's audit authority to all matters related to the use of public= =20 money, not just matters related to costs of activities," it argued in its= =20 letter to Cheney. "Over the years, GAO has conducted many reviews that=20 involve a wide range of White House programs and activities."=20 Juleanna Glover Weiss, a spokeswoman for Cheney, declined to comment on the= =20 GAO's assertions, other than to say, "I'm sure the GAO and the vice=20 president's office will be talking about that."=20 Waxman and Dingell called on Cheney to provide the information they seek.= =20 "The vice president should stop stonewalling and start cooperating with GAO= 's=20 investigation," Waxman said Monday. "Congress is entitled to know the=20 identity of the special interests that met with the Cheney energy task=20 force."=20 Creditor expects no quick fix in PG&E's venture into bankruptcy=20 By Ed Mendel=20 June 25, 2001=20 SACRAMENTO -- California's biggest utility, Pacific Gas and Electric, thoug= ht=20 it was moving toward an early exit from the power crisis by filing for=20 Chapter 11 bankruptcy in early April.=20 The top PG&E executive, Robert Glynn, optimistically told a Wall Street=20 publication that he hoped a settlement might be negotiated with creditors i= n=20 four to six months.=20 But an official with one of the 12 parties on the PG&E creditors committee,= =20 which includes the Bank of America and the state of Tennessee, said he does= =20 not see a quick end to the bankruptcy.=20 "My personal opinion," David Adante, executive vice president of Davey Tree= =20 Surgery, said last week, "is that it's going to take longer than everyone= =20 would like."=20 Adante said he thinks a resolution is likely to go beyond the bankruptcy=20 court and involve the state Public Utilities Commission, Gov. Gray Davis an= d=20 perhaps the Legislature.=20 "The rate part won't be resolved in the bankruptcy process," said Adante.= =20 Davey Tree Surgery, which is based in Kent, Ohio, trims trees that encroach= =20 on power lines for several California utilities.=20 PG&E owes Davey Tree $13 million, making it one of the smallest creditors o= n=20 a committee that includes big power providers, Enron and Dynegy, and big Wa= ll=20 Street firms, Morgan Guaranty and Merrill Lynch.=20 A turning point in the PG&E bankruptcy may have come earlier this month whe= n=20 the federal bankruptcy judge, Dennis Montali, declared that electricity rat= es=20 should be set by state regulators.=20 Experts disagreed about whether a bankruptcy judge could order a rate chang= e=20 for a utility without the approval of state regulators, in this case the PU= C.=20 "The public interest is better served by deference to the regulatory scheme= =20 and leaving the entire regulatory function to the regulator," Montali ruled= .=20 PG&E said it entered bankruptcy because the regulatory process failed,=20 denying a rate increase last fall that might have prevented the utility fro= m=20 running up what it says is a debt of at least $8 billion.=20 PG&E also said the political process failed when, among other things, the= =20 governor's negotiator broke a handshake agreement that included the state= =20 purchase of PG&E's transmission system.=20 "But we have said all along that intersection with the regulatory and=20 political process would probably reoccur," a PG&E spokesman said last week.= =20 The Legislature, after months of delay, held a hearing last week on the=20 governor's plan to keep Southern California Edison out of bankruptcy, which= =20 includes the state purchase of the Edison transmission system.=20 Legislative leaders say the plan is too generous to Edison. Undaunted, Davi= s=20 hopes to win legislative approval of some version of his Edison plan, and= =20 then persuade the PG&E creditors committee to accept a similar plan. But ev= en=20 if Davis can get his rescue plan approved by the Legislature and the PG&E= =20 committee, it's likely to be challenged with a ballot initiative by consume= r=20 groups, who denounce the proposal as a "bailout" for utilities.=20 Meanwhile, the period in which only PG&E can file a bankruptcy reorganizati= on=20 plan ends Aug. 5, allowing creditors or other parties to make proposals. An= d=20 if the Legislature does not act by Aug. 15, the agreement that the governor= =20 negotiated with Edison can be waived by either party.=20 But of course, as with most things in the electricity crisis, the deadlines= =20 could be extended.=20 ED MENDEL is Capitol bureau chief for the Union-Tribune.=20 State, Power Firms Urged to Make a Deal=20 Energy: Mediator says a refund pact would benefit both sides. Meanwhile,=20 Davis tones down his rhetoric as regulators come calling.=20 By MEGAN GARVEY and DAN MORAIN, Times Staff Writers=20 ?????WASHINGTON--After being vilified for months by Gov. Gray Davis, federa= l=20 energy regulators here and in Sacramento took steps Monday to show they are= =20 determined to respond to California's energy crisis. ?????A top federal regulator began mediating Davis' demand for nearly $9=20 billion in what the governor says are overcharges by power generators--and= =20 warned a room full of dark-suited lawyers, energy executives and state=20 officials here that they will be "far better off" if they decide among=20 themselves how big a refund the state is due. ?????Meanwhile, in Sacramento, Patrick H. Wood III and Nora M. Brownell,=20 President Bush's first appointees to the five-member Federal Energy=20 Regulatory Commission, spent the afternoon conferring with Davis and=20 legislative leaders. Then they held a fact-finding hearing with California= =20 regulators on the high price of natural gas, the fuel that spins most new= =20 electricity turbines in California. ?????"We're going to be working together through tough issues," Brownell=20 said. "We're going to work through them and solve them and move forward. It= =20 is a lot easier when people have sat down and gotten to know each other." ?????Davis has been attacking federal energy regulators--a majority of whom= =20 are holdovers from the Clinton administration--for failing to take a variet= y=20 of steps to bail California out of its energy woes. ?????On Monday, however, Davis toned down his bellicose attacks on the=20 federal commission. Brownell and Wood, Davis said, are "committed to workin= g=20 together with us to drive down the price of natural gas in California to ge= t=20 it closer to what the rest of the country is paying." ?????"I think we are turning a corner," Davis said, as temperatures across= =20 the state were moderate and electricity demand was low. "Conservation has= =20 been spectacular. Californians have responded heroically. The federal=20 government is now finally taking some positive actions. The outlook looks= =20 much more positive than it did two months ago." ?????The developments in Washington and Sacramento come as Davis issues=20 campaign-style demands for more aid from the federal government and as poll= s=20 show that voters are skeptical of how Davis and Bush are handling=20 California's energy crisis. ?????Republican lawmakers in Sacramento contend that the regulatory=20 commission has granted Davis virtually everything he has sought. The=20 commission earlier this month imposed temporary price restraints, a step=20 Davis said is helping to lower wholesale electricity prices paid by the sta= te. ?????Senate Republican leader Jim Brulte said Monday that he has "no doubt"= =20 the commission, known as FERC, will order power generators to issue refunds= =20 to California, as Davis has requested. ?????But Brulte, of Rancho Cucamonga, also predicted that Davis will find t= he=20 order wanting: "The governor's game is a political one. . . . The Davis=20 administration has a clear strategy--that no matter what FERC does, it isn'= t=20 enough." ?????In Washington, the roughly 150 participants who showed up for day one = of=20 a 15-day settlement conference on refunds showed little sign they were read= y=20 to agree, at least not yet. ?????For now, the differences remain considerable: about $9 billion in=20 refunds demanded by California's representatives at the talks, plus $6=20 billion more that other Western states say they have been unfairly charged.= =20 Power generators hotly dispute those figures. ?????"The time to put California's past energy problems to rest and structu= re=20 a new arrangement for California's energy future is now," said Curtis L.=20 Wagner, the chief administrative law judge for FERC. "We can do it if we tr= y." ?????Wagner, who told reporters last week he believed refunds of about $2= =20 billion were probably justified, is mediating the closed-door talks. Davis = is=20 asking that the refunds cover the period since May 2000. ?????"These out-of-state energy companies are taking us for a ride," Davis= =20 said in a brief interview in Sacramento on Monday. "I am determined to get= =20 every penny back that California is owed. The generators have bilked us=20 mercilessly, and I'm fighting back. I'm not giving up nothing." ?????Consumers wouldn't see refunds directly. Rather, the money would go to= =20 the state or to private utilities, such as Southern California Edison, for= =20 electricity purchases made during the energy crisis. ?????Participants in the Washington meeting represent about 70 entities wit= h=20 stakes in the electricity dispute. If they fail to reach agreement among=20 themselves within the allotted 15 days, Wagner will have seven days to make= a=20 formal recommendation of his own to FERC's five-member governing board. ?????The settlement negotiations are confidential; Wagner promised those=20 present he would shred his notes and transcripts at their completion. He=20 allowed reporters in the hearing room, where oversized pots of coffee perch= ed=20 on every table, only long enough to listen to his opening remarks and to a= =20 prepared statement he read from two of the five FERC commissioners. ?????Wagner, who asked that all sides send advocates with the authority to= =20 reach an agreement, said the issues to be resolved include: ?????* Refunds for past electricity purchases, including how much money is= =20 involved and who needs to be paid. ?????* Moving additional quantities of electricity off the spot market and= =20 into long-term contracts. ?????* Ensuring that generators receive payment for electricity already=20 provided. ?????* The bankruptcy of Pacific Gas & Electric. ?????Wagner said the talks also should address whether any settlement=20 provides generators with immunity from existing and future lawsuits and=20 prosecutions. ?????The statement from FERC commissioners Wood and Brownell encouraged=20 participants to "focus on what they absolutely need and not what they want.= "=20 But sorting out which is which may prove challenging. ?????The head of California's delegation, for example, reiterated Davis'=20 demands for $8.9 billion in refunds. ?????"We want our refunds. We want them now," Michael Kahn, one of Davis' t= op=20 energy advisors, told reporters during a break in the negotiations. ?????Kahn said the officials he is representing--the governor, state=20 legislators, the Electricity Oversight Board and the Public Utilities=20 Commission--consider the $8.9 billion figure to be an "extremely conservati= ve=20 estimate." ?????He indicated the delegation had little interest in relinquishing the= =20 right to sue for additional funds, even if power generators offered to make= =20 refunds for time periods before the Oct. 2 cutoff that FERC has proposed. ?????As they have in the past, electricity generators staked out a far=20 different position, characterizing as "absurd" the state's overcharge=20 estimate. ?????"We've done absolutely nothing wrong," said Tom Williams, a spokesman= =20 for Duke Energy Co., adding that his company was "gratified that all the=20 parties are at the table to discuss this." ?????The settlement negotiations were mandated by FERC last week as the=20 agency put in place an expanded "price mitigation plan" for Western=20 electricity markets. ---=20 ?????Garvey reported from Washington, and Morain from Sacramento. Copyright 2001 Los Angeles Times=20 Business; Financial Desk=20 Commerical Real Estate Apartments to Provide Own Power MORRIS NEWMAN ?=20 06/26/2001=20 Los Angeles Times=20 Home Edition=20 Page C-1=20 Copyright 2001 / The Times Mirror Company=20 With its wall of fins, abstract patterns and varying surfaces and colors,= =20 Colorado Court in Santa Monica is shaping up to be a real head-turner.=20 But the apartment complex is no mere exercise in style over substance. What= =20 makes the project groundbreaking in power-starved California is that it wil= l=20 generate nearly all its own energy: electricity , heat and hot water, all= =20 from alternative technologies.=20 The 44-unit complex at 5th Street and Colorado Avenue, scheduled to open in= =20 October, will be adorned with 199 solar panels, which will supply about a= =20 third of the building's electricity . The rest of the power will come=20 primarily from a micro-turbine, a generator that runs on clean-burning=20 natural gas. Southern California Edison will supply only a fraction of the= =20 building's energy needs.=20 "Colorado Court is unique because the building will produce 92% of its own= =20 power, which is very significant," said Bob Johnson, managing director of= =20 California Energy Coalition, a nonprofit energy conservation group based in= =20 Laguna Beach. In comparison, solar power sources for a proposed single-fami= ly=20 subdivision in Placer County would supply 30% to 50% of household energy=20 needs.=20 Intended as "single-room occupancy" housing for low-income renters, the=20 $5.8-million Santa Monica project has become a closely watched test case of= =20 still-experimental electricity generation equipment.=20 Though not outlandish, the Colorado Court building probably will make many= =20 driving down 5th Street look twice: Framed inside a rectangular shell of=20 light-colored plaster and concrete is a giant window of dark glass; the=20 "window" is an assemblage of many solar panels. The rear of the building is= =20 covered in an abstract pattern of vertical fins; the fins shade the=20 building's southern face from direct sunlight.=20 Sensible Concept for Low-Income Tenants=20 Although some may be surprised that a building intended for low-income=20 residents is the beneficiary of expensive energy technology, the concept=20 makes sense for people with limited incomes, said Robin Raida, project=20 manager for the builder, Community Corp. of Santa Monica. Energy efficiency= =20 is "especially important in affordable housing, because our tenants don't= =20 have extra money to spend on high utility bills," she said.=20 A host of public and private entities--including the cities of Santa Monica= =20 and Irvine, Southern California Edison and the California Energy=20 Coalition--are involved in planning, funding and monitoring the innovative= =20 building. The two cities, the conservation group and the utility have forme= d=20 a group known as Regional Energy Efficiency Initiative, which has contribut= ed=20 about $250,000 to energy-saving devices in the building. In addition, Santa= =20 Monica itself is contributing about $250,000 toward electricity generators.= =20 The building will be loaded with energy-saving and environmentally benign o= r=20 "sustainable" devices. Heat from the micro-turbine will produce hot water,= =20 eliminating the need for a conventional water heater.=20 The project also uses compact fluorescent lighting throughout the building,= =20 insulation made from recycled material and double-pane windows with a layer= =20 of heat-retardant krypton gas. Each apartment will be equipped with=20 energy-saving refrigerators that do not use chlorofluorocarbons, the widely= =20 used refrigerant linked to damage in the Earth's ozone layer.=20 Prevailing breezes will cool the building, which will have no mechanical ai= r=20 conditioners. The U-shaped structure "acts like a giant wind scoop," said= =20 architect Larry Scarpa, a principal of Santa Monica-based Pugh & Scarpa.=20 In yet another "green" flourish, the building will collect all the rainwate= r=20 from the alley behind the property and funnel it into a series of undergrou= nd=20 chambers. The water will slowly percolate back into the soil, which will=20 filter the pollutants from the water while preventing contaminated water fr= om=20 spilling into Santa Monica Bay. The drainage system was paid for separately= =20 by the city of Santa Monica.=20 The concept of a building that would be energy self-sufficient emerged abou= t=20 two years ago, when Santa Monica officials met with members of the Californ= ia=20 Energy Coalition. The city's Housing Division, which funds construction of= =20 low-income housing, chose to make a low-income housing project into a dream= =20 project of "green" construction, and Colorado Court became the target.=20 "We needed a demonstration project because a lot of developers feel that th= e=20 technologies are unproven," Raida said.=20 A number of apartment buildings in Santa Monica and Irvine are to be equipp= ed=20 with energy-saving technology by the Regional Energy Efficiency Initiative,= =20 but the Santa Monica building is the only project attempting to provide its= =20 own power as well.=20 Rebates from the state Energy Commission helped defray the high cost of the= =20 energy-generating equipment. The state's rebate on the solar panels, which= =20 cost about $225,000, will be about $62,000. The $57,000 micro-turbine and= =20 heat exchanger will yield a $15,000 rebate from Southern California Gas Co.= =20 If recent research and development has yielded new ways of conserving energ= y=20 and producing electricity , regulations and building codes have not kept=20 pace.=20 Prospects Uncertain for Conventional Buildings=20 In one instance, architects had to obtain special permission from the city = to=20 hang solar panels outside the exterior stairwells because building inspecto= rs=20 said the solar panels "enclosed" the stairwells and triggered requirements= =20 for floors, ceilings and fire-rated walls.=20 If energy-saving devices and electrical generators make sense for a buildin= g=20 that has $500,000 in subsidies, do the same costly materials make sense for= a=20 conventional apartment building? Opinions vary.=20 Even with rebates, the added cost of the conservation and energy-generating= =20 equipment may be a hard sell for developers of market-rate apartment units.= =20 Such developers often sell their projects shortly after completion and migh= t=20 not be able to fetch a higher price for energy-efficient buildings.=20 For a nonprofit like Community Corp., which plans to retain ownership of it= s=20 buildings for 80 years, the added front-end cost could be worthwhile becaus= e=20 the equipment will hold down energy costs for low-income tenants for years. California ; Metro Desk=20 Officials Oppose Utility Choice Power: They say users leaving traditional= =20 firms could jeopardize state's repayment of $50 billion in energy purchases= . TIM REITERMAN ?=20 06/26/2001=20 Los Angeles Times=20 Home Edition=20 Page B-1=20 Copyright 2001 / The Times Mirror Company=20 Consumer choice was a mantra when California moved in 1996 to restructure i= ts=20 electricity industry. But the right of utility customers to shop around for= =20 power is falling victim to the state's own strategy to drag itself from the= =20 energy debacle.=20 Warning of a "spiral of declining customers and rising power rates," top=20 state officials are calling for swift action to curtail the freedom of=20 utility patrons to buy from alternative electricity providers.=20 They fear that California 's ability to pay for nearly $50 billion in past= =20 and future electricity purchases would be jeopardized unless regulators or= =20 legislators suspend or restrict the state's so-called direct-access program= .=20 A flight of customers from the traditional utilities, the officials say,=20 would saddle the remaining businesses and consumers with paying off an unfa= ir=20 share of those billions.=20 Under direct access, thousands of utility customers--ranging from big=20 commercial and industrial users to environmentally aware residential=20 consumers who wanted "green power"--signed up with companies promising lowe= r=20 prices, better service or the security of long-term contracts.=20 But the energy crisis changed all that.=20 In January, the state's Department of Water Resources became the major=20 electricity purchaser for most Californians, as skyrocketing wholesale pric= es=20 put Pacific Gas & Electric Co. and Southern California Edison deeply into= =20 debt and many suppliers refused to sell to them. The same legislation that= =20 authorized the department's purchases called on the California Public=20 Utilities Commission to suspend direct access until the state stops buying= =20 power--which could be almost two decades under some of the long-term=20 contracts the state has signed with suppliers.=20 The commission is poised to vote Thursday on a proposal to suspend direct= =20 access by July 1, and it is expected to pass. Bills in the Legislature woul= d=20 resurrect the program while requiring new customers to pay "exit fees"=20 designed to protect the state's planned $13.4-billion bond sale for=20 electricity purchases, but the proposals have been mired in negotiations.= =20 In any case, state officials say they can ill afford to lose big commercial= =20 and industrial users as utility customers help pay off the state's current= =20 $8-billion power tab and more than $40 billion in long-term power contracts= .=20 "If such customers are permitted to 'exit the system' without [paying] thei= r=20 share of costs incurred by DWR . . . the burden of covering debt service=20 payments will fall on a smaller base of remaining customers, significantly= =20 and unfairly increasing their power rates," said a June 12 memo from state= =20 Treasurer Phil Angelides and the heads of the Finance and Water Resources= =20 departments to the PUC and the Legislature.=20 "There is a concern that as power rates paid by the remaining customers wou= ld=20 rise, customers would have additional economic incentive to abandon DWR=20 power, creating a spiral of declining customers and rising power rates," th= e=20 memo said.=20 Statewide, the total number of direct-access customers has fallen from a pe= ak=20 of more than 200,000 to about 88,000 in mid-May. Figures from the Californi= a=20 Energy Commission show that these customers--including hotel and hospital= =20 chains, factories, farms, the state's university systems and about 78,000= =20 residences--accounted for about 2.1% of the power consumed in California .= =20 The level of participation by residential customers was 1.1%--about a third= =20 as high as for large commercial and industrial customers.=20 The penetration rates were much higher early this year, when about 13% of= =20 industrial users had direct-access contracts. But many providers sent their= =20 customers back to Edison, PG&E and San Diego Gas & Electric, as wholesale= =20 energy costs soared and they could not compete with the utilities, whose=20 rates were frozen by the 1996 deregulation law.=20 One provider, AES NewEnergy, claims 60 to 70 customers, ranging from=20 mom-and-pop stores to grocery chains. About a year ago, the company had 150= =20 to 200 customers.=20 "Direct access is at the heart of the concept of competition and choice,"= =20 said Aaron Thomas, the company's manager of government relations. "The [PUC= ]=20 order stinks, and it is not necessary to put a stake in the heart of direct= =20 access to float a bond."=20 Said Rick Counihan, a spokesman for Green Mountain Energy: "Unless we see a= =20 legislative solution, direct access is dead. We're being driven out of=20 California ."=20 Green Mountain, a Vermont-based company that sells power from renewable=20 sources, has seen its California customer base shrink from 60,000 to 7,000,= =20 all in San Diego and Orange counties.=20 Although they have never fled en masse to direct access, many businesses an= d=20 institutions want to maintain direct access as an option, especially becaus= e=20 it is uncertain whether the state's power contracts will prove to be a=20 bargain or a bust in the long run.=20 Bill Dombrowski, president of the California Retailers Assn., representing= =20 more than 50 large companies, said it is important to maintain direct acces= s=20 as an option because "the market is in a shambles."=20 "At its peak, before the market was dysfunctional, you saw 5% to 10%=20 reductions [in electricity rates] compared to local utilities, which is=20 significant dollars when you are talking about larger companies," he said.= =20 Like other proponents, Dombrowski maintains that the fears expressed by sta= te=20 officials and Wall Street bond underwriters are exaggerated.=20 "Realistically, you will not see a wave of people going to direct access," = he=20 said.=20 The utilities commission measure, which would halt new direct-access=20 enrollments, was put off until this week in hopes that a solution could be= =20 worked out in Sacramento. PUC Commissioner Jeff Brown, one of three=20 appointees of Gov. Gray Davis on the five-member commission, said that, lik= e=20 the governor, he favors direct access on philosophical grounds but sees no= =20 way to avoid suspending the program.=20 "We are tied up in the realities of the bond sale," he said. "If the=20 Legislature wants to do something in the future, fine."=20 Commissioner Richard Bilas, another supporter of direct access, acknowledge= s=20 that "it could at the margins jeopardize the bond sale." But direct access,= =20 he said, "is what restructuring was about in the first place. . . . Without= =20 it, you no longer have restructuring."=20 Advocates of direct access remain hopeful that a legislative solution could= =20 balance the desires of the business community and the bond underwriters. A= =20 bill by state Sen. Debra Bowen (D-Marina del Rey) would require exit fees a= nd=20 other provisions sought by state finance officials. Billions of dollars at stake as power talks begin=20 MARK SHERMAN, Associated Press Writer Tuesday, June 26, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/26/f= inanc ial0338EDT0014.DTL=20 (06-26) 00:38 PDT WASHINGTON (AP) --=20 Energy users and providers are billions of dollars apart in their estimates= =20 of how much the power crisis in the Western states has cost. The federal=20 official overseeing confidential settlement talks wants them to come to ter= ms=20 quickly.=20 With just two weeks to reach agreement, Federal Energy Regulatory Commissio= n=20 chief administrative law judge Curtis L. Wagner said he wants all sides to= =20 start using realistic numbers when they meet Tuesday for the second day of= =20 negotiations.=20 "Now we're getting ready to get down to brass tacks," Wagner said Monday,= =20 after the first day of talks.=20 Led by California, Western states say power-generating companies overcharge= d=20 them by $15 billion in the past year.=20 Michael Kahn, California's chief negotiator, said the $9 billion in refunds= =20 his state claims it is owed should be the first order of business. "We want= =20 our refunds. We want them now," said Kahn, chairman of the California=20 Independent System Operator, which manages the state's power grid.=20 The states claim that the companies unfairly drove up prices to take=20 advantage of a power shortage. Prices frequently surpassed $300 a=20 megawatt-hour, 10 times what they were in 1999. One megawatt is enough to= =20 power about 750 homes.=20 The power companies argue that the charges were justified. In some cases,= =20 older, more costly power plants were pressed into service to deal with the= =20 high demand and tight supply.=20 Wagner attributed the states' claims to the rhetorical flourishes that ofte= n=20 accompany the start of negotiations. "Everybody has to stick to their guns= =20 for a while," he said.=20 The judge, who is playing a mediator's role in the negotiations, said he ha= s=20 seen nothing to change his previously stated view that refunds in any=20 settlement probably would not exceed $2.5 billion.=20 He cautioned all sides that a brokered settlement would be preferable to a= =20 plan he would recommend to federal regulators should talks fail.=20 More than 150 people representing about six dozen entities gathered in a=20 government hearing room for negotiations. The talks were one result of a=20 federal order last week extending price controls on spot power sales in=20 California and imposing limits in 10 other Western states.=20 Wagner laid out several issues negotiators will have to tackle, including h= ow=20 much generators are owed for power they supplied to California without=20 getting paid.=20 The size of the refunds and the unpaid bills "must be, both ways, resolved = at=20 the outset to put everyone on the same playing field," Wagner said. Any=20 settlement probably would also have to answer whether the generators should= =20 have immunity from existing and future lawsuits and prosecution, he said.= =20 The parties also have to try to reach agreement on additional long-term pow= er=20 contracts, which would reduce the amount of power California would have to= =20 purchase on the volatile spot market.=20 The attendees included representatives from California and a dozen city and= =20 county governments, investor-owned and municipal utilities, power generator= s=20 and natural gas companies.=20 On the Net: Federal Energy Regulatory Commission: www.ferc.gov/=20 ,2001 Associated Press ?=20 Compromise urged in electricity refund talks=20 Zachary Coile, Chronicle Washington Bureau Tuesday, June 26, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /26/M N122522.DTL=20 Washington -- With armies of lawyers on each side, California officials and= =20 representatives of the nation's power generators began the first day of=20 federally ordered settlement talks yesterday far apart on the issue of=20 electricity refunds.=20 California officials, including attorneys for the investor-owned utilities,= =20 stuck to their claim that the state was owed nearly $9 billion in alleged= =20 overcharges by the generators.=20 But electricity suppliers were equally adamant in their opposition to=20 refunds, arguing the prices they charged were legitimate. Suppliers are=20 demanding payment for billions of dollars they are owed for electricity=20 already sold into the state.=20 The mediator in the talks, veteran Federal Energy Regulatory Commission=20 administrative law Judge Curtis L. Wagner Jr., warned both sides they would= =20 have to compromise -- or accept a settlement imposed by federal regulators.= =20 "The time to put California's past energy problems to rest and structure a= =20 new arrangement for California's energy future is now," Wagner said. "We ca= n=20 do it if we try."=20 The difficulty of the task was made clear when the judge asked those in the= =20 hearing room yesterday to stand and identify themselves. About 140 people -= -=20 nearly all lawyers -- stood to declare which state, city, power exchange or= =20 generator they represented.=20 In addition to a host of energy firms, other Western states are involved in= =20 the talks. Officials in Washington and Oregon say they may ask for up to $6= =20 billion in refunds.=20 Wagner opened the talks by reading a letter from new FERC Commissioners=20 Patrick Wood and Nora Mead Brownell urging both sides to compromise.=20 "Parties must only focus on what they absolutely need, not what they want,"= =20 the statement read. "This is not the place to debate the shopping list, nor= =20 is it the place to assign blame."=20 If the parties can't settle the money fight in 15 days, Wagner will have=20 seven days to recommend action to FERC's five commissioners.=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement proceedings than to have me recommend an answer to the= =20 commission," Wagner said.=20 As the talks started in Washington, Wood and Brownell met yesterday in=20 Sacramento with Gov. Gray Davis, legislative leaders and other groups=20 involved in solving the energy crisis.=20 Davis said in a statement that he was more encouraged by FERC's actions=20 recently since the two joined the regulatory body.=20 "In a refreshing change . . . these commissioners offered a problem-solving= =20 approach in resolving California's energy challenge," Davis said.=20 Wood expressed optimism the settlement talks would be fruitful.=20 "I think it is far better to settle than to stretch out through litigation,= =20 even if the state were to ultimately prevail," he said. "This is really=20 (about) businesspeople who need to re-establish a business relationship tha= t=20 has been poisoned."=20 Although the divide between California officials and the generators is vast= ,=20 some have faith in the mediator, a 72-year-old judge with a track record of= =20 reaching settlements in difficult cases.=20 "He's a miracle worker," said FERC commissioner William Massey. "He's very= =20 good at persuading parties that it's in their best interests to settle rath= er=20 than proceed" with lawsuits.=20 Wagner set the tone yesterday by ordering reporters out of the hearing room= =20 after half an hour explaining the ground rules. And Wagner warned=20 participants to keep the discussions confidential.=20 "I would hate to read something in the business section tomorrow that=20 somebody said here today," Wagner said.=20 Michael Kahn, chairman of California's Independent System Operator, said th= e=20 state would hold firm to its request for $8.9 billion in refunds. Any refun= ds=20 would go to the electricity buyers -- the utilities and the Department of= =20 Water Resources, which has bought energy on behalf of the state since=20 January.=20 But to suppliers, even the word "refund" is an unacceptable term.=20 "Certainly, you will not find a supplier who will agree that they have been= =20 overcharging anyone in California, so clearly any refund obligation will be= =20 contested," said Mark Stultz, a vice president of the Electric Power Supply= =20 Association, which represents the generators. "The suppliers will argue the= =20 charges were appropriate for the market conditions."=20 State officials may face difficulty recovering the full amount, based on=20 electricity sales from May 2000 to May 2001. Under FERC rules, overcharges= =20 can only be authorized after a formal investigation is ordered, which began= =20 Oct. 2,=20 2000.=20 "There is no way that we're going to do anything to compromise those claims= ,=20 " Kahn said. "That includes last summer, when San Diegans were terribly=20 overcharged. That includes last summer, when there were no credit problems,= =20 and the gas situation was not anywhere near as severe as it was later in th= e=20 year, and still there were hideous (electricity) prices."=20 POWER ISSUES These are some of the items administrative law Judge Curtis L. Wagner Jr.= =20 expects to tackle during settlement talks between Western state officials a= nd=20 power generators:=20 -- -- California's claim that the generators overcharged the state by nearl= y=20 $9 billion for electricity.=20 -- Generators' claims of overdue payments, estimated at several billion=20 dollars, due them from PG&E and other utilities.=20 -- Long-term power contracts, which would reduce the amount of power=20 California must purchase on the volatile spot market.=20 -- Ensuring a creditworthy party to pay for power.=20 -- Natural gas prices and pipeline capacity, particularly in Southern=20 California.=20 -- PG&E's bankruptcy proceedings. Source: Chronicle staff and news services= =20 Chronicle staff writer Lynda Gledhill contributed to this report from=20 Sacramento. / E-mail Zachary Coile at zcoile@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 3=20 Developments in California's energy crisis=20 The Associated Press Tuesday, June 26, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/26/s= tate1 039EDT0149.DTL=20 (06-26) 07:39 PDT (AP) --=20 Developments in California's energy crisis:=20 TUESDAY: * No power alerts Tuesday as electricity reserves stay above 7 percent.=20 MONDAY: * Gov. Gray Davis meets with three former energy company employees he calls= =20 "heroes" for testifying that Duke Energy reduced power production at times= =20 when the state needed it most, charges the Charlotte, N.C.-based company=20 denies.=20 * A Federal Energy Regulatory Commission hearing officer begins attempting = to=20 negotiate a settlement between the state and energy producers over the $9= =20 billion Davis says the state is owed for overcharges.=20 * FERC commissioners Pat Wood and Nora Brownell meet with Davis and attend= =20 California Energy Commission meeting.=20 * The Senate, by a 34-0 vote, gives final approval to a resolution asking= =20 Congress to allow states to extend daylight-saving time to the full year to= =20 save energy. The resolution by Sen. Betty Karnette, D-Long Beach, will be= =20 sent to Congress and President Bush.=20 * A bill to give customers a one-month schedule of when they might be=20 vulnerable to rolling blackouts is rejected by the Assembly Energy Costs an= d=20 Availability Committee.=20 * In a pre-emptive strike against rolling blackouts, Azusa's city-owned=20 utility encourages industries to shut down before power supplies get tight.= =20 * No power alerts Monday as electricity reserves stay above 7 percent.=20 * Edison International stock drops 41 cents to $11.57. PG&E Corp. falls 25= =20 cents to $11.70. Sempra Energy rises 19 cents to $26.94.=20 WHAT'S NEXT: * Three Senate committees plan hearings on Davis' proposal to aid financial= ly=20 strapped Southern California Edison: Natural Resources Committee Tuesday,= =20 Energy Committee Wednesday and Judiciary Thursday.=20 * Senate Select Committee to Investigate Price Manipulation sets a Thursday= =20 deadline for power generators to comply with document subpoenas or face=20 contempt citations.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Southern California Edison and Pacific Gas and Electric say they've lost=20 nearly $14 billion since June to high wholesale prices the state's=20 electricity deregulation law bars them from passing on to consumers. PG&E,= =20 saying it hasn't received the help it needs from regulators or state=20 lawmakers, filed for federal bankruptcy protection April 6. Electricity and= =20 natural gas suppliers, scared off by the companies' poor credit ratings, ar= e=20 refusing to sell to them, leading the state in January to start buying powe= r=20 for the utilities' nearly 9 million residential and business customers. The= =20 state is also buying power for a third investor-owned utility, San Diego Ga= s=20 & Electric, which is in better financial shape than much larger Edison and= =20 PG&E but also struggling with high wholesale power costs.=20 The Public Utilities Commission has approved average rate increases of 37= =20 percent for the heaviest residential customers and 38 percent for commercia= l=20 customers, and hikes of up to 49 percent for industrial customers and 15=20 percent or 20 percent for agricultural customers to help finance the state'= s=20 multibillion-dollar power buys.=20 Track the state's blackout warnings on the Web at=20 www.caiso.com/SystemStatus.html.=20 ,2001 Associated Press ?=20 News briefs on California's power crisis=20 Tuesday, June 26, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/26/s= tate0 539EDT0120.DTL=20 (06-26) 02:39 PDT TEMECULA, Calif. (AP) --=20 Residents who live along a proposed power line through southwestern Riversi= de=20 County are infuriated that San Diego Gas & Electric Co. officials would ste= p=20 foot on their property to conduct land surveys without asking first.=20 The company recently mailed letters to residents who may be affected by the= =20 proposed 31-mile power line that will connect its grid to a unit operated b= y=20 Southern California Edison. The letter informed residents that crews would = be=20 conducting the surveys over the next few months.=20 Company officials said they are protected by law to survey the land. But=20 opponents said it is unclear if the company has access to the property=20 because legal questions have been raised about the utility's eminent domain= =20 powers.=20 Some residents have threatened to call police if SDG&E officials come on=20 their property.=20 "I was furious," said Eve Brehm, 73, who lives in the affected area. "They= =20 haven't bought it yet (her land) and they don't have my permission to be ou= t=20 there."=20 Company officials said the letters are giving residents proper notification= =20 for work that needs to be done.=20 "We are doing everything we can to avoid any inconvenience to property=20 owners," said SDG&E spokeswoman Jacqueline Howells. "There is no legal=20 requirement for notification, but we sent the letters out as a courtesy to= =20 keep the property owners informed."=20 SAN CLEMENTE, Calif. (AP) -- A transformer explosion at the San Onofre=20 Nuclear Generating Station caused a fire outside its twin reactors but no o= ne=20 was injured, said a plant spokesman.=20 Sunday's explosion posed no radiation danger to people, according to plant= =20 spokesman Ray Golden, but it did scare a few motorists who were driving by= =20 the reactors and saw a fireball rise 50 feet into the air.=20 "You don't actually know how things are hooked up, so you don't want to han= g=20 around," said Burt Engel, who was driving from San Diego to Los Angeles=20 County. "We moved north pretty quickly."=20 The explosion occurred shortly after 11 a.m. and was followed by a fire tha= t=20 lasted about 40 minutes. The transformer was destroyed but no other equipme= nt=20 was damaged, Golden said. The twin reactors continued to operate without=20 interruption.=20 The explosion sent shards of aluminum and ceramic debris skyward, some of i= t=20 landing on Old Highway 101. None of the debris fell on nearby Interstate 5,= =20 authorities said.=20 The transformer was one of several dozen that is used to reduce the voltage= =20 of a sample of outgoing electricity. The explosion was the fourth accident = at=20 the plant this year.=20 A faulty circuit breaker caused a fire in February that cut electricity to = an=20 oil pump which lubricates steam turbines. The accident forced the closure o= f=20 one of its generators for four months. Repair work cost nearly $50 million.= =20 ,2001 Associated Press ?=20 The haggling over refunds is under way=20 Posted at 9:40 p.m. PDT Monday, June 25, 2001=20 BY JIM PUZZANGHERA=20 Mercury News=20 WASHINGTON -- The warring parties in the California electricity crisis=20 funneled into a room here Monday morning to try to cut through the animosit= y=20 and agree how much in refunds the state will get from energy suppliers.=20 Billions of dollars are at stake as legal teams from California, its=20 utilities and dozens of power suppliers try to negotiate a settlement by Ju= ly=20 10. The Federal Energy Regulatory Commission set up the settlement conferen= ce=20 to resolve California's claims that energy suppliers have overcharged the= =20 state $8.9 billion for power since last spring.=20 The commission has ordered about $124 million in refunds for a small portio= n=20 of that time. Power companies balk at the suggestion they overcharged, sayi= ng=20 it is they who are owed billions by state utilities that haven't paid their= =20 bills for electricity purchases.=20 Deadlock warning=20 If the parties can't settle the dispute during the talks, Judge Curtis=20 Wagner, a straight-talking, 72-year-old administrative law judge, will=20 recommend a solution to the commission.=20 ``I can tell you now that you're far better off to work out the refund issu= es=20 in these settlement proceedings than to have me recommend an answer to the= =20 commission,'' Wagner warned the 150 participants before the confidential=20 talks began. ``The time to put California's past energy problems to rest an= d=20 structure a new arrangement for California's energy future is now. We can d= o=20 it if we try.''=20 Early indications were that a settlement will be difficult, although state= =20 and federal officials in Sacramento talked with optimism about a new level = of=20 cooperation.=20 But at the meeting in Washington, the head of California's team gave no=20 ground Monday, reiterating the state's position that it wants all of the $8= .9=20 billion Gov. Gray Davis demanded during congressional testimony last week.= =20 Michael Kahn, chairman of the state's Independent System Operator, said tha= t=20 all the parties in California -- the governor, the attorney general, the IS= O,=20 the Public Utilities Commission and the three investor-owned utilities -- a= re=20 presenting a unified front.=20 ``We are all together along with representatives from the Legislature,'' Ka= hn=20 said, ``in saying the same thing to FERC and saying the same thing to the= =20 generators: We want our refunds. We want them now, and we want that to be t= he=20 first order of business.''=20 Kahn said the $8.9 billion figure is bolstered by initial estimates by the= =20 state of overcharges if a new price-limit formula approved by the commissio= n=20 last week had been in effect since May 2000. The total is ``an extremely=20 conservative estimate,'' he said, and the state will ask for ``a lot more= =20 money'' if the issue is referred to the commission for action, or if the=20 whole dispute goes to court. The total amount of electricity purchases by= =20 California and its utilities during that 13-month period was $43.8 billion.= =20 But how far back the state could seek refunds is one of several issues Wagn= er=20 said must be determined in the settlement talks. The commission has said it= =20 has authority to order refunds only from last October, though everything is= =20 subject to negotiations. Wagner said last week he believes the amount=20 suppliers owe the state is about $2.5 billion.=20 The state estimates it was overcharged $2.94 billion from May 2000 to=20 September 2000, according to a confidential ISO breakdown obtained by the= =20 Mercury News. The breakdown of alleged overcharges by 44 suppliers goes onl= y=20 through February 2001, when the state estimated overcharges at $6.8 billion= ,=20 a figure recently updated through the end of May to $8.9 billion.=20 For the whole period from May 2000 to February 2001, the biggest=20 over-chargers were Williams Energy Services Corp., $861 million; Duke Energ= y=20 Trading and Marketing, $805 million; and Southern Company Energy Marketing,= =20 $754 million.=20 Other concerns=20 Among other subjects to be negotiated are who should get refunds and immuni= ty=20 for suppliers from future lawsuits for overcharges. In convening the=20 negotiations, FERC commissioners said they hoped many issues could be=20 addressed in addition to refunds, including more long-term contracts betwee= n=20 the state and power suppliers.=20 At the end of the first day of talks, Wagner said the state and some others= =20 were digging in. In all, about 50 parties sent representatives, ranging fro= m=20 energy suppliers to utilities to municipalities. Wagner admonished them all= =20 to keep the talks confidential.=20 ``Everybody has to stick to their guns for a while,'' he said, noting the= =20 negotiations may have to go late into the evenings and into weekends to mee= t=20 the deadline.=20 In Sacramento on Monday, the newest commissioners to join FERC -- Pat Wood= =20 and Nora Brownell -- praised California for its handling of the energy=20 crisis.=20 Wood, a Texan appointed by President Bush and expected to become the next= =20 FERC chairman, said he had come to California to help ``patch up'' the=20 state's strained relationship with federal regulators.=20 After meeting with Davis and legislative leaders, Wood said he was ``more= =20 hopeful today than I was at any time in the past year.''=20 ``They are very committed to getting this energy cowboy back on the bucking= =20 bronco,'' he said.=20 Davis, who has bashed Bush and federal regulators for weeks, also changed h= is=20 tone.=20 ``From my conversations with these commissioners, it appears that FERC may= =20 finally be poised to do its job controlling energy costs,'' he said in a=20 prepared statement.=20 Mercury News Staff Writer Dion Nissenbaum contributed to this report.=20 Power workers supported=20 Earlier testimony about deliberate manipulation of power plants is backed u= p=20 by a new group of employees.=20 June 26, 2001=20 By KIMBERLY KINDY The Orange County Register=20 SACRAMENTO A second wave of former power-plant workers stepped forward Mond= ay=20 to say they witnessed power merchants intentionally damage generators -=20 including some in Orange County - a practice they believe led to price=20 gouging of Californians.=20 The generating companies, Duke Energy and AES Corp., also denied the new=20 round of allegations, made by a half-dozen workers who took their stories= =20 public or contacted legislators with offers to provide sworn testimony.=20 One of those speaking out Monday, a former manager at Duke's Chula Vista=20 plant, told The Orange County Register that he supports the testimony of=20 three former colleagues who Friday told a Senate committee that new parts a= t=20 the plant were destroyed, routine maintenance was neglected and generators= =20 were unnecessarily throttled down.=20 Rick Connors said that unlike the three Chula Vista plant workers who=20 testified earlier, he was offered continued employment by Duke and cannot b= e=20 dismissed by the company as a terminated employee with an ax to grind.=20 "I listened to the entire hearing. I can tell you that everything they said= =20 was the truth; nothing they said was even a stretch,'' said Connors, who ha= s=20 decided to retire and become a card dealer instead of working for Duke, whi= ch=20 took over the plant from San Diego Gas & Electric and laid off many of his= =20 experienced co-workers.=20 Connors and another new witness, Dan Davis, a former electrician at the=20 AES-owned Huntington Beach plant, each on Monday said they saw maintenance= =20 schedules at their respective plants abandoned and generators constantly=20 turned on and off, which damaged them.=20 "They learned that they would operate one generator and make more money tha= n=20 if they were operating three,'' said Connors.=20 Conners had worked at the plant 20 years before Duke took it over in 1998 a= nd=20 said he was familiar with generation levels before and after the takeover.= =20 Conners said that even though Duke dramatically cut back on how much it ran= =20 its generators in the first year, Duke executives boasted to employees at a= =20 company party that they had made as much money in their first year as SDG&E= =20 had made in the previous five.=20 Similarly, Davis said, the generators at the AES plant in Huntington Beach= =20 would be ramped down and quickly ramped up again.=20 He believes this wear and tear coupled with a lack of maintenance not only= =20 helped create an immediate scarcity in the market but also created an=20 environment of constant breakdowns - which created further scarcity.=20 "At first I thought they were stupid,'' said Davis, who now works for the= =20 union representing plant workers. "I had been there 10 years and I was=20 watching them destroy the plant. But then I saw how it made them money.=20 Breakdowns made them money."=20 Both companies vigorously denied the allegations.=20 "Any talk of us intentionally breaking down equipment is ludicrous,'' said = Ed=20 Blackford, manager of the AES plant. "When our units break down, we lose=20 money. We have commitments and if we can't produce that electricity, we hav= e=20 to go out into the market and buy it."=20 Duke spokesman Tom Williams said he is sure the workers saw changes in the= =20 way the plants were operated after deregulation - but said their conclusion= s=20 of price-fixing and gouging are off base.=20 "It's highly offensive to us,'' said Williams. "They were seeing things fro= m=20 their own viewpoint and they don't see the full picture."=20 Duke took out a full page ad in today's Orange County Register and other=20 newspapers that says the powering up and down was done at the order of the= =20 Independent System Operator, which manages the state's power grid. Williams= =20 acknowledged, however, that some of those orders were made by Duke itself,= =20 but couldn't say what percentage.=20 The advertisement doesn't address the allegation that equipment was=20 intentionally mistreated or replacement parts scrapped, although Duke said= =20 earlier that the parts were obsolete and it was more cost-efficient to orde= r=20 parts as needed.=20 ISO spokeswoman Stephanie McCorkle said its orders to power suppliers to ra= mp=20 generators up and down are confidential and she could not verify Williams'= =20 explanation. However, the ISO, she said, would give Duke orders to ramp up= =20 and down no more often than every 10 minutes.=20 A review of three days of logs obtained by the Register showed that on more= =20 than a dozen occasions, orders were given in two-, three- or four-minute=20 intervals - the so-called dramatic "yo-yoing" of the generators that some= =20 legislators say indicates Duke was acting by itself.=20 Williams said the bottom line is that forced outages at the Chula Vista pla= nt=20 were done under Duke's control just 1.1 percent of the time, compared to 1.= 8=20 percent under SDG&E.=20 Those numbers, however, are disputed. Frank Wolak, a Stanford economics=20 professor who oversees the ISO's market-surveillance committee, said the=20 forced outage numbers have only been reliable for the past six months.=20 "There is no independent verification of these numbers until Jan. 1, 2000,= =20 until the governor required that they report this information every single= =20 day,'' Wolak said. "That information isn't any good."=20 Wolak also said the employees are correct about the destructive results of= =20 the constant ramping up and down, comparing it to the wear and tear on a ca= r=20 that travels through a succession of city traffic lights vs. a clear freewa= y.=20 The governor Monday stood by the three former Chula Vista workers who=20 testified Friday, calling them "brave individuals."=20 "I am enormously proud of these people who would step forward, risk the=20 harassment and retaliation these big energy companies are known for," Davis= =20 said just before having breakfast with the men. Judge sets tone at energy talks=20 He suggests that all sides, including the state delegation, would be better= =20 off settling.=20 June 26, 2001=20 By DENA BUNIS The Orange County Register=20 WASHINGTON On the first day of talks over how to settle billions of dollars= =20 of refund claims and other issues surrounding California's electricity=20 crisis, a federal energy judge gave a friendly warning to the more than 140= =20 people in his hearing room:=20 "I can tell you now that you are far better off to work out the refund issu= e=20 in these settlement hearings than to have me recommend an answer to the=20 commission," Curtis L. Wagner, chief administrative law judge for the Feder= al=20 Energy Regulatory Commission, said Monday.=20 The FERC ordered a 15-day settlement conference for stakeholders in the=20 electricity crisis to resolve such issues as alleged generator overcharges,= =20 how much generators still have to sell to California and the future of=20 long-term contracts.=20 The first day ended where it began:=20 "California wants $8.9 billion worth of refunds," Michael Kahn, chairman of= =20 California's Independent System Operator and Gov. Gray Davis' representativ= e=20 at the talks, said during a break.=20 Kahn and the rest of the state delegation met for 90 minutes with Wagner on= =20 Monday afternoon. Kahn then got on a plane for California. The state has=20 until Wednesday to produce more information for the judge.=20 Wagner later met with power sellers in an effort to understand their=20 position, which is that the state's refund figure is laughable.=20 "Now we're ready to get down to brass tacks," Wagner said. The veteran ener= gy=20 jurist wasn't phased by Kahn's and Davis' hard line on the $9 billion refun= d=20 figure, even though Wagner signaled last week that a couple of billion in= =20 refunds is more likely.=20 "Everybody has to stick to their guns for a while," Wagner said. The judge= =20 wouldn't say how he arrived at his refund estimate. But within Davis' $9=20 billion estimate is more than $4 billion that he says is owed to the state = by=20 entities over which the FERC has no control, such as municipal power=20 companies. In addition, the state has calculated the $9 billion based on=20 alleged overcharges from May 2000 to May 2001. The FERC began calculating= =20 overcharges in October 2001.=20 There's no way, Kahn said, that the state will abandon its overcharge claim= s=20 for last summer.=20 The first day's proceedings were largely theater. The conference started wi= th=20 a statement from Wagner, including his reading of a letter from new FERC=20 Commissioners Patrick Wood and Nora Brownell, both of whom were in Sacramen= to=20 on Monday researching the natural-gas issue.=20 "This is not the place to debate the shopping list," the letter said. "Nor = is=20 it a place to assign blame. Everyone must leave with something more than th= ey=20 came in with."=20 Then representatives from the power sellers, the utilities, the state and= =20 interests from throughout the West introduced themselves to each other.=20 After that, Wagner closed the conference and admonished all the parties not= =20 to talk about what goes on in the closed hearing room. Business/Financial Desk; Section C=20 California and Energy Providers in Talks Over Electric Fees By JOSEPH KAHN ?=20 06/26/2001=20 The New York Times=20 Page 7, Column 1=20 c. 2001 New York Times Company=20 WASHINGTON, June 25 -- For the first time since the end of the Clinton=20 administration, California and the companies that sell it electricity sat a= t=20 the same table today to try to resolve a multibillion-dollar feud over the= =20 state's energy bills.=20 California is demanding that power companies refund as much as $9 billion f= or=20 what it says were overcharges, while power companies say that the state's= =20 nearly insolvent utilities owe them billions of dollars. City and state=20 officials from across the West are also participating in the negotiations.= =20 The Federal Energy Regulatory Commission convened the talks, which are=20 scheduled to last up to two weeks. The sessions are the first since top=20 Clinton administration officials tried and failed to broker a settlement to= =20 California 's electricity crisis in their waning days in office.=20 ''The time to put California 's past energy problems to rest and structure = a=20 new arrangement for California 's energy future is now,'' said Curtis Wagne= r,=20 an administrative law judge for the energy commission who is presiding over= =20 the settlement talks.=20 The proceeding, which was standing-room-only on opening day, attracted scor= es=20 of people representing multiple sides in the dispute. The main participants= =20 are electricity generating companies, electric utilities, and public=20 officials from state and local governments and regulatory agencies.=20 Mr. Wagner urged the public officials and companies involved to reach an=20 agreement on how much California and other states in the Western grid shoul= d=20 have paid for power over the last year, when California 's partly deregulat= ed=20 market broke down. He said that if they failed to do so by July 10, he woul= d=20 recommend a solution to the energy agency's five commissioners, who would= =20 then have the option of imposing a settlement.=20 Wholesale power costs in California , which totaled $7 billion in 1999,=20 soared to about $27 billion last year and, by some state estimates, could= =20 double again this year. The higher costs, which have not been fully passed= =20 along to consumers, have rendered California 's two main utility companies= =20 unable to pay their bills and forced the state to buy power in their place.= =20 The opening bid by Gov. Gray Davis, who set out his views in a letter sent = to=20 the energy commission today, is that the leading electricity generators=20 should refund about $9 billion that ''they have overcharged the people of t= he=20 state of California .'' Michael Kahn, chairman of the California Independen= t=20 System Operator, is leading the state delegation.=20 Generating companies have dismissed that figure as grossly inflated. They= =20 acknowledge that prices are high. But they say the charges are linked to=20 shortages of natural gas, a crucial fuel for electricity generation, and we= re=20 set fairly in a free market.=20 The companies also contend that a large proportion of what they have billed= =20 California is a credit premium justified because wobbly utilities owe them = as=20 much as $15 billion. Reliant Energy, Duke Energy, the Williams Companies, t= he=20 Enron Corporation and the Mirant Corporation are among the major sellers of= =20 electricity in the Western region.=20 The energy commission, which has the duty of determining ''just and=20 reasonable'' electricity prices under a New Deal-era law, long ago found th= at=20 the California market had become dysfunctional and that prices were=20 unjustified. But the agency has struggled to come up with a method for=20 determining fair rates, changing its method three times in recent months.= =20 So far, the agency has identified about $125 million in potential=20 overcharges. But that number was reached using a restrictive method that th= e=20 agency has since abandoned.=20 Last week, the agency adopted a new price control regime that is intended t= o=20 limit price spikes throughout the West. If the controls it is using now wer= e=20 retroactively applied to electricity sales made over the last year, the=20 generators would be asked to refund much more money. By some estimates, the= =20 refunds could total more than $1 billion but seem likely to fall well short= =20 of the $9 billion California is seeking. National Desk; Section A=20 Cheney Withholds List of Those Who Spoke to Energy Panel By JOSEPH KAHN ?=20 06/26/2001=20 The New York Times=20 Page 17, Column 1=20 c. 2001 New York Times Company=20 WASHINGTON, June 25 -- Vice President Dick Cheney has declined to identify= =20 the people who met privately with his energy task force, raising tensions= =20 with Congressional investigators who have repeatedly requested the=20 information.=20 The General Accounting Office, an investigative arm of Congress, sent Mr.= =20 Cheney's office a letter late last week complaining that a month had passed= =20 since it first submitted an inquiry about the workings of the task force. T= he=20 letter said the vice president had a legal obligation to provide the=20 information immediately.=20 Mr. Cheney's office said the letter was sent one day after it submitted 77= =20 pages of documents to the accounting office.=20 ''Our correspondence crossed in the mail,'' said Juleanna Glover Weiss, a= =20 spokeswoman for Mr. Cheney.=20 But Ms. Weiss said the vice president had not provided the names of people,= =20 including industry executives, who may have influenced the formation of the= =20 Bush administration's energy policy, which was released last month.=20 ''Our counsel and the G.A.O. will continue to talk about this,'' Ms. Weiss= =20 said.=20 The energy task force Mr. Cheney headed spent several months compiling a=20 lengthy energy strategy that contained about 150 recommendations for=20 administrative and legislative actions to address what it termed an energy= =20 crisis.=20 Administration officials have said that they met with a wide variety of=20 people concerned about energy issues, including executives of oil, natural= =20 gas, electricity , nuclear power and energy infrastructure companies. They= =20 have declined to provide a list of people who had access to the task force.= =20 Some Democrats have asserted that leading Republican donors had special=20 access to the task force and that the energy policy is skewed toward measur= es=20 favored by major corporations. Two Democratic representatives, Henry A.=20 Waxman of California and John D. Dingell of Michigan, asked the accounting= =20 office to report on the officials who served on the task force, what=20 information was collected by the panel, whom they met with and how much the= =20 task force spent.=20 The White House provided the G.A.O. with the financial records of the task= =20 force. But administration officials have told the investigative body that= =20 they are not compelled to provide the names of outsiders who met with the= =20 task force.=20 The accounting office's general counsel, Anthony H. Gamboa, said in a lette= r=20 to Mr. Cheney's office last week that the investigative body is entitled to= =20 more information.=20 The letter warned that if the White House does not provide the full range o= f=20 information the G.A.O. is seeking, it may issue a ''demand letter,'' a more= =20 formal request. Under the law, the White House would have 20 days to respon= d.=20 If the dispute continues, the accounting office could bring a civil action= =20 against the administration.=20 Love, War and California Electricity=20 By Susan Lee ?=20 06/26/2001=20 The Wall Street Journal=20 Page A22=20 (Copyright (c) 2001, Dow Jones & Company, Inc.)=20 California 's energy crisis presents at least a dozen major policy issues,= =20 but perhaps the most complicated question -- and the one with the least=20 satisfactory solution -- is who should pay for past power usage.=20 Specifically, who should pay wholesale electricity suppliers for juice that= =20 was consumed after wholesale prices rose fiercely above fixed retail prices= ?=20 Between May 2000 and January 2001, before the state of California intervene= d,=20 a $14 billion gap opened up between what the suppliers charged and the=20 utilities could pay.=20 Right now, nobody is paying. To be sure, Gov. Gray Davis has issued a=20 memorandum of understanding in which he suggests that ratepayers would bear= =20 part of the repayment burden in the form of a surcharge on their electricit= y=20 bills, and taxpayers would bear another part in helping fund the state's=20 purchase of utilities' transmission grids. But the memorandum is just a vag= ue=20 promise, and is already in deep political trouble.=20 It isn't fair to leave power suppliers hanging; the power was used and must= =20 be paid for. The problem is that, just as in love and war, the California= =20 energy mess no longer has a fair solution.=20 There are several groups of potential payers. The No. 1 target group is=20 consumers, or ratepayers, on the grounds that they used the power and thus= =20 should pay its market cost. Yet consumers demanded the amount of power they= =20 used based on its low retail price. It's hardly fair to now go back and rai= se=20 the price retroactively. After all, if the price had been higher, consumers= =20 would have used less of it.=20 A second group of potential payers are the taxpayers, on the grounds that= =20 this is a big political and regulatory problem for the entire state of=20 California . Since most taxpayers are voters and since voters are ultimatel= y=20 responsible for the acts of officials they elect, fairness dictates that=20 taxpayers ought to suffer the punishment for the botched deregulation schem= e.=20 But this solution, too, has flaws. Although sticking taxpayers with the bil= l=20 might result in taxpayers (to the extent they are voters) throwing the=20 political and regulatory bums out, it doesn't locate the economic burden=20 efficiently. As distinct groups, taxpayers and consumers may overlap, but= =20 they aren't identical.=20 And then there is a third group -- the utilities themselves -- on the groun= ds=20 that they shouldn't have been running around buying power they knew they=20 couldn't afford. Although this may satiate a certain blood lust (who doesn'= t=20 loathe utilities?), utilities are regulated companies and operate under=20 regulatory constraints and imperatives. Accordingly, they bought power on= =20 behalf of ratepayers and they bought it like mad until they went bankrupt.= =20 Too, it might be argued that shareholders have already "paid" -- shares of= =20 Pacific Gas & Electric and Southern California Edison have lost 50% to 60% = of=20 their value since the crisis began.=20 There is one other group of sitting ducks, the suppliers, on the grounds th= at=20 they are, in the words of Gov. Davis, pirates and marauders who profited fr= om=20 California 's crisis. But aside from basic questions of equity, suppliers= =20 have already paid a price in the form of (still mounting) legal bills to=20 defend themselves from charges of profiteering, as well as in the lost=20 opportunity to deploy the money owed to them. Moreover, suppliers already c= an=20 be expected to bear some of the payment burden since Mr. Davis has indicate= d=20 they will not be repaid dollar for dollar,=20 Finally, there is the group who is most at fault but the least likely to=20 suffer -- the regulators and politicians -- on the grounds that they pretty= =20 much created the mess and they surely haven't moved to clean it up.=20 Regulators, most pointedly, because they refused to let the utilities hedge= =20 their purchases of electricity when they pleaded to do so in 1999.=20 Politicians, in particular the governor, because they dithered for over a= =20 year, preferring to blame the problem on someone else. Although putting thi= s=20 group out of work might be the most satisfying civic outcome, the solution = is=20 a flop if financial restitution is the goal.=20 The latest, most popular approach to solving the mess is to look at the=20 transfer of wealth, required in any case, that would take place under each= =20 payment scenario. This is what some of California 's politicians mean when= =20 they complain that full restitution means transferring $14 billion from the= =20 state of California to the evil out-of-state power suppliers. But, as Irwin= =20 Stelzer, economist at the Hudson Institute, points out, there is a long=20 history of wealth transfers to tote up.=20 Initially, when the botched deregulation plan was agreed to several years= =20 ago, it involved a transfer of wealth from ratepayers to shareholders. That= =20 is, the utilities were concerned about making back their so-called stranded= =20 costs, mostly from overbudget nuclear power plants. Those stranded costs we= re=20 to be paid by fixing, or freezing, rates at a level that would provide "pay= =20 back" to the utilities for their nuclear construction. However, when=20 wholesale prices shot up a year ago, the utilities (and their shareholders)= =20 were caught paying much more money for power than the rates they were allow= ed=20 to charge. And so the transfer of wealth reversed itself -- shareholders=20 subsidized ratepayers.=20 Now, if Mr. Davis's memorandum of understanding becomes operative, the=20 transfer of wealth changes again. Ratepayers will get socked by a surcharge= =20 on their electricity bills and taxpayers by the state's purchase of=20 transmission lines. Taxpayers might also get hit if the bond issue goes off= =20 as planned in August and, as expected, erodes California 's credit quality.= =20 That erosion would mean that all state agencies that issue bonds would be= =20 required to pay higher interest rates. (In fact, California 's bond rating= =20 has already been downgraded by two major rating agencies.)=20 Simply put, looking at the transfers of wealth doesn't yield a clear-cut or= =20 fair solution to the payment problem either.=20 All this leaves politics to dictate the answer, and the shape of it is=20 already apparent. Suppliers, ratepayers, taxpayers and shareholders will be= ar=20 the cost while the politicians and regulators evade the consequences. In=20 short, the unfairness of love and war doesn't hold a candle to politics in= =20 California .=20 ---=20 Ms. Lee is a member of the Journal's editorial board. =====================================

venturewire@venturewire.com

VentureWire, Monday, November 13, 2000

====================================================== VENTUREWIRE --- Monday, November 13, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o eVentures India Gets $150 Million from Softbank, Epartners o Evite Laying Off 60% of its Workforce, Still Hoping to Sell o LowerMyBills.com Names Former Intuit CEO Harris to Board o Australian Government Commits $47.8 Million to Startups |||||||||||||||||||| Advertisement |||||||||||||||||||| COMMERCE UNPLUGGED A new breed of smart phones and connected PDAs are enabling us to shop, even long after we've dropped. But the mobile shopper is a new breed of consumer, and the mobile value chain presents a host of new issues. Mobile Services, one of five expert panels at Technology Outlook 2000, will examine the promises and pitfalls of m-commerce, wireless advertising, and the role of location-based services. Come hear from: Mark F. Bregman, CEO, AirMedia Bernard Desarnauts, CEO, ViaFone Paul Palmieri, VP & GM, Wireless Services, Advertising.com Only at Technology Outlook 2000: The Future of Pervasive Computing December 4 and 5, San Francisco A VentureWire investment conference. http://technologicpartners.com/tp/conf/to2000/?vw=20001113 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o E-commerce Firm RedSpark Gets $14 Million in First Round o SS8 Networks Raises $25 Million in Second-Round Funding o Logistics Technology Firm Velant Raises $7 Million Round One o Network App Firm XDegrees Raises $8 Million First Round o Ticket Tech Firm Justarrive Gets $5 Million in First Round o Wireless Network Firm ReefEdge Raises $6.8 Million Round One o Fiber-based ICP Scindo Networks Gets $1.6 Million Seed Money o Broadband Developer Malibu Networks Raises $30 Million o Cambridge Silicon Radio Raises $34 Million Second Round o XML App Firm Bowstreet Raises $50 Million Round Four o Benchmark Storage Holds Third Round Funding for $40 Million o Business Travel Site I-tinerary Gets $4 Million Second Round o eDreams, Online Travel Site, Raises $13.8 Million Round o MyQube Invests In Electronic Control Network Firm FSB o Next Generation Network Raises $30 Million from CDP o Optical Chip Firm Integration Associates Raises $9 Million o Software Firm CES Lands $12 Million in Second Round o Spike Broadband Systems Raises $47 Million o TenantDirect.com Raises $9.35 Million Second Round o TV Programming App Firm Jovio Gets $1.5 Million Round Two o Embedded Wireless Devices Raises $20 Million Third Round o Online Banking Firm CR2 Raises $8 Million in Third Round o Revenio Raises $27 Million in Third Round of Funding o Compare and Shop Site Bisanjia Gets $1 Million o Infrastructure Firm Soneta Gets Funding from Gray Cary o Video Networking Firm Artel Raises $10.5 Million Round Four o Valeo Takes 15% Stake in Automotive Application Maker ITF Bad News: o Online Brokers' Venue Insureon.com Cuts Over Half its Staff New Products: o Claims Web Site ClaimsDesk.com Launches First Product o IT Products and Service Directory KnowledgeStorm Launches o Online Idea Exchange Site Ideas.com Launches o Online Network For Childcare Industry QualKids Launches New Deals: o Invite Service Mambo.com Service Shut Down by Parent Company o DSSI Takes 4% Stake in Noise Reducing Firm Silentium M&A: o Sheldahl to Acquire IFT for $30 Million in Stock o B2B Online Music Source Amplified Acquires OneBigCD o Vina Technologies Acquires Woodwind Communications New Directors: o eSpeed Fulfillment Taps Lawyer, Consultant for Board New People: o Datria Systems Names Ex-Colorado Land Developer as CEO VC Fund News: o Telesis & Capital Z Convergence Europe in Joint Fund Venture o Vista Ventures Gets $15 Million for Vista Ventures I IT Fund o Legend Holdings Plans New Chinese Technology Venture Fund o Indian Bank of Baroda to Invest in Venture Funds VC Personnel: o Columbia Capital Adds Two Partners To Investment Team o Two Join Patricof As Venture Partners |||||||||||||||||||| Advertisement |||||||||||||||||||| VENTUREWIRE GOES WIRELESS POWERED BY ADAPTIVEINFO VentureWire subscribers can now get the same top-quality news wirelessly -- in the airport, on the road, in the gym, or on the golf course. VentureWire is now available on all wireless devices, served and automatically personalized for each user by the Adaptive News Server. PQAs for the Palm are available at http://venturewire.net/vwmobile.asp?vw=ai0 or visit adapt.am for the RIM pager and web phone version. For more information call 1-866-ADAPTIVEINFO or visit http://www.adaptiveinfo.com/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o eVentures India Gets $150 Million from Softbank, Epartners MUMBAI, India -- eVentures India, an investment and operating company, said it received $150 million from previous investors Softbank and epartners. eVentures India focuses on investing in and developing Internet and new media related ventures with a significant Indian component. The company said it will use the new capital to invest in four areas: Internet-based software and IT-enabled services, infrastructure, new technologies in areas like wireless and broadband, and B2B enabling services. P.K. Mittal, an Indian industrialist, is also an investor. eVentures India has committed $65 million to 14 partner companies, including NetAcross Online Solutions, Netpilgrim, and Customerasset.com. The company has offices in Mumbai and New York. http://www.eventures.co.in/ _____________________________________________ o Evite Laying Off 60% of its Workforce, Still Hoping to Sell SAN FRANCISCO -- Evite, an online service that specializes in coordinating and planning activities through group electronic invitations, said it was laying off 42 employees, or approximately 60% of its staff, to bring the company's payroll down to 28 people. The cuts will eliminate the company's marketing and business development departments and cut into product developers and sales significantly. The company said last week that it was looking for a buyer and did not expect to be able to hold an IPO. The company also said last week that it had $17 million, enough cash to last them over one year. The company said the layoffs would lower its burn rate and move it closer to profitability. The company said it is in active discussions with several potential buyers. Evite is backed by Advent International, August Capital, Greylock Management, Hikari Tsushin, North Hill Ventures, Staenberg Venture Partners, and Technology Crossover Ventures. http://www.evite.com/ _____________________________________________ o LowerMyBills.com Names Former Intuit CEO Harris to Board LOS ANGELES -- LowerMyBills.com, which operates a Web site that enables users to research and compare their recurring monthly bills, said it named Bill Harris to its board of directors. Mr. Harris was recently president and CEO with X.com, but resigned after six months. Prior to X.com, he served as president and CEO of personal finance services developer Intuit. LowerMyBills.com is backed by eCompanies Venture Group. http://www.lowermybills.com/ _____________________________________________ o Australian Government Commits $47.8 Million to Startups SYDNEY, Australia -- The Australian Minister for Industry, Science, and Resources said that the government would commit AUS$90.7 million ($47.8 million) to four venture capital fund managers. The four funds, Nanyang Ventures, Start Up Australia, Newport CDIB Fund Management, and Foundation Management, will also contribute approximately $38.3 million to the Commonwealth Government's Innovation Investment Fund. In total, with the funds from the private equity firms, the government intends to make $86.1 million available for investment in new Australian technology. In the course of two rounds of the Innovation Investment Fund, the Australian government and equity firms have made $188.7 million available to startup technology companies operating in Australia. Telephone 61-02-6277-7580. ======= New Money ======= o E-commerce Firm RedSpark Gets $14 Million in First Round SAN FRANCISCO -- RedSpark, which provides applications and e-commerce services for the manufacturing industry, said it has raised $14 million in its first round of funding led by Crosspoint Venture Partners that included Impact Venture Partners. RedSpark, which was spun out of Autodesk, said it will use the funds for deployment of its services. Bob Lisbonne, general partner of Crosspoint, will join Carol Bartz, the chief executive officer of Autodesk, and RedSpark president and chief executive officer Dominic Gallello, on the company's board of directors. http://www.redspark.com/ _____________________________________________ o SS8 Networks Raises $25 Million in Second-Round Funding SAN JOSE, Calif. -- SS8 Networks, which provides a signalling engine for real-time communications over IP networks, has received $25 million in second-round funding, a source close to the company said. Kleiner Perkins Caufield & Byers participated in the round. Other details were not made available. Earlier this year, the company received $10 million in a round led by Woodside Fund that included CIT Group, Onset Ventures, and Sofinov. http://www.ss8networks.com/ _____________________________________________ o Logistics Technology Firm Velant Raises $7 Million Round One ATLANTA -- Velant, which develops Web-based decision making software for automating and speeding up transportation planning, said it closed its first round with $7 million from Matrix Partners and other individual investors. The company will use the funds to expand its staff and offices. http://www.velant.com/ _____________________________________________ o Network App Firm XDegrees Raises $8 Million First Round MOUNTAIN VIEW, Calif. -- XDegrees, a provider of infrastructure for network applications, announced it has launched and raised $8 million in its first round of funding from Redpoint Ventures and Cambrian Ventures. The company was founded by Michael Tanne, the chief executive officer, and Dan Teodosiu, the chief technology officer. XDegrees has built a secure scalable infrastructure services that enables enterprise and consumer application developers to build and deploy network applications. http://www.xdegrees.com/ _____________________________________________ o Ticket Tech Firm Justarrive Gets $5 Million in First Round SAN FRANCISCO -- Justarrive, a university sports ticket firm that uses magnetic swipe technology to facilitate ticket purchases and exchanges, said it has received $5 million from Mohr, Davidow Ventures and that it will use the funds to develop stadium entrance technology and to form new partnerships and fan loyalty systems. Justarrive also announced it has appointed Ronnie Lott, ex-San Francisco 49er and NFL Hall of Fame inductee, as the board's second member. http://www.justarrive.com/ _____________________________________________ o Wireless Network Firm ReefEdge Raises $6.8 Million Round One FORT LEE, N.J. -- ReefEdge, a wireless corporate networking firm, said it has raised $6.8 million in its first round of funding from co-leads Bessemer Venture Partners and Columbia Capital. Robert Goodman, general partner at Bessemer, and Jay Markley, general partner at Columbia, will join ReefEdge's board as the third and fourth members. ReefEdge said it will use the funds to develop its products. http://www.reefedge.com/ _____________________________________________ o Fiber-based ICP Scindo Networks Gets $1.6 Million Seed Money DENVER -- Scindo Networks, a fiber-based integrated communications provider (ICP) of local, long distance, Internet, and data services to small and medium businesses, said it received $1.6 million in its seed round, led by Barron Ventures. The company said it will use the funds for operations and marketing. http://www.scindonetworks.com/ _____________________________________________ o Broadband Developer Malibu Networks Raises $30 Million SEATTLE -- Malibu Networks, which is developing wireless broadband technologies, raised $30 million in its second round of funding, according to investors CVC Capital Partners and Second Avenue Partners. The two firms jointly contributed $10 million to the round which also included investments from ARCH Venture Partners, Polaris Venture Partners, and a consortium of existing investors. Calabasas-based Malibu Networks is developing wirelss broadband modem chips. http://www.malibunetworks.com/ _____________________________________________ o Cambridge Silicon Radio Raises $34 Million Second Round CAMBRIDGE, U.K. -- Cambridge Silicon Radio, a developer of single chip Bluetooth radio devices, said it raised $34 million in its second round of financing. The round included investments from 3i, ALPS, Amadeus Capital, ARM, Capital Research, Gilde, Intel Capital, Mustang Ventures, Razorfish, Virata, and Wavecom. Cambridge Silicon Radio said it will use the funding to support its development of new Bluetooth technologies. http://www.csr.com/ _____________________________________________ o XML App Firm Bowstreet Raises $50 Million Round Four PORTSMOUTH, N.H. -- Bowstreet, an e-commerce XML infrastructure firm, said it closed its fourth round of financing with $50 million from new investors Amerindo Investment Advisors, Azure Capital, Essex Partners, and Putnam Investors and from previous investors Charles River Ventures, Matrix Partners, Integral Capital Partners, and Kleiner Perkins Caufield & Byers, among others. Bowstreet said it will use the funds to develop and research its products. There will be no board changes as a result of the round. http://www.bowstreet.com/ _____________________________________________ o Benchmark Storage Holds Third Round Funding for $40 Million BOULDER, Colo. -- Benchmark Storage Innovations, which develops tape backup and archive systems for small to medium-sized computer networks and workstations, said it raised its third round of funding with $40 million. New investors Advanced Digital Information, Lafe Holdings, Storage Tek, and individuals funded the round along with previous investors Aweida Venture Partners, which led the round, and Quantum. The company will use the funding for working capital in new partnerships with customer companies. Benchmark Storage Innovations, formerly Benchmark Tape, is also backed by Read-Rite. http://www.4benchmark.com/ _____________________________________________ o Business Travel Site I-tinerary Gets $4 Million Second Round SCOTTSDALE, Ariz. -- I-tinerary Travel Solutions, an Internet-based travel booking service targeted at business travelers, said it secured $4 million in its second round of funding from Frankfurt-based business travel company I:FAO. The company plans to use the funds for system and business development. http://www.i-tinerary.com/ _____________________________________________ o eDreams, Online Travel Site, Raises $13.8 Million Round LONDON -- eDreams, a European online travel site, raised EUR 16 million ($13.8 million) in its second round of funding. The round was led by new investor 3i and investments from previous investors Apax Partners, BSCH, Doll Capital Partners, and Net Partners. The company said it will use the funding for continued growth and expansion. eDreams intends to launch its service in France and continue development in Spain and Italy. http://www.edreams.com/ _____________________________________________ o MyQube Invests In Electronic Control Network Firm FSB MILAN -- MyQube, an early stage Italian development fund, said it has invested an undisclosed amount in FSB, an integrator of hardware and software systems for managing devices connected to the electric network through the Internet. FSB, which is developing the open standard control network based on a standard developed by Echelon, plans to install its technology in 27 million homes, public buildings, and offices in Italy by 2004. http://www.myqube.com/ _____________________________________________ o Next Generation Network Raises $30 Million from CDP MINNEAPOLIS -- Next Generation Network, a developer of electronic billboards that deliver digital information and advertising, said it raised $30 million in funding from CDP Capital Communications, the media and telecommunications investment arm of Caisse de depot et placement du Quebec. The company said the funds will be used for continued business development and the global rollout of its network. http://www.ebillboards.com/ _____________________________________________ o Optical Chip Firm Integration Associates Raises $9 Million MOUNTAIN VIEW, Calif. -- Integration Associates, which designs and manufactures optoelectronic and RF analog/digital chips for wireless devices, said it raised $9 million in funding from individual investors. The round included investments from Mark Green, formerly of Goldman Sachs; Ralph Parks, of JP Morgan Chase; and Charles R. Schwab and Mark Thompson, both of Charles Schwab. Both Mr. Schwab and Mr. Thompson have seats on the Integration Associates board of directors. http://www.integration.com/ _____________________________________________ o Software Firm CES Lands $12 Million in Second Round ATLANTA -- CES International, which makes operations management software for utility companies, received $10 million in its second round of financing from Cinergy Ventures, the venture division of utility company Cinergy, and $2 million from previous investor Wexford Capital Management. Larry Thomas, group president of new technology and energy delivery for Cinergy, will join CES's board as its sixth member. CES said it plans to use the funds to expand the company in the U.S. and abroad and for research and development. http://www.ces.com/ _____________________________________________ o Spike Broadband Systems Raises $47 Million NASHUA, N.H. -- Spike Broadband Systems, a provider of carrier-class, fixed wireless broadband access products, said it has raised $47 million from Canada-based CDP Sofinov, a subsidiary of the Caisse de depot et placement du Quebec, an investment fund manager. Other investors include CDP Capital Communications, Sandler Capital Management, Cabletron Systems, Ironside Ventures, HLM Management, US Bancorp Piper Jaffray, Dain Rauscher Venture Partners, Wheatley Partners, Rosewood Corp., Agilent Technologies, Signal Equity Partners and Commonwealth Capital Ventures. Spike said it will use the funding to meet product demand, increase its sales activities, and scale its production and distribution capacity. http://www.spikebroadband.net/ _____________________________________________ o TenantDirect.com Raises $9.35 Million Second Round LOS ANGELES -- TenantDirect.com, maker of ResidentDirect and TenantDirect, online management systems designed for the multi-family and commercial real estate industries, said it closed a $9.35 million second round of funding. Investors included HPC, a subsidiary of Primedia, which owns and operates Apartment Guide and ApartmentGuide.com; Kennedy-Wilson, a Los Angeles based real estate owner and manager; and other real estate owners.The company said it would use the funds to expand its market reach and add to its list of online services. As part of the financing, HPC will help promote the company's national advertising and marketing program. The company has raised $10.75 million to date. http://www.tenatdirect.com/ _____________________________________________ o TV Programming App Firm Jovio Gets $1.5 Million Round Two PITTSBURGH -- Software developer Jovio said it raised $1.5 million of its targeted $5 million second round of funding from individual investors. Jovio's software profiles viewers based on demographic, geographic, and psychographic data and delivers them television programming. The company has raised $3 million to date. http://www.jovio.com/ _____________________________________________ o Embedded Wireless Devices Raises $20 Million Third Round PLEASANTON, Calif. -- Embedded Wireless Devices (EWD), a developer and marketer of silicon services for wireless, audio, and Internet applications, said it received more than $20 million in third round financing from new investors H&Q/GAI and Anadigics and previous investors Trieste Investment Groups, Good Honor Holdings, Apodaca, Maton Fund II L.P., and Hotung Investment Holdings Limited. The company plans to use the capital to strengthen its engineering and marketing teams, develop new semiconductor and software products, and bring wireless multi-point services to market. The company has raised $30 million to date. http://www.embeddedwireless.net/ _____________________________________________ o Online Banking Firm CR2 Raises $8 Million in Third Round LONDON -- CR2 Group, which provides online banking, channel management, and card payment technology, said it raised $8 million in its third round of funding. New investors Goodbody Stockbrokers and AIB Corporate Banking joined previous investors GIMV, NIB Capital, and ACT Venture Capital in the round. CR2 Group said it will use the funding to expand its business and marketing. The company has a valuation of $88 million following the close of the funding round. The company has recently relocated to larger offices in Dublin and established operations in India and the Czech Republic to support Asian and Eastern European operations. CR2 Group has received additional support from the Irish government's state agency, Enterprise Ireland. http://www.cr2.com/ _____________________________________________ o Revenio Raises $27 Million in Third Round of Funding BURLINGTON, Mass -- Revenio, a developer of a platform for managing and automating customer interactions across marketing channels, said it secured $27 million in its third round of funding led by General Catalyst. The round includes new investors Vignette, Chase H&Q, Comdisco, Pictet Global Telecom Fund, Williams, Jones & Associates, and NETinvest, and previous investors Charles River Ventures and Matrix Partners. The company said it will use the financing to fund sales, marketing, and product development. General Catalyst co-founder and managing partner David Fialkow will join the Revenio board of directors. The company has raised $43 million to date. http://www.revenio.com/ _____________________________________________ o Compare and Shop Site Bisanjia Gets $1 Million BEIJING -- Bisanjia.com, a subsidiary of U.S.-based BestEDeal.com that provides price comparison services, said it received $1 million from undisclosed investors. The company said it will use the funds to develop wireless application protocol and e-commerce technologies. http://www.bisanjia.com/ _____________________________________________ o Infrastructure Firm Soneta Gets Funding from Gray Cary DALLAS -- Soneta, which develops technology and applications for e-commerce service providers, said it has received an undisclosed amount of cash and a pledge of services from the Internet technology law firm of Gray Cary Ware & Freidenrich in return for an equity stake. The details of the deal were not disclosed. Last week, Soneta said it closed its Series A round of financing with a $2 million investment from Yazam. http://www.soneta.com/ _____________________________________________ o Video Networking Firm Artel Raises $10.5 Million Round Four MARLBOROUGH, Mass. -- Artel, which provides video networking systems to cable television and telecommunications service providers, said it has secured $10.5 million in its fourth round of funding. New investors, Liberty Mutual and Boston University's Community Technology Fund, joined previous investors, Cornerston Equity Investors, Atlas Venture, BancBoston Capital, Charles River Ventures, Commonwealth Capital Ventures, New England Partners, and Massachusetts Capital Resource Co., to invest in the round. Artel said it will use the funds to develop its next generation of video switching platform technology. http://www.artel.com/ _____________________________________________ o Valeo Takes 15% Stake in Automotive Application Maker ITF PARIS -- Valeo Ventures, the venture arm of European automobile supplier Valeo, said it has taken a 15% stake in TTF, which develops applications that enable automotive manufacturers to exchange different CAD software files. Financial details of the deal were not disclosed. TTF's technology allows auto makes to exchange CAD software files. http://www.ttf-group.com/ ======= Bad News ======= o Online Brokers' Venue Insureon.com Cuts Over Half its Staff PASADENA, Calif. -- Insureon.com, which provides an online venue for brokers and insurance carriers to transact commercial insurance deals in real time, said it cut about 16 jobs, more than half of its staff. The company said it was overstaffed on its technical side and would be refocusing on product development and geographic expansion. The company said it needed to cut back on its spending in order to increase its appeal to investors. Insureon.com, which was incubated by the incubator Netcubator, is seeking $5 million in its first institutional round of funding. The company is backed by individual investors. http://www.insureon.com/ ======= New Products ======= o Claims Web Site ClaimsDesk.com Launches First Product SEATTLE -- ClaimsDesk.com, a provider of online property and casualty claims management services, said it launched its first product, P&C Claims Workplace. The product is a subscription service that enables claims adjusters to obtain claims-related information through a database. ClaimsDesk is funded by Voyager Capital and Staenberg Private Capital. http://www.claimsdesk.com/ _____________________________________________ o IT Products and Service Directory KnowledgeStorm Launches ATLANTA -- KnowledgeStorm, an IT directory, announced its launch. The company's Web site lists a directory of IT software products and services. Users can save their criteria and get free reports. Registered vendors include Ariba, Baan, Documentum, Firepond, I2, Oracle, and PeopleSoft. KnowledgeStorm is funded by Apex Venture Partners, and Live Oak Equity Partners. http://www.knowledgestorm.com/ _____________________________________________ o Online Idea Exchange Site Ideas.com Launches MOUNTAIN VIEW, Calif. -- Ideas.com, an online marketplace where users can exchange ideas, launched its service and Web site. The company has already signed on the Coca-Cola Company, DaimlerChrysler, International Paper, S.C. Johnson & Son, and Sears, Roebuck & Co. as members. The Web site enables people to direct their ideas and technologies to corporations' new product development, research and development, innovation and brand marketing departments. Ideas.com is backed by three individual investors from Junglee and other undisclosed individuals. http://www.ideas.com/ _____________________________________________ o Online Network For Childcare Industry QualKids Launches MAITLAND, Fla. -- QualKids, an interactive online network linking child care professionals, families and healthcare professionals, announced it has launched. Through its business-to-business and business-to-consumer electronic marketplace, QualKids gives child care professionals access to health, safety, education and management information. The company, which was founded by Dr. David Milov, is backed by E.V. Ventures, QualKids Majik Fund, Westven Fund, and individual investors. http://www.qualkids.com/ ======= New Deals ======= o Invite Service Mambo.com Service Shut Down by Parent Company MENLO PARK, Calif. -- Mambo.com, an online service providing online event planning applications and commerce, will shut down on November 20. Dynamic Transactions, the parent comany formerly operating under the name Mambo.com, said it was discontinuing the service to focus on its flagship product, PayPlace.com, an online payment service. The company said that invitation services had a future better suited as a feature to a larger portal. There were no layoffs resulting from the service being discontinued. Dynamic Transactions is backed by Angel Investor Group, Hummer Winblad Venture Partners, Trans Cosmo USA, and individual investors. http://www.payplace.com/ _____________________________________________ o DSSI Takes 4% Stake in Noise Reducing Firm Silentium MAHWAH, N.J. -- DSSI, a provider of computer consulting and development services, said it acquired approximately 4% of the equity of Silentium, an Israeli start-up company, through its subsidiary, DSI Israel. DSI Israel received the equity and warrants to purchase additional equity in Silentium in exchange for providing development services at lower than its prevailing rates. Silentium owns and is marketing low cost active noise cancellation technology for nosiy equipment. Its investors include Israeli Sadot Research & Development Fund and Zoom-it Holding, an Israeli high-tech investment company. http://www.dssiinc.com/ ======= M&A ======= o Sheldahl to Acquire IFT for $30 Million in Stock NORTHFIELD, Minn. -- Sheldahl a publicly traded producer of high-density substrates, flexible printed circuitry, and flexible laminates for the automotive electronics and data communications markets, said it will acquire International Flex Technologies (IFT), a producer of fine-line, flexible circuits approximately 7.6 million shares of common stock worth approximately $29.9 million. Morgenthaler Partners, IFT's majority shareholder, and Ampersand Ventures will invest $25 million in equity capital in exchange for approximately 4.9 million shares of Sheldahl common stock and shares of a new series of preferred stock that is convertible into approximately 4.1 million shares of common stock. In addition, Molex, a Sheldahl customer and new joint venture partner, has agreed to join with Morgenthaler and Ampersand in purchasing up to an aggregate of $15 million of Sheldahl subordinated debt and warrants. Morgenthaler, Ampersand, and other IFT investors will collectively hold 49% ownership of Sheldahl on a fully diluted basis. Molex will also increase its ownership of Sheldahl securities and will own approximately 10% of Sheldahl on a fully diluted basis. http://www.sheldahl.com/ _____________________________________________ o B2B Online Music Source Amplified Acquires OneBigCD ATLANTA -- Amplified, an online business-to-business digital media services provider, said it acquired syndicated Internet jukebox provider OneBigCD.com for an undisclosed amount. As a result of the deal, Amplified has released a new product, called MaMa, which is integrated into an online retailer's site and tracks customers' music preferences. Amplified is backed by Valley Media, Bear Stearn's Constellation Ventures, Psilos Group, Chase Capital, Noro-Moseley Partners. OneBigCD is funded by Draper Atlantic Venture Capital. http://www.amplified.com/ http://www.onebigcd.com/ _____________________________________________ o Vina Technologies Acquires Woodwind Communications NEWARK, Calif. -- Publicly traded Vina Technologies said it acquired Woodwind Communication Systems, a maker voice over broadband technology, for approximately 5 million shares of stock valued at approximately $44 million. Richard Berger, Woodwind president, chairman, and CEO, will be a vice president of Vina. Woodwind's 40 employees were offered jobs with the combined company. Woodwind was backed by Novak Biddle Venture Partners, Boulder Ventures, SpaceVest, Alta Partners, and Sterling Capital. http://www.vinatechnologies.com/ http://www.wcsinc.com/ ======= New Directors ======= o eSpeed Fulfillment Taps Lawyer, Consultant for Board DALLAS -- eSpeed Fulfillment, which provides services and technology to business-to-business and business-to-consumer Internet companies, said it has appointed David Bryant, partner of Hughes & Luce, a Texas technology law firm, and Robert J. Potter, president and CEO of R. J. Potter, a Dallas-based consulting firm, as the second and third members of its board. eSpeed Fulfillment closed its first round of funding in September at just under $1 million from undisclosed individual investors. eSpeed said that it will use the funds to develop logistics and order management technology. http://www.espeedfulfillment.com/ ======= New People ======= o Datria Systems Names Ex-Colorado Land Developer as CEO ENGLEWOOD, Colo. -- Datria Systems, a developer of voice-to-data technology for mobile computing, said James Greenwell joined the company as president and CEO, replacing founder Jim Blaha who will continue to play an active role within the company and serve on the board of directors.. He previously served as president and CEO of Fairway Properties, a Colorado land developer and residential homebuilder. Mr. Greenwell was also senior vice president of sales and marketing for DecisionOne, a provider of multivendor computer maintenance services. Datria Systems' investors include Koch Ventures, Quest International Management, Four States Investment, and Greenwood Gulch Ventures. http://www.datria.com/ ======= VC Fund News ======= o Telesis & Capital Z Convergence Europe in Joint Fund Venture NEW YORK -- Capital Z Convergence Europe, a fund sponsored by Capital Z, and Telesis Investment Bank have established a joint investment vehicle co-managed by Telesis and Capital Z affiliated management firm Fusion Partners. Telesis Investment Bank is raising $50 million from local investors in Greece for the jointly managed fund based in Thessaloniki. Capital Z Convergence Europe Fund, which currently holds $75 million under management, will make co-investments and is looking to raise $300 million for investment in later stage telecommunications, financial services, media and entertainment, healthcare, and information technology companies. http://www.capitalz.com/ _____________________________________________ o Vista Ventures Gets $15 Million for Vista Ventures I IT Fund BROOMFIELD, Colo. -- Vista Ventures said it raised more than $15 million in commitments for its venture capital fund and has begun looking into investment opportunities in its target markets. Vista Ventures I, focused on early and development stage information technology and communications companies in the Rocky Mountain region, will make initial equity investments ranging from $250,000 to $2 million. With its affiliations with other venture funds, it plans to provide $5 to $50 million total funding to each portfolio company. http://www.vistavc.com/ _____________________________________________ o Legend Holdings Plans New Chinese Technology Venture Fund HONG KONG -- Legend Holdings announced it plans to form a new venture capital fund. The size of the fund was not disclosed, however, Legend Group Holding, a subsidiary of Legend Holding, said it would make an initial contribution of $25.3 million to the fund. The new fund is expected will go into operation sometime around April 2001. The fund will provide technology companies in Beijing's Zhongguancun area with start-up funding and management experience. http://www.legend-holdings.com/ _____________________________________________ o Indian Bank of Baroda to Invest in Venture Funds MUMBAI, India -- Bank of Baroda plans to invest $5.4 million in venture capital funds for investments in the IT field. The bank plans to invest the funds by March 2001 in up to five venture capital funds, both private and institutional. The bank has made one investment so far. http://www.bankofbaroda.com/ ======= VC Personnel ======= o Columbia Capital Adds Two Partners To Investment Team ALEXANDRIA, Va. -- Columbia Capital, a communications and information technology venture capital fund, said it appointed Arun Gupta and John Siegel Jr. as partners in the firm. Mr. Siegel joins Columbia from Morgan Stanley Dean Witter Capital Partners and Mr. Gupta comes from Carlyle Venture Partners. Columbia Capital has invested in more than 60 companies, and manages approximately $1.4 billion. http://www.colcap.com/ _____________________________________________ o Two Join Patricof As Venture Partners PALO ALTO, Calif. -- Investment firm Patricof & Co. Ventures, a member of the Apax Partners global network, said it appointed F.E. Weissman and Evangelos Simoudis as venture partners. Mr. Weissman was formerly vice president of strategy and corporate marketing for Verity, which provides information retrieval and portal software for electronic commerce and corporate Intranets. Mr. Simoudis previously was president and chief executive officer of Customer Analytics, an electronic customer relationship management company. http://www.patricof.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| P2P OR NOT P2P? We've heard distributed computing and peer-to-peer networks will change computing. But how? Dozens of companies are making bids for pieces of the P2P pie. Some of them will succeed, but many will fail. Industry Futures,one of five expert panels at Technology Outlook 2000, will examine the business plans and challenges in distributed computing: David P. Anderson, CTO, United Devices Shishir Mehrotra, President & CEO, Centrata Andreas Stavropoulos, Director, Draper Fisher Jurvetson Steve Stephansen, President & CEO, WebV2 Only at Technology Outlook 2000: The Future of Pervasive Computing December 4 and 5, San Francisco A VentureWire investment conference. http://www.tpsite.com/tp/conf/to2000/?vw=200011133 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. This copy of VentureWire and the information within it, however, may not be reproduced, saved, or otherwise copied into a database without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Monday, November 13, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/3379. ===================================== ====================================================== VENTUREWIRE --- Monday, November 13, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o eVentures India Gets $150 Million from Softbank, Epartners o Evite Laying Off 60% of its Workforce, Still Hoping to Sell o LowerMyBills.com Names Former Intuit CEO Harris to Board o Australian Government Commits $47.8 Million to Startups |||||||||||||||||||| Advertisement |||||||||||||||||||| COMMERCE UNPLUGGED A new breed of smart phones and connected PDAs are enabling us to shop, even long after we've dropped. But the mobile shopper is a new breed of consumer, and the mobile value chain presents a host of new issues. Mobile Services, one of five expert panels at Technology Outlook 2000, will examine the promises and pitfalls of m-commerce, wireless advertising, and the role of location-based services. Come hear from: Mark F. Bregman, CEO, AirMedia Bernard Desarnauts, CEO, ViaFone Paul Palmieri, VP & GM, Wireless Services, Advertising.com Only at Technology Outlook 2000: The Future of Pervasive Computing December 4 and 5, San Francisco A VentureWire investment conference. http://technologicpartners.com/tp/conf/to2000/?vw=20001113 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o E-commerce Firm RedSpark Gets $14 Million in First Round o SS8 Networks Raises $25 Million in Second-Round Funding o Logistics Technology Firm Velant Raises $7 Million Round One o Network App Firm XDegrees Raises $8 Million First Round o Ticket Tech Firm Justarrive Gets $5 Million in First Round o Wireless Network Firm ReefEdge Raises $6.8 Million Round One o Fiber-based ICP Scindo Networks Gets $1.6 Million Seed Money o Broadband Developer Malibu Networks Raises $30 Million o Cambridge Silicon Radio Raises $34 Million Second Round o XML App Firm Bowstreet Raises $50 Million Round Four o Benchmark Storage Holds Third Round Funding for $40 Million o Business Travel Site I-tinerary Gets $4 Million Second Round o eDreams, Online Travel Site, Raises $13.8 Million Round o MyQube Invests In Electronic Control Network Firm FSB o Next Generation Network Raises $30 Million from CDP o Optical Chip Firm Integration Associates Raises $9 Million o Software Firm CES Lands $12 Million in Second Round o Spike Broadband Systems Raises $47 Million o TenantDirect.com Raises $9.35 Million Second Round o TV Programming App Firm Jovio Gets $1.5 Million Round Two o Embedded Wireless Devices Raises $20 Million Third Round o Online Banking Firm CR2 Raises $8 Million in Third Round o Revenio Raises $27 Million in Third Round of Funding o Compare and Shop Site Bisanjia Gets $1 Million o Infrastructure Firm Soneta Gets Funding from Gray Cary o Video Networking Firm Artel Raises $10.5 Million Round Four o Valeo Takes 15% Stake in Automotive Application Maker ITF Bad News: o Online Brokers' Venue Insureon.com Cuts Over Half its Staff New Products: o Claims Web Site ClaimsDesk.com Launches First Product o IT Products and Service Directory KnowledgeStorm Launches o Online Idea Exchange Site Ideas.com Launches o Online Network For Childcare Industry QualKids Launches New Deals: o Invite Service Mambo.com Service Shut Down by Parent Company o DSSI Takes 4% Stake in Noise Reducing Firm Silentium M&A: o Sheldahl to Acquire IFT for $30 Million in Stock o B2B Online Music Source Amplified Acquires OneBigCD o Vina Technologies Acquires Woodwind Communications New Directors: o eSpeed Fulfillment Taps Lawyer, Consultant for Board New People: o Datria Systems Names Ex-Colorado Land Developer as CEO VC Fund News: o Telesis & Capital Z Convergence Europe in Joint Fund Venture o Vista Ventures Gets $15 Million for Vista Ventures I IT Fund o Legend Holdings Plans New Chinese Technology Venture Fund o Indian Bank of Baroda to Invest in Venture Funds VC Personnel: o Columbia Capital Adds Two Partners To Investment Team o Two Join Patricof As Venture Partners |||||||||||||||||||| Advertisement |||||||||||||||||||| VENTUREWIRE GOES WIRELESS POWERED BY ADAPTIVEINFO VentureWire subscribers can now get the same top-quality news wirelessly -- in the airport, on the road, in the gym, or on the golf course. VentureWire is now available on all wireless devices, served and automatically personalized for each user by the Adaptive News Server. PQAs for the Palm are available at http://venturewire.net/vwmobile.asp?vw=ai0 or visit adapt.am for the RIM pager and web phone version. For more information call 1-866-ADAPTIVEINFO or visit http://www.adaptiveinfo.com/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o eVentures India Gets $150 Million from Softbank, Epartners MUMBAI, India -- eVentures India, an investment and operating company, said it received $150 million from previous investors Softbank and epartners. eVentures India focuses on investing in and developing Internet and new media related ventures with a significant Indian component. The company said it will use the new capital to invest in four areas: Internet-based software and IT-enabled services, infrastructure, new technologies in areas like wireless and broadband, and B2B enabling services. P.K. Mittal, an Indian industrialist, is also an investor. eVentures India has committed $65 million to 14 partner companies, including NetAcross Online Solutions, Netpilgrim, and Customerasset.com. The company has offices in Mumbai and New York. http://www.eventures.co.in/ _____________________________________________ o Evite Laying Off 60% of its Workforce, Still Hoping to Sell SAN FRANCISCO -- Evite, an online service that specializes in coordinating and planning activities through group electronic invitations, said it was laying off 42 employees, or approximately 60% of its staff, to bring the company's payroll down to 28 people. The cuts will eliminate the company's marketing and business development departments and cut into product developers and sales significantly. The company said last week that it was looking for a buyer and did not expect to be able to hold an IPO. The company also said last week that it had $17 million, enough cash to last them over one year. The company said the layoffs would lower its burn rate and move it closer to profitability. The company said it is in active discussions with several potential buyers. Evite is backed by Advent International, August Capital, Greylock Management, Hikari Tsushin, North Hill Ventures, Staenberg Venture Partners, and Technology Crossover Ventures. http://www.evite.com/ _____________________________________________ o LowerMyBills.com Names Former Intuit CEO Harris to Board LOS ANGELES -- LowerMyBills.com, which operates a Web site that enables users to research and compare their recurring monthly bills, said it named Bill Harris to its board of directors. Mr. Harris was recently president and CEO with X.com, but resigned after six months. Prior to X.com, he served as president and CEO of personal finance services developer Intuit. LowerMyBills.com is backed by eCompanies Venture Group. http://www.lowermybills.com/ _____________________________________________ o Australian Government Commits $47.8 Million to Startups SYDNEY, Australia -- The Australian Minister for Industry, Science, and Resources said that the government would commit AUS$90.7 million ($47.8 million) to four venture capital fund managers. The four funds, Nanyang Ventures, Start Up Australia, Newport CDIB Fund Management, and Foundation Management, will also contribute approximately $38.3 million to the Commonwealth Government's Innovation Investment Fund. In total, with the funds from the private equity firms, the government intends to make $86.1 million available for investment in new Australian technology. In the course of two rounds of the Innovation Investment Fund, the Australian government and equity firms have made $188.7 million available to startup technology companies operating in Australia. Telephone 61-02-6277-7580. ======= New Money ======= o E-commerce Firm RedSpark Gets $14 Million in First Round SAN FRANCISCO -- RedSpark, which provides applications and e-commerce services for the manufacturing industry, said it has raised $14 million in its first round of funding led by Crosspoint Venture Partners that included Impact Venture Partners. RedSpark, which was spun out of Autodesk, said it will use the funds for deployment of its services. Bob Lisbonne, general partner of Crosspoint, will join Carol Bartz, the chief executive officer of Autodesk, and RedSpark president and chief executive officer Dominic Gallello, on the company's board of directors. http://www.redspark.com/ _____________________________________________ o SS8 Networks Raises $25 Million in Second-Round Funding SAN JOSE, Calif. -- SS8 Networks, which provides a signalling engine for real-time communications over IP networks, has received $25 million in second-round funding, a source close to the company said. Kleiner Perkins Caufield & Byers participated in the round. Other details were not made available. Earlier this year, the company received $10 million in a round led by Woodside Fund that included CIT Group, Onset Ventures, and Sofinov. http://www.ss8networks.com/ _____________________________________________ o Logistics Technology Firm Velant Raises $7 Million Round One ATLANTA -- Velant, which develops Web-based decision making software for automating and speeding up transportation planning, said it closed its first round with $7 million from Matrix Partners and other individual investors. The company will use the funds to expand its staff and offices. http://www.velant.com/ _____________________________________________ o Network App Firm XDegrees Raises $8 Million First Round MOUNTAIN VIEW, Calif. -- XDegrees, a provider of infrastructure for network applications, announced it has launched and raised $8 million in its first round of funding from Redpoint Ventures and Cambrian Ventures. The company was founded by Michael Tanne, the chief executive officer, and Dan Teodosiu, the chief technology officer. XDegrees has built a secure scalable infrastructure services that enables enterprise and consumer application developers to build and deploy network applications. http://www.xdegrees.com/ _____________________________________________ o Ticket Tech Firm Justarrive Gets $5 Million in First Round SAN FRANCISCO -- Justarrive, a university sports ticket firm that uses magnetic swipe technology to facilitate ticket purchases and exchanges, said it has received $5 million from Mohr, Davidow Ventures and that it will use the funds to develop stadium entrance technology and to form new partnerships and fan loyalty systems. Justarrive also announced it has appointed Ronnie Lott, ex-San Francisco 49er and NFL Hall of Fame inductee, as the board's second member. http://www.justarrive.com/ _____________________________________________ o Wireless Network Firm ReefEdge Raises $6.8 Million Round One FORT LEE, N.J. -- ReefEdge, a wireless corporate networking firm, said it has raised $6.8 million in its first round of funding from co-leads Bessemer Venture Partners and Columbia Capital. Robert Goodman, general partner at Bessemer, and Jay Markley, general partner at Columbia, will join ReefEdge's board as the third and fourth members. ReefEdge said it will use the funds to develop its products. http://www.reefedge.com/ _____________________________________________ o Fiber-based ICP Scindo Networks Gets $1.6 Million Seed Money DENVER -- Scindo Networks, a fiber-based integrated communications provider (ICP) of local, long distance, Internet, and data services to small and medium businesses, said it received $1.6 million in its seed round, led by Barron Ventures. The company said it will use the funds for operations and marketing. http://www.scindonetworks.com/ _____________________________________________ o Broadband Developer Malibu Networks Raises $30 Million SEATTLE -- Malibu Networks, which is developing wireless broadband technologies, raised $30 million in its second round of funding, according to investors CVC Capital Partners and Second Avenue Partners. The two firms jointly contributed $10 million to the round which also included investments from ARCH Venture Partners, Polaris Venture Partners, and a consortium of existing investors. Calabasas-based Malibu Networks is developing wirelss broadband modem chips. http://www.malibunetworks.com/ _____________________________________________ o Cambridge Silicon Radio Raises $34 Million Second Round CAMBRIDGE, U.K. -- Cambridge Silicon Radio, a developer of single chip Bluetooth radio devices, said it raised $34 million in its second round of financing. The round included investments from 3i, ALPS, Amadeus Capital, ARM, Capital Research, Gilde, Intel Capital, Mustang Ventures, Razorfish, Virata, and Wavecom. Cambridge Silicon Radio said it will use the funding to support its development of new Bluetooth technologies. http://www.csr.com/ _____________________________________________ o XML App Firm Bowstreet Raises $50 Million Round Four PORTSMOUTH, N.H. -- Bowstreet, an e-commerce XML infrastructure firm, said it closed its fourth round of financing with $50 million from new investors Amerindo Investment Advisors, Azure Capital, Essex Partners, and Putnam Investors and from previous investors Charles River Ventures, Matrix Partners, Integral Capital Partners, and Kleiner Perkins Caufield & Byers, among others. Bowstreet said it will use the funds to develop and research its products. There will be no board changes as a result of the round. http://www.bowstreet.com/ _____________________________________________ o Benchmark Storage Holds Third Round Funding for $40 Million BOULDER, Colo. -- Benchmark Storage Innovations, which develops tape backup and archive systems for small to medium-sized computer networks and workstations, said it raised its third round of funding with $40 million. New investors Advanced Digital Information, Lafe Holdings, Storage Tek, and individuals funded the round along with previous investors Aweida Venture Partners, which led the round, and Quantum. The company will use the funding for working capital in new partnerships with customer companies. Benchmark Storage Innovations, formerly Benchmark Tape, is also backed by Read-Rite. http://www.4benchmark.com/ _____________________________________________ o Business Travel Site I-tinerary Gets $4 Million Second Round SCOTTSDALE, Ariz. -- I-tinerary Travel Solutions, an Internet-based travel booking service targeted at business travelers, said it secured $4 million in its second round of funding from Frankfurt-based business travel company I:FAO. The company plans to use the funds for system and business development. http://www.i-tinerary.com/ _____________________________________________ o eDreams, Online Travel Site, Raises $13.8 Million Round LONDON -- eDreams, a European online travel site, raised EUR 16 million ($13.8 million) in its second round of funding. The round was led by new investor 3i and investments from previous investors Apax Partners, BSCH, Doll Capital Partners, and Net Partners. The company said it will use the funding for continued growth and expansion. eDreams intends to launch its service in France and continue development in Spain and Italy. http://www.edreams.com/ _____________________________________________ o MyQube Invests In Electronic Control Network Firm FSB MILAN -- MyQube, an early stage Italian development fund, said it has invested an undisclosed amount in FSB, an integrator of hardware and software systems for managing devices connected to the electric network through the Internet. FSB, which is developing the open standard control network based on a standard developed by Echelon, plans to install its technology in 27 million homes, public buildings, and offices in Italy by 2004. http://www.myqube.com/ _____________________________________________ o Next Generation Network Raises $30 Million from CDP MINNEAPOLIS -- Next Generation Network, a developer of electronic billboards that deliver digital information and advertising, said it raised $30 million in funding from CDP Capital Communications, the media and telecommunications investment arm of Caisse de depot et placement du Quebec. The company said the funds will be used for continued business development and the global rollout of its network. http://www.ebillboards.com/ _____________________________________________ o Optical Chip Firm Integration Associates Raises $9 Million MOUNTAIN VIEW, Calif. -- Integration Associates, which designs and manufactures optoelectronic and RF analog/digital chips for wireless devices, said it raised $9 million in funding from individual investors. The round included investments from Mark Green, formerly of Goldman Sachs; Ralph Parks, of JP Morgan Chase; and Charles R. Schwab and Mark Thompson, both of Charles Schwab. Both Mr. Schwab and Mr. Thompson have seats on the Integration Associates board of directors. http://www.integration.com/ _____________________________________________ o Software Firm CES Lands $12 Million in Second Round ATLANTA -- CES International, which makes operations management software for utility companies, received $10 million in its second round of financing from Cinergy Ventures, the venture division of utility company Cinergy, and $2 million from previous investor Wexford Capital Management. Larry Thomas, group president of new technology and energy delivery for Cinergy, will join CES's board as its sixth member. CES said it plans to use the funds to expand the company in the U.S. and abroad and for research and development. http://www.ces.com/ _____________________________________________ o Spike Broadband Systems Raises $47 Million NASHUA, N.H. -- Spike Broadband Systems, a provider of carrier-class, fixed wireless broadband access products, said it has raised $47 million from Canada-based CDP Sofinov, a subsidiary of the Caisse de depot et placement du Quebec, an investment fund manager. Other investors include CDP Capital Communications, Sandler Capital Management, Cabletron Systems, Ironside Ventures, HLM Management, US Bancorp Piper Jaffray, Dain Rauscher Venture Partners, Wheatley Partners, Rosewood Corp., Agilent Technologies, Signal Equity Partners and Commonwealth Capital Ventures. Spike said it will use the funding to meet product demand, increase its sales activities, and scale its production and distribution capacity. http://www.spikebroadband.net/ _____________________________________________ o TenantDirect.com Raises $9.35 Million Second Round LOS ANGELES -- TenantDirect.com, maker of ResidentDirect and TenantDirect, online management systems designed for the multi-family and commercial real estate industries, said it closed a $9.35 million second round of funding. Investors included HPC, a subsidiary of Primedia, which owns and operates Apartment Guide and ApartmentGuide.com; Kennedy-Wilson, a Los Angeles based real estate owner and manager; and other real estate owners.The company said it would use the funds to expand its market reach and add to its list of online services. As part of the financing, HPC will help promote the company's national advertising and marketing program. The company has raised $10.75 million to date. http://www.tenatdirect.com/ _____________________________________________ o TV Programming App Firm Jovio Gets $1.5 Million Round Two PITTSBURGH -- Software developer Jovio said it raised $1.5 million of its targeted $5 million second round of funding from individual investors. Jovio's software profiles viewers based on demographic, geographic, and psychographic data and delivers them television programming. The company has raised $3 million to date. http://www.jovio.com/ _____________________________________________ o Embedded Wireless Devices Raises $20 Million Third Round PLEASANTON, Calif. -- Embedded Wireless Devices (EWD), a developer and marketer of silicon services for wireless, audio, and Internet applications, said it received more than $20 million in third round financing from new investors H&Q/GAI and Anadigics and previous investors Trieste Investment Groups, Good Honor Holdings, Apodaca, Maton Fund II L.P., and Hotung Investment Holdings Limited. The company plans to use the capital to strengthen its engineering and marketing teams, develop new semiconductor and software products, and bring wireless multi-point services to market. The company has raised $30 million to date. http://www.embeddedwireless.net/ _____________________________________________ o Online Banking Firm CR2 Raises $8 Million in Third Round LONDON -- CR2 Group, which provides online banking, channel management, and card payment technology, said it raised $8 million in its third round of funding. New investors Goodbody Stockbrokers and AIB Corporate Banking joined previous investors GIMV, NIB Capital, and ACT Venture Capital in the round. CR2 Group said it will use the funding to expand its business and marketing. The company has a valuation of $88 million following the close of the funding round. The company has recently relocated to larger offices in Dublin and established operations in India and the Czech Republic to support Asian and Eastern European operations. CR2 Group has received additional support from the Irish government's state agency, Enterprise Ireland. http://www.cr2.com/ _____________________________________________ o Revenio Raises $27 Million in Third Round of Funding BURLINGTON, Mass -- Revenio, a developer of a platform for managing and automating customer interactions across marketing channels, said it secured $27 million in its third round of funding led by General Catalyst. The round includes new investors Vignette, Chase H&Q, Comdisco, Pictet Global Telecom Fund, Williams, Jones & Associates, and NETinvest, and previous investors Charles River Ventures and Matrix Partners. The company said it will use the financing to fund sales, marketing, and product development. General Catalyst co-founder and managing partner David Fialkow will join the Revenio board of directors. The company has raised $43 million to date. http://www.revenio.com/ _____________________________________________ o Compare and Shop Site Bisanjia Gets $1 Million BEIJING -- Bisanjia.com, a subsidiary of U.S.-based BestEDeal.com that provides price comparison services, said it received $1 million from undisclosed investors. The company said it will use the funds to develop wireless application protocol and e-commerce technologies. http://www.bisanjia.com/ _____________________________________________ o Infrastructure Firm Soneta Gets Funding from Gray Cary DALLAS -- Soneta, which develops technology and applications for e-commerce service providers, said it has received an undisclosed amount of cash and a pledge of services from the Internet technology law firm of Gray Cary Ware & Freidenrich in return for an equity stake. The details of the deal were not disclosed. Last week, Soneta said it closed its Series A round of financing with a $2 million investment from Yazam. http://www.soneta.com/ _____________________________________________ o Video Networking Firm Artel Raises $10.5 Million Round Four MARLBOROUGH, Mass. -- Artel, which provides video networking systems to cable television and telecommunications service providers, said it has secured $10.5 million in its fourth round of funding. New investors, Liberty Mutual and Boston University's Community Technology Fund, joined previous investors, Cornerston Equity Investors, Atlas Venture, BancBoston Capital, Charles River Ventures, Commonwealth Capital Ventures, New England Partners, and Massachusetts Capital Resource Co., to invest in the round. Artel said it will use the funds to develop its next generation of video switching platform technology. http://www.artel.com/ _____________________________________________ o Valeo Takes 15% Stake in Automotive Application Maker ITF PARIS -- Valeo Ventures, the venture arm of European automobile supplier Valeo, said it has taken a 15% stake in TTF, which develops applications that enable automotive manufacturers to exchange different CAD software files. Financial details of the deal were not disclosed. TTF's technology allows auto makes to exchange CAD software files. http://www.ttf-group.com/ ======= Bad News ======= o Online Brokers' Venue Insureon.com Cuts Over Half its Staff PASADENA, Calif. -- Insureon.com, which provides an online venue for brokers and insurance carriers to transact commercial insurance deals in real time, said it cut about 16 jobs, more than half of its staff. The company said it was overstaffed on its technical side and would be refocusing on product development and geographic expansion. The company said it needed to cut back on its spending in order to increase its appeal to investors. Insureon.com, which was incubated by the incubator Netcubator, is seeking $5 million in its first institutional round of funding. The company is backed by individual investors. http://www.insureon.com/ ======= New Products ======= o Claims Web Site ClaimsDesk.com Launches First Product SEATTLE -- ClaimsDesk.com, a provider of online property and casualty claims management services, said it launched its first product, P&C Claims Workplace. The product is a subscription service that enables claims adjusters to obtain claims-related information through a database. ClaimsDesk is funded by Voyager Capital and Staenberg Private Capital. http://www.claimsdesk.com/ _____________________________________________ o IT Products and Service Directory KnowledgeStorm Launches ATLANTA -- KnowledgeStorm, an IT directory, announced its launch. The company's Web site lists a directory of IT software products and services. Users can save their criteria and get free reports. Registered vendors include Ariba, Baan, Documentum, Firepond, I2, Oracle, and PeopleSoft. KnowledgeStorm is funded by Apex Venture Partners, and Live Oak Equity Partners. http://www.knowledgestorm.com/ _____________________________________________ o Online Idea Exchange Site Ideas.com Launches MOUNTAIN VIEW, Calif. -- Ideas.com, an online marketplace where users can exchange ideas, launched its service and Web site. The company has already signed on the Coca-Cola Company, DaimlerChrysler, International Paper, S.C. Johnson & Son, and Sears, Roebuck & Co. as members. The Web site enables people to direct their ideas and technologies to corporations' new product development, research and development, innovation and brand marketing departments. Ideas.com is backed by three individual investors from Junglee and other undisclosed individuals. http://www.ideas.com/ _____________________________________________ o Online Network For Childcare Industry QualKids Launches MAITLAND, Fla. -- QualKids, an interactive online network linking child care professionals, families and healthcare professionals, announced it has launched. Through its business-to-business and business-to-consumer electronic marketplace, QualKids gives child care professionals access to health, safety, education and management information. The company, which was founded by Dr. David Milov, is backed by E.V. Ventures, QualKids Majik Fund, Westven Fund, and individual investors. http://www.qualkids.com/ ======= New Deals ======= o Invite Service Mambo.com Service Shut Down by Parent Company MENLO PARK, Calif. -- Mambo.com, an online service providing online event planning applications and commerce, will shut down on November 20. Dynamic Transactions, the parent comany formerly operating under the name Mambo.com, said it was discontinuing the service to focus on its flagship product, PayPlace.com, an online payment service. The company said that invitation services had a future better suited as a feature to a larger portal. There were no layoffs resulting from the service being discontinued. Dynamic Transactions is backed by Angel Investor Group, Hummer Winblad Venture Partners, Trans Cosmo USA, and individual investors. http://www.payplace.com/ _____________________________________________ o DSSI Takes 4% Stake in Noise Reducing Firm Silentium MAHWAH, N.J. -- DSSI, a provider of computer consulting and development services, said it acquired approximately 4% of the equity of Silentium, an Israeli start-up company, through its subsidiary, DSI Israel. DSI Israel received the equity and warrants to purchase additional equity in Silentium in exchange for providing development services at lower than its prevailing rates. Silentium owns and is marketing low cost active noise cancellation technology for nosiy equipment. Its investors include Israeli Sadot Research & Development Fund and Zoom-it Holding, an Israeli high-tech investment company. http://www.dssiinc.com/ ======= M&A ======= o Sheldahl to Acquire IFT for $30 Million in Stock NORTHFIELD, Minn. -- Sheldahl a publicly traded producer of high-density substrates, flexible printed circuitry, and flexible laminates for the automotive electronics and data communications markets, said it will acquire International Flex Technologies (IFT), a producer of fine-line, flexible circuits approximately 7.6 million shares of common stock worth approximately $29.9 million. Morgenthaler Partners, IFT's majority shareholder, and Ampersand Ventures will invest $25 million in equity capital in exchange for approximately 4.9 million shares of Sheldahl common stock and shares of a new series of preferred stock that is convertible into approximately 4.1 million shares of common stock. In addition, Molex, a Sheldahl customer and new joint venture partner, has agreed to join with Morgenthaler and Ampersand in purchasing up to an aggregate of $15 million of Sheldahl subordinated debt and warrants. Morgenthaler, Ampersand, and other IFT investors will collectively hold 49% ownership of Sheldahl on a fully diluted basis. Molex will also increase its ownership of Sheldahl securities and will own approximately 10% of Sheldahl on a fully diluted basis. http://www.sheldahl.com/ _____________________________________________ o B2B Online Music Source Amplified Acquires OneBigCD ATLANTA -- Amplified, an online business-to-business digital media services provider, said it acquired syndicated Internet jukebox provider OneBigCD.com for an undisclosed amount. As a result of the deal, Amplified has released a new product, called MaMa, which is integrated into an online retailer's site and tracks customers' music preferences. Amplified is backed by Valley Media, Bear Stearn's Constellation Ventures, Psilos Group, Chase Capital, Noro-Moseley Partners. OneBigCD is funded by Draper Atlantic Venture Capital. http://www.amplified.com/ http://www.onebigcd.com/ _____________________________________________ o Vina Technologies Acquires Woodwind Communications NEWARK, Calif. -- Publicly traded Vina Technologies said it acquired Woodwind Communication Systems, a maker voice over broadband technology, for approximately 5 million shares of stock valued at approximately $44 million. Richard Berger, Woodwind president, chairman, and CEO, will be a vice president of Vina. Woodwind's 40 employees were offered jobs with the combined company. Woodwind was backed by Novak Biddle Venture Partners, Boulder Ventures, SpaceVest, Alta Partners, and Sterling Capital. http://www.vinatechnologies.com/ http://www.wcsinc.com/ ======= New Directors ======= o eSpeed Fulfillment Taps Lawyer, Consultant for Board DALLAS -- eSpeed Fulfillment, which provides services and technology to business-to-business and business-to-consumer Internet companies, said it has appointed David Bryant, partner of Hughes & Luce, a Texas technology law firm, and Robert J. Potter, president and CEO of R. J. Potter, a Dallas-based consulting firm, as the second and third members of its board. eSpeed Fulfillment closed its first round of funding in September at just under $1 million from undisclosed individual investors. eSpeed said that it will use the funds to develop logistics and order management technology. http://www.espeedfulfillment.com/ ======= New People ======= o Datria Systems Names Ex-Colorado Land Developer as CEO ENGLEWOOD, Colo. -- Datria Systems, a developer of voice-to-data technology for mobile computing, said James Greenwell joined the company as president and CEO, replacing founder Jim Blaha who will continue to play an active role within the company and serve on the board of directors.. He previously served as president and CEO of Fairway Properties, a Colorado land developer and residential homebuilder. Mr. Greenwell was also senior vice president of sales and marketing for DecisionOne, a provider of multivendor computer maintenance services. Datria Systems' investors include Koch Ventures, Quest International Management, Four States Investment, and Greenwood Gulch Ventures. http://www.datria.com/ ======= VC Fund News ======= o Telesis & Capital Z Convergence Europe in Joint Fund Venture NEW YORK -- Capital Z Convergence Europe, a fund sponsored by Capital Z, and Telesis Investment Bank have established a joint investment vehicle co-managed by Telesis and Capital Z affiliated management firm Fusion Partners. Telesis Investment Bank is raising $50 million from local investors in Greece for the jointly managed fund based in Thessaloniki. Capital Z Convergence Europe Fund, which currently holds $75 million under management, will make co-investments and is looking to raise $300 million for investment in later stage telecommunications, financial services, media and entertainment, healthcare, and information technology companies. http://www.capitalz.com/ _____________________________________________ o Vista Ventures Gets $15 Million for Vista Ventures I IT Fund BROOMFIELD, Colo. -- Vista Ventures said it raised more than $15 million in commitments for its venture capital fund and has begun looking into investment opportunities in its target markets. Vista Ventures I, focused on early and development stage information technology and communications companies in the Rocky Mountain region, will make initial equity investments ranging from $250,000 to $2 million. With its affiliations with other venture funds, it plans to provide $5 to $50 million total funding to each portfolio company. http://www.vistavc.com/ _____________________________________________ o Legend Holdings Plans New Chinese Technology Venture Fund HONG KONG -- Legend Holdings announced it plans to form a new venture capital fund. The size of the fund was not disclosed, however, Legend Group Holding, a subsidiary of Legend Holding, said it would make an initial contribution of $25.3 million to the fund. The new fund is expected will go into operation sometime around April 2001. The fund will provide technology companies in Beijing's Zhongguancun area with start-up funding and management experience. http://www.legend-holdings.com/ _____________________________________________ o Indian Bank of Baroda to Invest in Venture Funds MUMBAI, India -- Bank of Baroda plans to invest $5.4 million in venture capital funds for investments in the IT field. The bank plans to invest the funds by March 2001 in up to five venture capital funds, both private and institutional. The bank has made one investment so far. http://www.bankofbaroda.com/ ======= VC Personnel ======= o Columbia Capital Adds Two Partners To Investment Team ALEXANDRIA, Va. -- Columbia Capital, a communications and information technology venture capital fund, said it appointed Arun Gupta and John Siegel Jr. as partners in the firm. Mr. Siegel joins Columbia from Morgan Stanley Dean Witter Capital Partners and Mr. Gupta comes from Carlyle Venture Partners. Columbia Capital has invested in more than 60 companies, and manages approximately $1.4 billion. http://www.colcap.com/ _____________________________________________ o Two Join Patricof As Venture Partners PALO ALTO, Calif. -- Investment firm Patricof & Co. Ventures, a member of the Apax Partners global network, said it appointed F.E. Weissman and Evangelos Simoudis as venture partners. Mr. Weissman was formerly vice president of strategy and corporate marketing for Verity, which provides information retrieval and portal software for electronic commerce and corporate Intranets. Mr. Simoudis previously was president and chief executive officer of Customer Analytics, an electronic customer relationship management company. http://www.patricof.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| P2P OR NOT P2P? We've heard distributed computing and peer-to-peer networks will change computing. But how? Dozens of companies are making bids for pieces of the P2P pie. Some of them will succeed, but many will fail. Industry Futures,one of five expert panels at Technology Outlook 2000, will examine the business plans and challenges in distributed computing: David P. Anderson, CTO, United Devices Shishir Mehrotra, President & CEO, Centrata Andreas Stavropoulos, Director, Draper Fisher Jurvetson Steve Stephansen, President & CEO, WebV2 Only at Technology Outlook 2000: The Future of Pervasive Computing December 4 and 5, San Francisco A VentureWire investment conference. http://www.tpsite.com/tp/conf/to2000/?vw=200011133 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. This copy of VentureWire and the information within it, however, may not be reproduced, saved, or otherwise copied into a database without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

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VentureWire People, Friday, October 26, 2001

high-tech management news <http://people.venturewire.com/> Published by Technologic Partners <http://www.technologicpartners.com> EXECUTIVE CHANGES FOR Friday, October 26, 2001 EXECUTIVE SEARCHES * VP OF SALES-SF BAY AREA * VP OF TELECOMMUNICATIONS SALES-IRVINE, CA * MANAGING DIRECTOR-DENVER, CO CEO HIRES ceo watch <http://people.venturewire.com/ceowatch.asp> SERVICES * VentureWire index <http://alert.venturewire.com/index.asp> LINKS * sponsor VentureWire people <http://people.venturewire.com/adv.asp> * place a classified ad <http://people.venturewire.com/specs.asp> * refer VentureWire <http://venturewire.gazooba.com/cid3723/tellafriend.html> * send news, tips, releases to vwpeople@venturewire.com <mailto:vwpeople@venturewire.com> * FAQ <http://people.venturewire.com/help.asp> YOUR ACCOUNT * change e-mail <http://people.venturewire.com/account.asp> * cancel VentureWire people <http://people.venturewire.com/account.asp> * feedback <http://people.venturewire.com/account.asp> * this newsletter mailed to you at: jdasovic@ENRON.COM SERVICES * VentureWire index <http://venturewire.com/index.asp> UPCOMING EVENTS * Outlook Conferences <http://www.tpsite.com/tp/conf/default.html> Venture Capital community and industry executives come together! healthcareoutlook <http://www.healthcareoutlook.com> San Francisco Airport Marriott, Burlingame, CA January 22, 2002 TOP MANAGEMENT * Original Management Team Departs at RLX * IntellectExchange Hires President and CEO; Raising Capital * Relativity Technologies Promotes Skip Yakopec to Pres, COO MARKETING & SALES * NuVox Taps Richard Frizalone as VP of Direct Sales OPERATIONS * Drug Developer BioStratum Names Seymour Mong VP of Research * Telelogue Promotes Robert Burke to COO * Amisys Promotes Several Management Members FINANCE * Electronic Delivery Firm PostX Names CFO and New VP * iSuppli Adds GET Exec John Zimmerman as CFO TECHNOLOGY * Molecular Mining Appoints Two to Executive Team * Kyma Technologies Names Ex-Intel Executive VP Engineering OTHER * Smarts Appoints David Przeracki VP of Legal Services TOP MANAGEMENT * Original Management Team Departs at RLX top mail <http://people.venturewire.com/o_mailer.asp?sid=IJQQMHJNII> HOUSTON, TEXAS -- Most of the original management team has left RLX Technologies, a supplier of Web servers founded earlier this year by ex-Compaq computer executives. Earlier this week VentureWire reported that Michael Swavely, formerly president and chief operating officer, had left the company last week, and that Gary Stimac, chairman and CEO, will step down from the CEO position. Company spokesperson Patrick Kimball confirmed that there have been additional executive departures. Among those leaving were chief financial officer, J Tempesta; vice president of development, Keith McAuliffe; vice president of systems engineering, Ronnie Ward; and vice president of business development, Bob Jackson. The company said it will seek replacements. A spokesperson said that the executives chose to leave the firm as RLX underwent restructuring. In August, the company laid off 17% of its staff, or 20 employees, citing a slow market for IT products. RLX Technologies has raised $59 million in financing from ComVentures, IBM, Ignition, Soros Private Equity Partners, and Sternhill Partners. <http://www.rlxtechnologies.com> * IntellectExchange Hires President and CEO; Raising Capital top mail <http://people.venturewire.com/o_mailer.asp?sid=ILHKKPHNII> BEDFORD, MASS. -- IntellectExchange, which assists companies in finding experts to solve business, technology, and research problems, said it appointed Jonathan Rubin as its first president and CEO. The new executive told VentureWire that the company is raising its last stage of seed financing. Mr. Rubin, 42, joins the company from E-Sync, where he was CEO. He was introduced to IntellectExchange through technology executive search firm the Onstott Group, based in Wellesley, Mass. He has also been named to the company's three-member board. The CEO said that the company is raising its final piece of seed funding for $1.5 million. He expects to close the round by the end of the year. The company has raised $2.5 million from individual investors to date. The money will be used for sales and marketing and product development. The company could go after its Series A as early as the second quarter of 2002, he said. Mr. Rubin said the company is in the early stages of talking to two different companies about acquiring them. Both companies approached IntellectExchange, he said, adding, that if the deals were to be done, they would be in the form of cash and stock. <http://www.intellectexchange.com> * Relativity Technologies Promotes Skip Yakopec to Pres, COO top mail <http://people.venturewire.com/o_mailer.asp?sid=MJNMHIINII> RESEARCH TRIANGLE PARK, N.C. -- Relativity Technologies, which develops software for integrating legacy systems with new technology and Internet applications, said it promoted Skip Yakopec to president and chief operating officer. Mr. Yakopec, 46, joined the company in January 2001 as vice president and general manager of the Americas and was named COO in August. No one has held the position of president prior to Mr. Yakopec's appointment. Mr. Yakopec does not hold a board seat as of yet. Relativity Technologies has raised $12 million to date from Intel, Nichimen America, NIIT, Noro-Moseley Partners, and Wakefield Group, and expects to be profitable within 90 to 100 days. <http://www.relativity.com> MARKETING & SALES * NuVox Taps Richard Frizalone as VP of Direct Sales top mail <http://people.venturewire.com/o_mailer.asp?sid=HHNKPHHNII> ST. LOUIS -- NuVox Communications, a facilities-based integrated communications provider, said it named Richard R. Frizalone as vice president of direct sales for the company. Mr. Frizalone joins NuVox from Colo.com, where he served as senior vice president of sales and marketing. At NuVox he will be responsible for leading the efforts of more than two dozen direct sales teams. Bank of America, Boston Millennia Partners, Brookes Investments, Centennial Ventures, CIBC World Markets, Don Investment Group, First Union Capital Partners, Meritage Private Equity Fund, Moore Capital Management, Norwest Equity Partners, OneLiberty Ventures, Richland Ventures, Telecom Partners, Toronto Dominion Capital, and Whitney & Co, have funded the company. <http://www.nuvox.com> OPERATIONS * Drug Developer BioStratum Names Seymour Mong VP of Research top mail <http://people.venturewire.com/o_mailer.asp?sid=LNLLNJJNII> RESEARCH TRIANGLE PARK, N.C. -- BioStratum, a development of drugs based on basal lamina research, said it named Seymour Mong vice president of research. Most recently he served as vice president of biotechnology at Structural BioInformatics, where he was also a co-founder. BioStratum has received more than $41 million from undisclosed investors through six rounds to date. Founded in 1994, the company has approximately 31 employees. <http://www.biostratum.com> * Telelogue Promotes Robert Burke to COO top mail <http://people.venturewire.com/o_mailer.asp?sid=IJOIMIHNII> ISELIN, N.J. -- Telelogue, which provides telecommunications services that make use of automated speech recognition, said it promoted Robert Burke to chief operating officer. He previously served as its vice president of corporate development and general counsel. Before Telelogue, he was a managing partner at iPoint Ventures. Telelogue is backed by Pequot Capital Management and iPoint. <http://www.telelogue.com> * Amisys Promotes Several Management Members top mail <http://people.venturewire.com/o_mailer.asp?sid=NQHNMKHNII> ROCKVILLE, MD. -- Amisys, an information management technology company for health care payers, announced new management promotions. Kathleen McCarthy was appointed chief operating officer. Ms. McCarthy joined the company in 1993 and most recently served as general manager. Cheryl Wint was named vice president of customer support and services. Ms. Wint joined the company in 1994 and most recently served as executive director of product support for the company's call center. Al Gain was named vice president of product development, most recently serving as executive director of product development. Amisys was acquired by private equity firm Platinum Equity in July and was combined with another Platinum company Synertech Health System Solutions. <http://www.synertechsystems.com> FINANCE * Electronic Delivery Firm PostX Names CFO and New VP top mail <http://people.venturewire.com/o_mailer.asp?sid=LJOJPMINII> CUPERTINO, CALIF. -- PostX, a provider of a provider of electronic delivery of confidential documents to desktops, said it named Cliff Lundberg as chief financial officer and Ramesh Ragu as senior vice president of professional services. Mr. Lundberg previously served as chief executive officer of Certainty Solutions while Mr. Ragu is the former vice president of professional services-Americas and APAC of Inktomi. PostX has received funding from Mayfield Fund and Alloy Ventures. <http://www.postx.com> * iSuppli Adds GET Exec John Zimmerman as CFO top mail <http://people.venturewire.com/o_mailer.asp?sid=LLPQIJHNII> EL SEGUNDO, CALIF. -- iSuppli, a provider of procurement and supply-chain management services for the electronic components industry, said it named John Zimmerman as chief financial officer. Prior to joining the company, Mr. Zimmerman served as CFO and vice president of administration at GET Manufacturing. iSuppli is backed by AC Ventures, CMEA Ventures, Loewenthal Capital Management, NeoCarta Ventures, and Tyco Ventures. <http://www.isuppli.com> TECHNOLOGY * Molecular Mining Appoints Two to Executive Team top mail <http://people.venturewire.com/o_mailer.asp?sid=IPJNQIJNII> RALEIGH, N.C. -- Molecular Mining, which focuses on the exploration, inference, and prediction of molecular networks derived from gene expression, proteomics, and single nucleotide polymorphisms data, said it appointed Mary Jane Cunningham, former director of pharmacogenomics at Genometrix, as its new director of discoveries and Jim Sullivan, formerly with Lion Bioscience where he dealt with Northeastern U.S. sales and business development, as its new director of North American Sales. Molecular Mining is backed by CDP Sofinov, Business Development Bank of Canada, Cardinal Partners, CMDF Queen's Scientific Breakthrough Fund, and S.R. One Limited. <http://www.molecularmining.com> * Kyma Technologies Names Ex-Intel Executive VP Engineering top mail <http://people.venturewire.com/o_mailer.asp?sid=QNQOPJHNII> RESEARCH TRIANGLE, N.C. -- Kyma Technologies, which develops and supplies nitride substrates, said it named John Bumgarner, former process integration group leader at Intel, as its new vice president of engineering. Kyma is backed individual investors. <http://www.kymatech.com> OTHER * Smarts Appoints David Przeracki VP of Legal Services top mail <http://people.venturewire.com/o_mailer.asp?sid=QPLHNMHNII> WHITE PLAINS, N.Y. -- System Management ARTS (Smarts), a provider of real-time analysis software that identifies infrastructure problems, analyzes their impacts, and automates the responses, said David Przeracki has joined the company as its new vice president of legal services. Prior to joining Smarts, he was vice president and general counsel at XcelleNet. Smarts' investors include Bessemer Venture Parnters and Soros Private Equity Partners. <http://www.smarts.com> EXECUTIVE SEARCHES VP of Sales--IT services--SF Bay Area Lohika Systems, Inc., a recently-funded IT services start-up headquartered in Silicon Valley, is seeking a hands-on VP of Sales to build and manage its sales organization. This person should have a proven record of generating sales and exceeding sales targets, possess excellent networking ability, be able to prospect and manage clients throughout the sales cycle, be able to develop a focused sales strategy, and have experience recruiting and managing a sales team. Responsibilities: * Manage and execute the entire sales cycle from generating prospects and cold calling to closing the sale * Sell strategically to key decision-makers (CFO, COO, CIO) and tactically at the operational level * Cultivate and maintain strong client relationships * Build and manage a sales team * Develop a well-targeted sales strategy * Work closely with our IT professionals to close the sale Requirements: * Minimum of 5 years of sales management experience * Proven record of consistently meeting and exceeding sales quota * Previous history of selling high-tech products, IT consulting services, or software * Have experience selling to key decision makers * Excellent networking ability * Bachelor's degree or equivalent * Excellent oral and written communication and presentation skills coupled with strong negotiation skills e-mail: sales@lohika.com <mailto:sales@lohika.com> company: Lohika Systems, Inc. [top] VP of Telecommunications Sales--Wireless and Voice Applications--Irvine, CA AdaptiveInfo provides state-of-the-art software infrastructure for automatically personalizing wireless and voice applications. Our products enable high-quality mobile applications that overcome the constraints of mobile devices by learning each individual?s preferences. This is a growth opportunity in privately held company located in a research park on a University of California campus. VP of TELECOMMUNICATIONS SALES Duties and Responsibilities: * Sell to top tier Telecommunications accounts with a high degree of independence. * Sell at a strategic level, developing and implementing strategic business plans. * Articulate strategy, products and services to customers and prospects. * Identify market segments, create and execute sales strategy. * Provide feedback on an ongoing basis with market trends and customer needs Required Qualifications: * 4+ years selling high-end software or services to the telecommunications industry. * A record of sustained sales success identifying and closing new customer accounts. * Start-up experience is a plus. * Ability to work with other executives in a collegial, team oriented environment. * Excellent negotiating, speaking, writing and listening skills. * BA degree in a business/technical e-mail: jobs@adaptiveinfo.com <mailto:jobs@adaptiveinfo.com> company: AdaptiveInfo [top] Managing Director--VENTURE CAPITAL--Denver, CO Denver-based investment management company seeks managing director to lead a venture capital firm focused on early stage Colorado investments. Candidate must have at least 5 years of direct investment experience, a demonstrable track record, and actively participate in capital raising efforts. The ideal candidate will manage the investment of $30 to $50 million in early stage opportunities in the region. Competitive compensation structure including a unique opportunity for ownership and a carried interest in the fund. Qualifications * A minimum of five years experience in early-stage investing focusing on the technology, telecommunications, or life science industries * Proven history of venture investing with a definitive record of returns * Experience fundraising from both institutional investors and high net worth individuals * Expertise managing portfolio company investments * Excellent communication and presentation skills * Educational qualifications important e-mail: sagecapital@yahoo.com <mailto:sagecapital@yahoo.com> company: [top] To cancel, change, or update your subscription: <http://people.venturewire.com/account.asp>

dasovich-j/deleted_items/735.

dasovich-j

Subject: VentureWire People, Friday, October 26, 2001 Sender: people@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/deleted_items/735. ===================================== high-tech management news <http://people.venturewire.com/> Published by Technologic Partners <http://www.technologicpartners.com> EXECUTIVE CHANGES FOR Friday, October 26, 2001 EXECUTIVE SEARCHES * VP OF SALES-SF BAY AREA * VP OF TELECOMMUNICATIONS SALES-IRVINE, CA * MANAGING DIRECTOR-DENVER, CO CEO HIRES ceo watch <http://people.venturewire.com/ceowatch.asp> SERVICES * VentureWire index <http://alert.venturewire.com/index.asp> LINKS * sponsor VentureWire people <http://people.venturewire.com/adv.asp> * place a classified ad <http://people.venturewire.com/specs.asp> * refer VentureWire <http://venturewire.gazooba.com/cid3723/tellafriend.html> * send news, tips, releases to vwpeople@venturewire.com <mailto:vwpeople@venturewire.com> * FAQ <http://people.venturewire.com/help.asp> YOUR ACCOUNT * change e-mail <http://people.venturewire.com/account.asp> * cancel VentureWire people <http://people.venturewire.com/account.asp> * feedback <http://people.venturewire.com/account.asp> * this newsletter mailed to you at: jdasovic@ENRON.COM SERVICES * VentureWire index <http://venturewire.com/index.asp> UPCOMING EVENTS * Outlook Conferences <http://www.tpsite.com/tp/conf/default.html> Venture Capital community and industry executives come together! healthcareoutlook <http://www.healthcareoutlook.com> San Francisco Airport Marriott, Burlingame, CA January 22, 2002 TOP MANAGEMENT * Original Management Team Departs at RLX * IntellectExchange Hires President and CEO; Raising Capital * Relativity Technologies Promotes Skip Yakopec to Pres, COO MARKETING & SALES * NuVox Taps Richard Frizalone as VP of Direct Sales OPERATIONS * Drug Developer BioStratum Names Seymour Mong VP of Research * Telelogue Promotes Robert Burke to COO * Amisys Promotes Several Management Members FINANCE * Electronic Delivery Firm PostX Names CFO and New VP * iSuppli Adds GET Exec John Zimmerman as CFO TECHNOLOGY * Molecular Mining Appoints Two to Executive Team * Kyma Technologies Names Ex-Intel Executive VP Engineering OTHER * Smarts Appoints David Przeracki VP of Legal Services TOP MANAGEMENT * Original Management Team Departs at RLX top mail <http://people.venturewire.com/o_mailer.asp?sid=IJQQMHJNII> HOUSTON, TEXAS -- Most of the original management team has left RLX Technologies, a supplier of Web servers founded earlier this year by ex-Compaq computer executives. Earlier this week VentureWire reported that Michael Swavely, formerly president and chief operating officer, had left the company last week, and that Gary Stimac, chairman and CEO, will step down from the CEO position. Company spokesperson Patrick Kimball confirmed that there have been additional executive departures. Among those leaving were chief financial officer, J Tempesta; vice president of development, Keith McAuliffe; vice president of systems engineering, Ronnie Ward; and vice president of business development, Bob Jackson. The company said it will seek replacements. A spokesperson said that the executives chose to leave the firm as RLX underwent restructuring. In August, the company laid off 17% of its staff, or 20 employees, citing a slow market for IT products. RLX Technologies has raised $59 million in financing from ComVentures, IBM, Ignition, Soros Private Equity Partners, and Sternhill Partners. <http://www.rlxtechnologies.com> * IntellectExchange Hires President and CEO; Raising Capital top mail <http://people.venturewire.com/o_mailer.asp?sid=ILHKKPHNII> BEDFORD, MASS. -- IntellectExchange, which assists companies in finding experts to solve business, technology, and research problems, said it appointed Jonathan Rubin as its first president and CEO. The new executive told VentureWire that the company is raising its last stage of seed financing. Mr. Rubin, 42, joins the company from E-Sync, where he was CEO. He was introduced to IntellectExchange through technology executive search firm the Onstott Group, based in Wellesley, Mass. He has also been named to the company's three-member board. The CEO said that the company is raising its final piece of seed funding for $1.5 million. He expects to close the round by the end of the year. The company has raised $2.5 million from individual investors to date. The money will be used for sales and marketing and product development. The company could go after its Series A as early as the second quarter of 2002, he said. Mr. Rubin said the company is in the early stages of talking to two different companies about acquiring them. Both companies approached IntellectExchange, he said, adding, that if the deals were to be done, they would be in the form of cash and stock. <http://www.intellectexchange.com> * Relativity Technologies Promotes Skip Yakopec to Pres, COO top mail <http://people.venturewire.com/o_mailer.asp?sid=MJNMHIINII> RESEARCH TRIANGLE PARK, N.C. -- Relativity Technologies, which develops software for integrating legacy systems with new technology and Internet applications, said it promoted Skip Yakopec to president and chief operating officer. Mr. Yakopec, 46, joined the company in January 2001 as vice president and general manager of the Americas and was named COO in August. No one has held the position of president prior to Mr. Yakopec's appointment. Mr. Yakopec does not hold a board seat as of yet. Relativity Technologies has raised $12 million to date from Intel, Nichimen America, NIIT, Noro-Moseley Partners, and Wakefield Group, and expects to be profitable within 90 to 100 days. <http://www.relativity.com> MARKETING & SALES * NuVox Taps Richard Frizalone as VP of Direct Sales top mail <http://people.venturewire.com/o_mailer.asp?sid=HHNKPHHNII> ST. LOUIS -- NuVox Communications, a facilities-based integrated communications provider, said it named Richard R. Frizalone as vice president of direct sales for the company. Mr. Frizalone joins NuVox from Colo.com, where he served as senior vice president of sales and marketing. At NuVox he will be responsible for leading the efforts of more than two dozen direct sales teams. Bank of America, Boston Millennia Partners, Brookes Investments, Centennial Ventures, CIBC World Markets, Don Investment Group, First Union Capital Partners, Meritage Private Equity Fund, Moore Capital Management, Norwest Equity Partners, OneLiberty Ventures, Richland Ventures, Telecom Partners, Toronto Dominion Capital, and Whitney & Co, have funded the company. <http://www.nuvox.com> OPERATIONS * Drug Developer BioStratum Names Seymour Mong VP of Research top mail <http://people.venturewire.com/o_mailer.asp?sid=LNLLNJJNII> RESEARCH TRIANGLE PARK, N.C. -- BioStratum, a development of drugs based on basal lamina research, said it named Seymour Mong vice president of research. Most recently he served as vice president of biotechnology at Structural BioInformatics, where he was also a co-founder. BioStratum has received more than $41 million from undisclosed investors through six rounds to date. Founded in 1994, the company has approximately 31 employees. <http://www.biostratum.com> * Telelogue Promotes Robert Burke to COO top mail <http://people.venturewire.com/o_mailer.asp?sid=IJOIMIHNII> ISELIN, N.J. -- Telelogue, which provides telecommunications services that make use of automated speech recognition, said it promoted Robert Burke to chief operating officer. He previously served as its vice president of corporate development and general counsel. Before Telelogue, he was a managing partner at iPoint Ventures. Telelogue is backed by Pequot Capital Management and iPoint. <http://www.telelogue.com> * Amisys Promotes Several Management Members top mail <http://people.venturewire.com/o_mailer.asp?sid=NQHNMKHNII> ROCKVILLE, MD. -- Amisys, an information management technology company for health care payers, announced new management promotions. Kathleen McCarthy was appointed chief operating officer. Ms. McCarthy joined the company in 1993 and most recently served as general manager. Cheryl Wint was named vice president of customer support and services. Ms. Wint joined the company in 1994 and most recently served as executive director of product support for the company's call center. Al Gain was named vice president of product development, most recently serving as executive director of product development. Amisys was acquired by private equity firm Platinum Equity in July and was combined with another Platinum company Synertech Health System Solutions. <http://www.synertechsystems.com> FINANCE * Electronic Delivery Firm PostX Names CFO and New VP top mail <http://people.venturewire.com/o_mailer.asp?sid=LJOJPMINII> CUPERTINO, CALIF. -- PostX, a provider of a provider of electronic delivery of confidential documents to desktops, said it named Cliff Lundberg as chief financial officer and Ramesh Ragu as senior vice president of professional services. Mr. Lundberg previously served as chief executive officer of Certainty Solutions while Mr. Ragu is the former vice president of professional services-Americas and APAC of Inktomi. PostX has received funding from Mayfield Fund and Alloy Ventures. <http://www.postx.com> * iSuppli Adds GET Exec John Zimmerman as CFO top mail <http://people.venturewire.com/o_mailer.asp?sid=LLPQIJHNII> EL SEGUNDO, CALIF. -- iSuppli, a provider of procurement and supply-chain management services for the electronic components industry, said it named John Zimmerman as chief financial officer. Prior to joining the company, Mr. Zimmerman served as CFO and vice president of administration at GET Manufacturing. iSuppli is backed by AC Ventures, CMEA Ventures, Loewenthal Capital Management, NeoCarta Ventures, and Tyco Ventures. <http://www.isuppli.com> TECHNOLOGY * Molecular Mining Appoints Two to Executive Team top mail <http://people.venturewire.com/o_mailer.asp?sid=IPJNQIJNII> RALEIGH, N.C. -- Molecular Mining, which focuses on the exploration, inference, and prediction of molecular networks derived from gene expression, proteomics, and single nucleotide polymorphisms data, said it appointed Mary Jane Cunningham, former director of pharmacogenomics at Genometrix, as its new director of discoveries and Jim Sullivan, formerly with Lion Bioscience where he dealt with Northeastern U.S. sales and business development, as its new director of North American Sales. Molecular Mining is backed by CDP Sofinov, Business Development Bank of Canada, Cardinal Partners, CMDF Queen's Scientific Breakthrough Fund, and S.R. One Limited. <http://www.molecularmining.com> * Kyma Technologies Names Ex-Intel Executive VP Engineering top mail <http://people.venturewire.com/o_mailer.asp?sid=QNQOPJHNII> RESEARCH TRIANGLE, N.C. -- Kyma Technologies, which develops and supplies nitride substrates, said it named John Bumgarner, former process integration group leader at Intel, as its new vice president of engineering. Kyma is backed individual investors. <http://www.kymatech.com> OTHER * Smarts Appoints David Przeracki VP of Legal Services top mail <http://people.venturewire.com/o_mailer.asp?sid=QPLHNMHNII> WHITE PLAINS, N.Y. -- System Management ARTS (Smarts), a provider of real-time analysis software that identifies infrastructure problems, analyzes their impacts, and automates the responses, said David Przeracki has joined the company as its new vice president of legal services. Prior to joining Smarts, he was vice president and general counsel at XcelleNet. Smarts' investors include Bessemer Venture Parnters and Soros Private Equity Partners. <http://www.smarts.com> EXECUTIVE SEARCHES VP of Sales--IT services--SF Bay Area Lohika Systems, Inc., a recently-funded IT services start-up headquartered in Silicon Valley, is seeking a hands-on VP of Sales to build and manage its sales organization. This person should have a proven record of generating sales and exceeding sales targets, possess excellent networking ability, be able to prospect and manage clients throughout the sales cycle, be able to develop a focused sales strategy, and have experience recruiting and managing a sales team. Responsibilities: * Manage and execute the entire sales cycle from generating prospects and cold calling to closing the sale * Sell strategically to key decision-makers (CFO, COO, CIO) and tactically at the operational level * Cultivate and maintain strong client relationships * Build and manage a sales team * Develop a well-targeted sales strategy * Work closely with our IT professionals to close the sale Requirements: * Minimum of 5 years of sales management experience * Proven record of consistently meeting and exceeding sales quota * Previous history of selling high-tech products, IT consulting services, or software * Have experience selling to key decision makers * Excellent networking ability * Bachelor's degree or equivalent * Excellent oral and written communication and presentation skills coupled with strong negotiation skills e-mail: sales@lohika.com <mailto:sales@lohika.com> company: Lohika Systems, Inc. [top] VP of Telecommunications Sales--Wireless and Voice Applications--Irvine, CA AdaptiveInfo provides state-of-the-art software infrastructure for automatically personalizing wireless and voice applications. Our products enable high-quality mobile applications that overcome the constraints of mobile devices by learning each individual?s preferences. This is a growth opportunity in privately held company located in a research park on a University of California campus. VP of TELECOMMUNICATIONS SALES Duties and Responsibilities: * Sell to top tier Telecommunications accounts with a high degree of independence. * Sell at a strategic level, developing and implementing strategic business plans. * Articulate strategy, products and services to customers and prospects. * Identify market segments, create and execute sales strategy. * Provide feedback on an ongoing basis with market trends and customer needs Required Qualifications: * 4+ years selling high-end software or services to the telecommunications industry. * A record of sustained sales success identifying and closing new customer accounts. * Start-up experience is a plus. * Ability to work with other executives in a collegial, team oriented environment. * Excellent negotiating, speaking, writing and listening skills. * BA degree in a business/technical e-mail: jobs@adaptiveinfo.com <mailto:jobs@adaptiveinfo.com> company: AdaptiveInfo [top] Managing Director--VENTURE CAPITAL--Denver, CO Denver-based investment management company seeks managing director to lead a venture capital firm focused on early stage Colorado investments. Candidate must have at least 5 years of direct investment experience, a demonstrable track record, and actively participate in capital raising efforts. The ideal candidate will manage the investment of $30 to $50 million in early stage opportunities in the region. Competitive compensation structure including a unique opportunity for ownership and a carried interest in the fund. Qualifications * A minimum of five years experience in early-stage investing focusing on the technology, telecommunications, or life science industries * Proven history of venture investing with a definitive record of returns * Experience fundraising from both institutional investors and high net worth individuals * Expertise managing portfolio company investments * Excellent communication and presentation skills * Educational qualifications important e-mail: sagecapital@yahoo.com <mailto:sagecapital@yahoo.com> company: [top] To cancel, change, or update your subscription: <http://people.venturewire.com/account.asp> =====================================

alan.comnes@enron.com

Bush Admin to Stay the Course on Price Caps: Latest Update,

This paraphrased from Tom Briggs, Enron Govt Affairs, DC: The Bush Administration has indicated that it will not support any sort of legislation containing price caps. Although something could get out of the Senate, it won't go anywhere without Administration support. Thus, by default, the just and reasonable standard becomes the FERC's evolving rate-screen process, which, for imports into California, is "daily spot market gas prices and an average 12,000 Btu/kWh heat rate." The standard for in-state resoruces is higher, more like 18,000 Btu/KwH. Instead, expect to see legislation that will take short-term actions to increase supply and decrease demand. This could include demand buy down programs, and laws the force utility financial solvency. Every day is a new day but I am told this will likely be the status quo until the congressional recess is over (recess is from 6-30 April). Alan Comnes

dasovich-j/all_documents/10325.

dasovich-j

Subject: Bush Admin to Stay the Course on Price Caps: Latest Update, Sender: alan.comnes@enron.com Recipients: ['susan.mara@enron.com', 'jeff.dasovich@enron.com', 'mike.swerzbin@enron.com', 'tim.belden@enron.com', 'michael.driscoll@enron.com', 'joe.hartsoe@enron.com'] File: dasovich-j/all_documents/10325. ===================================== This paraphrased from Tom Briggs, Enron Govt Affairs, DC: The Bush Administration has indicated that it will not support any sort of legislation containing price caps. Although something could get out of the Senate, it won't go anywhere without Administration support. Thus, by default, the just and reasonable standard becomes the FERC's evolving rate-screen process, which, for imports into California, is "daily spot market gas prices and an average 12,000 Btu/kWh heat rate." The standard for in-state resoruces is higher, more like 18,000 Btu/KwH. Instead, expect to see legislation that will take short-term actions to increase supply and decrease demand. This could include demand buy down programs, and laws the force utility financial solvency. Every day is a new day but I am told this will likely be the status quo until the congressional recess is over (recess is from 6-30 April). Alan Comnes =====================================

m..schmidt@enron.com

Enron Mentions

USA: UPDATE 1-Energy casts some light in gloomy profit season. Reuters English News Service, 10/16/01 USA: Energy permits some light in gloomy profit season. Reuters English News Service, 10/16/01 USA: INTERVIEW-Enron says may partner or sell broadband business. Reuters English News Service, 10/16/01 USA: UPDATE 6-Enron posts loss after taking $1 bln in charges. Reuters English News Service, 10/16/01 Enron Has Third-Quarter Loss After Expansion Fails (Update9) Bloomberg, 10/16/01 USA: UPDATE 1-Energy casts some light in gloomy profit season. By Per Jebsen 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 16 (Reuters) - Energy and mining companies have provided a few glimmers of light but otherwise third-quarter results on Monday and Tuesday are helping to fulfill expectations for the worst quarter in 10 years. Technology bellwethers Intel Corp. and International Business Machines Corp. , which reported sharply lower profits, did little to buck the downward trend. FirstEnergy Corp. , an owner of electric utilities in northern Ohio and western Pennsylvania, on Tuesday reported a better-than-expected 18 percent increase in earnings, citing increased electricity sales and lower costs. Mining company Freeport-McMoRan Copper & Gold Inc. reported a third-quarter profit that reversed a year-earlier loss, due to higher gold production. Yet such good news is proving more the exception than the rule. Top chipmaker Intel said on Tuesday after the close of exchanges that profits tumbled 77 percent as it suffered from slowing global economies and weak personal computer sales. PC maker IBM announced its first quarterly earnings decline since the end of 1999 as weak sales continued to weigh on profits. Energy giant Enron Corp. posted a quarterly loss after taking $1.01 billion in charges. Companies from a range of industries reported profit shortfalls, including Caterpillar Inc. , the world's largest maker of construction equipment, and Unisys Corp. , a computer company. "The earnings season is one that the market has digested and in some cases predigested as being just ugly, and therefore horrible or ugly results are not met with surprise at this point," said Michael Holland, who runs the $65 million Holland Balanced Fund. FOCUS NOT ON EARNINGS "The focus (for investors) has been and continues to be outside of earnings, that is, the war on terrorism specifically," he said. Dynegy Inc. , a natural gas and power marketer and trader, on Monday said third-quarter earnings rose 62 percent as its backbone wholesale energy business nearly doubled its returns. While Enron posted a loss, it reported that its profit excluding charges rose 35 percent due to strong performance in its core energy business. "Energy companies manage to earn pretty good money even when prices are down," said Jon Burnham, portfolio manager for the $170 million Burnham Fund. "These are good, well-financed companies." Caterpillar helped to lead a litany of earnings woes. The Peoria, Illinois-based company on Tuesday said its third-quarter earnings fell 5 percent because of higher expenses and less efficient manufacturing. The company also said it expects fourth-quarter revenues to be down slightly from the year-ago quarter, with full-year profit down 10 percent to 15 percent. It blamed economic uncertainty in the wake of last month's attacks for the expected shortfall, but added that 2002 sales will be at least flat to up slightly from 2001 levels. Unisys on Monday reported its third-quarter profits plunged by 50 percent due to weakening demand for high-end server computers and systems integration work. It said it would cut 3,000 jobs and slashed its fourth-quarter outlook. TAKING GRIM TIDINGS IN STRIDE Other companies that have reported profit drops include Novellus Systems Inc. , a maker of semiconductor production equipment, and Charles Schwab Corp. , the top U.S. discount brokerage. Schwab said Tuesday that quarterly earnings fell 51 percent as customers avoided stocks all summer, although a surge in September trading pointed to better times ahead. Money managers are taking the grim profit tidings in stride. "Most of these earnings situations are in these stocks," said Burnham. "Barring unforeseens in the national and international situation, the market should work its way higher over the next 6 to 9 months." "Whatever earnings are in this quarter isn't going to matter too much, except in cases where they're considerably better than expected or worse," he said. This week is the busiest for earnings with 15 Dow Jones industrial average and 180 Standard & Poor's 500 Index companies scheduled to report. Profits for the companies in the index are expected to shrink by 22.8 percent, according to market research firm First Call/Thomson Financial, making it the worst quarter since the second quarter of 1991. That's down from an expected 6.2 percent decline at the beginning of the quarter, and a 14.7 percent drop expected on Sept. 10, said First Call analyst Joe Cooper. Some 85 S&P 500 companies so far have reported quarterly results. Of these, 50 companies have beaten the most recent, often lowered Wall Street expectations while 26 have matched and nine have missed forecasts. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Energy permits some light in gloomy profit season. By Per Jebsen 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 16 (Reuters) - Energy and mining companies provided a few glimmers of light but otherwise third-quarter results on Monday and Tuesday are helping to fulfill expectations for the worst quarter in 10 years. FirstEnergy Corp., an owner of electric utilities in northern Ohio and western Pennsylvania, on Tuesday reported a better-than-expected 18 percent increase in earnings, citing increased electricity sales and lower costs. Mining company Freeport-McMoRan Copper & Gold Inc. reported a third-quarter profit that reversed a year-earlier loss, due to higher gold production. Yet such good news is proving more the exception than the rule. Energy giant Enron Corp..ENE) posted a quarterly loss after taking $1.01 billion in charges. Companies from a range of industries reported profit shortfalls, including Caterpillar Inc., the world's largest maker of construction equipment, and Unisys Corp., a computer company. "The earnings season is one that the market has digested and in some cases predigested as being just ugly, and therefore horrible or ugly results are not met with surprise at this point," said Michael Holland, who runs the $65 million Holland Balanced Fund. "The focus (for investors) has been and continues to be outside of earnings, that is, the war on terrorism specifically," he said. Investors are likely to pay attention to the earnings reports from tech bellwethers International Business Machines Corp., a computer maker, and chipmaker Intel Corp.. These are scheduled to be released on Tuesday after the close of trading. Dynegy Inc., a natural gas and power marketer and trader, on Monday said third-quarter earnings rose 62 percent as its backbone wholesale energy business nearly doubled its returns. While Enron posted a loss, it reported that its profit excluding charges rose 35 percent due to strong performance in its core energy business. "Energy companies manage to earn pretty good money even when prices are down," said Jon Burnham, portfolio manager for the $170 million Burnham Fund. "These are good, well-financed companies." Caterpillar helped to lead a litany of earnings woes. The Peoria, Illinois-based company on Tuesday said its third-quarter earnings fell 5 percent because of higher expenses and less efficient manufacturing. The company also said it expects fourth-quarter revenues to be down slightly from the year-ago quarter, with full-year profit down 10 percent to 15 percent. It blamed economic uncertainty in the wake of last month's attacks for the expected shortfall, but added that 2002 sales will be at least flat to up slightly from 2001 levels. Unisys on Monday reported its third-quarter profits plunged by 50 percent due to weakening demand for high-end server computers and systems integration work. It said it would cut 3,000 jobs and slashed its fourth-quarter outlook. Other companies that have reported profit drops include Novellus Systems Inc., a maker of semiconductor production equipment, and Charles Schwab Corp., the top U.S. discount brokerage. Schwab said Tuesday that quarterly earnings fell 51 percent as customers avoided stocks all summer, although a surge in September trading pointed to better times ahead. Money managers are taking the grim profit tidings in stride. "Most of these earnings situations are in these stocks," said Burnham. "Barring unforeseens in the national and international situation, the market should work its way higher over the next 6 to 9 months." "Whatever earnings are in this quarter isn't going to matter too much, except in cases where they're considerably better than expected or worse," he said. This week is the busiest for earnings with 15 Dow Jones industrial average and 180 Standard & Poor's 500 Index .SPX) companies scheduled to report. Profits for the companies in the index are expected to shrink by 22.8 percent, according to market research firm First Call/Thomson Financial, making it the worst quarter since the second quarter of 1991. That's down from an expected 6.2 percent decline at the beginning of the quarter, and a 14.7 percent drop expected on Sept. 10, said First Call analyst Joe Cooper. Some 85 S&P 500 companies so far have reported quarterly results. Of these, 50 companies have beaten the most recent, often lowered Wall Street expectations while 26 have matched and nine have missed forecasts. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: INTERVIEW-Enron says may partner or sell broadband business. 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 16 (Reuters) - Energy giant Enron Corp. said on Tuesday it is reviewing strategic options for its loss-making broadband telecommunications business, which could involve selling the business or finding a partner. "In addition to us looking at our business on a standalone business, we clearly have entertained some discussions on other possibilities," Chief Executive Officer Ken Lay told Reuters in a telephone interview. Earlier on Tuesday, Enron reported that one-time charges of $1.01 billion for broadband and other businesses outside its core energy operations pushed the company to a third-quarter net loss of $638 million, its first quarterly loss in more than four years. Future options for the broadband business include "sale, partnership, all kinds of possibilities" he said. "We still think over time that it will be a valuable business," Lay said, but for now the broadband market is in a "total meltdown", he added. Enron's broadband unit, which owns an 18,000 mile network, posted a loss of $80 million for the third quarter, but Lay said losses should be smaller in subsequent quarters. Enron launched its broadband business last year, predicting that network capacity would one day be traded like natural gas or electricity, but it has recently admitted that it overestimated the market's early potential and has scaled down its operations. Enron's stock rose by 87 percent last year, driven by enthusiasm for the broadband plans and the success of the EnronOnline Internet energy and commodity trading platform. But the stock has fallen some 59 percent so far this year as sentiment toward the broadband project soured, CEO Jeff Skilling resigned after only six months in the job and wrangling continued over Enron's stalled Dabhol power plan project in India. Enron shares on Tuesday closed up 67 cents, or 2.02 percent, at $33.84. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 6-Enron posts loss after taking $1 bln in charges. By C. Bryson Hull 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. WASHINGTON, Oct 16 (Reuters) - Enron Corp. on Tuesday reported its first loss in more than four years after taking $1.01 billion in charges on ill-fated investments, including water and telecommunications services, which it said have clouded the strength of its core energy businesses. Enron, North America's biggest marketer and trader of natural gas and power, said the charges were an attempt to put its house in order after a tumultuous year in which a new chief executive suddenly resigned and the company's stock lost two-thirds of its value as once enthusiastic investors lost faith in the company. "What we've tried to do here is clean up anything that we thought needed cleaning up to get these distractions out of the way," Chief Executive Officer Ken Lay said in a conference call. Lay reassumed the CEO mantle at Enron after his successor, Jeff Skilling, resigned in August after only six months at the helm. Houston-based Enron reported a third-quarter net loss of $638 million, or 84 cents a share, compared with net income of $271 million, or 34 cents a share, in the same period of 2000. It was Enron's first loss since the second quarter of 1997. The charges covered the company's loss-making broadband telecommunications business, its troubled water affiliate Azurix, and New Power Co., Enron's retail electricity joint-venture with AOL/Time Warner and IBM. Commerzbank Securities analyst Andre Meade said it would probably take Enron a few more quarters to rebuild confidence in the company which was a Wall Street favorite just 12 months ago. "They do a couple of things very well and if they stick to their knitting, they're a solid company, but they have stumbled when they strayed further afield," said Meade. Enron's stock closed 67 cents higher at $33.84 on Tuesday, but for the year it is down about 59 percent, underperforming the Standard & Poor's utilities index .SPU), which has fallen some 23 percent over the same period. ILL-FATED BUSINESSES Originally a natural gas pipeline operator, Enron seized on opportunities created by the deregulation of U.S. energy markets to become the nation's dominant wholesale marketer and trader of natural gas and electricity. The company moved into the water services business in 1998 by acquiring Britain's Wessex Water and forming Azurix, a unit which Enron took public in 1999 but had to buy back this year after it failed to meet performance targets and its stock price tumbled. Enron helped set up New Power Co. and take it public last year but its stock has since fallen from about $28 per share to less than $2 as companies have found it hard to make a profit in deregulated U.S. residential electricity markets. Enron also launched a broadband telecommunications business last year, predicting that network capacity would one day be traded like natural gas or electricity, but it has recently admitted that it overestimated the market's early potential. Enron's stock soared past sector peers last year when it posted a gain of 87 percent, driven by enthusiasm for the broadband plans and the success of its EnronOnline Internet energy and commodity trading platform. But the stock has fallen sharply this year as broadband sentiment soured, Skilling resigned and wrangling continued over Enron's stalled Dabhol power plan project in India. Enron's third-quarter earnings before one-time charges rose to $393 million, or 43 cents a share, from $292 million, or 34 cents a share, meeting analysts' expectations of 42 to 45 cents a share, according to Thomson Financial/First Call. The company reaffirmed its previously stated earnings targets of 45 cents a share for the fourth quarter, $1.80 for all of 2001 and $2.15 for all of 2002. DEBT ON CREDIT REVIEW Rating agency Moody's Investors Service on Tuesday said it had placed all of Enron's long-term debt obligations on review for a possible downgrade. The writedowns would reduce Enron's equity base, increase its nominal financial leverage and materially impact its earnings, Moody's said. Enron's third-quarter earnings report showed that income at its wholesale marketing and trading division, the company's backbone moneymaker, grew 28 percent. The division, which deals primarily in electricity and natural gas, saw pretax income rise to $754 million from $589 million in the third quarter of 2000. All of the income growth in the segment came from Enron's gas and power trading and marketing operations in the Americas, where income grew to $701 million from $536 million last year. The European segment, which includes gas and power operations there and other commodity sales like metals, coal and crude oil, remained flat at $53 million amid lower volatility. The latest earnings report marked the first time that Enron has provided a financial breakdown of the European and Americas wholesale operations. In doing so, Lay delivered on a promise he made after Skilling's departure: that he would make Enron's financial reporting more transparent. Many analysts and investors had grumbled about a lack of clarity from Enron. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Has Third-Quarter Loss After Expansion Fails (Update9) 2001-10-16 16:29 (New York) Enron Has Third-Quarter Loss After Expansion Fails (Update9) (Adds in sixth paragraph that losses are equal to 70 percent of Enron's profits over the last four quarters. Closes shares.) Houston, Oct. 16 (Bloomberg) -- Enron Corp., the largest energy trader, had a $618 million loss in the third quarter after expansion into water, telecommunications and retail-energy sales cost the company $1.01 billion. The loss was 84 cents a share after payment of preferred dividends, Enron said. Net income a year earlier was $292 million, or 34 cents. Revenue rose 59 percent to $47.6 billion. Investors have sent Enron stock down 60 percent this year on concern about investments outside energy trading and natural-gas pipelines. Some investors praised Kenneth Lay, Enron's chairman and chief executive officer, for acknowledging the failure of the new businesses. Others said they're not confident all the bad news is out. ``What is disconcerting is that they didn't do this sooner,'' said Donald Coxe, manager of the $352 million Harris Insight Equity Fund. ``If you kill one cockroach in the kitchen, it doesn't mean there aren't more.'' Investors have questioned Enron's financial reporting in the past year, especially after Jeffrey Skilling's resignation as CEO in August. Skilling, who helped Lay transform Enron from a gas- pipeline company into the top competitor in energy trading, said he left for personal reasons. Investors said they weren't confident Enron was detailing all its problems. Failed Businesses The $1.01 billion in losses, which total $1.11 a share, are equal to 70 percent of Enron's $1.45 billion in profits over the past four quarters. Included were $544 million for losses on investments in New Power Co., a venture formed with AOL Time Warner Inc. and International Business Machines Corp. New Power competes for energy sales in states that allow consumers to choose power and gas suppliers as they do long-distance phone companies. The $544 million also includes losses from the Enron unit that trades space, known as bandwidth, on fiber-optic networks, as well as for the ``early termination of certain structured finance arrangements'' with an undisclosed ``entity.'' Enron wouldn't be more specific. Enron said restructuring the fiber-optic unit would cost another $180 million, including severance pay to 500 fired workers. The business collapsed this year along with the fortunes of the dot-com companies that were expected to be some off its biggest customers. The declining value of assets owned by Azurix Corp., its water and sewage treatment business, will cost $287 million, Enron said. Enron might take a first-quarter ``adjustment'' of less than $200 million because of accounting changes related to goodwill, Lay said in an interview. ``If we thought there were any other significant concerns, we would have taken care of them today,'' Lay said. Excluding Losses Minus the losses, Enron would have earned $393 million, or 43 cents a share, up 35 percent from the year-earlier period. That matched the average estimate of analysts surveyed by Thomson Financial/First Call. Enron has averaged quarterly profit increases of 31 percent for the past year. Its wholesale services business, which includes energy trading, had income before interest, minority interests and taxes of $754 million, up 28 percent from a year earlier. Shares of Enron rose 67 cents to $33.84. Earlier, the stock had risen as much as 5.2 percent to $34.90. ``There's a sigh of relief that Enron's core businesses, its energy merchant businesses, are OK,'' said Roger Hamilton, who helps manage John Hancock's Value funds, which own 600,000 shares. Enron said it still expects to earn 45 cents a share in the fourth quarter, $1.80 for the full year and $2.15 in 2002. `Ridiculous Investments' At one time, Enron pinned high hopes on the businesses that contributed to the $1.01 billion in losses. Enron spent $2.8 billion in 1998 for the U.K.'s Wessex Water, from which Azurix emerged. Enron sold shares to the public in 1999, and then bought back the company this year after Azurix failed in its strategy of buying up water companies and winning large projects. In August, Enron agreed to sell Azurix's North American business to American Water Works Inc. for $150 million. In February 2000, Lay said trading bandwidth could become the company's fastest-growing business. In the latest quarter, the bandwidth unit's loss before interest, minority interests and taxes widened to $80 million from $20 million a year earlier. Revenue plunged to $4 million from $162 million. ``You can make the case that Jeff Skilling leaving was for the best,'' John Hancock's Hamilton said. ``Under him, they built the best trading operation while also making all these ridiculous investments.'' While admitting its poor choices, Enron also supplied more information this quarter about how it makes money. The company gave results of individual commodity-trading desks, including coal, forest products and steel. ``I liked that they broke out the different commodities,'' Hamilton said. ``I think Lay has gotten the message loud and clear, and that the effort is there.''

dasovich-j/deleted_items/1876.

dasovich-j

Subject: Enron Mentions Sender: m..schmidt@enron.com Recipients: [] File: dasovich-j/deleted_items/1876. ===================================== USA: UPDATE 1-Energy casts some light in gloomy profit season. Reuters English News Service, 10/16/01 USA: Energy permits some light in gloomy profit season. Reuters English News Service, 10/16/01 USA: INTERVIEW-Enron says may partner or sell broadband business. Reuters English News Service, 10/16/01 USA: UPDATE 6-Enron posts loss after taking $1 bln in charges. Reuters English News Service, 10/16/01 Enron Has Third-Quarter Loss After Expansion Fails (Update9) Bloomberg, 10/16/01 USA: UPDATE 1-Energy casts some light in gloomy profit season. By Per Jebsen 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 16 (Reuters) - Energy and mining companies have provided a few glimmers of light but otherwise third-quarter results on Monday and Tuesday are helping to fulfill expectations for the worst quarter in 10 years. Technology bellwethers Intel Corp. and International Business Machines Corp. , which reported sharply lower profits, did little to buck the downward trend. FirstEnergy Corp. , an owner of electric utilities in northern Ohio and western Pennsylvania, on Tuesday reported a better-than-expected 18 percent increase in earnings, citing increased electricity sales and lower costs. Mining company Freeport-McMoRan Copper & Gold Inc. reported a third-quarter profit that reversed a year-earlier loss, due to higher gold production. Yet such good news is proving more the exception than the rule. Top chipmaker Intel said on Tuesday after the close of exchanges that profits tumbled 77 percent as it suffered from slowing global economies and weak personal computer sales. PC maker IBM announced its first quarterly earnings decline since the end of 1999 as weak sales continued to weigh on profits. Energy giant Enron Corp. posted a quarterly loss after taking $1.01 billion in charges. Companies from a range of industries reported profit shortfalls, including Caterpillar Inc. , the world's largest maker of construction equipment, and Unisys Corp. , a computer company. "The earnings season is one that the market has digested and in some cases predigested as being just ugly, and therefore horrible or ugly results are not met with surprise at this point," said Michael Holland, who runs the $65 million Holland Balanced Fund. FOCUS NOT ON EARNINGS "The focus (for investors) has been and continues to be outside of earnings, that is, the war on terrorism specifically," he said. Dynegy Inc. , a natural gas and power marketer and trader, on Monday said third-quarter earnings rose 62 percent as its backbone wholesale energy business nearly doubled its returns. While Enron posted a loss, it reported that its profit excluding charges rose 35 percent due to strong performance in its core energy business. "Energy companies manage to earn pretty good money even when prices are down," said Jon Burnham, portfolio manager for the $170 million Burnham Fund. "These are good, well-financed companies." Caterpillar helped to lead a litany of earnings woes. The Peoria, Illinois-based company on Tuesday said its third-quarter earnings fell 5 percent because of higher expenses and less efficient manufacturing. The company also said it expects fourth-quarter revenues to be down slightly from the year-ago quarter, with full-year profit down 10 percent to 15 percent. It blamed economic uncertainty in the wake of last month's attacks for the expected shortfall, but added that 2002 sales will be at least flat to up slightly from 2001 levels. Unisys on Monday reported its third-quarter profits plunged by 50 percent due to weakening demand for high-end server computers and systems integration work. It said it would cut 3,000 jobs and slashed its fourth-quarter outlook. TAKING GRIM TIDINGS IN STRIDE Other companies that have reported profit drops include Novellus Systems Inc. , a maker of semiconductor production equipment, and Charles Schwab Corp. , the top U.S. discount brokerage. Schwab said Tuesday that quarterly earnings fell 51 percent as customers avoided stocks all summer, although a surge in September trading pointed to better times ahead. Money managers are taking the grim profit tidings in stride. "Most of these earnings situations are in these stocks," said Burnham. "Barring unforeseens in the national and international situation, the market should work its way higher over the next 6 to 9 months." "Whatever earnings are in this quarter isn't going to matter too much, except in cases where they're considerably better than expected or worse," he said. This week is the busiest for earnings with 15 Dow Jones industrial average and 180 Standard & Poor's 500 Index companies scheduled to report. Profits for the companies in the index are expected to shrink by 22.8 percent, according to market research firm First Call/Thomson Financial, making it the worst quarter since the second quarter of 1991. That's down from an expected 6.2 percent decline at the beginning of the quarter, and a 14.7 percent drop expected on Sept. 10, said First Call analyst Joe Cooper. Some 85 S&P 500 companies so far have reported quarterly results. Of these, 50 companies have beaten the most recent, often lowered Wall Street expectations while 26 have matched and nine have missed forecasts. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Energy permits some light in gloomy profit season. By Per Jebsen 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 16 (Reuters) - Energy and mining companies provided a few glimmers of light but otherwise third-quarter results on Monday and Tuesday are helping to fulfill expectations for the worst quarter in 10 years. FirstEnergy Corp., an owner of electric utilities in northern Ohio and western Pennsylvania, on Tuesday reported a better-than-expected 18 percent increase in earnings, citing increased electricity sales and lower costs. Mining company Freeport-McMoRan Copper & Gold Inc. reported a third-quarter profit that reversed a year-earlier loss, due to higher gold production. Yet such good news is proving more the exception than the rule. Energy giant Enron Corp..ENE) posted a quarterly loss after taking $1.01 billion in charges. Companies from a range of industries reported profit shortfalls, including Caterpillar Inc., the world's largest maker of construction equipment, and Unisys Corp., a computer company. "The earnings season is one that the market has digested and in some cases predigested as being just ugly, and therefore horrible or ugly results are not met with surprise at this point," said Michael Holland, who runs the $65 million Holland Balanced Fund. "The focus (for investors) has been and continues to be outside of earnings, that is, the war on terrorism specifically," he said. Investors are likely to pay attention to the earnings reports from tech bellwethers International Business Machines Corp., a computer maker, and chipmaker Intel Corp.. These are scheduled to be released on Tuesday after the close of trading. Dynegy Inc., a natural gas and power marketer and trader, on Monday said third-quarter earnings rose 62 percent as its backbone wholesale energy business nearly doubled its returns. While Enron posted a loss, it reported that its profit excluding charges rose 35 percent due to strong performance in its core energy business. "Energy companies manage to earn pretty good money even when prices are down," said Jon Burnham, portfolio manager for the $170 million Burnham Fund. "These are good, well-financed companies." Caterpillar helped to lead a litany of earnings woes. The Peoria, Illinois-based company on Tuesday said its third-quarter earnings fell 5 percent because of higher expenses and less efficient manufacturing. The company also said it expects fourth-quarter revenues to be down slightly from the year-ago quarter, with full-year profit down 10 percent to 15 percent. It blamed economic uncertainty in the wake of last month's attacks for the expected shortfall, but added that 2002 sales will be at least flat to up slightly from 2001 levels. Unisys on Monday reported its third-quarter profits plunged by 50 percent due to weakening demand for high-end server computers and systems integration work. It said it would cut 3,000 jobs and slashed its fourth-quarter outlook. Other companies that have reported profit drops include Novellus Systems Inc., a maker of semiconductor production equipment, and Charles Schwab Corp., the top U.S. discount brokerage. Schwab said Tuesday that quarterly earnings fell 51 percent as customers avoided stocks all summer, although a surge in September trading pointed to better times ahead. Money managers are taking the grim profit tidings in stride. "Most of these earnings situations are in these stocks," said Burnham. "Barring unforeseens in the national and international situation, the market should work its way higher over the next 6 to 9 months." "Whatever earnings are in this quarter isn't going to matter too much, except in cases where they're considerably better than expected or worse," he said. This week is the busiest for earnings with 15 Dow Jones industrial average and 180 Standard & Poor's 500 Index .SPX) companies scheduled to report. Profits for the companies in the index are expected to shrink by 22.8 percent, according to market research firm First Call/Thomson Financial, making it the worst quarter since the second quarter of 1991. That's down from an expected 6.2 percent decline at the beginning of the quarter, and a 14.7 percent drop expected on Sept. 10, said First Call analyst Joe Cooper. Some 85 S&P 500 companies so far have reported quarterly results. Of these, 50 companies have beaten the most recent, often lowered Wall Street expectations while 26 have matched and nine have missed forecasts. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: INTERVIEW-Enron says may partner or sell broadband business. 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 16 (Reuters) - Energy giant Enron Corp. said on Tuesday it is reviewing strategic options for its loss-making broadband telecommunications business, which could involve selling the business or finding a partner. "In addition to us looking at our business on a standalone business, we clearly have entertained some discussions on other possibilities," Chief Executive Officer Ken Lay told Reuters in a telephone interview. Earlier on Tuesday, Enron reported that one-time charges of $1.01 billion for broadband and other businesses outside its core energy operations pushed the company to a third-quarter net loss of $638 million, its first quarterly loss in more than four years. Future options for the broadband business include "sale, partnership, all kinds of possibilities" he said. "We still think over time that it will be a valuable business," Lay said, but for now the broadband market is in a "total meltdown", he added. Enron's broadband unit, which owns an 18,000 mile network, posted a loss of $80 million for the third quarter, but Lay said losses should be smaller in subsequent quarters. Enron launched its broadband business last year, predicting that network capacity would one day be traded like natural gas or electricity, but it has recently admitted that it overestimated the market's early potential and has scaled down its operations. Enron's stock rose by 87 percent last year, driven by enthusiasm for the broadband plans and the success of the EnronOnline Internet energy and commodity trading platform. But the stock has fallen some 59 percent so far this year as sentiment toward the broadband project soured, CEO Jeff Skilling resigned after only six months in the job and wrangling continued over Enron's stalled Dabhol power plan project in India. Enron shares on Tuesday closed up 67 cents, or 2.02 percent, at $33.84. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 6-Enron posts loss after taking $1 bln in charges. By C. Bryson Hull 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. WASHINGTON, Oct 16 (Reuters) - Enron Corp. on Tuesday reported its first loss in more than four years after taking $1.01 billion in charges on ill-fated investments, including water and telecommunications services, which it said have clouded the strength of its core energy businesses. Enron, North America's biggest marketer and trader of natural gas and power, said the charges were an attempt to put its house in order after a tumultuous year in which a new chief executive suddenly resigned and the company's stock lost two-thirds of its value as once enthusiastic investors lost faith in the company. "What we've tried to do here is clean up anything that we thought needed cleaning up to get these distractions out of the way," Chief Executive Officer Ken Lay said in a conference call. Lay reassumed the CEO mantle at Enron after his successor, Jeff Skilling, resigned in August after only six months at the helm. Houston-based Enron reported a third-quarter net loss of $638 million, or 84 cents a share, compared with net income of $271 million, or 34 cents a share, in the same period of 2000. It was Enron's first loss since the second quarter of 1997. The charges covered the company's loss-making broadband telecommunications business, its troubled water affiliate Azurix, and New Power Co., Enron's retail electricity joint-venture with AOL/Time Warner and IBM. Commerzbank Securities analyst Andre Meade said it would probably take Enron a few more quarters to rebuild confidence in the company which was a Wall Street favorite just 12 months ago. "They do a couple of things very well and if they stick to their knitting, they're a solid company, but they have stumbled when they strayed further afield," said Meade. Enron's stock closed 67 cents higher at $33.84 on Tuesday, but for the year it is down about 59 percent, underperforming the Standard & Poor's utilities index .SPU), which has fallen some 23 percent over the same period. ILL-FATED BUSINESSES Originally a natural gas pipeline operator, Enron seized on opportunities created by the deregulation of U.S. energy markets to become the nation's dominant wholesale marketer and trader of natural gas and electricity. The company moved into the water services business in 1998 by acquiring Britain's Wessex Water and forming Azurix, a unit which Enron took public in 1999 but had to buy back this year after it failed to meet performance targets and its stock price tumbled. Enron helped set up New Power Co. and take it public last year but its stock has since fallen from about $28 per share to less than $2 as companies have found it hard to make a profit in deregulated U.S. residential electricity markets. Enron also launched a broadband telecommunications business last year, predicting that network capacity would one day be traded like natural gas or electricity, but it has recently admitted that it overestimated the market's early potential. Enron's stock soared past sector peers last year when it posted a gain of 87 percent, driven by enthusiasm for the broadband plans and the success of its EnronOnline Internet energy and commodity trading platform. But the stock has fallen sharply this year as broadband sentiment soured, Skilling resigned and wrangling continued over Enron's stalled Dabhol power plan project in India. Enron's third-quarter earnings before one-time charges rose to $393 million, or 43 cents a share, from $292 million, or 34 cents a share, meeting analysts' expectations of 42 to 45 cents a share, according to Thomson Financial/First Call. The company reaffirmed its previously stated earnings targets of 45 cents a share for the fourth quarter, $1.80 for all of 2001 and $2.15 for all of 2002. DEBT ON CREDIT REVIEW Rating agency Moody's Investors Service on Tuesday said it had placed all of Enron's long-term debt obligations on review for a possible downgrade. The writedowns would reduce Enron's equity base, increase its nominal financial leverage and materially impact its earnings, Moody's said. Enron's third-quarter earnings report showed that income at its wholesale marketing and trading division, the company's backbone moneymaker, grew 28 percent. The division, which deals primarily in electricity and natural gas, saw pretax income rise to $754 million from $589 million in the third quarter of 2000. All of the income growth in the segment came from Enron's gas and power trading and marketing operations in the Americas, where income grew to $701 million from $536 million last year. The European segment, which includes gas and power operations there and other commodity sales like metals, coal and crude oil, remained flat at $53 million amid lower volatility. The latest earnings report marked the first time that Enron has provided a financial breakdown of the European and Americas wholesale operations. In doing so, Lay delivered on a promise he made after Skilling's departure: that he would make Enron's financial reporting more transparent. Many analysts and investors had grumbled about a lack of clarity from Enron. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Has Third-Quarter Loss After Expansion Fails (Update9) 2001-10-16 16:29 (New York) Enron Has Third-Quarter Loss After Expansion Fails (Update9) (Adds in sixth paragraph that losses are equal to 70 percent of Enron's profits over the last four quarters. Closes shares.) Houston, Oct. 16 (Bloomberg) -- Enron Corp., the largest energy trader, had a $618 million loss in the third quarter after expansion into water, telecommunications and retail-energy sales cost the company $1.01 billion. The loss was 84 cents a share after payment of preferred dividends, Enron said. Net income a year earlier was $292 million, or 34 cents. Revenue rose 59 percent to $47.6 billion. Investors have sent Enron stock down 60 percent this year on concern about investments outside energy trading and natural-gas pipelines. Some investors praised Kenneth Lay, Enron's chairman and chief executive officer, for acknowledging the failure of the new businesses. Others said they're not confident all the bad news is out. ``What is disconcerting is that they didn't do this sooner,'' said Donald Coxe, manager of the $352 million Harris Insight Equity Fund. ``If you kill one cockroach in the kitchen, it doesn't mean there aren't more.'' Investors have questioned Enron's financial reporting in the past year, especially after Jeffrey Skilling's resignation as CEO in August. Skilling, who helped Lay transform Enron from a gas- pipeline company into the top competitor in energy trading, said he left for personal reasons. Investors said they weren't confident Enron was detailing all its problems. Failed Businesses The $1.01 billion in losses, which total $1.11 a share, are equal to 70 percent of Enron's $1.45 billion in profits over the past four quarters. Included were $544 million for losses on investments in New Power Co., a venture formed with AOL Time Warner Inc. and International Business Machines Corp. New Power competes for energy sales in states that allow consumers to choose power and gas suppliers as they do long-distance phone companies. The $544 million also includes losses from the Enron unit that trades space, known as bandwidth, on fiber-optic networks, as well as for the ``early termination of certain structured finance arrangements'' with an undisclosed ``entity.'' Enron wouldn't be more specific. Enron said restructuring the fiber-optic unit would cost another $180 million, including severance pay to 500 fired workers. The business collapsed this year along with the fortunes of the dot-com companies that were expected to be some off its biggest customers. The declining value of assets owned by Azurix Corp., its water and sewage treatment business, will cost $287 million, Enron said. Enron might take a first-quarter ``adjustment'' of less than $200 million because of accounting changes related to goodwill, Lay said in an interview. ``If we thought there were any other significant concerns, we would have taken care of them today,'' Lay said. Excluding Losses Minus the losses, Enron would have earned $393 million, or 43 cents a share, up 35 percent from the year-earlier period. That matched the average estimate of analysts surveyed by Thomson Financial/First Call. Enron has averaged quarterly profit increases of 31 percent for the past year. Its wholesale services business, which includes energy trading, had income before interest, minority interests and taxes of $754 million, up 28 percent from a year earlier. Shares of Enron rose 67 cents to $33.84. Earlier, the stock had risen as much as 5.2 percent to $34.90. ``There's a sigh of relief that Enron's core businesses, its energy merchant businesses, are OK,'' said Roger Hamilton, who helps manage John Hancock's Value funds, which own 600,000 shares. Enron said it still expects to earn 45 cents a share in the fourth quarter, $1.80 for the full year and $2.15 in 2002. `Ridiculous Investments' At one time, Enron pinned high hopes on the businesses that contributed to the $1.01 billion in losses. Enron spent $2.8 billion in 1998 for the U.K.'s Wessex Water, from which Azurix emerged. Enron sold shares to the public in 1999, and then bought back the company this year after Azurix failed in its strategy of buying up water companies and winning large projects. In August, Enron agreed to sell Azurix's North American business to American Water Works Inc. for $150 million. In February 2000, Lay said trading bandwidth could become the company's fastest-growing business. In the latest quarter, the bandwidth unit's loss before interest, minority interests and taxes widened to $80 million from $20 million a year earlier. Revenue plunged to $4 million from $162 million. ``You can make the case that Jeff Skilling leaving was for the best,'' John Hancock's Hamilton said. ``Under him, they built the best trading operation while also making all these ridiculous investments.'' While admitting its poor choices, Enron also supplied more information this quarter about how it makes money. The company gave results of individual commodity-trading desks, including coal, forest products and steel. ``I liked that they broke out the different commodities,'' Hamilton said. ``I think Lay has gotten the message loud and clear, and that the effort is there.'' =====================================

m..schmidt@enron.com

Enron Mentions

USA: UPDATE 1-Enron third-quarter earnings rise. Reuters English News Service, 10/16/01 Enron Has Loss of 84 Cents a Share in Third Quarter (Update2) Bloomberg, 10/16/01 OUTLOOK Enron Q3 EPS 43 cents vs 34 AFX News, 10/16/01 Reliant Hires Merrill to Find Buyer for Dutch Power Producer Bloomberg, 10/16/01 India: IDBI signals SOS for Rs 3,000-cr equity Business Line (The Hindu), 10/16/01 INDIA: Tata Power Q2 net up 74 pct, beats f'cast. Reuters English News Service, 10/16/01 USA: UPDATE 1-Enron third-quarter earnings rise. 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 16 (Reuters) - Energy trading giant Enron Corp. said on Tuesday its third-quarter earnings rose as its core wholesale marketing and trading division delivered strong returns. The company said earnings rose to $393 million, or 43 cents per share, from $292 million, or 34 cents per share, a year earlier. The company reported a share loss of 84 cents after $1.01 billion of nonrecurring charges. "After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energybusinesses," said Kenneth Lay, Enron chairman and chif executive officer. Enron's non-recurring charges included $287 million related to the write-down of its troubled water venture, Azurix, as well as $544 million writedown related to various investments including its retail electricity provider New Power Co. and $180 million related to restructuring of its broadband operations. Analysts polled by Thomson Financial/First Call had expected earnings of 42 cents to 45 cents per share, with a mean estimate of 43 cents. The results met expectations for a rocky quarter that included the surprise departure of President and Chief Executive Jeff Skilling in August, after just six months at the helm. Enron shares closed on Monday at $33.17, down $2.64 or 7.3 percent on the New York Stock Exchange. So far this year, the stock has fallen some 60 percent, far worse than the 25 percent loss of the Standard & Poor's utilities index . Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Has Loss of 84 Cents a Share in Third Quarter (Update2) 2001-10-16 07:45 (New York) Enron Has Loss of 84 Cents a Share in Third Quarter (Update2) (Adds profit excluding charges in fourth paragraph.) Houston, Oct. 16 (Bloomberg) -- Enron Corp., the largest energy trader, said it had a third-quarter loss after taking $1.01 billion in charges for restructuring, investment losses, and the planned sale of a water business. The loss was $618 million, or 84 cents a share after preferred-dividend payments, Houston-based Enron said in a statement. A year earlier, Enron had net income of $292 million, or 34 cents. Revenue rose 59 percent to $47.6 billion from $30 billion. The charges totaled $1.11 a share. They included $287 million for asset impairments by water company Azurix Corp., $180 million to restructure the company's unit that trades fiber-optic bandwidth and $544 million for losses on investments including New Power Co., a retail energy-sales venture. Excluding the charges, Enron said it would have earned $393 million, or 43 cents a share. That matched the average estimate of analysts surveyed by Thomson Financial/First Call. Enron said it still expects to earn 45 cents a share in the fourth quarter, $1.80 for the full year and $2.15 in 2002. (Enron will hold a conference call to discuss third-quarter earnings at 10 a.m. New York time. Log on at http://www.enron.com and follow the directions to the ``Investors'' section.) OUTLOOK Enron Q3 EPS 43 cents vs 34 10/16/2001 AFX News (c) 2001 by AFP-Extel News Ltd NEW YORK (AFX) - Enron Corp is expected to report later today third-quarter earnings per share of 43 cents, compared with 34 cents a year earlier, according to the First Call/Thomson Financial consensus of 17 brokers. The integrated energy company is expected to meet near-consensus results driven by its wholesale services division, analysts said. Montgomery Securities analyst Daniel Tulis is calculating third-quarter EPS of 42 cents, 1 cent below consensus. Full-year EPS stands at 1.85. Enron's third quarter was marked by the unexpected departure of chief executive Jeff Skilling, for personal reasons, with Chairman Ken Lay reassuming the key position. Lay is likely to remain in the position until it is filled within 12-18 months, Tulis said. The company remains embroiled in arbitration proceedings in India after its 2.9 bln usd Dabhol power plant in India was closed. The plant's sole client, the Maharashtra State Electricity Board (MSEB), failed - and later refused - to pay bills that now total about 45 mln usd. blms/gc For more information and to contact AFX: www.afxnews.com and www.afxpress.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Reliant Hires Merrill to Find Buyer for Dutch Power Producer 2001-10-16 05:45 (New York) Reliant Hires Merrill to Find Buyer for Dutch Power Producer Amsterdam, Oct. 16 (Bloomberg) -- Reliant Energy Inc., the owner of Houston's utility, said it hired Merrill Lynch & Co. to find a buyer for its Dutch power-generation business, two years after acquiring the company from the government for $2.3 billion. Reliant has already been approached by possible buyers, said Clyde Moerlie, a spokesman for Reliant Energy Europe. The unit, which doesn't have any household customers, earned $9 million in the second quarter compared with $26 million a year earlier. The U.S. company may struggle to get the price it paid for the Utrecht-based unit, formerly known as UNA, analysts said, on expectations heightened competition will erode profit further and as utilities increasingly seek customers as well as power plants. In the Dutch generation market, ``there aren't many opportunities, but prices will fall to much lower levels as growing competition pushes down tariffs,'' said Steven de Proost, an analyst at Delta Lloyd Securities in Antwerp. Houston-based Reliant paid 2.9 times sales for UNA in 1999, while Electrabel SA, Belgium's dominant power provider, paid 2.7 times sales for Epon, the biggest utility in the Netherlands. E.ON AG of Germany paid 1.6 times sales the same year for the generator NV Electriciteitsbedrijf Zuid-Holland, or EZH. Reliant joins rivals TXU Corp. and Edison International in reassessing its European business amid disappointing earnings. Reliant in July tied the second-quarter profit drop in Europe to increased competition and falling margins in the Dutch market. Enron Cuts Enron Corp. said last week it will cut 10 percent of its European workforce, while Edison Mission Energy agreed to sell two U.K. power plants to American Electric Power Co. on Monday. The U.S. utility said last month it was considering a sale of the Dutch business after it was contacted ``by a number of parties who have expressed an interest'' in its European assets, and as it reallocates capital to fulfill ``growth objectives.'' Merrill already advised the Dutch state on the original sale of UNA to Reliant, the only time a U.S. company has taken control of a continental European utility. This year, Merrill ranks sixth in advising on transactions involving a European utilities target, with $6.9 billion worth of mergers and acquisitions. Potential buyers for UNA, which provides about 20 percent of the Netherlands' electricity, are likely to be companies already present in the Dutch market, such as Nuon NV, Eneco, or Spain's Endesa SA, analysts said. UNA may also attract generation companies including Mirant Corp. and International Power Plc. Atlanta-based Mirant and International Power predecessor National Power Plc both bid for UNA when it was first put up for sale. Central and Northern Europe are ``areas we're interested in,'' said Aarti Singhal, an International Power spokeswoman. ``We're looking at all options,'' said Fransce Verdeuzeldonk, a spokeswoman for Nuon, in an interview. Spanish Interest Endesa, Spain's largest power producer, agreed to buy Remu NV, the No. 4 electric utility in the Netherlands, for 1.5 billion euros last December. The completion of the transaction has been held up by the Dutch government, which wants at least 51 percent of utility company shares to remain in the hands of public authorities until at least 2004. An Endesa spokeswoman declined to comment on whether the company would be interested in UNA. Endesa said in July its purchase of an Italian generator was enough to meet its goal of having 8,000 megawatts of capacity in Europe outside Spain. Based in Utrecht in central Netherlands, UNA is one of the four main power generation companies in Holland, operating six power plants. It had 1998 sales of about $800 million and is one of the only generation companies in the market up for grabs. Germany's E.ON owns EZH, Belgium's Electrabel controls Epon, while EPZ, another big power producer, is owned by Essent NV. India: IDBI signals SOS for Rs 3,000-cr equity 10/16/2001 Business Line (The Hindu) Fin. Times Info Ltd-Asia Africa Intel Wire. Business Line (The Hindu) Copyright (C) 2001 Kasturi & Sons Ltd. All Rights Res'd NEW DELHI, Oct. 15. INDUSTRIAL Development Bank of India (IDBI), the country's largest development financial institution, appears to be heading for some serious trouble. A revised set of figures placed by the institution to the Ministry of Finance has indicated a cash requirement of Rs 7,000 crore over the next three years, much of which it is finding difficult to tie up. Besides, it has also placed a request for a Rs 3,000-crore equity infusion from the Government. The revised financial projections were placed before the Finance Ministry last week by an IDBI team headed by the Chairman, Mr P.P. Vora. The meeting was attended by the Advisor, Ministry of Finance, Dr Rakesh Mohan, the Additional Secretary, Capital Markets Division, Mr S.K. Purakayastha, and the Deputy Governor, Reserve Bank of India (RBI), Mr G.P. Muniappan. At a meeting on October 5, IDBI had placed its capital infusion requirement at Rs 2,500 crore and immediate fund requirement at about Rs 5,500 crore. Officials have been particularly concerned over IDBI's admission that it has been struggling to raise resources from the market due to the rating downgrade in August despite its massive requirements. It has also admitted to the Ministry that it may be heading for losses during the current fiscal. According to sources, the institution has admitted that the losses could spill over to the subsequent year unless assistance comes at an appropriate time. IDBI has said the capital infusion of Rs 3,000 crore is being sought to write off a portion of the institution's huge portfolio of non-performing assets (NPAs), which at the end of fiscal 2000-01 stood at over Rs 9,000 crore in gross terms. The institution has argued that only a massive NPA write-off would enable it to get back its rating, thereby allowing it to tie up the funds requirement from the market. IDBI's rating was downgraded by Crisil from AAA to AA+ recently. IDBI, which was directed by the Government to submit a three-year cash flow statement during the October 5 meeting, has said the additional cash requirement for the three years alone stands at Rs 7,000 crore. Of the cash requirement, the immediate need includes a Rs 2,200-crore repayment arising out of the institution's decision to exercise the call option on its earlier bonds series. The repayment would be due in March 2002. Moreover, the institution also wants to keep itself ready in the event that Enron, the promoters of Dabhol Power Company, invokes its guarantee of about Rs 1,800 crore. Sarbajeet K. Sen Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: Tata Power Q2 net up 74 pct, beats f'cast. 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. BOMBAY, Oct 16 (Reuters) - Tata Power Company, India's largest private utility, on Tuesday reported net profit for the July-September quarter rose 74 percent over a year earlier, far above analysts' expectations. The company, which is negotiating to buy Enron Corp's stake in a troubled Indian unit, said net profit rose to 2.42 billion rupees ($50.42 million) from 1.39 billion a year earlier on sales that rose 17.54 percent to 10.99 billion rupees. The performance was boosted by a profit of 660 million rupees from sale of long term investments in the quarter, against 210 million a year earlier. A Reuters poll of 14 brokerages released last week forecast net profit for the quarter would drop to a median 1.27 billion rupees from a year earlier, on an 8.45 percent rise in sales to 10.11 billion rupees. Tata Power generates thermal and hydro-electric power, and distributes electricity across the western state of Maharashtra, including its capital Bombay. Ahead of the results, its shares closed down 0.62 percent at 96.65 rupees while the Bombay benchmark index ended 0.54 percent higher. (US$1=47.99 Indian rupees). Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

dasovich-j/deleted_items/1877.

dasovich-j

Subject: Enron Mentions Sender: m..schmidt@enron.com Recipients: [] File: dasovich-j/deleted_items/1877. ===================================== USA: UPDATE 1-Enron third-quarter earnings rise. Reuters English News Service, 10/16/01 Enron Has Loss of 84 Cents a Share in Third Quarter (Update2) Bloomberg, 10/16/01 OUTLOOK Enron Q3 EPS 43 cents vs 34 AFX News, 10/16/01 Reliant Hires Merrill to Find Buyer for Dutch Power Producer Bloomberg, 10/16/01 India: IDBI signals SOS for Rs 3,000-cr equity Business Line (The Hindu), 10/16/01 INDIA: Tata Power Q2 net up 74 pct, beats f'cast. Reuters English News Service, 10/16/01 USA: UPDATE 1-Enron third-quarter earnings rise. 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 16 (Reuters) - Energy trading giant Enron Corp. said on Tuesday its third-quarter earnings rose as its core wholesale marketing and trading division delivered strong returns. The company said earnings rose to $393 million, or 43 cents per share, from $292 million, or 34 cents per share, a year earlier. The company reported a share loss of 84 cents after $1.01 billion of nonrecurring charges. "After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energybusinesses," said Kenneth Lay, Enron chairman and chif executive officer. Enron's non-recurring charges included $287 million related to the write-down of its troubled water venture, Azurix, as well as $544 million writedown related to various investments including its retail electricity provider New Power Co. and $180 million related to restructuring of its broadband operations. Analysts polled by Thomson Financial/First Call had expected earnings of 42 cents to 45 cents per share, with a mean estimate of 43 cents. The results met expectations for a rocky quarter that included the surprise departure of President and Chief Executive Jeff Skilling in August, after just six months at the helm. Enron shares closed on Monday at $33.17, down $2.64 or 7.3 percent on the New York Stock Exchange. So far this year, the stock has fallen some 60 percent, far worse than the 25 percent loss of the Standard & Poor's utilities index . Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Has Loss of 84 Cents a Share in Third Quarter (Update2) 2001-10-16 07:45 (New York) Enron Has Loss of 84 Cents a Share in Third Quarter (Update2) (Adds profit excluding charges in fourth paragraph.) Houston, Oct. 16 (Bloomberg) -- Enron Corp., the largest energy trader, said it had a third-quarter loss after taking $1.01 billion in charges for restructuring, investment losses, and the planned sale of a water business. The loss was $618 million, or 84 cents a share after preferred-dividend payments, Houston-based Enron said in a statement. A year earlier, Enron had net income of $292 million, or 34 cents. Revenue rose 59 percent to $47.6 billion from $30 billion. The charges totaled $1.11 a share. They included $287 million for asset impairments by water company Azurix Corp., $180 million to restructure the company's unit that trades fiber-optic bandwidth and $544 million for losses on investments including New Power Co., a retail energy-sales venture. Excluding the charges, Enron said it would have earned $393 million, or 43 cents a share. That matched the average estimate of analysts surveyed by Thomson Financial/First Call. Enron said it still expects to earn 45 cents a share in the fourth quarter, $1.80 for the full year and $2.15 in 2002. (Enron will hold a conference call to discuss third-quarter earnings at 10 a.m. New York time. Log on at http://www.enron.com and follow the directions to the ``Investors'' section.) OUTLOOK Enron Q3 EPS 43 cents vs 34 10/16/2001 AFX News (c) 2001 by AFP-Extel News Ltd NEW YORK (AFX) - Enron Corp is expected to report later today third-quarter earnings per share of 43 cents, compared with 34 cents a year earlier, according to the First Call/Thomson Financial consensus of 17 brokers. The integrated energy company is expected to meet near-consensus results driven by its wholesale services division, analysts said. Montgomery Securities analyst Daniel Tulis is calculating third-quarter EPS of 42 cents, 1 cent below consensus. Full-year EPS stands at 1.85. Enron's third quarter was marked by the unexpected departure of chief executive Jeff Skilling, for personal reasons, with Chairman Ken Lay reassuming the key position. Lay is likely to remain in the position until it is filled within 12-18 months, Tulis said. The company remains embroiled in arbitration proceedings in India after its 2.9 bln usd Dabhol power plant in India was closed. The plant's sole client, the Maharashtra State Electricity Board (MSEB), failed - and later refused - to pay bills that now total about 45 mln usd. blms/gc For more information and to contact AFX: www.afxnews.com and www.afxpress.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Reliant Hires Merrill to Find Buyer for Dutch Power Producer 2001-10-16 05:45 (New York) Reliant Hires Merrill to Find Buyer for Dutch Power Producer Amsterdam, Oct. 16 (Bloomberg) -- Reliant Energy Inc., the owner of Houston's utility, said it hired Merrill Lynch & Co. to find a buyer for its Dutch power-generation business, two years after acquiring the company from the government for $2.3 billion. Reliant has already been approached by possible buyers, said Clyde Moerlie, a spokesman for Reliant Energy Europe. The unit, which doesn't have any household customers, earned $9 million in the second quarter compared with $26 million a year earlier. The U.S. company may struggle to get the price it paid for the Utrecht-based unit, formerly known as UNA, analysts said, on expectations heightened competition will erode profit further and as utilities increasingly seek customers as well as power plants. In the Dutch generation market, ``there aren't many opportunities, but prices will fall to much lower levels as growing competition pushes down tariffs,'' said Steven de Proost, an analyst at Delta Lloyd Securities in Antwerp. Houston-based Reliant paid 2.9 times sales for UNA in 1999, while Electrabel SA, Belgium's dominant power provider, paid 2.7 times sales for Epon, the biggest utility in the Netherlands. E.ON AG of Germany paid 1.6 times sales the same year for the generator NV Electriciteitsbedrijf Zuid-Holland, or EZH. Reliant joins rivals TXU Corp. and Edison International in reassessing its European business amid disappointing earnings. Reliant in July tied the second-quarter profit drop in Europe to increased competition and falling margins in the Dutch market. Enron Cuts Enron Corp. said last week it will cut 10 percent of its European workforce, while Edison Mission Energy agreed to sell two U.K. power plants to American Electric Power Co. on Monday. The U.S. utility said last month it was considering a sale of the Dutch business after it was contacted ``by a number of parties who have expressed an interest'' in its European assets, and as it reallocates capital to fulfill ``growth objectives.'' Merrill already advised the Dutch state on the original sale of UNA to Reliant, the only time a U.S. company has taken control of a continental European utility. This year, Merrill ranks sixth in advising on transactions involving a European utilities target, with $6.9 billion worth of mergers and acquisitions. Potential buyers for UNA, which provides about 20 percent of the Netherlands' electricity, are likely to be companies already present in the Dutch market, such as Nuon NV, Eneco, or Spain's Endesa SA, analysts said. UNA may also attract generation companies including Mirant Corp. and International Power Plc. Atlanta-based Mirant and International Power predecessor National Power Plc both bid for UNA when it was first put up for sale. Central and Northern Europe are ``areas we're interested in,'' said Aarti Singhal, an International Power spokeswoman. ``We're looking at all options,'' said Fransce Verdeuzeldonk, a spokeswoman for Nuon, in an interview. Spanish Interest Endesa, Spain's largest power producer, agreed to buy Remu NV, the No. 4 electric utility in the Netherlands, for 1.5 billion euros last December. The completion of the transaction has been held up by the Dutch government, which wants at least 51 percent of utility company shares to remain in the hands of public authorities until at least 2004. An Endesa spokeswoman declined to comment on whether the company would be interested in UNA. Endesa said in July its purchase of an Italian generator was enough to meet its goal of having 8,000 megawatts of capacity in Europe outside Spain. Based in Utrecht in central Netherlands, UNA is one of the four main power generation companies in Holland, operating six power plants. It had 1998 sales of about $800 million and is one of the only generation companies in the market up for grabs. Germany's E.ON owns EZH, Belgium's Electrabel controls Epon, while EPZ, another big power producer, is owned by Essent NV. India: IDBI signals SOS for Rs 3,000-cr equity 10/16/2001 Business Line (The Hindu) Fin. Times Info Ltd-Asia Africa Intel Wire. Business Line (The Hindu) Copyright (C) 2001 Kasturi & Sons Ltd. All Rights Res'd NEW DELHI, Oct. 15. INDUSTRIAL Development Bank of India (IDBI), the country's largest development financial institution, appears to be heading for some serious trouble. A revised set of figures placed by the institution to the Ministry of Finance has indicated a cash requirement of Rs 7,000 crore over the next three years, much of which it is finding difficult to tie up. Besides, it has also placed a request for a Rs 3,000-crore equity infusion from the Government. The revised financial projections were placed before the Finance Ministry last week by an IDBI team headed by the Chairman, Mr P.P. Vora. The meeting was attended by the Advisor, Ministry of Finance, Dr Rakesh Mohan, the Additional Secretary, Capital Markets Division, Mr S.K. Purakayastha, and the Deputy Governor, Reserve Bank of India (RBI), Mr G.P. Muniappan. At a meeting on October 5, IDBI had placed its capital infusion requirement at Rs 2,500 crore and immediate fund requirement at about Rs 5,500 crore. Officials have been particularly concerned over IDBI's admission that it has been struggling to raise resources from the market due to the rating downgrade in August despite its massive requirements. It has also admitted to the Ministry that it may be heading for losses during the current fiscal. According to sources, the institution has admitted that the losses could spill over to the subsequent year unless assistance comes at an appropriate time. IDBI has said the capital infusion of Rs 3,000 crore is being sought to write off a portion of the institution's huge portfolio of non-performing assets (NPAs), which at the end of fiscal 2000-01 stood at over Rs 9,000 crore in gross terms. The institution has argued that only a massive NPA write-off would enable it to get back its rating, thereby allowing it to tie up the funds requirement from the market. IDBI's rating was downgraded by Crisil from AAA to AA+ recently. IDBI, which was directed by the Government to submit a three-year cash flow statement during the October 5 meeting, has said the additional cash requirement for the three years alone stands at Rs 7,000 crore. Of the cash requirement, the immediate need includes a Rs 2,200-crore repayment arising out of the institution's decision to exercise the call option on its earlier bonds series. The repayment would be due in March 2002. Moreover, the institution also wants to keep itself ready in the event that Enron, the promoters of Dabhol Power Company, invokes its guarantee of about Rs 1,800 crore. Sarbajeet K. Sen Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: Tata Power Q2 net up 74 pct, beats f'cast. 10/16/2001 Reuters English News Service (C) Reuters Limited 2001. BOMBAY, Oct 16 (Reuters) - Tata Power Company, India's largest private utility, on Tuesday reported net profit for the July-September quarter rose 74 percent over a year earlier, far above analysts' expectations. The company, which is negotiating to buy Enron Corp's stake in a troubled Indian unit, said net profit rose to 2.42 billion rupees ($50.42 million) from 1.39 billion a year earlier on sales that rose 17.54 percent to 10.99 billion rupees. The performance was boosted by a profit of 660 million rupees from sale of long term investments in the quarter, against 210 million a year earlier. A Reuters poll of 14 brokerages released last week forecast net profit for the quarter would drop to a median 1.27 billion rupees from a year earlier, on an 8.45 percent rise in sales to 10.11 billion rupees. Tata Power generates thermal and hydro-electric power, and distributes electricity across the western state of Maharashtra, including its capital Bombay. Ahead of the results, its shares closed down 0.62 percent at 96.65 rupees while the Bombay benchmark index ended 0.54 percent higher. (US$1=47.99 Indian rupees). Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =====================================

sharonda.stephens@enron.com

Enron Mentions - 06/06/2001

USA: Enron to cut one-fifth of jobs at broadband unit. Reuters English News Service, 04/06/2001 UK: London timecharter fixtures. Reuters English News Service, 04/06/2001 USA: RESEARCH ALERT-Morgan starts Dynegy as buy. Reuters English News Service, 04/06/2001 NYMEX Analysis CNNfn: Before Hours, 04/06/2001 CONSULTANTS HIRED FOR GAS PLANTS STUDY South Florida Sun-Sentinel, 04/06/2001 Trojan Nuclear Plant; Notice of Docketing of Materials License No. SNM-2509, Amendment Application for the Trojan Independent Spent Fuel Storage Installation Federal Register, 04/06/2001 APPROVE ENRON POWER PLANT PUT POLLUTION ISSUE IN PERSPECTIVE South Florida Sun-Sentinel, 04/06/2001 Haleywest L.L.C., et al.; Electric Rate and Corporate Regulation Filings Federal Register, 04/06/2001 Verizon to Pitch Movies-on-Demand to Studios, Variety Says Bloomberg, 04/06/2001 USA: Enron to cut one-fifth of jobs at broadband unit. 04/06/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, April 6 (Reuters) - Energy trading giant Enron Corp. said on Friday it will eliminate some 250, or roughly 20 percent, of the jobs at its broadband telecommunications unit, detailing a move which it has previously described as an internal redeployment of staff. Enron Broadband Services spokeswoman Kelly Kimberly said the company is cutting jobs at the unit, which now employs 1,150 people, because it has completed the build-out of its 18,000-mile (29,000 km) fiber-optic network and because of slow demand for streaming media products delivered to personal computers. "The network is substantially complete now, so that means fewer people are required for technical positions," she said. The job cuts also reflect Enron Broadband's decision to play a less active role in the market for streaming media services, such as video of corporate events delivered to personal computers, where demand had been slower than expected, she said. However, Kimberly said Enron Broadband will continue to pursue entertainment-on-demand services actively. Kimberly said employees whose jobs are being eliminated will be eligible for redeployment to other positions at Enron Broadband Services or other Enron units, although there could be some involuntary terminations. Previously Enron officials had dismissed rumors about job cuts at Enron Broadband Services and had spoken instead of an internal redeployment of staff within the unit without detailing its impact on overall employment there. The company's stock, which peaked at just above $90 last year and was trading in the $80s as recently as mid-February, has recently fallen into the $50s in line with broader weakness in the stock market and among technology and telecommunications stocks in particular. On Friday it was up 95 cents at $56.65. Since early last year Enron has been building a high-speed broadband communications network that it plans to use as a base to build a bandwidth marketing and trading business similar to its huge natural gas and electricity trading operation. Excitement among investors about the broadband business and about Enron's success in developing a strong Internet-based trading platform for energy and other commodities drove an 87 percent rise in the company's share price last year, outpacing a gain of 54 percent for the S&P utilities index. Kimberly said Enron's bandwidth trading operation is continuing to perform strongly, with more than 500 trades carried out in the first quarter, exceeding the total for all of 2000. Despite the jobs cuts at Enron Broadband, she said, the unit is recruiting to fill some other positions. UK: London timecharter fixtures. 04/06/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, April 6 (Reuters) - Bulk Atalanta - (built 1990) 149,512 dwt 13.25 on 44 ndas delivery retroactive Cape Passero in direct continuation Apr 25/30 3-5 months trading redelivery world-wide $13,200 daily Enron. Golden Disa - (built 1999) 75,200 dwt delivery Qingdao spot trip via Australia plus Mideast Gulf redelivery passing Muscat outbound $11,250 daily ETA. Bergen Trader - (built 2000) 75,000 dwt delivery Kosichang Apr 10/20 3-5 months trading redelivery world-wide $11,600 daily Swiss Marine. Rutland Glen - (built 1999) 73,700 dwt delivery Cape Passero Apr 10/20 trip via east coast South America redelivery Skaw-Cape Passero $12,000 daily Azure. Pacific Paradise - (built 1993) 73,600 dwt delivery Kohsichang Apr 21/22 trip and redelivery Continent $13,500 daily Matinc. Endless - (built 1999) 73,400 dwt delivery Porto Vesme prompt trip via east coast South America redelivery Far East $11,500 daily Transfield. Mass Merit - (built 1993) 69,620 dwt delivery U.S. Gulf Apr 15/25 trip and redelivery Taiwan $10,750 daily plus $190,000 ballast bonus Taho. Menites - (built 1981) 64,896 dwt delivery Ghent Apr 10/15 trip via Brazil redelivery Antwerp approximately $10,000 daily Pan Ocean. Atlantic Savior - (built 1983) 64,754 dwt delivery Cape Passero Apr 10/15 trans-Atlantic round voyage redelivery West Mediterranean-Continent range $10,000 daily T and E. USA: RESEARCH ALERT-Morgan starts Dynegy as buy. 04/06/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, April 6 (Reuters) - J.P. Morgan said Friday that analyst Anatol Feygin had initiated coverage of Dynegy Inc. as a long term buy with a price target of $63 a share. He said the company has provided "defensive earnings growth through a top tier wholesale energy player" that is "second only to Enron ." Dynegy's asset-light strategy allows the company to follow Enron's lead, with a favorable risk/reward profile with 73 percent of EBIT coming from non-regulated "merchant energy" opportunities, he said. "We project Dynegy's long-term earnings growth rate at 22 percent," he added. The analyst attributed Dynegy's "retreat from the $57 level to the California power crisis, which has been a major stumbling block for the stock and should hinder near-term performance. It casts doubt on the very dynamic that Dynegy is a play on, and usurps management time and talent. "Although fundamentally we see it as more of a nuisance - a few credit/collection issues (with) little to no earnings risk, and a delay, not a derailment of the deregulation process - the resolution of the Golden State debacle is to us the key catalyst for an upgrade." Dynegy shares were off 94 cents at $49.98 in early New York Stock Exchange trading. Business NYMEX Analysis Jack Cafferty 04/06/2001 CNNfn: Before Hours (c) Copyright Federal Document Clearing House. All Rights Reserved. JACK CAFFERTY, CNNfn ANCHOR, BEFORE HOURS: On March 20, Vincent Viola was voted in as the new chairman of the New Mercantile Exchange. He takes over during a time of change and challenge for the NYMEX. Mr. Viola is here now to talk about his new position and the task ahead. Congratulations on the ascension to the throne down there. VINCENT VIOLA, NYMEX CHAIRMAN: Thank you, Jack. CAFFERTY: Job one is? VIOLA: Making sure that the exchange is postured to fulfill it`s purpose as a magnificently liquid and efficient pricing mechanism, and a stable, global counterparty for mediation of credit and risk on the products that we pursue to trade on the exchange. CAFFERTY: And to do it with an eye on making a profit. VIOLA: Yes, exactly. CAFFERTY: Which is a little bit different assignment than it`s been down there. VIOLA: Yes, exactly, the fact that our business model now, by virtue of the fact that we seek to make and provide profit to our shareholders compels us to start to act and function like a business. CAFFERTY: Now last year, you did incur losses down there of about almost $3 million. Tell me a little bit about why that happened and what you`re doing that`s going to prevent it from continuing to happen. VIOLA: Well, simply put, we had to make a decision as to enhancing the access of participants to our marketplace. And we went and decided to create our own proprietary electronic platform. CAFFERTY: Animex (ph), is that way. VIOLA: Enymex. CAFFERTY: Enymex, I`m sorry. VIOLA: And that was capital decision, capital spending decision that we made, rightfully so. And that caused the gap to close between revenues and expenses. CAFFERTY: All right, this is because, I would assume, of pressures from companies like Intercontinental Exchange, Enron Online, and some of the foreign operations as well, right? I mean, you to upgrade to stay competitive, is that. VIOLA: I think the B2B model hit everyone as a novel yet substantively interesting concept. For our marketplace, the most efficient source of liquidity right now, and the culture around trading our major product, oil, is based in the physical execution of those trades through open auction outcry. And the culture around oil trading is clearly much more comfortable person-to-person. We like to say, simply put, the best price for oil in the world is found on the floor of the NYMEX. The electronic umbrella around that execution in liquidity clearly will be best served by an electronic platform. CAFFERTY: Who`s going to win this tug-of-war eventually between the advent of electronic transactions and the old way of doing it by yelling out your bid? VIOLA: I think the source of liquidity that has the most continuous and consistent tightness between the bid and offer will in fact win out. And I think that the support of electronic access to the marketplace can only enhance the individual trader on the floor`s ability to provide the best service. CAFFERTY: Is it a matter of time, though, until technology simply outstrips the ability of individuals to move with the speed and proficiency that these computers can do? VIOLA: Clearly, technology, as it improves in terms of reliability and consistency, in terms of delivery of price, is the trend that we will react to as business people on the mercantile exchange. And we are preparing very, very aggressively to continue to make our markets the most efficient. It has to be stated that NYMEX is a double-A credit and a global counterparty, which mediates risk across a very, very wide range of market participants looking for credit mediation for the exchange of energy products. CAFFERTY: Talk to me for a minute about commodities and about the areas of the commodity business that you see perhaps being the areas that will generate the best profits for you, where the most action is likely to be. Just give me an overview of the markets from where you sit. VIOLA: Well, as a business model, the exchange provides for revenue- sourced, value-added functions. Firstly, it`s the only neutral model that can be conceived and executed currently, and looking for in the future. Secondly, its banking and mediation and price management through its margin facility and clearing facility, is a unique source of value. Thirdly, its information and data that it provides from the uniquely neutral and independent and uninfluenced prices that are physically identified on the floor is a unique source of basis and benchmark for oil trading throughout the world. And lastly, the professional and unique ability and experience of the best oil traders in the world, both on the floor and the ring of individuals that deal with those people off the floor every day, make the NYMEX a uniquely talented pool of business potential. It has to be stated that the gentlemen who trade oil for major concerns, institutional concerns, while they`re communicating with the floor of the NYMEX, every day, for many years, there`s a very, very close connection and cultural comfort and reliability on those prices and their efficiencies that have grown over the years. And we think that that`s going to be maintained. So I think those four principal sources of revenue are the essence of our model. CAFFERTY: What scares you about the new job? when you wake up in the middle of the night, you go, gee, I`m the chairman now, what worries you? VIOLA: I think I get a sense of unbridled excitement. I`ve always enjoyed a real good, fair fight. And I think what concerns me and excites me at the same time is that I`m responsible for almost 800-plus members and their families and the marketplaces that we serve, trying to bring very fair, open, properly banked markets. CAFFERTY: Good stuff. VIOLA: Yes. CAFFERTY: Appreciate your coming in. I wish you well, I hope your very successful as the new chairman of the NYMEX. VIOLA: You`re very kind, thank you. CAFFERTY: All right, Vincent Viola, thanks. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 888-CNNFN-01 OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT WWW.FDCH.COM THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. Content and programming copyright 2001 Cable News Network, Inc. ALL RIGHTS RESERVED. Prepared by eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.) No license is granted to the user of this material other than for research. User may not reproduce or redistribute the material except for user`s personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Cable News Network, Inc.`s copyright or other proprietary rights or interests in the material; provided, however, that members of the news media may redistribute limited portions (less than 250 words) of this material without a specific license from CNN so long as they provide conspicuous attribution to CNN as the originator and copyright holder of such material. This is not a legal transcript for purposes of litigation. LOCAL CONSULTANTS HIRED FOR GAS PLANTS STUDY Staff Reports 04/06/2001 South Florida Sun-Sentinel Broward Metro 3B (Copyright 2001 by the Sun-Sentinel) Deerfield Beach City Manager Larry Deetjen has hired two consultants to help a committee of volunteers shore up information about plans to build two natural-gas power plants in the southwest end of the city. The consultants, Tom T. John and Pete Hoffman, will help members of the city's seven-member Ad Hoc Energy Committee find out as much information as possible about the proposed plants. Enron Corp. and El Paso Corp. want to build power plants in the city's industrial area. John and Hoffman made a presentation to the committee on Thursday. Many people who live in North Broward County have opposed those plans, particularly in the case of Enron Corp., which also wants to build a plant in Pompano Beach. Notices Trojan Nuclear Plant; Notice of Docketing of Materials License No. SNM-2509, Amendment Application for the Trojan Independent Spent Fuel Storage Installation 04/06/2001 Federal Register 18321 Copyright (c) 2001 Federal Information & News Dispatch, Inc. All rights reserved By letter dated February 19, 2001, Portland General Electric Company (PGE) submitted an application to the Nuclear Regulatory Commission (NRC or the Commission) in accordance with 10 CFR part 72 requesting an amendment of the Trojan Nuclear Plant independent spent fuel storage installation (ISFSI) license (SNM-2509) for the ISFSI located in Columbia County, Oregon. PGE is seeking Commission approval to revise the Trojan ISFSI Technical Specifications (Appendix A to the license) to conform to a change in the Code of Federal Regulations (10 CFR 72.48) which will become effective on April 5, 2001, and to make editorial corrections. This application was docketed under 10 CFR part 72. The ISFSI Docket No. is 72-17 and will remain the same for this action. The amendment of an ISFSI license is subject to the Commission's approval. The Commission may issue either a notice of hearing or a notice of proposed action and opportunity for hearing in accordance with 10 CFR 72.46(b)(1) or, if a determination is made that the amendment does not present a genuine issue as to whether public health and safety will be significantly affected, take immediate action on the amendment in accordance with 10 CFR 72.46(b)(2) and provide notice of the action taken and an opportunity for interested persons to request a hearing on whether the action should be rescinded or modified. For further details with respect to this application, see the application dated February 19, 2001, which is available for public inspection at the Commission's Public Document Room, One White Flint North Building, 11555 Rockville Pike, Rockville, MD, or from the publicly available records component of NRC's Agencywide Documents Access and Management System (ADAMS). ADAMS is accessible from the NRC Web Site at http://www.nrc.gov/NRC/ADAMS/index.html (the Public Electronic Reading Room). Dated at Rockville, Maryland, this 29th day of March 2001. For the Nuclear Regulatory Commission. E. William Brach, Director, Spent Fuel Project Office, Office of Nuclear Material Safety and Safeguards. [FR Doc. 01-8503 Filed 4-5-01; 8:45 am] BILLING CODE 7590-01-P EDITORIAL APPROVE ENRON POWER PLANT PUT POLLUTION ISSUE IN PERSPECTIVE 04/06/2001 South Florida Sun-Sentinel Broward Metro 30A (Copyright 2001 by the Sun-Sentinel) In a "perfect" world, there would be no automobiles, with their internal combustion engines spewing pollutant-laden exhaust into the air. But how perfect would such a world be without the mobility and economic vitality those cars provide? In a "perfect" world, there would be no factories or refineries polluting air and water alike. But how perfect would such a world be without the steel, the textiles and the petroleum products those plants produce to meet the needs of consumers? And in a "perfect" world, there would be no power plants spewing pollutants into the air. But how perfect would such a world be without the electricity those plants generate to light, heat and cool our homes and businesses? Modern life forces unpleasant choices on all of us, from the average consumer to the highest-ranking public official. Those choices should be made with an eye on the big picture, and never on the basis of unrealistic notions of an idyllic world devoid of the sometimes unhealthy byproducts of human enterprise. The Pompano Beach City Commission is faced with such a choice. On Tuesday, commissioners are to consider a proposal by Enron Corp., a Houston-based energy company, to build a "peaking" power plant in the city. That type of plant operates only when a public utility, in this case Florida Power & Light Co., needs to purchase a backup source of power during periods of peak usage. The commissioners are under tremendous pressure from other politicians as well as residents, not only of Pompano Beach but of neighboring Margate and Coconut Creek, who worry about the increased air pollution such a plant inevitably would create. Opponents also are suspicious of Enron's long-range plans, which they contend involve a hidden agenda to push for state deregulation of the electric industry, which in turn would enable Enron to operate the plant 24 hours a day and sell the excess power elsewhere. There also are concerns about Enron's plans to use diesel fuel as a backup to its natural gas supply, the primary fuel source for the plant. Those worries are understandable, and no one should be unsympathetic to the residents' concerns. But if commissioners keep their eye on the big picture, they will have to conclude that the positives of this proposal greatly outweigh the negatives. To begin with, South Florida's burgeoning population requires foresight to avoid future power shortages like those California is now experiencing. A region that expects to add 2.3 million people during the next 20 years should be preparing now for the additional energy needs such growth will create. Moreover, a plant using relatively clean-burning natural gas and built by Enron, a company lauded as "progressive" by environmentalists for embracing alternative energy sources and for its commitment to tackling global warming, should be seen as preferable to what the area might ultimately be stuck with if forced in desperation to seek new sources of electricity generation during a power crisis. Already it has been determined that the proposed Enron plant would generate far, far less nitrogen oxide and sulfur dioxide than FPL's oil-powered plant at Port Everglades. To put things in further perspective, the plant would emit less than 2 percent of the amount of nitrogen oxide emitted by Broward County automobiles in a typical year. Opponents of the plant should be asking themselves whether their concern for the environment extends to carpooling or even leaving their cars at home at times when they could walk or ride a bicycle to their destination. Concerns about the possible burning of diesel fuel are valid, but Enron has agreed to fixed limits on the amount of diesel it would use, and to use relatively high-quality, low-sulfur diesel. Moreover, Enron's smokestacks are to be 80 feet high, meaning neighborhoods near the plant would likely experience no more pollution than other neighborhoods in the area. It should also be noted that the state Department of Environmental Protection has given preliminary approval to a permit for the plant, saying a lengthy review had found that it would have little impact on the region's air quality. Little impact. Compare that with the positive impact it would have on Pompano Beach, by increasing its tax base, providing jobs and developing a large piece of land that no one else has expressed any interest in; and on all of South Florida, by providing a source of relatively clean power for a region that will surely need it in the not-too-distant future, by minimizing costs to consumers and by making rolling brownouts unnecessary during periods of peak electrical usage. The plant cannot be built without a zoning change for the 28-acre site from industrial to public utility. The Pompano Beach Planning and Zoning Board has already approved the rezoning. City commissioners should keep their eye on the big picture and ratify that decision, for the good of Pompano Beach and all of South Florida. Notices Haleywest L.L.C., et al.; Electric Rate and Corporate Regulation Filings 04/06/2001 Federal Register 18239 Copyright (c) 2001 Federal Information & News Dispatch, Inc. All rights reserved March 30, 2001. Take notice that the following filings have been made with the Commission: 1. Haleywest L.L.C. [Docket No. EG01-161-000] Take notice that on March 28, 2001, 2001, Haleywest L.L.C. (Applicant), an Idaho limited liability company, whose address is P.O. Box 171, Laclede, Idaho 83851 filed with the Federal Energy Regulatory Commission an application for determination of exempt wholesale generator status pursuant to part 365 of the Commission's regulations. Applicant intends to lease and operate a facility comprised of three (3), continuously rated 1.6-megawatt generator sets (non- road engines) fired on diesel fuel with a maximum total output of 6-megawatts (the "Facility"). The Facility is located in Plummer, Idaho. Electric energy produced by the Facility will be sold by Applicant to the wholesale power market in the Northwestern United States. Comment date: April 20, 2001, in accordance with Standard Paragraph E at the end of this notice. The Commission will limit its consideration of comments to those that concern the adequacy or accuracy of the application. 2. Fountain Valley Power, L.L.C. [Docket No. EG01-162-000] Take notice that on March 26, 2001, Fountain Valley Power, L.L.C. (Applicant), filed with the Federal Energy Regulatory Commission an application for determination of exempt wholesale generator status pursuant to Part 365 of the Commission's regulations. Applicant is presently a wholly-owned subsidiary of Enron North America Corp., but is expected to become a wholly-owned indirect subsidiary of Black Hills Energy Capital, Inc. Applicant stated that it served its application on the following: Public Service Company of Colorado, the Colorado Public Utilities Commission, South Dakota Public Utility Commission, Wyoming Public Service Commission and the Securities and Exchange Commission. Comment date: April 20, 2001, in accordance with Standard Paragraph E at the end of this notice. The Commission will limit its consideration of comments to those that concern the adequacy of accuracy of the application. 3. Pinnacle West Energy Corporation [Docket No. EG01-163-000] Take notice that on March 28, 2001, Pinnacle West Energy Corporation (PWE) filed with the Federal Energy Regulatory Commission an application for determination of exempt wholesale generator status pursuant to Part 365 of the Commission's regulations. PWE is a wholly owned subsidiary of Pinnacle West Capital Corporation (PNW) and an associate company of Arizona Public Service Company. PWE was created to serve as PNW's competitive generation affiliate. The eligible facilities to be owned by PWE are a 120 MW natural gas-fired, combined cycle unit that is presently under construction and 10 trailer-mounted generating units with a combined capacity of less than 200 MW. Comment date: April 20, 2001, in accordance with Standard Paragraph E at the end of this notice. The Commission will limit its consideration of comments to those that concern the adequacy or accuracy of the application. Standard Paragraph E. Any person desiring to be heard or to protest such filing should file a motion to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). All such motions or protests should be filed on or before the comment date. Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a motion to intervene. Copies of these filings are on file with the Commission and are available for public inspection. This filing may also be viewed on the Internet at http://www.ferc.fed.us/ online/rims.htm (call 202-208-2222 for assistance). Comments, protests, and interventions may be filed electronically via the internet in lieu of paper. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's web site at http://www.ferc.fed.us/efi/doorbell.htm. David P. Boergers, Secretary. [FR Doc. 01-8459 Filed 4-5-01; 8:45 am] BILLING CODE 6717-01-P Notices Transwestern Pipeline Company; Notice of Application 04/06/2001 Federal Register 18238 Copyright (c) 2001 Federal Information & News Dispatch, Inc. All rights reserved April 2, 2001. Take notice that on March 29, 2001, Transwestern Pipeline Company, P.O. Box 3330, Omaha, Nebraska 68103-0330, in Docket No. CP01-115-000 filed an application pursuant to Sections 7(b) and (c) of the Natural Gas Act for permission and approval for Transco to replace mainline compression facilities at four existing compressor stations in Arizona, all as more fully set forth in the application which is on file with the Commission and open to public inspection. This filing may be viewed on the web at http://www.ferc.fed.us/online/rims.htm (call 202-208-2222 for assistance). Specifically, Transwestern proposes to abandon in place twelve existing drivers and compressors, totaling 49,500 horsepower, at Stations 1, 2, 3 and 4; and install operate a 41,500 ISO-rated horsepower turbine centrifugal compressor at each of the four stations. Transwestern also requests, to ensure a smooth transition to the new compressor units, to maintain the ability to operate the existing facilities up to six months after the installation of the new units. It is stated that the new units will require less maintenance activity than the existing units as well as operate more efficiently in flowing more gas through its system. Transwestern states that result of the project it will be able to provide incremental capacity of approximately 150,000 Mcf per day on its mainline from Thoreau, New Mexico to California, increasing its total capacity to California to 1,240,000 Mcf per day. It is indicated that the proposed modification will enable it to meet the supply and demand imbalance in the California area. Transwestern proposes to place the facilities into service by June 1, 2002. Transwestern estimates the cost for the proposed construction to be approximately $93,300,000, to be financed with internally-generated funds. Transwestern also states that it is not at this time requesting rolled-in pricing for the new facilities, and understands that it will be at risk for the recovery of costs associated with the proposed modifications. Any questions regarding the application should be directed to Keith L. Petersen, at (402) 398-7421. There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before April 16, 2001, file with the Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of all documents filed by the applicant and by all other parties. A party must submit 14 copies of filings made with the Commission and must mail a copy to the applicant and to every other party in the proceeding. Only parties to the proceeding can ask for court review of Commission orders in the proceeding. However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest. Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commenters will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commenters will not be required to serve copies of filed documents on all other parties. However, the non-party commenters will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order. [Page Number 18239] The Commission may issue a preliminary determination of non-environmental issues prior to the completion of its review of the environmental aspects of the project. This preliminary determination typically considers such issues as the need for the project and its economic effect on existing customers of the applicant, on other pipelines in the area, and on landowners and communities. For example, the Commission considers the extent to which the applicant may need to exercise eminent domain to obtain rights-of-way for the proposed project and balances that against the non-environmental benefits to be provided by the project. Therefore, if a person has comments on community and landowner impacts from this proposal, it is important either to file comments or to intervene as early in the process as possible. Also, comments protests, and interventions may be filed electronically via the internet in lieu of paper. See, 18 CFT 385.2001(a)(1)(iii) and the instructions on the Commission's web site at http://www.ferc.fed.us/efi/doorbell.htm. If the Commission decides to set the application for a formal hearing before an Administrative Law Judge, the Commission will issue another notice describing that process. At the end of the Commission's review process, a final Commission order approving or denying a certificate will be issued. Linwood A. Watson, Jr., Acting Secretary. [FR Doc. 01-8489 Filed 4-5-01; 8:45 am] BILLING CODE 6717-01-M Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Verizon to Pitch Movies-on-Demand to Studios, Variety Says 2001-04-06 15:29 (New York) New York, April 6 (Bloomberg) -- Verizon Communications Inc. is offering movie studios millions of dollars in incentive fees and other inducements to try to interest the studios in its high- speed Internet movie-on-demand service, Variety magazine reported. Metro-Goldwyn-Mayer Inc., AOL Time Warner Inc.'s Warner Bros. and Sony Corp. are expected to meet with the telephone company beginning next week, the magazine said. Verizon has completed market tests of the service in Washington, and has placed tens of millions of dollars in orders for television set-top boxes in order to begin offering the service as early as June, the magazine said. An agreement could hurt plans by Enron Corp. to attract the studios as partners for a service it planned with Viacom Inc.'s Blockbuster Entertainment unit, the magazine said. Enron and Blockbuster ended their exclusive relationship last month. (Variety.com 4-6) For the Web site of Variety.com, see {VRTY <GO>}. --Rachel Katz in the Princeton newsroom at (609) 279-4116, or at rkatz3@bloomberg.net/jjs

dasovich-j/all_documents/10751.

dasovich-j

Subject: Enron Mentions - 06/06/2001 Sender: sharonda.stephens@enron.com Recipients: ['sharonda.stephens@enron.com'] File: dasovich-j/all_documents/10751. ===================================== USA: Enron to cut one-fifth of jobs at broadband unit. Reuters English News Service, 04/06/2001 UK: London timecharter fixtures. Reuters English News Service, 04/06/2001 USA: RESEARCH ALERT-Morgan starts Dynegy as buy. Reuters English News Service, 04/06/2001 NYMEX Analysis CNNfn: Before Hours, 04/06/2001 CONSULTANTS HIRED FOR GAS PLANTS STUDY South Florida Sun-Sentinel, 04/06/2001 Trojan Nuclear Plant; Notice of Docketing of Materials License No. SNM-2509, Amendment Application for the Trojan Independent Spent Fuel Storage Installation Federal Register, 04/06/2001 APPROVE ENRON POWER PLANT PUT POLLUTION ISSUE IN PERSPECTIVE South Florida Sun-Sentinel, 04/06/2001 Haleywest L.L.C., et al.; Electric Rate and Corporate Regulation Filings Federal Register, 04/06/2001 Verizon to Pitch Movies-on-Demand to Studios, Variety Says Bloomberg, 04/06/2001 USA: Enron to cut one-fifth of jobs at broadband unit. 04/06/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, April 6 (Reuters) - Energy trading giant Enron Corp. said on Friday it will eliminate some 250, or roughly 20 percent, of the jobs at its broadband telecommunications unit, detailing a move which it has previously described as an internal redeployment of staff. Enron Broadband Services spokeswoman Kelly Kimberly said the company is cutting jobs at the unit, which now employs 1,150 people, because it has completed the build-out of its 18,000-mile (29,000 km) fiber-optic network and because of slow demand for streaming media products delivered to personal computers. "The network is substantially complete now, so that means fewer people are required for technical positions," she said. The job cuts also reflect Enron Broadband's decision to play a less active role in the market for streaming media services, such as video of corporate events delivered to personal computers, where demand had been slower than expected, she said. However, Kimberly said Enron Broadband will continue to pursue entertainment-on-demand services actively. Kimberly said employees whose jobs are being eliminated will be eligible for redeployment to other positions at Enron Broadband Services or other Enron units, although there could be some involuntary terminations. Previously Enron officials had dismissed rumors about job cuts at Enron Broadband Services and had spoken instead of an internal redeployment of staff within the unit without detailing its impact on overall employment there. The company's stock, which peaked at just above $90 last year and was trading in the $80s as recently as mid-February, has recently fallen into the $50s in line with broader weakness in the stock market and among technology and telecommunications stocks in particular. On Friday it was up 95 cents at $56.65. Since early last year Enron has been building a high-speed broadband communications network that it plans to use as a base to build a bandwidth marketing and trading business similar to its huge natural gas and electricity trading operation. Excitement among investors about the broadband business and about Enron's success in developing a strong Internet-based trading platform for energy and other commodities drove an 87 percent rise in the company's share price last year, outpacing a gain of 54 percent for the S&P utilities index. Kimberly said Enron's bandwidth trading operation is continuing to perform strongly, with more than 500 trades carried out in the first quarter, exceeding the total for all of 2000. Despite the jobs cuts at Enron Broadband, she said, the unit is recruiting to fill some other positions. UK: London timecharter fixtures. 04/06/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, April 6 (Reuters) - Bulk Atalanta - (built 1990) 149,512 dwt 13.25 on 44 ndas delivery retroactive Cape Passero in direct continuation Apr 25/30 3-5 months trading redelivery world-wide $13,200 daily Enron. Golden Disa - (built 1999) 75,200 dwt delivery Qingdao spot trip via Australia plus Mideast Gulf redelivery passing Muscat outbound $11,250 daily ETA. Bergen Trader - (built 2000) 75,000 dwt delivery Kosichang Apr 10/20 3-5 months trading redelivery world-wide $11,600 daily Swiss Marine. Rutland Glen - (built 1999) 73,700 dwt delivery Cape Passero Apr 10/20 trip via east coast South America redelivery Skaw-Cape Passero $12,000 daily Azure. Pacific Paradise - (built 1993) 73,600 dwt delivery Kohsichang Apr 21/22 trip and redelivery Continent $13,500 daily Matinc. Endless - (built 1999) 73,400 dwt delivery Porto Vesme prompt trip via east coast South America redelivery Far East $11,500 daily Transfield. Mass Merit - (built 1993) 69,620 dwt delivery U.S. Gulf Apr 15/25 trip and redelivery Taiwan $10,750 daily plus $190,000 ballast bonus Taho. Menites - (built 1981) 64,896 dwt delivery Ghent Apr 10/15 trip via Brazil redelivery Antwerp approximately $10,000 daily Pan Ocean. Atlantic Savior - (built 1983) 64,754 dwt delivery Cape Passero Apr 10/15 trans-Atlantic round voyage redelivery West Mediterranean-Continent range $10,000 daily T and E. USA: RESEARCH ALERT-Morgan starts Dynegy as buy. 04/06/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, April 6 (Reuters) - J.P. Morgan said Friday that analyst Anatol Feygin had initiated coverage of Dynegy Inc. as a long term buy with a price target of $63 a share. He said the company has provided "defensive earnings growth through a top tier wholesale energy player" that is "second only to Enron ." Dynegy's asset-light strategy allows the company to follow Enron's lead, with a favorable risk/reward profile with 73 percent of EBIT coming from non-regulated "merchant energy" opportunities, he said. "We project Dynegy's long-term earnings growth rate at 22 percent," he added. The analyst attributed Dynegy's "retreat from the $57 level to the California power crisis, which has been a major stumbling block for the stock and should hinder near-term performance. It casts doubt on the very dynamic that Dynegy is a play on, and usurps management time and talent. "Although fundamentally we see it as more of a nuisance - a few credit/collection issues (with) little to no earnings risk, and a delay, not a derailment of the deregulation process - the resolution of the Golden State debacle is to us the key catalyst for an upgrade." Dynegy shares were off 94 cents at $49.98 in early New York Stock Exchange trading. Business NYMEX Analysis Jack Cafferty 04/06/2001 CNNfn: Before Hours (c) Copyright Federal Document Clearing House. All Rights Reserved. JACK CAFFERTY, CNNfn ANCHOR, BEFORE HOURS: On March 20, Vincent Viola was voted in as the new chairman of the New Mercantile Exchange. He takes over during a time of change and challenge for the NYMEX. Mr. Viola is here now to talk about his new position and the task ahead. Congratulations on the ascension to the throne down there. VINCENT VIOLA, NYMEX CHAIRMAN: Thank you, Jack. CAFFERTY: Job one is? VIOLA: Making sure that the exchange is postured to fulfill it`s purpose as a magnificently liquid and efficient pricing mechanism, and a stable, global counterparty for mediation of credit and risk on the products that we pursue to trade on the exchange. CAFFERTY: And to do it with an eye on making a profit. VIOLA: Yes, exactly. CAFFERTY: Which is a little bit different assignment than it`s been down there. VIOLA: Yes, exactly, the fact that our business model now, by virtue of the fact that we seek to make and provide profit to our shareholders compels us to start to act and function like a business. CAFFERTY: Now last year, you did incur losses down there of about almost $3 million. Tell me a little bit about why that happened and what you`re doing that`s going to prevent it from continuing to happen. VIOLA: Well, simply put, we had to make a decision as to enhancing the access of participants to our marketplace. And we went and decided to create our own proprietary electronic platform. CAFFERTY: Animex (ph), is that way. VIOLA: Enymex. CAFFERTY: Enymex, I`m sorry. VIOLA: And that was capital decision, capital spending decision that we made, rightfully so. And that caused the gap to close between revenues and expenses. CAFFERTY: All right, this is because, I would assume, of pressures from companies like Intercontinental Exchange, Enron Online, and some of the foreign operations as well, right? I mean, you to upgrade to stay competitive, is that. VIOLA: I think the B2B model hit everyone as a novel yet substantively interesting concept. For our marketplace, the most efficient source of liquidity right now, and the culture around trading our major product, oil, is based in the physical execution of those trades through open auction outcry. And the culture around oil trading is clearly much more comfortable person-to-person. We like to say, simply put, the best price for oil in the world is found on the floor of the NYMEX. The electronic umbrella around that execution in liquidity clearly will be best served by an electronic platform. CAFFERTY: Who`s going to win this tug-of-war eventually between the advent of electronic transactions and the old way of doing it by yelling out your bid? VIOLA: I think the source of liquidity that has the most continuous and consistent tightness between the bid and offer will in fact win out. And I think that the support of electronic access to the marketplace can only enhance the individual trader on the floor`s ability to provide the best service. CAFFERTY: Is it a matter of time, though, until technology simply outstrips the ability of individuals to move with the speed and proficiency that these computers can do? VIOLA: Clearly, technology, as it improves in terms of reliability and consistency, in terms of delivery of price, is the trend that we will react to as business people on the mercantile exchange. And we are preparing very, very aggressively to continue to make our markets the most efficient. It has to be stated that NYMEX is a double-A credit and a global counterparty, which mediates risk across a very, very wide range of market participants looking for credit mediation for the exchange of energy products. CAFFERTY: Talk to me for a minute about commodities and about the areas of the commodity business that you see perhaps being the areas that will generate the best profits for you, where the most action is likely to be. Just give me an overview of the markets from where you sit. VIOLA: Well, as a business model, the exchange provides for revenue- sourced, value-added functions. Firstly, it`s the only neutral model that can be conceived and executed currently, and looking for in the future. Secondly, its banking and mediation and price management through its margin facility and clearing facility, is a unique source of value. Thirdly, its information and data that it provides from the uniquely neutral and independent and uninfluenced prices that are physically identified on the floor is a unique source of basis and benchmark for oil trading throughout the world. And lastly, the professional and unique ability and experience of the best oil traders in the world, both on the floor and the ring of individuals that deal with those people off the floor every day, make the NYMEX a uniquely talented pool of business potential. It has to be stated that the gentlemen who trade oil for major concerns, institutional concerns, while they`re communicating with the floor of the NYMEX, every day, for many years, there`s a very, very close connection and cultural comfort and reliability on those prices and their efficiencies that have grown over the years. And we think that that`s going to be maintained. So I think those four principal sources of revenue are the essence of our model. CAFFERTY: What scares you about the new job? when you wake up in the middle of the night, you go, gee, I`m the chairman now, what worries you? VIOLA: I think I get a sense of unbridled excitement. I`ve always enjoyed a real good, fair fight. And I think what concerns me and excites me at the same time is that I`m responsible for almost 800-plus members and their families and the marketplaces that we serve, trying to bring very fair, open, properly banked markets. CAFFERTY: Good stuff. VIOLA: Yes. CAFFERTY: Appreciate your coming in. I wish you well, I hope your very successful as the new chairman of the NYMEX. VIOLA: You`re very kind, thank you. CAFFERTY: All right, Vincent Viola, thanks. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 888-CNNFN-01 OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT WWW.FDCH.COM THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. Content and programming copyright 2001 Cable News Network, Inc. ALL RIGHTS RESERVED. Prepared by eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.) No license is granted to the user of this material other than for research. User may not reproduce or redistribute the material except for user`s personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Cable News Network, Inc.`s copyright or other proprietary rights or interests in the material; provided, however, that members of the news media may redistribute limited portions (less than 250 words) of this material without a specific license from CNN so long as they provide conspicuous attribution to CNN as the originator and copyright holder of such material. This is not a legal transcript for purposes of litigation. LOCAL CONSULTANTS HIRED FOR GAS PLANTS STUDY Staff Reports 04/06/2001 South Florida Sun-Sentinel Broward Metro 3B (Copyright 2001 by the Sun-Sentinel) Deerfield Beach City Manager Larry Deetjen has hired two consultants to help a committee of volunteers shore up information about plans to build two natural-gas power plants in the southwest end of the city. The consultants, Tom T. John and Pete Hoffman, will help members of the city's seven-member Ad Hoc Energy Committee find out as much information as possible about the proposed plants. Enron Corp. and El Paso Corp. want to build power plants in the city's industrial area. John and Hoffman made a presentation to the committee on Thursday. Many people who live in North Broward County have opposed those plans, particularly in the case of Enron Corp., which also wants to build a plant in Pompano Beach. Notices Trojan Nuclear Plant; Notice of Docketing of Materials License No. SNM-2509, Amendment Application for the Trojan Independent Spent Fuel Storage Installation 04/06/2001 Federal Register 18321 Copyright (c) 2001 Federal Information & News Dispatch, Inc. All rights reserved By letter dated February 19, 2001, Portland General Electric Company (PGE) submitted an application to the Nuclear Regulatory Commission (NRC or the Commission) in accordance with 10 CFR part 72 requesting an amendment of the Trojan Nuclear Plant independent spent fuel storage installation (ISFSI) license (SNM-2509) for the ISFSI located in Columbia County, Oregon. PGE is seeking Commission approval to revise the Trojan ISFSI Technical Specifications (Appendix A to the license) to conform to a change in the Code of Federal Regulations (10 CFR 72.48) which will become effective on April 5, 2001, and to make editorial corrections. This application was docketed under 10 CFR part 72. The ISFSI Docket No. is 72-17 and will remain the same for this action. The amendment of an ISFSI license is subject to the Commission's approval. The Commission may issue either a notice of hearing or a notice of proposed action and opportunity for hearing in accordance with 10 CFR 72.46(b)(1) or, if a determination is made that the amendment does not present a genuine issue as to whether public health and safety will be significantly affected, take immediate action on the amendment in accordance with 10 CFR 72.46(b)(2) and provide notice of the action taken and an opportunity for interested persons to request a hearing on whether the action should be rescinded or modified. For further details with respect to this application, see the application dated February 19, 2001, which is available for public inspection at the Commission's Public Document Room, One White Flint North Building, 11555 Rockville Pike, Rockville, MD, or from the publicly available records component of NRC's Agencywide Documents Access and Management System (ADAMS). ADAMS is accessible from the NRC Web Site at http://www.nrc.gov/NRC/ADAMS/index.html (the Public Electronic Reading Room). Dated at Rockville, Maryland, this 29th day of March 2001. For the Nuclear Regulatory Commission. E. William Brach, Director, Spent Fuel Project Office, Office of Nuclear Material Safety and Safeguards. [FR Doc. 01-8503 Filed 4-5-01; 8:45 am] BILLING CODE 7590-01-P EDITORIAL APPROVE ENRON POWER PLANT PUT POLLUTION ISSUE IN PERSPECTIVE 04/06/2001 South Florida Sun-Sentinel Broward Metro 30A (Copyright 2001 by the Sun-Sentinel) In a "perfect" world, there would be no automobiles, with their internal combustion engines spewing pollutant-laden exhaust into the air. But how perfect would such a world be without the mobility and economic vitality those cars provide? In a "perfect" world, there would be no factories or refineries polluting air and water alike. But how perfect would such a world be without the steel, the textiles and the petroleum products those plants produce to meet the needs of consumers? And in a "perfect" world, there would be no power plants spewing pollutants into the air. But how perfect would such a world be without the electricity those plants generate to light, heat and cool our homes and businesses? Modern life forces unpleasant choices on all of us, from the average consumer to the highest-ranking public official. Those choices should be made with an eye on the big picture, and never on the basis of unrealistic notions of an idyllic world devoid of the sometimes unhealthy byproducts of human enterprise. The Pompano Beach City Commission is faced with such a choice. On Tuesday, commissioners are to consider a proposal by Enron Corp., a Houston-based energy company, to build a "peaking" power plant in the city. That type of plant operates only when a public utility, in this case Florida Power & Light Co., needs to purchase a backup source of power during periods of peak usage. The commissioners are under tremendous pressure from other politicians as well as residents, not only of Pompano Beach but of neighboring Margate and Coconut Creek, who worry about the increased air pollution such a plant inevitably would create. Opponents also are suspicious of Enron's long-range plans, which they contend involve a hidden agenda to push for state deregulation of the electric industry, which in turn would enable Enron to operate the plant 24 hours a day and sell the excess power elsewhere. There also are concerns about Enron's plans to use diesel fuel as a backup to its natural gas supply, the primary fuel source for the plant. Those worries are understandable, and no one should be unsympathetic to the residents' concerns. But if commissioners keep their eye on the big picture, they will have to conclude that the positives of this proposal greatly outweigh the negatives. To begin with, South Florida's burgeoning population requires foresight to avoid future power shortages like those California is now experiencing. A region that expects to add 2.3 million people during the next 20 years should be preparing now for the additional energy needs such growth will create. Moreover, a plant using relatively clean-burning natural gas and built by Enron, a company lauded as "progressive" by environmentalists for embracing alternative energy sources and for its commitment to tackling global warming, should be seen as preferable to what the area might ultimately be stuck with if forced in desperation to seek new sources of electricity generation during a power crisis. Already it has been determined that the proposed Enron plant would generate far, far less nitrogen oxide and sulfur dioxide than FPL's oil-powered plant at Port Everglades. To put things in further perspective, the plant would emit less than 2 percent of the amount of nitrogen oxide emitted by Broward County automobiles in a typical year. Opponents of the plant should be asking themselves whether their concern for the environment extends to carpooling or even leaving their cars at home at times when they could walk or ride a bicycle to their destination. Concerns about the possible burning of diesel fuel are valid, but Enron has agreed to fixed limits on the amount of diesel it would use, and to use relatively high-quality, low-sulfur diesel. Moreover, Enron's smokestacks are to be 80 feet high, meaning neighborhoods near the plant would likely experience no more pollution than other neighborhoods in the area. It should also be noted that the state Department of Environmental Protection has given preliminary approval to a permit for the plant, saying a lengthy review had found that it would have little impact on the region's air quality. Little impact. Compare that with the positive impact it would have on Pompano Beach, by increasing its tax base, providing jobs and developing a large piece of land that no one else has expressed any interest in; and on all of South Florida, by providing a source of relatively clean power for a region that will surely need it in the not-too-distant future, by minimizing costs to consumers and by making rolling brownouts unnecessary during periods of peak electrical usage. The plant cannot be built without a zoning change for the 28-acre site from industrial to public utility. The Pompano Beach Planning and Zoning Board has already approved the rezoning. City commissioners should keep their eye on the big picture and ratify that decision, for the good of Pompano Beach and all of South Florida. Notices Haleywest L.L.C., et al.; Electric Rate and Corporate Regulation Filings 04/06/2001 Federal Register 18239 Copyright (c) 2001 Federal Information & News Dispatch, Inc. All rights reserved March 30, 2001. Take notice that the following filings have been made with the Commission: 1. Haleywest L.L.C. [Docket No. EG01-161-000] Take notice that on March 28, 2001, 2001, Haleywest L.L.C. (Applicant), an Idaho limited liability company, whose address is P.O. Box 171, Laclede, Idaho 83851 filed with the Federal Energy Regulatory Commission an application for determination of exempt wholesale generator status pursuant to part 365 of the Commission's regulations. Applicant intends to lease and operate a facility comprised of three (3), continuously rated 1.6-megawatt generator sets (non- road engines) fired on diesel fuel with a maximum total output of 6-megawatts (the "Facility"). The Facility is located in Plummer, Idaho. Electric energy produced by the Facility will be sold by Applicant to the wholesale power market in the Northwestern United States. Comment date: April 20, 2001, in accordance with Standard Paragraph E at the end of this notice. The Commission will limit its consideration of comments to those that concern the adequacy or accuracy of the application. 2. Fountain Valley Power, L.L.C. [Docket No. EG01-162-000] Take notice that on March 26, 2001, Fountain Valley Power, L.L.C. (Applicant), filed with the Federal Energy Regulatory Commission an application for determination of exempt wholesale generator status pursuant to Part 365 of the Commission's regulations. Applicant is presently a wholly-owned subsidiary of Enron North America Corp., but is expected to become a wholly-owned indirect subsidiary of Black Hills Energy Capital, Inc. Applicant stated that it served its application on the following: Public Service Company of Colorado, the Colorado Public Utilities Commission, South Dakota Public Utility Commission, Wyoming Public Service Commission and the Securities and Exchange Commission. Comment date: April 20, 2001, in accordance with Standard Paragraph E at the end of this notice. The Commission will limit its consideration of comments to those that concern the adequacy of accuracy of the application. 3. Pinnacle West Energy Corporation [Docket No. EG01-163-000] Take notice that on March 28, 2001, Pinnacle West Energy Corporation (PWE) filed with the Federal Energy Regulatory Commission an application for determination of exempt wholesale generator status pursuant to Part 365 of the Commission's regulations. PWE is a wholly owned subsidiary of Pinnacle West Capital Corporation (PNW) and an associate company of Arizona Public Service Company. PWE was created to serve as PNW's competitive generation affiliate. The eligible facilities to be owned by PWE are a 120 MW natural gas-fired, combined cycle unit that is presently under construction and 10 trailer-mounted generating units with a combined capacity of less than 200 MW. Comment date: April 20, 2001, in accordance with Standard Paragraph E at the end of this notice. The Commission will limit its consideration of comments to those that concern the adequacy or accuracy of the application. Standard Paragraph E. Any person desiring to be heard or to protest such filing should file a motion to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). All such motions or protests should be filed on or before the comment date. Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a motion to intervene. Copies of these filings are on file with the Commission and are available for public inspection. This filing may also be viewed on the Internet at http://www.ferc.fed.us/ online/rims.htm (call 202-208-2222 for assistance). Comments, protests, and interventions may be filed electronically via the internet in lieu of paper. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's web site at http://www.ferc.fed.us/efi/doorbell.htm. David P. Boergers, Secretary. [FR Doc. 01-8459 Filed 4-5-01; 8:45 am] BILLING CODE 6717-01-P Notices Transwestern Pipeline Company; Notice of Application 04/06/2001 Federal Register 18238 Copyright (c) 2001 Federal Information & News Dispatch, Inc. All rights reserved April 2, 2001. Take notice that on March 29, 2001, Transwestern Pipeline Company, P.O. Box 3330, Omaha, Nebraska 68103-0330, in Docket No. CP01-115-000 filed an application pursuant to Sections 7(b) and (c) of the Natural Gas Act for permission and approval for Transco to replace mainline compression facilities at four existing compressor stations in Arizona, all as more fully set forth in the application which is on file with the Commission and open to public inspection. This filing may be viewed on the web at http://www.ferc.fed.us/online/rims.htm (call 202-208-2222 for assistance). Specifically, Transwestern proposes to abandon in place twelve existing drivers and compressors, totaling 49,500 horsepower, at Stations 1, 2, 3 and 4; and install operate a 41,500 ISO-rated horsepower turbine centrifugal compressor at each of the four stations. Transwestern also requests, to ensure a smooth transition to the new compressor units, to maintain the ability to operate the existing facilities up to six months after the installation of the new units. It is stated that the new units will require less maintenance activity than the existing units as well as operate more efficiently in flowing more gas through its system. Transwestern states that result of the project it will be able to provide incremental capacity of approximately 150,000 Mcf per day on its mainline from Thoreau, New Mexico to California, increasing its total capacity to California to 1,240,000 Mcf per day. It is indicated that the proposed modification will enable it to meet the supply and demand imbalance in the California area. Transwestern proposes to place the facilities into service by June 1, 2002. Transwestern estimates the cost for the proposed construction to be approximately $93,300,000, to be financed with internally-generated funds. Transwestern also states that it is not at this time requesting rolled-in pricing for the new facilities, and understands that it will be at risk for the recovery of costs associated with the proposed modifications. Any questions regarding the application should be directed to Keith L. Petersen, at (402) 398-7421. There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before April 16, 2001, file with the Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of all documents filed by the applicant and by all other parties. A party must submit 14 copies of filings made with the Commission and must mail a copy to the applicant and to every other party in the proceeding. Only parties to the proceeding can ask for court review of Commission orders in the proceeding. However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest. Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commenters will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commenters will not be required to serve copies of filed documents on all other parties. However, the non-party commenters will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order. [Page Number 18239] The Commission may issue a preliminary determination of non-environmental issues prior to the completion of its review of the environmental aspects of the project. This preliminary determination typically considers such issues as the need for the project and its economic effect on existing customers of the applicant, on other pipelines in the area, and on landowners and communities. For example, the Commission considers the extent to which the applicant may need to exercise eminent domain to obtain rights-of-way for the proposed project and balances that against the non-environmental benefits to be provided by the project. Therefore, if a person has comments on community and landowner impacts from this proposal, it is important either to file comments or to intervene as early in the process as possible. Also, comments protests, and interventions may be filed electronically via the internet in lieu of paper. See, 18 CFT 385.2001(a)(1)(iii) and the instructions on the Commission's web site at http://www.ferc.fed.us/efi/doorbell.htm. If the Commission decides to set the application for a formal hearing before an Administrative Law Judge, the Commission will issue another notice describing that process. At the end of the Commission's review process, a final Commission order approving or denying a certificate will be issued. Linwood A. Watson, Jr., Acting Secretary. [FR Doc. 01-8489 Filed 4-5-01; 8:45 am] BILLING CODE 6717-01-M Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Verizon to Pitch Movies-on-Demand to Studios, Variety Says 2001-04-06 15:29 (New York) New York, April 6 (Bloomberg) -- Verizon Communications Inc. is offering movie studios millions of dollars in incentive fees and other inducements to try to interest the studios in its high- speed Internet movie-on-demand service, Variety magazine reported. Metro-Goldwyn-Mayer Inc., AOL Time Warner Inc.'s Warner Bros. and Sony Corp. are expected to meet with the telephone company beginning next week, the magazine said. Verizon has completed market tests of the service in Washington, and has placed tens of millions of dollars in orders for television set-top boxes in order to begin offering the service as early as June, the magazine said. An agreement could hurt plans by Enron Corp. to attract the studios as partners for a service it planned with Viacom Inc.'s Blockbuster Entertainment unit, the magazine said. Enron and Blockbuster ended their exclusive relationship last month. (Variety.com 4-6) For the Web site of Variety.com, see {VRTY <GO>}. --Rachel Katz in the Princeton newsroom at (609) 279-4116, or at rkatz3@bloomberg.net/jjs =====================================

m..schmidt@enron.com

Enron Mentions

Enron Shares Fall on Concern Over CFO's Partnerships (Update4) Bloomberg, 10/19/01 USA: UPDATE 1-Enron stock sustains further heavy losses. Reuters English News Service, 10/19/01 Enron Corp. Cut to `Hold' at A.G. Edwards Bloomberg, 10/19/01 BANDWIDTH BEAT: Enron Broadband Unit Takes A Beating Dow Jones Energy Service, 10/19/01 Dynegy Chief: Bandwidth Growth Won't Wait For Trading Dow Jones Energy Service, 10/19/01 UK: Jobs in base metals down but definitely not out. Reuters English News Service, 10/19/01 New Power Hldg Sees Meeting 3Q Loss Estimate Dow Jones News Service, 10/19/01 Enron Shares Fall on Concern Over CFO's Partnerships (Update4) 2001-10-19 16:24 (New York) Enron Shares Fall on Concern Over CFO's Partnerships (Update4) (Updates with Chief Financial Officer Fastow didn't immediately return a call for comment in fifth paragraph.) Houston, Oct. 19 (Bloomberg) -- Enron Corp.'s shares have fallen 26 percent in the past three days on concern the biggest energy trader's dealings with partnerships run by its chief financial officer contributed to investment losses. Enron's stock dropped 10 percent today. Enron's board cost the company at least $35 million by allowing Chief Financial Officer Andrew Fastow to manage LJM Cayman and LJM2 Co-Investment, partnerships that bought Enron assets, a shareholder alleged Wednesday in a lawsuit. The lawsuit came the day after Enron reported $1.01 billion in third-quarter losses from failed investments. The Wall Street Journal reported $35 million of the losses were connected with the two limited partnerships. Enron also reduced shareholders' equity by $1.2 billion when it bought back 55 million shares from the partnerships, the paper reported yesterday. ``It looks sleazy,'' said Roger Hamilton, a manager at John Hancock's Value funds, which own 600,000 shares. ``If you are someone who invests in a company's management, it's almost time to punt with Enron.'' Enron spokeswoman Karen Denne didn't return calls or written requests seeking comment. Fastow didn't immediately return a telephone call for comment. Fastow and a handful of associates made more than $7 million last year in management fees and about $4 million in capital increases on an investment of about $3 million in one of the partnerships, the Journal reported today. Buying Enron Assets Fastow is involved in 17 other similar companies and partnerships that appear to have ties to Houston-based Enron, based on filings with the Texas secretary of state. The foreign business corporations and limited liability companies have directors, officers or managers whose address is listed as 1400 Smith Street in Houston, Enron's corporate address, according to Texas records. Fastow is listed as a director, officer or managing member in each one. At least one of the companies bought and sold Enron assets, including foreign power plants. Whitewing Management, which lists Fastow as its managing member, received $807 million from the sale of Enron debt last year. Under the terms of the debt sale, Whitewing is allowed to use the proceeds to buy power plants from Enron or make other ``permitted investments.'' Whitewing has bought 14 Enron plants or companies since 1999 and sold four. Enron's Denne has not responded to written requests about Fastow's role at Whitewing or whether he used his knowledge of the value of Enron assets to benefit outside investors or company executives at Enron's expense. Shares of Enron fell $2.95 to $26.05. They have fallen 69 percent this year. --Russell Hubbard in the Princeton newsroom, 609-750-4651 or rhubbard2@bloomberg.net, and Jim Kennett in Houston, (713) 353-4871 or jkennett@bloomberg.net/pjm/alp/pjm USA: UPDATE 1-Enron stock sustains further heavy losses. 10/19/2001 Reuters English News Service (C) Reuters Limited 2001. (New first paragraph, adds additional analyst comment) By Andrew Kelly HOUSTON, Oct 19 (Reuters) - Enron Corp. stock sustained further heavy losses on Friday as investor confidence in the former Wall Street favorite was rocked by reports about the company's relationship with a limited partnership that was run until recently by Enron's chief financial officer. The energy giant's stock closed down $2.95 or 10.2 percent at $26.05 per share, making a cumulative loss of 27 percent for a week in which Enron reported a third-quarter loss of $638 million, its first quarterly loss in over four years. Analysts said confidence was shaken by several articles in the Wall Street Journal this week alleging possible conflicts of interest on the part of Chief Financial Officer Andrew Fastow, who until recently ran a limited partnership that bought assets worth hundreds of millions of dollars from Enron. "I don't think this thing passes the smell test," said one analyst who spoke on condition of anonymity. "I think the CFO should be out of there right now. In the interest of the stockholders, that CFO should be gone," he said. Enron has rejected the suggestion that there was anything improper about the arrangements, but Fastow severed his ties with the LJM2 partnership earlier this year to allay concerns raised by investors and analysts about his dual responsibilities. POOR JUDGMENT? Analysts said that at the very least, the arrangement showed poor judgment by senior managers at Enron, which recently pledged to be more open with investors and analysts following a series of high-profile stumbles that culminated with the shock resignation of new chief executive officer Jeff Skilling in August. "For a company that had a lot of question marks around it already, these questions about financial dealings are really worrisome for investors," said Commerzbank Securities analyst Andre Meade. "It points to poor decision-making on behalf of the board and top management at Enron," he said. Enron, North America's biggest buyer and seller of natural gas and electricity, was one of Wall Street's high flyers last year, when its stock posted a gain of 87 percent. The stock's ascent was driven by enthusiasm for the company's plans to build a broadband telecommunications business and the success of its EnronOnline Internet energy trading platform. This year Enron's shares have fallen 69 percent as sentiment toward broadband and the Internet soured, Skilling resigned after only six months as CEO, and the company's Dabhol power plant project in India became mired in a payments dispute. Moody's Investors Service said earlier this week that it had placed all of Enron's long-term debt obligations on review for a possible downgrade after Enron took $1.01 billion in write-downs and charges that substantially reduced valuations for several non-core businesses, including broadband and water services. Some of Enron's financing arrangements require the company to maintain investment grade credit ratings. Analysts said Enron's credibility has been severely damaged and the recent reports about the LJM2 partnership had raised concerns that more unpleasant surprises may lie ahead. "What don't we know that went on at that company? Where's the credibility?" asked one frustrated analyst. "We don't know if it's limited to this," he said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Corp. Cut to `Hold' at A.G. Edwards 2001-10-19 16:27 (New York) Princeton, New Jersey, Oct. 19 (Bloomberg Data) -- Enron Corp. (ENE US) was downgraded to ``hold'' from ``buy'' by analyst Michael C Heim at A.G. Edwards & Sons Inc. BANDWIDTH BEAT: Enron Broadband Unit Takes A Beating By Michael Rieke 10/19/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) A Dow Jones Newswires Column HOUSTON -(Dow Jones)- Early last year, Enron Corp.'s (ENE) hype and skyrocketing share price enticed a number of other energy companies into the telecommunications business. Now investors are wondering whether Enron is leading the charge out of telecom. The company announced Oct. 16 that its broadband unit lost $80 million before interest and taxes in the third quarter on revenue of $4 million. In the third quarter of last year, the unit lost $20 million on revenue of $162 million. Enron also recorded a $180 million non-recurring charge for restructuring its broadband unit in the third quarter of this year. That amount included severance costs for cutting 400-500 jobs, loss on sale of inventory and the reduced value of Enron's content services. At an analysts meeting Oct. 16, Enron Chairman and Chief Executive Ken Lay said the broadband business is "not that robust" right now. Industry revenue is low and there's substantial overcapacity in the bandwidth market, "more than even we anticipated," Lay said. The company still has a problem finding creditworthy counterparties for bandwidth trading. Consolidation in the telecom sector has also eliminated potential trading partners. "A year ago it looked like an excellent business to get into," he said. "Others thought so, too." Looking back, Enron could have gotten into the broadband business with less capital, Lay said. It spent "too much too soon." An Ominous Comparison He compared Enron's move into telecom with its move into the water business with its Azurix unit. That comparison probably won't be good news to those who still have broadband jobs at Enron. Azurix caused Enron to take a bigger writedown - $287 million - than broadband in the third quarter. The water business has been a bigger and longer-lasting headache than broadband. Maybe Enron's surviving broadband employees will feel better knowing that Lay told analysts the company is exploring alternatives to preserve its play in telecom at a reasonable price so it will be ready when the business recovers. It's trying to reduce general and administrative costs in broadband to $40 million a quarter and is on track to reach that goal next year, he said. It could cut those costs even more in order to sustain the business. Meanwhile, the company is trying to determine which parts of the telecom business it wants to be in, he said. Enron President and Chief Operating Officer Greg Whalley told analysts the company needs to determine how much network and hardware it needs. At one time, they had thought that they wanted to use physical network assets as a springboard, Whalley said. Now they "wouldn't want to forever be in the network business." Both executives mentioned the possibility of joint ventures in telecom. Lay said other companies are asking Enron to do them. Whalley said the company has talked about exchanging fiber and other assets. The one part of the telecom business Enron still seems committed to is broadband intermediation. "Intermediation" is a term the company uses in most of its commodity businesses, said an Enron spokeswoman. It's a combination of trading and deal origination - wholesale and enterprise customers. More Bad News Expected Rebecca Followill, a research analyst for Howard, Weil, Labouisse, Friedrichs Inc., she had expected a larger writedown in broadband for the third quarter. "If you look at how much the stocks of their peers in broadband have fallen, you've got to figure that their assets' values have fallen similarly," Followill told Bandwidth Beat. "I was expecting more like an 80% writedown in broadband." Another analyst, who didn't want to be identified, said he also expects more broadband writedowns from Enron. "To the extent that they can take more writedowns, I think it would make eminently good sense to do it." He predicted "a $200 million haircut" in the first quarter of next year because of a goodwill valuation issue. And that might not be the end of it. Enron had a net of $948 million of broadband property, plant and equipment at the end of last year, he said. They had another $600 million of risk management asset receivables, inventories and working capital items. Followill doesn't see much future in broadband for Enron. "I think the business will shrink to the point where it won't be shown as a key sector in their reporting," she said. Enron might keep a small broadband group in case the market rebounds, she said. Her investor clients don't expect broadband to contribute to Enron's earnings within the next three years. She thinks Enron is looking for an exit strategy. The other analyst said Enron is trying to preserve some value in broadband. "It doesn't look like there's any right now, to be honest," he said. "They'll carry the trading operation to some degree." -By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy Chief: Bandwidth Growth Won't Wait For Trading By Erwin Seba Of DOW JONES NEWSWIRES 10/19/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Dynegy Inc. (DYN) Chairman and Chief Executive Chuck Watson understands why some think he is mistaken in believing the bandwidth sector has reached its bottom and is recovering. But those critics don't understand his bandwidth business, Watson told Dow Jones Newswires in an exclusive interview. They don't understand how the business world has changed since the Sept. 11 terrorist attacks, he said. In announcing third-quarter results for Dynegy Monday, Watson said the bottom in bandwidth demand was reached on Sept. 11 and that the market would begin recovery in the fourth quarter of this year. Businesses are reassessing where to store data and how to distribute operations to avoid losing everything in a sudden catastrophic event, be it of natural or human origin. That's what's driving the recovery, he said. Also, businesses will avoid travel, he said, relying instead on video conferencing. Enron Corp. (ENE) Chairman Kenneth Lay said Tuesday that he hasn't seen any signs of recovery in telecom. The bandwidth market is suffering, in part, because there are few creditworthy companies to trade with, he said. "They're trying to find trading partners for broadband," Watson said. "That's going to be tough to do." Dynegy isn't concentrating on bandwidth trading because there isn't "a realistic model" for it yet, he said. "I said two years ago it was at least two years away. I still think it's probably at least two years away, before we actually call it a trading commodity." The metro-area infrastructure that Dynegy and other companies are building will create connections between networks, which are needed in order to trade bandwidth as a commodity, Watson said. It's unfortunate that Enron's model for bandwidth as a traded commodity is the dominant image for the entire market, Watson said. Dynegy's model includes telecom contracts, negotiated directly with customers for long-term supply of bandwidth. Dynegy's bandwidth trading desk is staffed by four people. For the past several months, they have been buying bandwidth for Dynegy's customers. The goal has been to build a customer base. "We're looking at being an intermediary, and really looking at the same customers that we feed energy today." Since Dynegy lit its 16,000 route-mile network two weeks ago, the trading desk has been trying to fill the company's network instead of buying bandwidth from others. "I'm trying to find enterprises that have communication requirements," Watson said. He pointed to ChevronTexaco Corp. (CHX) as a target for those services. "They have offices that never talked to each before," he said. "Now they've got to talk to each other. I would say that the credit quality of Chevron and Texaco is pretty reasonable." ChevronTexaco owns about 26% of Dynegy, said a Dynegy spokesman. Dynegy and ChevronTexaco already have a large energy trading relationship which includes natural gas and gas liquids. The average burn rate of Dynegy Global Communications, the corporation's telecommunications unit, is $20 million to $25 million a quarter, Watson said. In the third quarter, it lost $15 million, down from $20 million in the second quarter. Dynegy predicts that Global Communications will break even or record a small loss before interest and taxes in the fourth quarter. "If we can get to (income of) $10 million per month - that's what we need really," he said. "If we can get there by the end of next year, I'll be very happy. I think by '03, this market will have righted itself." Watson believes telecommunications has the potential to transform Dynegy. "Dynegy is an energy company," he said. "Our energy merchant company is doing very well and business is growing like a weed...(Telecommunications) is not our core business by any stretch right now. But I'd love to be able to tell you it's going to be. I'd love to be able to tell you it is someday." -By Erwin Seba, Dow Jones Newswires; 713-547-9214; erwin.seba@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. UK: Jobs in base metals down but definitely not out. By Amanda Cooper 10/19/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, Oct 18 (Reuters) - Dismal industrial demand and the fickleness of hedge funds seduced by more volatile markets have slashed London Metal Exchange members' profits over the past year and set off a gathering wave of job cuts. The decline and fall of base metal prices in the past year and a half has prompted a series of high-profile companies to withdraw from the market, casting a pall over next week's yearly LME Week industry gathering in London. Jobs have gone from front office to back in trading houses and banks, raising questions about the prospects for those now seeking work. "Good people can always be placed. As long as there is a job to fill and the company has a budget to hire," Sarah Gilley of London-based recruitment group Exchange Consulting said. "Where the situation starts to get difficult is where everyone is cutting budgets, people are not being replaced when they leave and there have been an awful lot of redundancies." Last week, ScotiaMocatta, a subsidiary of the Bank of Nova Scotia and a key ring dealing member, unveiled its decision to give up open outcry trading on the LME floor, prompting around 25 job losses among traders, phone jockeys and clerks. Then blue-blooded banker N.M. Rothschild & Sons closed its London and New York base metals units. It left its core precious metals business intact, but 20 base metals staff were laid off in the process. In the same week, the LME's largest floor trader, Enron Metals, said it planned to cut 10 to 20 percent of its metals staff as part of an exercise to cut 250 to 500 jobs in the Enron Group . SECURITY With three big market players and several major banks with commodities divisions slashing jobs at the same time, competition in the labour market will intensify and those in work are becoming wary about job security. "What we're finding at the moment is that there is still demand for traders with a track record, which is possibly increasing because people are nervous about their jobs and so they're keen to stay put," Gilley said. "So whereas someone who might be a big money-spinner with a track record would have previously stayed in their job for two to three years, they are now staying for three to five years. "They probably feel that they're reasonably safe where they are, they're well recognised and not going to stick their necks out," she said. BONUS FEARS October has never traditionally been a strong month for the the jobs market in base metals as players are often distracted by LME week functions and conferences Also, traders tend to be looking towards their annual performance-linked bonuses, which are usually announced at the end of the year. "Those who are in work at the moment are sticking. Often at this time of year, people are hanging on for their bonuses. But I don't think any of them are anticipating good bonuses. They're probably just happy to have a job," Sian Griffiths of Exchange Consulting said. LME volumes traded have been fallen over the past 18 months as the powerful hedge funds that once took a shine to the metals swarmed into areas such as hi-tech and telecomms stocks. Metals traders who handled the large volume of fund activity have begun to focus again on moree traditional clients, and this may yet prove a boon for the jobs market. Companies are seeking to fill a shortage of staff schooled in the traditional practices of trading physical metal. "A lot of companies who had sidelined the traditional physical business are now re-aligning their focus and need poeple who understand the physical market and know how to set up a hedge and manage it, " Gilley said. "The other area where demand has markedly increased in comparison to a few years ago is marketing," she added. As for morale in the industry, individuals' confidence in their future is seemingly undimmed. "Just because I've lost my job doesn't mean I'm going to sell my Porsche," one trader said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. New Power Hldg Sees Meeting 3Q Loss Estimate 10/19/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) PURCHASE, N.Y. -(Dow Jones)- New Power Holding Inc. (NPW) expects to meet its prior third quarter loss estimates; and said it has revised an agreement with Enron Corp. (ENE), lowering the collateral New Power must post under a master netting agreement. In a press release Friday, New Power said the amendment to the Enron pact and cost-cutting efforts will allow the company to continue to conduct business until it secures ongoing asset-backed financing. The company reiterated its earlier expectations of a third quarter loss of $65 million to $70 million, or $1.12 to $1.20 a share. Analysts put the company's third quarter loss at $1.16 a share, according to Thomson Financial/First Call. Third quarter revenue will be "slightly lower" than the $60 million to $65 million forecast in August, New Power said. In the year-ago third quarter New Power lost $1.23 a share on revenue of $18.19 million. The amendment to the master netting agreement with Enron North America Corp., Enron Energy Services Inc. and Enron Power Marketing Inc. affects the master cross-product netting, setoff, and security agreement, and expands through Jan. 4 the types of collateral that New Power is permitted to post to the Enron units. Under the amended pact, the first $70 million of posted collateral must be in the form of cash, while amounts in excess of $70 million may consist of not more than $40 million of eligible receivables and inventory of New Power, valued at discounts specified in the amendment, and subject to a $25 million limit for October 2001. Shares of New Power traded recently on the New York Stock Exchange at $1.67, up 1 cent, or 0.6%, on early composite volume of 7,900 shares. Average daily volume is 223,800 shares. -Bill Platt; Dow Jones Newswires; 201-938-5400 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

dasovich-j/deleted_items/1874.

dasovich-j

Subject: Enron Mentions Sender: m..schmidt@enron.com Recipients: [] File: dasovich-j/deleted_items/1874. ===================================== Enron Shares Fall on Concern Over CFO's Partnerships (Update4) Bloomberg, 10/19/01 USA: UPDATE 1-Enron stock sustains further heavy losses. Reuters English News Service, 10/19/01 Enron Corp. Cut to `Hold' at A.G. Edwards Bloomberg, 10/19/01 BANDWIDTH BEAT: Enron Broadband Unit Takes A Beating Dow Jones Energy Service, 10/19/01 Dynegy Chief: Bandwidth Growth Won't Wait For Trading Dow Jones Energy Service, 10/19/01 UK: Jobs in base metals down but definitely not out. Reuters English News Service, 10/19/01 New Power Hldg Sees Meeting 3Q Loss Estimate Dow Jones News Service, 10/19/01 Enron Shares Fall on Concern Over CFO's Partnerships (Update4) 2001-10-19 16:24 (New York) Enron Shares Fall on Concern Over CFO's Partnerships (Update4) (Updates with Chief Financial Officer Fastow didn't immediately return a call for comment in fifth paragraph.) Houston, Oct. 19 (Bloomberg) -- Enron Corp.'s shares have fallen 26 percent in the past three days on concern the biggest energy trader's dealings with partnerships run by its chief financial officer contributed to investment losses. Enron's stock dropped 10 percent today. Enron's board cost the company at least $35 million by allowing Chief Financial Officer Andrew Fastow to manage LJM Cayman and LJM2 Co-Investment, partnerships that bought Enron assets, a shareholder alleged Wednesday in a lawsuit. The lawsuit came the day after Enron reported $1.01 billion in third-quarter losses from failed investments. The Wall Street Journal reported $35 million of the losses were connected with the two limited partnerships. Enron also reduced shareholders' equity by $1.2 billion when it bought back 55 million shares from the partnerships, the paper reported yesterday. ``It looks sleazy,'' said Roger Hamilton, a manager at John Hancock's Value funds, which own 600,000 shares. ``If you are someone who invests in a company's management, it's almost time to punt with Enron.'' Enron spokeswoman Karen Denne didn't return calls or written requests seeking comment. Fastow didn't immediately return a telephone call for comment. Fastow and a handful of associates made more than $7 million last year in management fees and about $4 million in capital increases on an investment of about $3 million in one of the partnerships, the Journal reported today. Buying Enron Assets Fastow is involved in 17 other similar companies and partnerships that appear to have ties to Houston-based Enron, based on filings with the Texas secretary of state. The foreign business corporations and limited liability companies have directors, officers or managers whose address is listed as 1400 Smith Street in Houston, Enron's corporate address, according to Texas records. Fastow is listed as a director, officer or managing member in each one. At least one of the companies bought and sold Enron assets, including foreign power plants. Whitewing Management, which lists Fastow as its managing member, received $807 million from the sale of Enron debt last year. Under the terms of the debt sale, Whitewing is allowed to use the proceeds to buy power plants from Enron or make other ``permitted investments.'' Whitewing has bought 14 Enron plants or companies since 1999 and sold four. Enron's Denne has not responded to written requests about Fastow's role at Whitewing or whether he used his knowledge of the value of Enron assets to benefit outside investors or company executives at Enron's expense. Shares of Enron fell $2.95 to $26.05. They have fallen 69 percent this year. --Russell Hubbard in the Princeton newsroom, 609-750-4651 or rhubbard2@bloomberg.net, and Jim Kennett in Houston, (713) 353-4871 or jkennett@bloomberg.net/pjm/alp/pjm USA: UPDATE 1-Enron stock sustains further heavy losses. 10/19/2001 Reuters English News Service (C) Reuters Limited 2001. (New first paragraph, adds additional analyst comment) By Andrew Kelly HOUSTON, Oct 19 (Reuters) - Enron Corp. stock sustained further heavy losses on Friday as investor confidence in the former Wall Street favorite was rocked by reports about the company's relationship with a limited partnership that was run until recently by Enron's chief financial officer. The energy giant's stock closed down $2.95 or 10.2 percent at $26.05 per share, making a cumulative loss of 27 percent for a week in which Enron reported a third-quarter loss of $638 million, its first quarterly loss in over four years. Analysts said confidence was shaken by several articles in the Wall Street Journal this week alleging possible conflicts of interest on the part of Chief Financial Officer Andrew Fastow, who until recently ran a limited partnership that bought assets worth hundreds of millions of dollars from Enron. "I don't think this thing passes the smell test," said one analyst who spoke on condition of anonymity. "I think the CFO should be out of there right now. In the interest of the stockholders, that CFO should be gone," he said. Enron has rejected the suggestion that there was anything improper about the arrangements, but Fastow severed his ties with the LJM2 partnership earlier this year to allay concerns raised by investors and analysts about his dual responsibilities. POOR JUDGMENT? Analysts said that at the very least, the arrangement showed poor judgment by senior managers at Enron, which recently pledged to be more open with investors and analysts following a series of high-profile stumbles that culminated with the shock resignation of new chief executive officer Jeff Skilling in August. "For a company that had a lot of question marks around it already, these questions about financial dealings are really worrisome for investors," said Commerzbank Securities analyst Andre Meade. "It points to poor decision-making on behalf of the board and top management at Enron," he said. Enron, North America's biggest buyer and seller of natural gas and electricity, was one of Wall Street's high flyers last year, when its stock posted a gain of 87 percent. The stock's ascent was driven by enthusiasm for the company's plans to build a broadband telecommunications business and the success of its EnronOnline Internet energy trading platform. This year Enron's shares have fallen 69 percent as sentiment toward broadband and the Internet soured, Skilling resigned after only six months as CEO, and the company's Dabhol power plant project in India became mired in a payments dispute. Moody's Investors Service said earlier this week that it had placed all of Enron's long-term debt obligations on review for a possible downgrade after Enron took $1.01 billion in write-downs and charges that substantially reduced valuations for several non-core businesses, including broadband and water services. Some of Enron's financing arrangements require the company to maintain investment grade credit ratings. Analysts said Enron's credibility has been severely damaged and the recent reports about the LJM2 partnership had raised concerns that more unpleasant surprises may lie ahead. "What don't we know that went on at that company? Where's the credibility?" asked one frustrated analyst. "We don't know if it's limited to this," he said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Corp. Cut to `Hold' at A.G. Edwards 2001-10-19 16:27 (New York) Princeton, New Jersey, Oct. 19 (Bloomberg Data) -- Enron Corp. (ENE US) was downgraded to ``hold'' from ``buy'' by analyst Michael C Heim at A.G. Edwards & Sons Inc. BANDWIDTH BEAT: Enron Broadband Unit Takes A Beating By Michael Rieke 10/19/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) A Dow Jones Newswires Column HOUSTON -(Dow Jones)- Early last year, Enron Corp.'s (ENE) hype and skyrocketing share price enticed a number of other energy companies into the telecommunications business. Now investors are wondering whether Enron is leading the charge out of telecom. The company announced Oct. 16 that its broadband unit lost $80 million before interest and taxes in the third quarter on revenue of $4 million. In the third quarter of last year, the unit lost $20 million on revenue of $162 million. Enron also recorded a $180 million non-recurring charge for restructuring its broadband unit in the third quarter of this year. That amount included severance costs for cutting 400-500 jobs, loss on sale of inventory and the reduced value of Enron's content services. At an analysts meeting Oct. 16, Enron Chairman and Chief Executive Ken Lay said the broadband business is "not that robust" right now. Industry revenue is low and there's substantial overcapacity in the bandwidth market, "more than even we anticipated," Lay said. The company still has a problem finding creditworthy counterparties for bandwidth trading. Consolidation in the telecom sector has also eliminated potential trading partners. "A year ago it looked like an excellent business to get into," he said. "Others thought so, too." Looking back, Enron could have gotten into the broadband business with less capital, Lay said. It spent "too much too soon." An Ominous Comparison He compared Enron's move into telecom with its move into the water business with its Azurix unit. That comparison probably won't be good news to those who still have broadband jobs at Enron. Azurix caused Enron to take a bigger writedown - $287 million - than broadband in the third quarter. The water business has been a bigger and longer-lasting headache than broadband. Maybe Enron's surviving broadband employees will feel better knowing that Lay told analysts the company is exploring alternatives to preserve its play in telecom at a reasonable price so it will be ready when the business recovers. It's trying to reduce general and administrative costs in broadband to $40 million a quarter and is on track to reach that goal next year, he said. It could cut those costs even more in order to sustain the business. Meanwhile, the company is trying to determine which parts of the telecom business it wants to be in, he said. Enron President and Chief Operating Officer Greg Whalley told analysts the company needs to determine how much network and hardware it needs. At one time, they had thought that they wanted to use physical network assets as a springboard, Whalley said. Now they "wouldn't want to forever be in the network business." Both executives mentioned the possibility of joint ventures in telecom. Lay said other companies are asking Enron to do them. Whalley said the company has talked about exchanging fiber and other assets. The one part of the telecom business Enron still seems committed to is broadband intermediation. "Intermediation" is a term the company uses in most of its commodity businesses, said an Enron spokeswoman. It's a combination of trading and deal origination - wholesale and enterprise customers. More Bad News Expected Rebecca Followill, a research analyst for Howard, Weil, Labouisse, Friedrichs Inc., she had expected a larger writedown in broadband for the third quarter. "If you look at how much the stocks of their peers in broadband have fallen, you've got to figure that their assets' values have fallen similarly," Followill told Bandwidth Beat. "I was expecting more like an 80% writedown in broadband." Another analyst, who didn't want to be identified, said he also expects more broadband writedowns from Enron. "To the extent that they can take more writedowns, I think it would make eminently good sense to do it." He predicted "a $200 million haircut" in the first quarter of next year because of a goodwill valuation issue. And that might not be the end of it. Enron had a net of $948 million of broadband property, plant and equipment at the end of last year, he said. They had another $600 million of risk management asset receivables, inventories and working capital items. Followill doesn't see much future in broadband for Enron. "I think the business will shrink to the point where it won't be shown as a key sector in their reporting," she said. Enron might keep a small broadband group in case the market rebounds, she said. Her investor clients don't expect broadband to contribute to Enron's earnings within the next three years. She thinks Enron is looking for an exit strategy. The other analyst said Enron is trying to preserve some value in broadband. "It doesn't look like there's any right now, to be honest," he said. "They'll carry the trading operation to some degree." -By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy Chief: Bandwidth Growth Won't Wait For Trading By Erwin Seba Of DOW JONES NEWSWIRES 10/19/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Dynegy Inc. (DYN) Chairman and Chief Executive Chuck Watson understands why some think he is mistaken in believing the bandwidth sector has reached its bottom and is recovering. But those critics don't understand his bandwidth business, Watson told Dow Jones Newswires in an exclusive interview. They don't understand how the business world has changed since the Sept. 11 terrorist attacks, he said. In announcing third-quarter results for Dynegy Monday, Watson said the bottom in bandwidth demand was reached on Sept. 11 and that the market would begin recovery in the fourth quarter of this year. Businesses are reassessing where to store data and how to distribute operations to avoid losing everything in a sudden catastrophic event, be it of natural or human origin. That's what's driving the recovery, he said. Also, businesses will avoid travel, he said, relying instead on video conferencing. Enron Corp. (ENE) Chairman Kenneth Lay said Tuesday that he hasn't seen any signs of recovery in telecom. The bandwidth market is suffering, in part, because there are few creditworthy companies to trade with, he said. "They're trying to find trading partners for broadband," Watson said. "That's going to be tough to do." Dynegy isn't concentrating on bandwidth trading because there isn't "a realistic model" for it yet, he said. "I said two years ago it was at least two years away. I still think it's probably at least two years away, before we actually call it a trading commodity." The metro-area infrastructure that Dynegy and other companies are building will create connections between networks, which are needed in order to trade bandwidth as a commodity, Watson said. It's unfortunate that Enron's model for bandwidth as a traded commodity is the dominant image for the entire market, Watson said. Dynegy's model includes telecom contracts, negotiated directly with customers for long-term supply of bandwidth. Dynegy's bandwidth trading desk is staffed by four people. For the past several months, they have been buying bandwidth for Dynegy's customers. The goal has been to build a customer base. "We're looking at being an intermediary, and really looking at the same customers that we feed energy today." Since Dynegy lit its 16,000 route-mile network two weeks ago, the trading desk has been trying to fill the company's network instead of buying bandwidth from others. "I'm trying to find enterprises that have communication requirements," Watson said. He pointed to ChevronTexaco Corp. (CHX) as a target for those services. "They have offices that never talked to each before," he said. "Now they've got to talk to each other. I would say that the credit quality of Chevron and Texaco is pretty reasonable." ChevronTexaco owns about 26% of Dynegy, said a Dynegy spokesman. Dynegy and ChevronTexaco already have a large energy trading relationship which includes natural gas and gas liquids. The average burn rate of Dynegy Global Communications, the corporation's telecommunications unit, is $20 million to $25 million a quarter, Watson said. In the third quarter, it lost $15 million, down from $20 million in the second quarter. Dynegy predicts that Global Communications will break even or record a small loss before interest and taxes in the fourth quarter. "If we can get to (income of) $10 million per month - that's what we need really," he said. "If we can get there by the end of next year, I'll be very happy. I think by '03, this market will have righted itself." Watson believes telecommunications has the potential to transform Dynegy. "Dynegy is an energy company," he said. "Our energy merchant company is doing very well and business is growing like a weed...(Telecommunications) is not our core business by any stretch right now. But I'd love to be able to tell you it's going to be. I'd love to be able to tell you it is someday." -By Erwin Seba, Dow Jones Newswires; 713-547-9214; erwin.seba@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. UK: Jobs in base metals down but definitely not out. By Amanda Cooper 10/19/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, Oct 18 (Reuters) - Dismal industrial demand and the fickleness of hedge funds seduced by more volatile markets have slashed London Metal Exchange members' profits over the past year and set off a gathering wave of job cuts. The decline and fall of base metal prices in the past year and a half has prompted a series of high-profile companies to withdraw from the market, casting a pall over next week's yearly LME Week industry gathering in London. Jobs have gone from front office to back in trading houses and banks, raising questions about the prospects for those now seeking work. "Good people can always be placed. As long as there is a job to fill and the company has a budget to hire," Sarah Gilley of London-based recruitment group Exchange Consulting said. "Where the situation starts to get difficult is where everyone is cutting budgets, people are not being replaced when they leave and there have been an awful lot of redundancies." Last week, ScotiaMocatta, a subsidiary of the Bank of Nova Scotia and a key ring dealing member, unveiled its decision to give up open outcry trading on the LME floor, prompting around 25 job losses among traders, phone jockeys and clerks. Then blue-blooded banker N.M. Rothschild & Sons closed its London and New York base metals units. It left its core precious metals business intact, but 20 base metals staff were laid off in the process. In the same week, the LME's largest floor trader, Enron Metals, said it planned to cut 10 to 20 percent of its metals staff as part of an exercise to cut 250 to 500 jobs in the Enron Group . SECURITY With three big market players and several major banks with commodities divisions slashing jobs at the same time, competition in the labour market will intensify and those in work are becoming wary about job security. "What we're finding at the moment is that there is still demand for traders with a track record, which is possibly increasing because people are nervous about their jobs and so they're keen to stay put," Gilley said. "So whereas someone who might be a big money-spinner with a track record would have previously stayed in their job for two to three years, they are now staying for three to five years. "They probably feel that they're reasonably safe where they are, they're well recognised and not going to stick their necks out," she said. BONUS FEARS October has never traditionally been a strong month for the the jobs market in base metals as players are often distracted by LME week functions and conferences Also, traders tend to be looking towards their annual performance-linked bonuses, which are usually announced at the end of the year. "Those who are in work at the moment are sticking. Often at this time of year, people are hanging on for their bonuses. But I don't think any of them are anticipating good bonuses. They're probably just happy to have a job," Sian Griffiths of Exchange Consulting said. LME volumes traded have been fallen over the past 18 months as the powerful hedge funds that once took a shine to the metals swarmed into areas such as hi-tech and telecomms stocks. Metals traders who handled the large volume of fund activity have begun to focus again on moree traditional clients, and this may yet prove a boon for the jobs market. Companies are seeking to fill a shortage of staff schooled in the traditional practices of trading physical metal. "A lot of companies who had sidelined the traditional physical business are now re-aligning their focus and need poeple who understand the physical market and know how to set up a hedge and manage it, " Gilley said. "The other area where demand has markedly increased in comparison to a few years ago is marketing," she added. As for morale in the industry, individuals' confidence in their future is seemingly undimmed. "Just because I've lost my job doesn't mean I'm going to sell my Porsche," one trader said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. New Power Hldg Sees Meeting 3Q Loss Estimate 10/19/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) PURCHASE, N.Y. -(Dow Jones)- New Power Holding Inc. (NPW) expects to meet its prior third quarter loss estimates; and said it has revised an agreement with Enron Corp. (ENE), lowering the collateral New Power must post under a master netting agreement. In a press release Friday, New Power said the amendment to the Enron pact and cost-cutting efforts will allow the company to continue to conduct business until it secures ongoing asset-backed financing. The company reiterated its earlier expectations of a third quarter loss of $65 million to $70 million, or $1.12 to $1.20 a share. Analysts put the company's third quarter loss at $1.16 a share, according to Thomson Financial/First Call. Third quarter revenue will be "slightly lower" than the $60 million to $65 million forecast in August, New Power said. In the year-ago third quarter New Power lost $1.23 a share on revenue of $18.19 million. The amendment to the master netting agreement with Enron North America Corp., Enron Energy Services Inc. and Enron Power Marketing Inc. affects the master cross-product netting, setoff, and security agreement, and expands through Jan. 4 the types of collateral that New Power is permitted to post to the Enron units. Under the amended pact, the first $70 million of posted collateral must be in the form of cash, while amounts in excess of $70 million may consist of not more than $40 million of eligible receivables and inventory of New Power, valued at discounts specified in the amendment, and subject to a $25 million limit for October 2001. Shares of New Power traded recently on the New York Stock Exchange at $1.67, up 1 cent, or 0.6%, on early composite volume of 7,900 shares. Average daily volume is 223,800 shares. -Bill Platt; Dow Jones Newswires; 201-938-5400 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =====================================

angela.wilson@enron.com

Energy Issues

Please see the following articles: Sac Bee, Fri, 6/22: Employees: Power supply held down Sac Bee, Fri, 6/22: Consumers cut down their own power in protest Sac Bee, Fri, 6/22: Davis consultants had contract with Edison: The=20 disclosures turn up the heat on the governor for hiring=20 ex-Clinton aides SD Union, Fri, 6/22: State deal may ease blackout threat Canada to supply energy as summer demand rises=20 SD Union, Fri, 6/22: Ex-worker: Duke manipulated market LA Times, Fri, 6/22: Estimates of power profits disputed LA Times, Fri, 6/22: Edison plans bond offer at 13% rate LA Times, Fri, 6/22: Energy company abandons plans for Baldwin Hills plant= =20 SF Chron, Fri, 6/22: Western states could feel pinch from California pricin= g=20 SF Chron, Fri, 6/22: Feds spurn Duke Energy in its bid to avoid refunds SF Chron, Fri, 6/22: News Analysis: Davis winning Washington PR battle=20 Price cap victory may rob Democrats of campaign issue SF Chron, Fri, 6/22: Suit filed over report on power lines, health=20 Deal on transmission grid could raise liability SF Chron, Fri, 6/22: Texas power firm's shares failing (Enron spotlighted) Power baron Enron finds fortunes fading Mercury News, Fri, 6/22: Power firm accused of price-fixing Mercury News, Fri, 6/22: Enron chief: Gov. Davis not to blame for energy=20 crisis (Jeff Skilling comments, Ken Lay and Enron mentioned) OC Register, Fri, 6/22: Three say company purposely cut power Ex-Duke workers say repairs were curbed in order to manipulate market OC Register, Fri, 6/22: FERC judge tackles task of generating a deal=20 OC Register, Fri, 6/22: Davis seeks $9 billion refund=20 OC Register, Fri, 6/22: Energy notebook: Blackouts are still a hot prospect= ,=20 officials warn OC Register, Fri, 6/22: In rolling blackouts, 'together' is all relative Employees: Power supply held down By Kevin Yamamura and Emily Bazar Bee Capitol Bureau (Published June 22, 2001)=20 Three former San Diego Gas & Electric Co. employees who worked at a Duke=20 Energy plant said Thursday that the generator destroyed working parts,=20 withheld power supply or otherwise took actions that they believe drove up= =20 the price of electricity.=20 State officials said the whistle-blowers' comments at a state Senate hearin= g=20 today could provide the most damaging illustration yet that power generator= s=20 held down production to inflate prices on the spot market. Gov. Gray Davis= =20 has long alleged that power companies have overcharged the state and=20 utilities.=20 Jimmy Olkjer, a former assistant control room operator at Duke's South Bay= =20 plant in San Diego, said in a phone interview that during the state's power= =20 shortages, Duke cut supply. Although Duke, a Charlotte, N.C.-based company,= =20 owned the plant, and it contracted with SDG&E to operate the unit, he said.= =20 "Rather than creating more power, they were creating less," Olkjer said. "I= =20 think there was manipulation of the market."=20 The California Public Utilities Commission and several state legislative=20 committees continue to investigate price manipulation allegations, and=20 Attorney General Bill Lockyer has said he will take witnesses to a grand ju= ry=20 next month.=20 The generators have denied they manipulated the market.=20 "We stand behind our maintenance practices and have done a good job keeping= =20 the power flowing," Duke spokesman Tom Williams told the CBS television=20 network.=20 But former mechanic Glenn Johnson said he saw generation units taken "down= =20 for economics."=20 Ed Edwards, also a mechanic, said he was ordered to destroy 23 pallets of= =20 working parts.=20 "We were asked, myself and other employees, to disperse of perfectly good= =20 parts that were used to make repairs of systems and components," Edwards=20 said.=20 State Sen. Joe Dunn, D-Santa Ana, chairman of the market-manipulation=20 committee, said his staff has been looking for employees or others with=20 intimate knowledge of power plant operation to come forward, and he promise= d=20 that others will testify at future hearings.=20 "It's the first time that we've had evidence from directly within power=20 plants in California that the ramping up and ramping down of power generati= on=20 was a response to price and not to demand," Dunn said.=20 He said he would reach no conclusions until Duke and other generators testi= fy=20 next month, but he added that the former employees' testimony raises=20 suspicions "at first blush."=20 The Bee's Kevin Yamamura can be reached at (916) 326-5542 or=20 kyamamura@sacbee.com. Consumers cut their own power in protest=20 By Silvina Mart?nez Bee Staff Writer=20 (Published June 22, 2001) When the temperature hit 100 degrees at 7 p.m. Thursday, Larry Lynch turned= =20 off the air conditioner, unplugged the refrigerator, pulled out the TV cord= s=20 and shut down all other appliances in the house.=20 Lynch, a 61-year-old newsletter publisher in Sacramento, responded to the= =20 "Roll Your Own Blackout" Thursday and joined thousands throughout the state= =20 to protest energy policies and promote conservation by stopping the use of= =20 energy from 7-10 p.m.=20 But the data coming off the grid at the California Independent System=20 Operator didn't show the effort.=20 During the first hour of the voluntary shut-off, the demand for energy by= =20 PG&E customers in Northern California was almost the same as at the same ti= me=20 Wednesday, ISO officials said.=20 Protesters didn't expect significant changes on the grid.=20 "I feel it will at least send a message that we don't have to depend on it= =20 (energy)," said Jackie Bell, 37, a consultant at the Capitol joining the=20 conservation drive from her apartment on Fulton Avenue.=20 "It's just a symbolic act," said Peter Lopez of Sacramento, who decided to= =20 use the evening to meditate. "Maybe I'll just go outside, stare at the star= s=20 and try to spot a few constellations in the night."=20 It was the longest day of the year, and one of the hottest. But those=20 determined to advocate conservation didn't mind the sacrifice.=20 "People are getting focused on the fact that we have power at our end," sai= d=20 Joan Blades, a spokeswoman for MoveOn, a grass-roots organization in the Ba= y=20 Area and one of hundreds of online groups passing along the call for the=20 voluntary blackout.=20 An electrical engineer in Oakland started the "Roll Your Own Blackout" idea= =20 when he posted a note in a political chat room in April. Then an artist in= =20 Los Angeles forwarded the e-mail to a number of friends and from there it= =20 quickly spanned the globe.=20 By Thursday afternoon, more than 12,000 people had signed up at the MoveOn= =20 Web site to join the protest, Blades said.=20 Many threw blackout parties. In San Francisco, the nonprofit group Global= =20 Exchange gathered hundreds around a big bonfire at Ocean Beach.=20 At his home in east Sacramento, Lynch did fine without electricity for thre= e=20 hours. He ate tuna salad for dinner, watered the lawn and when it got dark,= =20 he opened the windows and let some air in.=20 "We should show that people are willing to shut the power off if the prices= =20 go too high," he said.=20 ISO has not declared a power emergency since May 31.=20 "We have seen a consistent conservation on a day-to-day basis, and it's=20 making the difference between blackouts and no blackouts," ISO spokeswoman= =20 Stephanie McCorkle said.=20 McCorkle encouraged initiatives like "Roll Your Own Blackout."=20 "People are conserving," she said. "And we can only support this whole=20 effort."=20 The Bee's Silvina Mart?nez can be reached at (916) 321-1159 or=20 smartinez@sacbee.com. Davis consultants had contract with Edison: The disclosures turn up the hea= t=20 on the governor for hiring the ex-Clinton aides. By Emily Bazar Bee Capitol Bureau (Published June 22, 2001)=20 Two consultants hired to advise Gov. Gray Davis on energy policy officially= =20 disclosed their contract with Southern California Edison on Thursday, but= =20 Davis aides insisted it is not a conflict because "Edison and the Governor'= s=20 Office have the same goal."=20 Communications consultants Chris Lehane and Mark Fabiani have drawn intense= =20 criticism since they were hired last month to shape the Democratic governor= 's=20 public response to the state energy crisis.=20 The former Clinton administration communication aides -- nicknamed the=20 "Masters of Disaster" for their spin on the Whitewater, travel office and= =20 1996 fund-raising controversies at the Clinton White House -- have come und= er=20 fire for receiving a six-month, $30,000-a-month contract, more than the=20 governor or anyone on his staff makes.=20 Secretary of State Bill Jones, a Republican who is running for governor nex= t=20 year, has called for an investigation into potential conflicts. State=20 Controller Kathleen Connell, a Democrat, has said she will not issue=20 paychecks to the pair pending her own investigation.=20 The criticism mounted after the duo's economic interest disclosure forms we= re=20 released late Thursday, showing that each has received at least $10,000 und= er=20 contract from Edison in the past year.=20 But Davis spokeswoman Hilary McLean defended their credibility, saying=20 there's no conflict of interest because Lehane and Fabiani both disclosed= =20 that they had worked for Edison before they signed their contracts with the= =20 state.=20 Besides, she added, Edison and the governor are working toward the same goa= l:=20 Both want the Legislature to adopt a memorandum of understanding, a propose= d=20 agreement, that would prevent Edison from going bankrupt by financing a sta= te=20 purchase of the utility's transmission lines.=20 "It's not a conflict because there's been full disclosure," McLean said.=20 "Edison and the Governor's Office have the same goal, passing the MOU. We'r= e=20 working together at this point with Edison."=20 But open-government groups and Republican lawmakers bristled at the notion= =20 that disclosure negates any potential conflict.=20 Derek Cressman of the California Public Interest Research Group pointed to = a=20 section of state law that prohibits public officials from influencing=20 decisions if it would have "a material financial effect" on a business enti= ty=20 that provided them $500 or more within the last year.=20 "You have two individuals on the government payroll who had previously been= =20 on the Edison payroll and it's not clear to whom their loyalties are," he= =20 said. "Just because they've revealed it doesn't mean there's not a conflict= =20 there, and that they're not serving two masters."=20 On Thursday, Jones said he is awaiting the results of the Fair Political=20 Practices Commission investigation and agrees with Connell's decision this= =20 week to withhold payment from the consultants.=20 "This further calls into question the ethics of how these individuals were= =20 hired and contracts were let," Jones said.=20 Senate Republican leader Jim Brulte believes there's no question that Lehan= e=20 and Fabiani are violating conflict-of-interest laws and suggested that the= =20 two should be paid out of Davis' campaign funds, which had reached $26=20 million by Jan. 1.=20 Brulte, of Rancho Cucamonga, added that he would not vote for a state budge= t=20 as long as Lehane and Fabiani remain on the state payroll.=20 "The state of California does not need to be paying political wordsmiths=20 $30,000 a month," he said. "I just wish (Davis) were as frugal with the=20 taxpayers' money as he is with his campaign money."=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . State deal may ease blackout threat=20 Canada to supply energy as summer demand rises By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 June 22, 2001=20 SACRAMENTO -- California may be able to avoid some of the blackouts predict= ed=20 for this summer, thanks to a little-known power-swapping agreement with a= =20 Canadian utility.=20 The arrangement is expected to give California electricity in July and Augu= st=20 from the hydroelectric generators of BC Hydro in British Columbia, despite = a=20 serious drought in the Northwest.=20 California has sold surplus power in recent months to the government-owned= =20 utility, which is expected to return power to the state as heat drives up t= he=20 demand for electricity.=20 State deal may ease blackout threat=20 Continuing coverage: California's Power Crisis=20 ?=20 Despite the energy crunch, the state often finds itself with surplus power= =20 that can be sold or swapped. For instance, advance power purchases that=20 provide energy at a better price may deliver more power than needed at any= =20 given time, particularly during off-peak hours.=20 BC Hydro's reservoirs and hydroelectric generators are a little like an=20 electricity storage battery. By importing California power, BC Hydro has be= en=20 able to conserve water that can be released this summer to produce power fo= r=20 California.=20 As a result of the agreement and other factors, state power buyers say they= =20 are in a stronger position going into the hot summer months than they had= =20 expected. So far this week, the state has managed to get through a heat wav= e=20 without so much as a Stage 1 power alert.=20 "We are in much better shape at this point than I imagined we would have be= en=20 as little as a month ago," said Ray Hart, head of the power purchasing unit= =20 in the state Department of Water Resources.=20 The North American Electric Reliability Council, which last month predicted= =20 260 hours of rolling blackouts for California this summer, has noticed a=20 change in recent weeks.=20 "We don't seem to have the crisis we were all expecting," said Ellen Vancko= ,=20 a council spokeswoman. "But whether that is a short-term or a long-term eve= nt=20 we don't think anyone knows yet."=20 Much of the credit for avoiding blackouts is given to unexpectedly high=20 conservation by Californians and an increased supply of power. Many=20 generators that had been shut down for maintenance or lack of payment are n= ow=20 back on line.=20 But the hydroelectric power agreement had gone unnoticed until now.=20 Hart mentioned it during a Senate Energy Committee hearing this week. But h= e=20 declined to reveal the amount of power banked with BC Hydro, saying it coul= d=20 hurt the state's competitive position in the market.=20 "If I start talking specifics," said Hart, "then I have to give out what I = am=20 doing every single day, and I have no market position."=20 In the past, California routinely sent power to a number of utilities in th= e=20 Pacific Northwest during the winter when residents there needed heat.=20 Northwest utilities returned power to California in the summer when air=20 conditioning drove up demand.=20 Little was expected from the reciprocal arrangement this year because=20 California was short of power last winter as electricity prices soared, and= =20 drought has sharply lowered reservoirs in the Northwest. But the agreement= =20 with BC Hydro will provide at least some power this summer.=20 The state was forced to begin buying power in January after its two largest= =20 utilities, Southern California Edison and Pacific Gas and Electric, were=20 unable to borrow because of a $13 billion debt. The rates that the utilitie= s=20 could charge their customers were frozen under a failed deregulation plan a= s=20 the cost of power on the wholesale market skyrocketed.=20 Hart said it took time to convince BC Hydro, which has demanded cash for so= me=20 electricity, that it could safely do business with California despite big= =20 debts owed to generators for power they supplied to the utilities.=20 "We have only been able to do it for the last couple of months," said Hart.= =20 "It took a long time to get them to do it because of credit issues."=20 A spokesman for BC Hydro said the utility engages in power swaps but does n= ot=20 release the name of the other parties or the terms of the agreements.=20 "Our first priority is taking care of our own," said Warren Cousins of BC= =20 Hydro. "We are still looking for opportunities to help out other entities= =20 when we can."=20 Hart said the state has another arrangement with the federal Bonneville Pow= er=20 Authority, but again refused to provide details. He said the state has sold= =20 surplus power to several buyers, including the Los Angeles Department of=20 Water and Power.=20 Information about state power purchases had been closely guarded until=20 recently. Gov. Gray Davis, pressured by lawsuits and a court ruling, releas= ed=20 edited versions last week of 38 long-term power contracts worth $43 billion= .=20 The Davis administration said it agreed to release contract information=20 because power prices have dropped, easing competitive pressures.=20 ?=20 Ex-worker: Duke manipulated market=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 June 22, 2001=20 SACRAMENTO -- A former operator at Duke Energy's Chula Vista plant said he= =20 was told frequently by company officials during the past year to alter the= =20 plant's output in a way that may have boosted electricity prices.=20 The operator, Jimmy Olkjer, said he was even ordered to cut power generatio= n=20 during energy emergencies, when the state faced rolling blackouts because o= f=20 a scarce supply of electricity.=20 He said he believes reducing the electricity generation helped the company= =20 charge higher prices. "It looks like that's what they were doing," Olkjer= =20 said in an interview.=20 He and another former plant employee said that during the past year the=20 company regularly operated its least-efficient turbine, possibly to justify= =20 higher prices.=20 The allegations, which they plan to repeat today at a state Senate hearing= =20 investigating power generators, provide the first insider evidence that Duk= e=20 Energy may have manipulated output at its South Bay plant to drive up price= s.=20 Duke, based in North Carolina, leases the South Bay plant from the San Dieg= o=20 Unified Port District.=20 A March report by the Independent System Operator, which manages California= 's=20 electricity grid, alleged that by withholding power Duke and four other=20 owners of generating plants have contributed to billions of dollars in=20 overcharges to California consumers.=20 Tom Williams, spokesman for Duke Energy North America, said that varying th= e=20 output of the generating units at the Chula Vista plant had nothing to do= =20 with trying to achieve higher prices.=20 He said the changes in output helped balance the state's grid by "dancing i= n=20 the market" -- providing flexibility for grid managers by allowing the plan= t=20 to add or reduce power quickly.=20 Williams added that the aging South Bay plant produced as many megawatts la= st=20 year as it did in 1994.=20 Olkjer served as a plant operator for 18 years, mostly when the plant was= =20 owned by San Diego Gas & Electric Co. After Duke took over the plant, worke= rs=20 were guaranteed their jobs for two years. In April, when that period ended,= =20 Duke laid off Olkjer and other workers. Now he is retired.=20 During the two years Duke has managed the plant, Olkjer said, operators=20 frequently got calls from officials with Duke Energy Trading and Marketing = in=20 Salt Lake City telling them to adjust their production schedule.=20 Some employees at the plant monitored the hourly price of electricity poste= d=20 by the Independent System Operator and recognized a correlation, he said.= =20 "We noticed that a lot of times when the price was down (our) megawatts wou= ld=20 go down," he said. "If the price was up, often the megawatts would go up."= =20 Olkjer said he was never told why he was being ordered to turn the plant's= =20 output up and down. When he asked, he said, company officials told him it w= as=20 none of his business.=20 Still, he was puzzled, particularly when he was told to throttle down the= =20 plant during electricity emergency alerts -- as he says he did Jan. 16 when= =20 the state declared a Stage 3 alert, with the possibility of rolling=20 blackouts.=20 "It doesn't make sense to cycle up and down when there's a Stage 3 alert," = he=20 said.=20 Duke spokesman Williams said the company may turn down units at the orders = of=20 the ISO during a Stage 3 alert because the grid manager can find cheaper=20 power somewhere else.=20 Lisa Szot, spokeswoman at the ISO, said she couldn't determine whether the= =20 ISO had ordered Duke to power down its Chula Vista plant Jan. 16.=20 Olkjer said the frequent adjustments of power production, which sometimes= =20 occurred every half-hour, wear out the plant's equipment.=20 "It's harder on the machinery," he said. "It's like driving down the street= =20 putting your (foot) on the gas and then slamming on the brake."=20 Before deregulation, Olkjer said, the four units at Chula Vista, which have= =20 the capacity to produce 706 megawatts, had been operated steadily during mu= ch=20 of their history.=20 S. David Freeman, formerly general manager of Los Angeles' Department of=20 Water and Power and now chief energy adviser to Gov. Gray Davis, said rapid= =20 cycling had become more common under deregulation and is hard on equipment.= =20 "We had almost 15,000 megawatts of generating capacity down for repair last= =20 winter," said Freeman, referring to what industry experts agreed was an=20 extraordinary level of plant outages over several months.=20 SDG&E, which built the Chula Vista plant in the 1960s, sold it to the Port= =20 District for $110 million. In 1998 the port leased the plant to Duke Energy= =20 for 101/2 years in what critics are now calling a sweetheart deal.=20 The company pays minimal rent, but has made large profits. In the first=20 quarter of this year, Duke, which owns three other plants in California, sa= id=20 profits rose 208 percent to $428 million from energy sales and trading.=20 Duke may hold the record for charging the highest price for electricity. It= =20 asked $3,880 per megawatt-hour this year. By comparison, before the energy= =20 crisis began, electricity sold for around $35 per megawatt-hour, an amount= =20 which powers about 750 homes.=20 Federal regulators have ordered the company to refund $20 million to the=20 state for charging excessive prices unless the company can justify them.=20 In May, the company offered to pay the state to settle any price gouging=20 investigations, but Gov. Gray Davis declined.=20 Olkjer and Ed Edwards Jr., who worked at the plant for 20 years before bein= g=20 laid off in April, said they couldn't understand why Duke ran the=20 inefficient, high-cost turbine unit during the past year while other=20 generators sat idle.=20 They said they believed it may have been an attempt to fetch a higher price= =20 for electricity because the company got extra fees when it ran.=20 Williams, the Duke spokesman, said the opposite was true. He said Duke ran= =20 the small turbine more frequently because it was less expensive. It ran on= =20 jet fuel, which was cheaper than the natural gas powering the other units.= =20 Edwards said the smaller unit was run so hard that it was destroyed.=20 "It ran so frequently and so hard, it needed extensive repairs," he said.= =20 Edwards told CBS News last night that plant outages at Chula Vista were=20 prolonged because one supervisor ordered him to dump spare parts.=20 The former power plant employees said they felt compelled to come forward= =20 because they saw the impact the power crisis was having on their community.= =20 "It kind of irritated me because you know there's people on a fixed income= =20 that can't afford a big utility bill," said Olkjer.=20 Staff writer Craig D. Rose contributed to this story.=20 ?=20 Estimates of Power Profits Disputed=20 Electricity: A study of overcharges by suppliers may be flawed, state=20 officials say. Davis quoted the figures to Congress.=20 By DOUG SMITH, ROBERT J. LOPEZ and RICH CONNELL, Times Staff Writers=20 ?????Gov. Gray Davis' contention that California has been nicked for billio= ns=20 of dollars in inflated electricity costs is based on a study that state=20 officials concede may have significant flaws, according to interviews and= =20 confidential government documents. ?????Those costs--estimated by the state to be as high as $9 billion--were= =20 central to Davis' testimony this week before a U.S. Senate committee, where= =20 he again denounced power wholesalers and urged federal regulators to "give = us=20 back the money that was wrongly taken from us." ?????The governor's impassioned demand, however, was based on shaky=20 calculations. The formulas are being reworked, said Charles Robinson, vice= =20 president of California's grid operator, which prepared the study. ?????Robinson said he "had no idea" how much the amount allegedly overcharg= ed=20 by the generators might change. For now, he said, the agency stands by the= =20 numbers. ?????But internal documents from the California Independent System Operator= =20 warn that some of the financial assumptions used to quantify the alleged=20 excess profits could be well off the mark. ?????What's more, the documents caution against relying on the agency's stu= dy=20 as a basis for allegations of overcharging--as Davis did during his testimo= ny=20 Wednesday. That warning was particularly important because the documents=20 provide for the first time a detailed accounting of how much each energy=20 supplier prospered from the state's power troubles between last summer and= =20 February. ?????The largest amounts were charged by four out-of-state power companies,= =20 according to the confidential Cal-ISO report. Okalhoma-based Williams Cos.= =20 led the group with $860 million, followed by Duke Energy with $805 million,= =20 Southern Company Energy Marketing (now Mirant) with $754 million and Relian= t=20 Energy Services with $750 million. ?????When told of the alleged profiteering attributed to them, executives o= f=20 the companies insisted the numbers were grossly overstated because of=20 Cal-ISO's poor methodology. ?????Duke spokesman Tom Williams said his company's entire energy earnings= =20 for North America were less than the amount it was accused of reaping=20 unfairly in California. ?????"It doesn't add up. It doesn't come close to adding up," Williams said= .=20 "What [Cal-ISO] has done is highly irresponsible math." ?????Paula Hall-Collins, a Williams Cos. spokeswoman, said the firm would= =20 need to study the ISO report further. But generally, she said, such reports= =20 fail to fully account for electricity production costs. ?????"We maintain that we have not overcharged, and that we have operated= =20 legally." ?????Reliant spokesman Richard Wheatley also questioned the figures, saying= ,=20 "There's a lot of misinformation out of there." ?????A Mirant spokesman said: "We haven 't overcharged. We haven't=20 manipulated. We haven't withheld."=20 ?????Even some firms alleged to have overcharged to a much lesser degree we= re=20 outraged. ?????Joe Ronan, vice president for government and regulatory relations at= =20 Calpine, said the $236 million attributed to his company "doesn't bear any= =20 relation to reality." ?????"Anybody can throw out any number," he said. "It's like McCarthyism. .= .=20 . Where is the evidence?" ?????A spokeswoman for Davis conceded that his refund figure was an estimat= e=20 but defended it as reasonable. ?????"It's no surprise that the people that are gouging us want to dispute = an=20 estimate of how much they're gouging us," senior advisor Nancy McFadden sai= d. ?????Despite the cautions expressed in the Cal-ISO documents, officials=20 Thursday insisted they were not troubled that the governor referred to the= =20 agency's figures as potential overcharges.=20 ?????"The way it should be characterized is the amount paid above a=20 competitive benchmark," said Robinson, who is also Cal-ISO's general counse= l. ?????The first version of the now-disputed Cal-ISO study was made public in= =20 March. It estimated that power sellers earned $6.3 billion in excess profit= s=20 between May 2000 and last February. The report, later revised upward to $6.= 7=20 billion, became a crucial element of the Davis Administration's campaign=20 against alleged electricity price gougers. ?????This week, just before Davis' appearance in Congress, the study was=20 updated again, adding another $2.2 billions in alleged excess profits throu= gh=20 May. ?????The orginal study, which did not include actual pricing data, was most= ly=20 intended to prod federal regulators into seeking information from generator= s=20 that the state had been denied, Robinson said. ?????Thus far, the Federal Energy Regulatory Commission has ordered refunds= =20 of only $125 million. Next week FERC is convening an unusual settlement=20 conference aimed at addressing the outstanding claims by the state, as well= =20 as those of sellers who claim they are owed hundreds of millions of dollars= =20 by California utilities. ?????One encouraging signal for state officials came this week when FERC=20 reiterated an earlier order that Duke Energy pay millions in refunds. The= =20 order stemmed from the company's sale of electricity at $3,880 a megawatt= =20 hour--for thousands of hours. ?????FERC's order said Duke's pricing had resulted in $11 million in=20 billings. A fair price for that power would have been $273 per megawatt hou= r,=20 the agency said. ?????Tom Williams, a Duke spokesman, said the firm is willing to accept the= =20 lower price. He said he company has yet to collect a dime.=20 ---=20 ?????Times staff writers Elizabeth Shogren and Dan Morain contributed to th= is=20 story. Edison Plans Bond Offer at 13% Rate=20 Debt: Yield is about double what a credit-worthy company would pay, analyst= s=20 say. But will investors bite?=20 By JERRY HIRSCH, Times Staff Writer=20 ?????Edison International is offering investors what analysts are calling a= n=20 unprecedented 13% interest rate for $1.2 billion in notes to refinance debt= .=20 Even so, it's far from certain that the Rosemead-based power company will= =20 find enough buyers to complete the deal. ?????A failure by Edison to refinance $618 million in bank debt that comes= =20 due June 30 and an additional $250 million in notes due in July could put t= he=20 company precariously close to bankruptcy and cast a shadow on California's= =20 plan to sell $12.5 billion in bonds to pay for power purchases, said Dan=20 Scotto, a bond analyst at PNB Paribas in New York. ?????"Even though it would at first appear to be a company setback, it woul= d=20 really be a major setback for the state," said Scotto, who added that=20 Edison's credit troubles could translate into higher prices for California'= s=20 proposed bond offering. ?????Edison, however, said Thursday that the deal is moving forward. ?????"We believe our deal is going well, and we are comfortable with it,"= =20 said Jo Ann Goddard, vice president for investor relations. She declined to= =20 discuss other details of the offering. ?????Goldman Sachs Group, Edison's investment bank, expects to formally pri= ce=20 the offering Monday. Edison officials would not comment on the proposed pri= ce=20 of the note offering, but Wall Street sources said the power company was=20 shopping the issue at the 13% rate. ?????Edison floated the plan earlier this month as a way to tap the borrowi= ng=20 power of a profitable subsidiary to trim debt that comes due this year and = to=20 insulate itself from a possible bankruptcy of its ailing utility unit. The= =20 utility, Southern California Edison, has lost billions of dollars on=20 electricity sales over the last year. ?????The high interest rate on Edison's proposed sale of seven-year notes i= s=20 about double what a credit-worthy company would pay for a similar bond or= =20 note issue and would add a premium amounting to tens of millions of dollars= =20 in annual interest costs to the company's already strapped financial=20 condition, analysts said. It's a full two percentage points higher than the= =20 average rate for other junk, or speculative, bonds. And corporate bonds wit= h=20 similar ratings are going out at 9% to 10%. ?????Edison originally started marketing the issue at 12%, a full two=20 percentage points higher than what analysts initially expected, but then=20 raised the rate to 13% in recent days because it was finding few takers on= =20 Wall Street. ?????"The word is that they couldn't get people interested and that they=20 might not be able to get it done," said Kurt Stabel, a money manager at=20 Street Asset Management in Newport Beach. ?????The higher rate, however, might be pulling investors out of the woodwo= rk=20 and has increased the chance that Edison will pull off the deal, Scotto sai= d. ?????"This never promised to be a day at the beach," Scotto said. "I think = it=20 is really a question of find the right price, the price at which people fee= l=20 comfortable with the risk." ?????Both Stabel and Scotto said that Edison's note offering is unusually= =20 complicated and requires far more explaining or "selling" than typical=20 corporate offerings. ?????Mission Energy Holding Co., a company created by Edison for the sole= =20 purpose of issuing these bonds, will offer the notes. The assets of Edison= =20 Mission Energy, a subsidiary that owns a network of power plants across the= =20 United States and in Asia, Australia and New Zealand, will secure the debt. ?????Mission Energy Holding plans to issue the proceeds to Edison in the fo= rm=20 of dividends, giving the parent company funds to pay off a substantial=20 portion of its debt. ?????The notes will have a credit rating of BB-minus and come due in 2008,= =20 according to bond rating agency Standard & Poor's. That's slightly higher= =20 than the near-default CC rating now carried by Edison. ?????If the offering failed, Edison would face a series of difficult choice= s=20 that range from depleting its cash cushion to going back to its bankers and= =20 begging for continued forbearance.=20 ?????Its SCE subsidiary already has defaulted on $931 million in bonds and= =20 notes. That triggered a default in bank lines of credit at Edison=20 International and SCE, which has since operated under extensions from its= =20 lenders. ?????Edison has about $3 billion in cash, including $2 billion held by SCE,= =20 according to regulatory documents. ?????"This could all still unravel, but I have been impressed with [Edison'= s]=20 effort to inch along so far," said Ellen Lapson, an analyst at Fitch Inc., = a=20 corporate credit rating service. "Who would have thought that they could ha= ve=20 lasted so many months after their first default in January and still not be= =20 in bankruptcy?" ?????Positive developments for Edison, including a deal to hold small=20 generators at bay with partial payments from SCE and progress at crafting a= =20 rescue plan in both the state Legislature and the Public Utilities Commissi= on=20 have sparked a small rally in the company's stock.=20 ?????Edison shares have risen 8% this month. They gained 21 cents Thursday = to=20 close at $11.90 on the New York Stock Exchange. Energy Company Abandons Plans for Baldwin Hills Plant=20 Power: Homeowners and environmentalists rejoice at decision. The site is=20 proposed as a 1,200-acre state park.=20 By JOE MOZINGO, Times Staff Writer=20 ?????In a victory for environmentalists and nearby homeowners, an energy=20 company announced Thursday that it was abandoning its plan to build a power= =20 plant on the site of a proposed state park in the Baldwin Hills.=20 ?????La Jolla Energy Development Inc., in a letter to the state Energy=20 Commission, said it was withdrawing its application for fast-track approval= =20 of the 53-megawatt plant and "will not pursue the Baldwin facility in the= =20 future." ?????"We listened to the community," La Jolla President Steve Wilburn said = in=20 an interview Thursday. "We need to find another place for this equipment." ?????The project was to be a joint venture between La Jolla and Stocker=20 Resources, an oil company that leases the land where the trailer-sized=20 natural-gas plant would sit. ?????Stocker officials said they will decide in the next few days whether= =20 they will pursue the project. "At this point it's just La Jolla pulling out= ,"=20 Stocker spokesman Steve Rusch said. ?????But most observers said it would be difficult to move forward on the= =20 fast-track schedule the state has implemented to relieve the energy crisis. ?????The state commission was scheduled to decide whether to approve the=20 project today in Sacramento, but the hearing has been canceled. ?????The news sparked elation among environmentalists and nearby homeowners= =20 who had fought the proposal on grounds that it would pollute neighborhoods= =20 and threaten an ambitious plan to piece together 1,200 acres of public open= =20 space in the hills. ?????"We're getting ready to have the biggest party," said Tony Nicholas,= =20 president of the hills' United Homeowners Assn. "This shows how a community= =20 can come together for a common goal and mobilize the people in a matter of= =20 days." ?????About 76% of the residents in the hills are African American and many= =20 saw the issue as a matter of environmental justice.=20 ?????In addition, Stocker and La Jolla were seeking approval for the plant= =20 within 21 days of filing their application, under the governor's emergency= =20 power orders. By following this fast-tracked procedure, they would have bee= n=20 able to avoid the normal, time-consuming environmental review process. ?????That angered opponents even further, and nearly 1,000 people showed up= =20 at a public hearing Monday to fight the project. ?????But what officials said turned the tide against the project--at a time= =20 when the energy commission is approving such plants as fast as possible--wa= s=20 testimony from a South Coast Air Quality Management official who said his= =20 agency would not be able to approve the plant quickly. ?????Executive Director Barry Wallerstein said his agency would have to=20 conduct hearings that would take up to 60 days, pushing construction well= =20 beyond a Sept. 30 deadline set by the governor for fast-track projects. He= =20 also said it was unlikely Stocker could get needed exemptions from federal= =20 clean air laws. ?????In a letter to the Energy Commission this week, Wallerstein wrote: "It= =20 appears that the Baldwin Energy Facility could not begin operation until so= me=20 time in the first part of 2002 at the earliest." By Wednesday night, the=20 energy commissioner who presided over the public hearings issued a statemen= t=20 recommending that the rest of the commission deny the application for a=20 plant, citing Wallerstein's concerns. ?????Conservationists embraced the outcome as a sign that the movement to= =20 create a park was gaining steam. The Baldwin Hills Conservancy was created= =20 last year with the idea of creating green space for the densely populated= =20 neighborhoods of south Los Angeles. With support from the governor and loca= l=20 politicians, the state recently bought a 68-acre parcel in the area for an= =20 unprecedented $41 million. ?????"This is a great day for the Baldwin Hills and all the people who have= =20 worked so hard to bring this world-class vision to reality," said Esther=20 Feldman, president of Community Conservancy International and the main=20 organizer to build the park. ?????Also applauding La Jolla's decision were state Sen. Kevin Murray=20 (D-Culver City) and Assemblyman Herb Wesson (D-Culver City), who had come o= ut=20 strongly against the project. They and others questioned whether the small= =20 amount of power provided by the facility--coming online after the dog days = of=20 summer--would do much to relieve the energy crisis. ?????"I'm ecstatic" Wesson said. "At this point the environment has won." ?????The plant would have sat on what is a working oil field about 650 feet= =20 from the Kenneth Hahn State Recreation Area. And according to park=20 proponents, it would lie in the middle of the grander state conservancy, on= =20 what would be a half-mile bridge of land arching over La Cienega Boulevard. ?????Rusch, the spokesman for Stocker, said much of the information=20 circulating about the trailer-sized plant is false. ?????The plan did not call for "a stack with billowing smoke," he said. "If= =20 the issue is air quality, we've cleaned air quality up." In the last decade= ,=20 Rusch said, the company's existing 400 oil pumps on the property have reduc= ed=20 nitrogen oxide emissions from 374 tons to 3 tons a year. The power=20 plant--with two 70-foot stacks--would ultimately add about 18 tons a year. ?????He said the company was trying to cut its energy bills by providing it= s=20 own power to pump oil, while also contributing an extra 39 megawatts to the= =20 state grid during the energy crisis. ?????Residents say there are more desolate places for the state to relieve= =20 the energy problem. Said Mary Ann Green, president of the Blair Hills=20 Homeowners Assn.: "We just hope that Stocker would be responsive to the=20 outcry from the community." Western states could feel pinch from California pricing=20 KAREN GAUDETTE, Associated Press Writer Friday, June 22, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/22/n= ation al0545EDT0489.DTL&type=3Dnews=20 (06-22) 02:45 PDT SAN FRANCISCO (AP) --=20 When power supplies stretch thin across the West this summer, who will deci= de=20 whether Silicon Valley computers, Washington apple orchards or Las Vegas=20 casinos get first dibs on what's left?=20 It's a key question raised by the decision of federal energy regulators thi= s=20 week to cap electricity prices throughout the West, using a formula based o= n=20 California's power costs.=20 Economists, energy industry executives and officials in all 11 states are= =20 beginning to analyze the fit of this new piece in the energy puzzle.=20 Though most call the order a good step that could prevent price gouging,=20 others worry the pricing system could lead to electricity shortages for=20 California's neighbors, or prompt utilities to stock up on power contracts = to=20 fend off shortages. That could diminish any leverage power buyers might hav= e=20 as they compete for the remaining megawatts available each day.=20 Tying the highest possible power price to California could cause a problem= =20 come winter, when power demand drops in the Golden State, said Gary Ackerma= n,=20 director of the Western Power Trading Forum, which represents most sellers = of=20 energy.=20 States where consumers need electricity to heat furnaces through the winter= =20 would be unable to outbid each other above the price cap, which is usually= =20 determined by a formula based on the highest bid for last-minute power duri= ng=20 the most recent energy supply emergency in California.=20 That may leave power wholesalers, and not a free market, to decide who gets= =20 the energy.=20 "Certainly, California has a tremendous pull on our prices and has for=20 probably the last year," said Claudia Rapkoch, spokeswoman for Montana Powe= r=20 Co., which supplies natural gas and electricity to two-thirds of the Big Sk= y=20 state. "What it means for this winter, we're just going to have to wait and= =20 see."=20 California utilities had much more control over power supplies before=20 deregulation in 1996 obligated them to sell off their power plants to=20 encourage competition. This brought lower prices for a time, but gave contr= ol=20 over power supplies to wholesalers that aren't obligated by state law to=20 serve the serve the best interests of local customers.=20 Rather than appointing one power grid manager to decide how to divide power= =20 in the West, Ackerman predicts utilities in non-deregulated states will=20 simply sell their power within their borders. That would hurt California,= =20 which this week imported about 10 percent of its electricity and its=20 remaining supply from local plants owned by out-of-state power companies.= =20 Price cap or not, utilities in the region will watch out for each other as= =20 best they can, because they might need the favor returned, said Charles=20 Reinhold, executive consultant for Electric Resources Strategies in Ariz.= =20 Saddled with rising bills that threatened to exhaust the state's budget,=20 California recently began to sign long-term contracts with generators. Gov.= =20 Gray Davis credits the change for helping to drastically reduce prices on t= he=20 spot market, which earlier this month fell below $50 per megawatt hour for= =20 the first time in a year.=20 The long-term contracts, though, weren't cheap. California will pay an=20 average of $70 per megawatt hour during the next decade under 38 different= =20 contracts signed so far.=20 On the Net:=20 Western Power Trading Forum: www.wptf.org=20 RTO West: www.rtowest.org=20 ,2001 Associated Press ?=20 Feds spurn Duke Energy in its bid to avoid refunds=20 Christian Berthelsen, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N95159.DTL&type=3Dnews=20 Federal regulators have rejected attempts by Duke Energy Inc. to avoid=20 refunding millions of dollars to California for charging exorbitant=20 electricity prices in January and February.=20 The Federal Energy Regulatory Commission first ordered the refunds on March= =20 9, and Duke responded by filing a challenge. But the commission on Monday= =20 rejected the company's appeal and reiterated its earlier order, claiming Du= ke=20 had abused its power in the California energy market when it sold power for= =20 $3, 880 per megawatt hour.=20 "We will not tolerate abuse of market power or anticompetitive bidding or= =20 behavior," the commission said.=20 Duke acknowledged this month that it had charged $3,880 per megawatt for=20 about 5,500 megawatt hours sold to the state's major utilities in January a= nd=20 February, netting it more than $19 million in receivables.=20 The commission did not specify how much money Duke should refund, but it=20 directed the company to readjust its January billings for those hours to a= =20 price of $273. From a FERC document, it appears that about 2,835 hours=20 occurred in January, which would result in a total refund for that month of= =20 $10.2 million.=20 Duke is one of the companies that have been identified by both the Californ= ia=20 Independent System Operator, the manager of the state's electricity grid, a= nd=20 the FERC as having exercised market power and overcharged Californians for= =20 electricity.=20 Meanwhile, employees at the South Bay power plant in San Diego run by Duke= =20 are expected to testify in a state Senate committee hearing today that the= =20 company ramped production up and down. That allegedly was aimed at lowering= =20 power production during shortages and attempting to drive up electricity=20 prices on the spot market.=20 The workers were employed by San Diego Gas & Electric Co. but were working= =20 under contract to Duke.=20 E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4 NEWS ANALYSIS=20 Davis winning Washington PR battle=20 Price cap victory may rob Democrats of campaign issue=20 Marc Sandalow, Washington Bureau Chief Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N167044.DTL&type=3Dnews=20 Washington -- There was a reason Gov. Gray Davis donned a dark blue jacket= =20 and endured beastly humid 90-degree heat this week in an area behind the=20 Capitol known as the "House swamp."=20 The nation was watching. And after months of political free fall, his messa= ge=20 seemed to be taking hold.=20 "California has been bilked out of $9 billion while the Federal Energy=20 Regulatory Commission was asleep at the switch," Davis declared, repeating= =20 testimony he had delivered hours earlier in the air-conditioned confines of= a=20 Senate hearing room.=20 Wiping a bead of sweat from his brow as 10 television cameras and two dozen= =20 reporters recorded the scene, the California governor apparently couldn't= =20 resist taking another shot: "For nearly a year I've been pounding on this= =20 commission to enforce the law."=20 The state's energy crisis, with its volatile spot markets, out-of-state=20 generators and dearth of alternative energy providers, is a dizzyingly=20 complex policy puzzle. The politics are much simpler.=20 Democrats present themselves as consumer crusaders, defending helpless=20 utility customers from greedy energy conglomerates and misguided regulators= .=20 Republicans portray themselves as stewards of the free market and long-term= =20 solutions, rejecting price caps and refunds as heavy-handed overreactions= =20 with Soviet-style results.=20 The Democratic populism seems to be winning the battle. Though the debate i= s=20 far from settled, the consumer-oriented approach to California's energy woe= s=20 has raised their hopes of winning back the House of Representatives in 2002= =20 and the White House in 2004.=20 "Republicans are scared out of their minds about this," said one gleeful=20 Democrat on Capitol Hill, who suggested that the White House's lackadaisica= l=20 response to California's problems would rile consumers from coast to coast.= =20 "This could rival Pete Wilson's alienation of Latinos," said the Democrat,= =20 referring to the former Republican governor's strident stand against illega= l=20 immigrants, which many blame for the party's weak standing in California.= =20 A sign of the GOP's concern surfaced this week with television ads, finance= d=20 by anonymous sources but produced by Republican Party strategists, that bla= me=20 the Democratic governor for California's energy problems.=20 Democrats, who long have worried that the crisis could cost Davis a second= =20 term, now take credit for having pressured the White House and federal=20 regulators to take a more active role.=20 The Federal Energy Regulatory Commission, which had previously resisted suc= h=20 efforts, took steps toward controlling wholesale electricity prices Monday.= =20 Later in the week, two commissioners appointed by President Bush testified= =20 that they might be open to further price restrictions and support huge=20 refunds to California. And just yesterday, Vice President Dick Cheney, who= =20 has been among California's most vocal critics, told Senate Democrats behin= d=20 closed doors that he could support refunds to California if federal=20 regulators agreed, according to those in the meeting.=20 "There is no doubt in my mind that action (taken by federal regulators) was= =20 the direct result of pressure for price relief led primarily by the=20 California delegation," Davis said.=20 The pressure did not come only from Democrats. Republican lawmakers, some o= f=20 whom fear the crisis could cost them seats in 2002, wrote FERC last week,= =20 requesting commissioners to "take further actions" to help the state.=20 The Democrats' public relations success follows an effort by the party to= =20 raise the profile of its consumer crusade. Hardly a day has passed in the= =20 past several weeks without a group of Democrats holding a news conference t= o=20 attack the White House, the Republican controlled House or FERC for inactio= n.=20 But it may have just as much to do with a White House that has been far mor= e=20 focused on long-term energy production than the immediate concerns of=20 Californians. Even as it engaged in a legitimate policy dispute over how to= =20 solve the power mess, the Bush administration appeared indifferent to the= =20 plight of residents experiencing skyrocketing energy bills and rolling=20 blackouts.=20 Bush tried to correct that impression with a trip to the state last month.= =20 But the damage appears to have extended beyond California.=20 A CBS News/New York Times poll released this week of 1,050 adults from acro= ss=20 the country showed that only one in three voters approved of the job Bush w= as=20 doing on energy. More than half the respondents said that protecting the=20 environment was a higher priority than producing energy, yet barely one in = 10=20 said that Bush shared that priority.=20 Some Republicans say that Bush was in a no-win position, contending that=20 anything he did would have been attacked by California's opportunistic=20 governor.=20 "Politics is (Davis') main objective, and I don't see the Bush administrati= on=20 being that way," said Rep. George Radanovich, R-Fresno.=20 The question for some analysts is whether Democrats might have been too=20 successful. By pressuring the federal government to take a more active role= ,=20 Democrats may lose their ability to point the finger at a convenient=20 scapegoat.=20 "Davis has always needed rate caps much less than he needed a scapegoat. No= w=20 that FERC has given him what he wants, or close enough to it, it's a lot=20 harder for him to lay blame back on Washington when the blackouts kick in,"= =20 said Dan Schnur, a GOP analyst based in San Francisco.=20 E-mail Marc Sandalow at msandalow@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4=20 Suit filed over report on power lines, health=20 Deal on transmission grid could raise liability=20 Matthew Yi, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N114037.DTL&type=3Dnews=20 As state legislators consider Gov. Gray Davis' deal to buy part of the powe= r=20 grid in California, a public records advocacy group filed a lawsuit yesterd= ay=20 demanding that the state release a report on potential health hazards of=20 living near high-voltage transmission lines.=20 The document could be vital to how legislators vote on the $2.76 billion de= al=20 to buy Southern California Edison's power lines, said Terry Francke, genera= l=20 counsel for the California First Amendment Coalition, which filed the lawsu= it=20 in Alameda County Superior Court. The power line deal was brokered by the= =20 governor to help the cash-strapped utility.=20 Legislators must approve the power grid purchase by Aug. 15 or the utility= =20 can back out. Davis also has a $1 billion agreement to purchase San Diego G= as=20 and Electric's power grid, which also would require the Legislature's=20 approval.=20 Pacific Gas and Electric has not agreed to sell its transmission lines.=20 The power lines report was completed in April by California Electric and=20 Magnetic Fields Program, an agency set up by the state Department of Health= =20 Services to study the issue, Francke said. Both state agencies and their=20 directors are named in the lawsuit.=20 Efforts to keep the report secret are suspect, Francke said.=20 "If it's known there's some danger . . . do you want the state owning that= =20 liability?" he asked.=20 The study began in 1993 after the state Public Utilities Commission committ= ed=20 $7.2 million for research and education on the subject, Francke said.=20 The state document deals with scientific findings on how magnetic and=20 electric fields from transmission lines affect humans and possible policies= =20 based on those findings, he said.=20 The report was scheduled to be released to the public on May 7, but "at the= =20 last minute, the Public Utilities Commission apparently instructed the staf= f=20 of the EMF Program to keep the reports secret," the lawsuit said.=20 State health services spokeswoman Lea Brooks said that the report was only = a=20 draft and that her department was following orders from the PUC.=20 "The PUC wanted to see the draft before (it is released)," she said. "We=20 prepared (the report) for them. We are following their request."=20 Brooks refused comment on the lawsuit, saying her office hadn't seen it. PU= C=20 officials were not available for comment.=20 Studies on the effects of magnetic fields have resulted in no clear consens= us=20 on their effects, Francke said. That's what makes the state study important= =20 for legislators to consider before voting on the governor's deal to buy=20 transmission lines, he said.=20 Opponents of the power grid deals say the report may add to objections to= =20 Davis' agreements with the utilities. Some legislators would rather the sta= te=20 help build more power generators in California.=20 "They are extra nails in the coffin," said James Fisfis, spokesman for stat= e=20 Assembly minority leader Dave Cox, R-Fair Oaks. "We have fundamental issues= =20 with the transmission lines, but when you start stacking these items up,=20 you have an undigestible deal."=20 Davis' spokesman Roger Salazar said he believed the governor hadn't seen th= e=20 health hazard report.=20 "Obviously, if something pops up and is an issue, you'll take a look at it,= =20 but I don't think we're at that point yet," he said.=20 An Alameda County Superior Court judge will hear the lawsuit on July 23,=20 Francke said.=20 E-mail Matthew Yi at myi@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4=20 Texas power firm's shares falling=20 Power baron Enron finds fortunes fading=20 Christian Berthelsen, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/B U178338.DTL&type=3Dnews=20 There's trouble in Texas.=20 Enron Corp., the Houston power firm that's profited mightily during=20 California's energy crisis, is suffering a surprising lack of popularity on= =20 Wall Street.=20 While all eyes have been on Enron's enormous profits here and its enormous= =20 pull in Washington, D.C., the reputed titan of the newly incarnated, free-= =20 wheeling power industry has lost half its market capitalization -- more tha= n=20 $30 billion -- since its peak in August.=20 Forgive Californians for savoring a bit of schadenfreude over the Houston= =20 boys' reversal of fortunes. But what gives? Isn't this the company that was= =20 fattening up on the backs of the state's beleaguered utilities, residents a= nd=20 state budget? Isn't this the company with such close ties to the Bush=20 administration that Kenneth Lay, Enron's chairman, was reported to have=20 interviewed a candidate for a job on the commission that regulates his=20 company?=20 Yup. That Enron.=20 On Monday, Enron shares hit a 52-week low of $43.07, after the Federal Ener= gy=20 Regulatory Commission decided to apply the same price controls to power=20 marketers such as Enron that had applied to power-generating companies for= =20 months. That's a far cry from August, when the company's shares peaked at= =20 $90.=20 "There's a whole kaleidoscope of issues that Enron is being challenged with= =20 in the marketplace right now, none of which on the surface is a major deal,= "=20 said Donato J. Eassey, an analyst with Merrill Lynch Global Securities in= =20 Houston. "But when you combine them all . . . I think what's happening here= =20 is you have a crescendo with this FERC announcement. You have people saying= ,=20 'OK, the growth rate is now in question.' "=20 That growth rate was an eye-popping 88.82 percent in revenues for the Unite= d=20 States on a two-year average, and nearly 98 percent in the rest of the worl= d.=20 Enron officials did not respond to a request for interviews, but as the sto= ck=20 continued to drop Tuesday morning, chief executive Jeff Skilling issued a= =20 statement to the markets in which he reiterated "strong confidence" in its= =20 earnings guidance. The stock rebounded slightly throughout the week, closin= g=20 at $44.05 yesterday.=20 In a speech at the Commonwealth Club last night, Skilling blamed regulatory= =20 interference with the "free market" for investor flight from his company.= =20 "Our stock prices have gotten hammered," he said. "They're half what they= =20 were a year ago."=20 Tumbling stock prices weren't the only bad news for Skilling last night. A= =20 protester pelted the executive with a berry pie just before he began=20 speaking. As Skilling used paper towels to wipe the pie from his face, a=20 woman was arrested on battery and malicious mischief charges.=20 Enron isn't the only company with stock prices that soared in tandem with= =20 California's power crisis and are now suddenly headed south. Shares of=20 Reliant Energy Inc., AES Inc. and Williams Companies Inc., which generate a= nd=20 sell electricity in California, and El Paso Energy Corp., which sells natur= al=20 gas here, are all trading near 52-week lows.=20 The main culprit appears to be the suddenly serious talk in Washington abou= t=20 power price controls, re-regulation and now, the possibility of big refunds= =20 being ordered for California. Even Calpine Corp. of San Jose, which has=20 developed a reputation as an industry good guy because it has not played th= e=20 spot market and has not been accused of manipulative tactics, dropped nearl= y=20 7 percent yesterday, to $37.10. But none of the companies has been hit as= =20 hard as Enron.=20 Such a drastic drop in market capitalization poses serious problems for any= =20 company. It leaves it less money to invest in its own growth, and because= =20 executive compensation is so closely tied to stock price, a sharp decline= =20 makes it more difficult to retain talented leaders.=20 While Enron's power wholesaling division seems to be doing fine, the firm h= as=20 been buffeted by disappointments in other lines of business and other regio= ns=20 in recent months. In the financial press, the continuing knock on Enron is= =20 that its business lines are so new and complex, and the company is so=20 secretive about its operations, that analysts and fund managers don't feel= =20 confident in their understanding of what it does.=20 A look at the firm's recent troubles exemplifies its diversity.=20 For instance, Enron has engaged in repeated battles with the state governme= nt=20 of Maharashtra in India over a 2,184-megawatt power plant there. The Dahbol= =20 Power Co., which is 65 percent controlled by Enron, stopped construction on= a=20 second phase of the project on Sunday, claiming it is owed $48 million by t= he=20 Maharashtra State Electricity Board. The state has accused Enron of chargin= g=20 too much and not generating enough, and stopped buying power from the plant= =20 last month.=20 Closer to home, Enron has struggled with its investments in fiber-optic=20 bandwidth. The company buys and sells unused, high-speed bandwidth space,= =20 treating it like a commodity as it does electricity, coal or natural gas. B= ut=20 the fiber-optic sector has imploded in recent weeks as it has become clear= =20 that for all the long-distance cable laid in the ground, there have not bee= n=20 enough "last mile" connections set up for users to actually take advantage = of=20 it. Earlier this year, Enron scuttled plans for a joint venture with=20 Blockbuster to offer what it called "video on demand," in which customers a= t=20 home would be able to select a video of their choice for a fee and have it= =20 transmitted via fiber-optic cables.=20 Then there was the FERC ruling. For months, the agency had resisted=20 aggressive price controls in the West, preferring to let the market run its= =20 course. But as control of the U.S. Senate was handed to Democrats this mont= h=20 and President Bush appointed a tough Texan regulator named Patrick Wood III= =20 to the commission, the agency changed its tune. It expanded price controls = to=20 all hours of the day, spread the controls throughout the Western region and= =20 brought previously excluded power marketers under the tent.=20 So under current calculations, that means Enron could sell power for no mor= e=20 than $108 per megawatt in a shortage and about $90 during normal hours -- f= ar=20 short of the hundreds of dollars that companies were regularly charging=20 during the past year.=20 In part, the company's gyrating stock price reflects the volatile nature of= =20 the businesses Enron has decided to pursue. And the hard-charging company h= as=20 a reputation for going aggressively into entirely new markets. But sometime= s=20 that approach gets it in trouble, as was the case last year, when Enron had= =20 to take a $400 million charge for its failed investment in Azurix, a global= =20 water company that set out to make a commodity out of water supply the same= =20 way it had done for electricity service, as governments privatized their=20 water systems. The opportunities never materialized.=20 Add it all together and Enron has a tough time supporting a price-earnings= =20 ratio of nearly 39, considerably above the liberal standard of health, whic= h=20 is 25. The company had less than $1 billion in profits on more than $100=20 billion in revenues last year. Still, a survey by Thomson Financial/First= =20 Call found that analysts expect Enron to deliver earnings of 42 cents per= =20 share in the second quarter (up from 34 cents last year), and $1.79 per sha= re=20 on the year. Most maintain a strong "buy" rating on the stock.=20 But investors with big positions in Enron have taken a hit. Hardest-put of= =20 them will be the Janus funds, which, as Enron's largest mutual fund investo= r,=20 held nearly $3.33 billion of its stock as of the end of April.=20 In a semiannual report to investors, John Schreiber, a portfolio manager,= =20 said the stock price of the "new-age energy merchant" was a victim of=20 negative psychology resulting from the California energy crisis. Janus=20 declined to make fund managers available for interviews.=20 "There are tremendous rewards for being first into new markets," said Raymo= nd=20 Niles, an energy analyst with Salomon Smith Barney in New York. "When you'r= e=20 an aggressive first-mover, from time to time you're going to make mistakes.= =20 But I don't think any of the mistakes Enron has made hit the core of the=20 company."=20 E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?B - 1=20 Power firm accused of price-fixing Former employees say Duke Energy slowed production of electricity to create= =20 an artificial shortage, boost profits=20 BY DION NISSENBAUM Mercury News Sacramento Bureau=20 SACRAMENTO -- One of the largest companies producing power in California=20 ordered workers to throw out spare parts and shut down equipment in an effo= rt=20 to drive up the price of electricity, former power plant workers said=20 Thursday.=20 Speaking out on the eve of appearances at a state Senate hearing, the three= =20 men offered the strongest evidence yet that at least one power producer --= =20 Duke Energy -- sought to make more money by creating an artificial shortage= =20 that may have created huge electricity price spikes.=20 ``Their intent, in my opinion, was to boost the price up,'' said Glenn=20 Johnson, a mechanic who worked for two decades at the Chula Vista power pla= nt=20 now run by Duke. ``If I've got the only box of penicillin in town and you'r= e=20 sick, I can charge a million dollars a box,'' he said. ``If you want to liv= e,=20 you're going to have to pay.''=20 Officials at Duke angrily challenged the accusations, calling them=20 irresponsible charges by disgruntled workers who were let go in April.=20 ``Their allegations are just comical, just highly erroneous,'' said Tom=20 Williams, a spokesman for Duke, which runs four plants in California that= =20 produce enough energy for nearly 2.6 million homes.=20 The charges come as the state heads into negotiations next week with=20 generators over the $8.9 billion the state claims its consumers have been= =20 overcharged. Duke, based in Charlotte, N.C., came under considerable=20 criticism when it disclosed that it charged the state a record $3,880 a=20 megawatt-hour for power in January. Federal officials have called the charg= e=20 unreasonable and ordered Duke to refund California the money.=20 The employees, who first made their allegations public on ``CBS Evening=20 News'' Thursday night, will be the only witnesses today at an energy crisis= =20 hearing headed by lawmakers who suspect that power companies have been=20 illegally gouging California.=20 State Sen. Joe Dunn, D-Garden Grove, chairman of a committee investigating= =20 price gouging, said the allegations raise serious concerns. ``While we stil= l=20 need to hear the other side of the story from Duke, if there's any truth to= =20 the information, I believe it would be devastating to the generators,'' he= =20 said.=20 `Perfectly good parts'=20 In interviews with the Mercury News Thursday night, the three former plant= =20 workers said that they were directed to scale back energy production and=20 throw out good spare parts that kept the plant from getting up to full powe= r=20 for weeks.=20 Ed Edwards, who worked in the Southern California plant, said that he was= =20 told to get rid of many boxes of good spare parts. Edwards said he tossed= =20 more than 23 pallets of parts into a dumpster.=20 ``I don't know why they were throwing away perfectly good parts,'' he said.= =20 ``It didn't make sense.''=20 Johnson said the lack of on-site parts prevented workers from quickly fixin= g=20 problems that reduced the amount of power the plant could produce. Sometime= s,=20 he said, it took weeks to get parts.=20 Johnson's suspicions of gouging were echoed by Jimmey Olkjer, who spent 18= =20 years in the plant and worked as an assistant control operator.=20 Even at times when California regulators were warning residents the state= =20 might not be able to find enough energy to prevent imminent blackouts, Olkj= er=20 said, he was directed to scale back the amount of electricity the plant was= =20 producing.=20 ``In hindsight, it looks to me like they were manipulating the power,''=20 Olkjer said.=20 Duke called the allegations ``baseless'' and said the workers didn't=20 understand the reasons for the actions. ``Continued accusations, repetitive= =20 investigations and inflammatory rhetoric concerning the company's operation= s=20 in the state are distracting attention from the true issue of solving=20 California's energy crisis,'' Duke said in a statement.=20 Williams did not directly dispute the worker's allegations. But he said the= y=20 did not understand the reasons behind the decisions.=20 State directives=20 Duke cut back on the amount of power it was producing in response to=20 directives from state regulators at the Independent System Operator, which= =20 runs the power grid, Williams said.=20 ``They did not know that the ISO was instructing them to go up and down to= =20 meet supply and demand,'' he said.=20 An ISO spokeswoman said that the grid manager sometimes asks generators to= =20 produce more or less power to adjust traffic on the transmission system or= =20 respond to the state's electricity needs.=20 Some companies ``bid'' power into the reserve market, which means these=20 plants run only when the extra energy is tapped. ISO officials say they are= =20 prohibited from discussing individual bids.=20 As for the spare parts, Williams said they were eliminated as unnecessary= =20 after Duke bought the plants from San Diego Gas & Electric.=20 Williams said Duke has one of the best performance records in the state, wi= th=20 its power plants off-line for unscheduled maintenance only about 1.1 percen= t=20 of the time.=20 All three workers were given severance packages and let go in April.=20 But Edwards disputed any contention that they were trying to get back at=20 Duke.=20 ``I'm not a disgruntled employee,'' he said. ``I'm just telling the truth o= f=20 what I saw the last two years I worked there.''=20 No matter what the reasons were for the decisions, Duke has made huge profi= ts=20 during the California energy crisis. And those profits apparently created= =20 good cheer among Duke executives.=20 At one party, Johnson said, executives gleefully celebrated their good=20 fortune.=20 ``We're making more money than we ever thought possible,'' Johnson quoted t= he=20 plant's manager as saying.=20 Mercury News staff writer John Woolfolk contributed to this report.=20 Contact Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603.=20 Enron chief: Gov. Davis not to blame for energy crisis BY KAREN GAUDETTE Associated Press Writer SAN FRANCISCO (AP) -- California Gov. Gray Davis isn't to blame for=20 California's power crisis, and neither are electricity wholesalers, a Texas= =20 energy executive told a crowd at the Commonwealth Club of California.=20 Jeffrey Skilling, CEO and president of Houston-based Enron Corp., wiped awa= y=20 the remnants of a pie hurled by a protester Thursday and placed the blame= =20 squarely on California's energy regulators.=20 The state Public Utilities Commission in the early 1990s put together a=20 broken market by preventing utilities to pass along the full cost of power= =20 and discouraging power contracts that would have lowered dependence on buyi= ng=20 last-minute power, Skilling said.=20 ``Because of these rules, the power consumers of the state of California we= re=20 thrown totally to the mercy of the spot market,'' Skilling said.=20 PUC president Loretta Lynch defended the regulators' actions last week,=20 saying utilities have been free to enter into long-term contracts. Utilitie= s=20 countered that the PUC never made clear what contracts it would accept, whi= ch=20 left open the possibility they would later be overruled.=20 ``I think consumers in California are angry and they should be,'' Skilling= =20 said. ``Prices in California shouldn't be as high as they are.''=20 Skilling also:=20 --Congratulated Davis for California's ``unprecedented'' conservation=20 --Denied accusations that Enron chairman Kenneth Lay personally interviewed= =20 candidates for the Federal Energy Regulatory Commission, which oversees=20 interstate energy markets=20 --Told the audience to expect a report that would show California municipal= =20 utilities have profited the most selling power to the state=20 --Said price caps ordered by FERC earlier this week would likely damage the= =20 markets and would only exacerbate the problem=20 --Acknowledged that municipal utilities in the state have managed to provid= e=20 cheaper power to their customers and even profit from the power crisis by= =20 selling off extra power despite public control=20 Enron has come under fire after accusations from Davis and state officials= =20 that it and other energy companies forced electricity prices skyward by=20 holding back supply.=20 Enron denies such claims, and joins other power producers in arguing that t= he=20 state and utilities still owe them billions in unpaid bills. Davis=20 acknowledges that Pacific Gas & Electric Co., which has declared bankruptcy= ,=20 and Southern California Edison together still owe generators such as Enron,= =20 Duke Energy, Mirant and Reliant Energy about $2.5 billion for past=20 electricity sales.=20 ``Our success is linked to efficient markets, not higher prices in Californ= ia=20 or anywhere else,'' Skilling said.=20 Protesters gathered outside the building wearing pig masks and carrying=20 hand-made signs, one of which read ``Greed is the only power crisis.''=20 ``It's basically Enron and the other companies raising prices,'' said Berna= rd=20 Greening, a Santa Clara computer programmer who said he's unhappy with the= =20 record prices for electricity and natural gas.=20 Pete Snoek of Tiburon said he believed what Skilling had to say.=20 ``I believe the energy situation has been politicized so badly,'' Snoek sai= d,=20 saying he was one of several in the audience to shush protesters during the= =20 meeting. ``I hear the same people out there, as if it's a sin to make any= =20 money in this country.''=20 State officials counter that wholesalers charged as much as $9 billion in= =20 illegal overcharges dating back to May 2000.=20 Companies have said California's claims are wildly exaggerated.=20 The Federal Energy Regulatory Commission has already estimated that=20 wholesalers owe California $124 million in overcharges for the first four= =20 months of the year. Davis and others say that's a mere drop in the bucket.= =20 Enron has also been tied to President Bush's hands-off approach to the ener= gy=20 crisis. Company chairman Kenneth Lay is a friend and one of the largest=20 campaign contributors to Bush and the GOP. Several prominent members of the= =20 Bush administration hold stock in the company.=20 Enron is one of several major GOP donors accused of meeting secretly with= =20 Vice President Dick Cheney as he drafted the Bush administration's energy= =20 plan.=20 Enron is one of the world's leading electricity, natural gas and=20 communications companies, with $101 billion in revenues in 2000. It owns=20 30,000 miles of pipeline, has 20,000 employees and is active in 40 countrie= s.=20 During the first quarter of this year, Enron's revenues increased 281 perce= nt=20 to $50.1 billion.=20 Three say company purposely cut power=20 Ex-Duke workers say repairs were curbed in order to manipulate output.=20 June 22, 2001=20 By KIMBERLY KINDY The Orange County Register=20 FORMER DUKE ENERGY employees Ed Edwards, left, Glenn Johnson, center, and= =20 Jimmy Olkjer are to appear before a state Senate committee today. Photo: Dave Yoder / The Register ? Three former Duke Energy workers say they were ordered to tamper with=20 equipment at a San Diego County power plant - causing mechanical problems= =20 that helped drive up electricity prices during the state's energy crisis.= =20 The workers say they will offer eyewitness testimony to a state Senate=20 committee today - the first public accounts from power plant employees of h= ow=20 energy production may have been manipulated.=20 Duke officials deny most of the allegations. The whistle-blowers - mechanic= s=20 Ed Edwards and Glenn Johnson and control room operator Jimmy Olkjer - lost= =20 their jobs four months ago.=20 State Sen. Joe Dunn, the Santa Ana Democrat who is chairing the investigati= ve=20 committee on price-fixing, said his staff will attempt to verify the accoun= ts=20 from the whistle-blowers. But their mere presence in a Capitol hearing room= =20 is expected to set off a media circus. And if the accusations are true, it= =20 could have wide-ranging effects on the North Carolina company's operations = in=20 California. Duke officials were working late into the night to prepare for= =20 the hearing and have scheduled a news conference later today.=20 "They were doing all kinds of things that didn't make sense," Johnson said = in=20 an interview. "But if you asked them why, to explain, they told you to shut= =20 up and do your job."=20 The testimony comes on the heels of a Federal Energy Regulatory Commission= =20 ruling Thursday ordering Duke to refund $10 million in overcharges for=20 January 2001.=20 "This information lends credence to the concern that there was a deliberate= =20 strategy for outages for the sole purpose of impacting price," Dunn said.= =20 "What they are saying is disturbing."=20 Duke Energy spokesman Tom Williams said the fact that the former workers lo= st=20 their jobs may be shaping their testimony.=20 "The proof is in the pudding. Production is up and we've had fewer forced= =20 outages since we've taken over,'' said Williams.=20 But control-room logs obtained by The Orange County Register show Duke's=20 trading arm ordered its South Bay power plant in Chula Vista to reduce=20 production minutes after Stage Three alerts were issued. The logs are for= =20 January 2001 - the same month that Duke was accused of overcharging in=20 California.=20 The three former Duke workers each worked at the Chula Vista plant for more= =20 than two decades when it was owned by San Diego Gas & Electric. They lost= =20 their jobs when Duke assembled a new team to run the plant.=20 The three whistle-blowers outlined their accusations in interviews with the= =20 Register. The accusations include:=20 The company ordered workers to throw unopened boxes of bolts, steam seals,= =20 valves and other parts into Dumpsters. The parts were needed to perform=20 routine maintenance but were no longer available when repairs were required= .=20 Duke officials acknowledge that new parts were discarded, but say the high= =20 inventory tax made it more efficient to order parts as needed because they= =20 could be delivered within 24 hours.=20 Edwards and Johnson say they were ordered to dismantle critical equipment= =20 necessary for the generating units to run at full capacity. Because parts= =20 were thrown away, they couldn't make repairs and generators ran at diminish= ed=20 capacity for days or weeks. Energy experts say this allegation, if true,=20 would allow Duke to withhold energy from the marketplace, which could drive= =20 up the price. Duke officials counter that production has increased at its= =20 power plants and forced outages have decreased since they took over. But in= =20 late 2000, there was a spike in outages at the Chula Vista plant, according= =20 to records kept by the state's power-grid operator. The plant reported 3,00= 0=20 hours of outages from October through December. There were relatively few= =20 outages before that.=20 The mechanics say the inability to perform repairs forced them to use a=20 small, expensive generator that was rarely powered up before Duke took over= =20 the plant. Experts say that could have been used to exploit federal rules= =20 allowing generators to justify prices based on the costliest units online.= =20 Olkjer says he received orders from Duke's trading arm to reduce production= .=20 Then, when energy prices jumped, he would get new instructions to power up= =20 again. Duke officials did not respond to Olkjer's claim.=20 Stanford professor Frank Wolak, an expert in California's energy market, sa= id=20 that if their testimony can be proven, the state could be refunded millions= =20 of dollars and future energy prices could be dramatically reduced.=20 "What they are saying is amazing. This is a classic plot. I've always=20 wondered how they kept the generators out for so long,'' said Wolak, who=20 heads an electricity market surveillance for the California agency that=20 oversees the buying and selling of power. "They were very happy to have the= m=20 off-line because it allowed them to make more money.=20 Wolak said the testimony seems to back up research conducted by the state= =20 Independent System Operator, which runs most of the state's power grid and= =20 oversees the buying and selling of electricity in California.=20 In a report to federal regulators, ISO said that from May to November 2000,= =20 Duke withheld electricity from the state's power grid 80 percent of the tim= e.=20 The report accused more than a dozen power plant companies of powering down= =20 generators to create scarcity in the marketplace that would in turn drive u= p=20 prices.=20 In a separate report, the state power grid operator accused Duke of=20 overcharging California again in January of this year, resulting in the $10= =20 million refund order. Duke officials say charging $3,880 a megawatt-hour wa= s=20 justified during a short period of time. Federal regulators disagreed and= =20 said the power merchant should have charged no more than $273 per=20 megawatt-hour.=20 Williams, Duke's spokesman, said that the company has been an ethical=20 operator.=20 "All but 1.1 percent of the time, we were operating. That's very good,'' sa= id=20 Williams, adding that when SDG&E owned the plant forced outages took place= =20 1.8 percent of the time.=20 But Dunn said that if the testimony from the whistle-blowers is true, and= =20 Duke had the ability to manipulate prices, federal regulators would be=20 required under the Federal Power Act to move them out of the competitive=20 marketplace.=20 This would mean they would be moved back into a "cost-based" market structu= re=20 and would only be allowed to recover costs at a fair rate of return.=20 "This would bring the prices down dramatically in California,'' Dunn said.= =20 "What generators fear most is being returned to cost-based rate regulation.= "=20 Allegations=20 of market manipulation Nearly a dozen investigations are under way to determine if=20 energy producers=20 illegally manipulated California's dysfunctional electricity market. Here a= re=20 the main allegations: Was power=20 deliberately withheld to boost prices?=20 Several investigators, including the Public Utilities Commission, the=20 California attorney general and the Federal Energy Regulatory Commission, a= re=20 trying to determine if the largest generators and power marketers - includi= ng=20 Duke, Reliant, Mirant and Dynegy - shut down power plants at key times.=20 Federal=20 Environmental Protection Agency records showed times in December when=20 Tulsa-based Williams throttled back at midday, letting=20 Williams boost profits at other plants it=20 controlled, including a=20 Huntington Beach plant owned by AES Corp.=20 Were financial=20 incentives offered to plant operators who shut down?=20 Federal regulators have settled a case for $8.million with Williams. Among= =20 the allegations: Williams offered ffinancial incentives to AES if it would= =20 keep its plants offline. Williams has denied any wrongdoing. Did companies=20 collude?=20 Traders and producers were able to share=20 information on Web sites that helped them determine when to get the highest= =20 prices for electricity. Attorney General Bill Lockyer is investigating othe= r=20 allegations of collusion.=20 Were workers ordered to fake outages?=20 Three former Duke=20 employees will testify today that they were ordered to create=20 malfunctions at a San Diego County power plant, allowing the=20 company to command higher prices at other Duke-owned power plants. Duke=20 denies this. RELATED STORIES=20 =01=07 FERC judge tackles task of generating a deal =01=07 California's blackout forecasts rolled back=20 FERC judge tackles task of generating a deal=20 He's described as a down-to-earth gentleman, but one who 'can slice you up'= =20 if you cross him.=20 June 22, 2001=20 By DENA BUNIS The Orange County Register=20 WASHINGTON - He's a plain-talking, folksy Southern gentleman. But if the=20 nation's chief energy judge, Curtis Lee Wagner Jr., believes the players in= =20 Monday's megaconference aren't dealing straight with each other, watch out.= =20 "He's kind of like (President) Reagan -- a big-picture guy," says Patrick= =20 Wood, the newest federal energy commissioner who's known Wagner for years.= =20 "He can tell a story that always fits the situation." But cross him, and "h= e=20 can slice you up like a Veg-O-Matic."=20 The 72-year-old Tennessee lawyer has been the Federal Energy Regulatory=20 Commission's chief judge for 22 years. His 47 years of government service= =20 includes being a lawyer with the military and Justice Department.=20 And beginning Monday, he'll have California's electricity crisis in his=20 hands. All the players -- from the state to utilities to power generators -= -=20 will be in one room trying to settle who owes whom money and how much.=20 The state wants $9 billion in refunds from generators they say charged too= =20 much for electricity. The generators want billions from the utilities and t= he=20 state that they say didn't pay the bill for other power they bought. And=20 California's ratepayers just want to keep the lights on.=20 "I don't think there's $9 billion," Wagner said Thursday from his office at= =20 FERC headquarters. "I think there may be a billion or so."=20 He spent much of the day fielding calls from some of the several hundred=20 people who could show up in his hearing room Monday.=20 "Let's see, I've talked to Reliant, to Dynergy once, Mirant. I'm going to= =20 talk to Dynergy again this afternoon. And I've talked to the governor's=20 office, and I've talked to some FERC folks, to someone from Oregon and some= =20 municipalities in California. Oh, and I've talked to the fellow who is goin= g=20 to represent the city of Los Angeles."=20 Wagner likes to know what he's getting into ahead of time. He makes a habit= =20 of talking to everyone individually.=20 Monday's is the kind of deal Wagner likes best. Rather than a formal trial= =20 where he wears the robe, pounds the gavel and renders a decision after both= =20 sides make their cases, settlement conferences give him a chance to wheel a= nd=20 deal.=20 "First thing, I'll make an opening statement of some kind, give 'em a pep= =20 talk," Wagner said. "And if we have any big wheels there I'll let them say = a=20 thing or two."=20 After the introductions, he'll start to work through the issues. He'll take= =20 one guy aside, he said, then maybe two. Then maybe a group. And little by= =20 little he hopes to bring them together.=20 By all accounts this case could be more difficult than any he has handled.= =20 "This has got more dollars,'' Wagner said.=20 Thursday, Wagner asked California's Independent System Operator and the pow= er=20 sellers for information that can help him sort out the complicated issues. = He=20 wants the ISO to calculate what wholesale electricity prices wold have been= =20 had the price caps FERC ordered Monday been in effect in the fall of 2000.= =20 And he wants the power companies to tell him how much power they have to se= ll=20 - short and long term.=20 And as if his task wasn't difficult enough, FERC has asked Wagner to make= =20 this deal in 15 days.=20 "It's pretty tight," he said, "but it can be done."=20 Stephen Angle, a Washington lawyer who represents power producers and=20 utilities, ran FERC's trial section for 14 years. The California case is on= e=20 of the most difficult he's seen. But he's not counting Wagner out.=20 "I have learned that it's unwise to assume he won't be successful," Angle= =20 said. The odds that Wagner will get a deal? "Fifty-fifty."=20 This is not the only high-profile case that's taking up the chief's time=20 these days. He's presiding over a FERC inquiry into whether El Paso Energy= =20 Corp., a large natural gas pipeline owner, is overcharging California.=20 Wagner has a history of taking impossible cases.=20 Angle says he recently worked with the judge on a dispute in the Midwest.= =20 "That was a case where few people thought would be successful," Angle said.= =20 It had been on FERC's docket for years. Wagner got the people talking and= =20 emerged with a settlement.=20 And Monday won't be Wagner's first effort at solving California's energy=20 crisis.=20 Last December, he got the parties together to try to break the logjam over= =20 the long-term contracting issue. But just as he was getting a head of steam= =20 on that, says Wood, the Clinton administration yanked the deal away from=20 Wagner and tried to broker it themselves.=20 "I know he's too much of a gentleman to say it. But that was a missed=20 opportunity."=20 Now he'll be reuniting some of the same parties that were together six mont= hs=20 ago.=20 Because of Wagner's longevity on the bench, almost every lawyer or energy= =20 executive who is likely to be in the hearing Monday will have had some=20 dealings with him.=20 "He'll be very clear. He will not mince words," said former FERC Chairman= =20 James Hoecker. "He will make his impatience with any dawdling very, very=20 obvious to everyone.''=20 Davis seeks $9 billion refund=20 The governor tells a Senate panel that power operators 'bilked our state.'= =20 June 21, 2001=20 By DENA BUNIS and KATE BERRY The Orange County Register=20 WASHINGTON - Gov. Gray Davis told anyone here who would listen Wednesday th= at=20 overcharges from what he calls greedy power generators have now risen to $9= =20 billion - $2 billion more than earlier reported.=20 And he wants that money back.=20 The governor said if the meetings federal regulators have ordered next week= =20 to try and hammer out the differences between power companies, utilities an= d=20 the state do not end with that kind of money in California's pocket, he'll = be=20 back.=20 "They must be required to give us back our money,'' Davis told the Senate= =20 Government Affairs Committee during two hours of testimony and questioning.= =20 It was the first time California's chief executive has testified on the=20 state's crisis. "It is unconscionable that FERC looked the other way while= =20 energy companies bilked our state for up to $9 billion."=20 The $9 billion is the amount California's Independent System Operator says= =20 generators overcharged utilities and the state from May 2000 to May of this= =20 year. It had initially calculated that between May 2000 and February 2001= =20 there were $6.7 billion in overcharges, Davis said. Those figures are a far= =20 cry from the $124 million that the Federal Energy Regulatory Commission say= s=20 were overcharges. That's because FERC only looked at three months of rates= =20 and only when the state was in an energy alert.=20 The governor faced tough, pointed questioning from Republican members and= =20 glowing praise and sympathy for his state's plight from Democratic=20 colleagues.=20 Everything from refunds to long-term contracts will be on the table at next= =20 week's settlement meeting. FERC has given the parties until July 9 to make = a=20 deal.=20 If they can't, the administrative judge overseeing the talks will make a=20 recommendation to FERC, which can order the paybacks. Sen. Barbara Boxer=20 introduced a bill Wednesday to require refunds if FERC doesn't act.=20 Not surprisingly, generators don't see the refund issue the governor's way.= =20 "It's just crazy," said Tom Williams, a spokesman at Duke Energy. "I don't= =20 know how they're coming up with these numbers."=20 And there's skepticism about next week's talks.=20 "The negotiations are going to be like the SALT Treaty," said Gary Ackerman= ,=20 president of the Western Power Trading Forum, which represents power=20 suppliers. "I question whether it can happen and work out."=20 Also at issue is money generators say they are owed by the utilities. Davis= =20 said that's about $2.5 billion. But power companies say it's more like $5.5= =20 billion to $6.5 billion.=20 Whatever the figure, Davis said, "we want to see their money in our pockets= =20 before we talk about working anything out on their end."=20 The settlement conference was part of FERC's order instituting=20 around-the-clock price caps for California and its 10 Western neighbors.=20 Those price caps were made possible, experts agree, because California=20 lawmakers from both sides of the aisle riled up the public enough over the= =20 issue that the Bush administration felt the heat.=20 The question is whether that can work with refunds.=20 "Pressure could come from a number of places," said Charles Cook, a=20 nonpartisan political analyst who has followed California's crisis. "It cou= ld=20 come from Republican members from the state, from party donors in Californi= a=20 who (President George W.) Bush is going to have to go back to, and then may= be=20 from his economic advisers who say that California can't be allowed to go= =20 belly up."=20 Davis and Sen. Dianne Feinstein, D-Calif., said new FERC Commissioner Patri= ck=20 Wood, a confidant of Bush, has been receptive to their refund pleas. That w= as=20 the case Wednesday when Wood - expected to be named FERC chairman sometime= =20 this year - told members of the Senate panel that refunds "may be an=20 important tool in the regulatory toolbox. If we're to be a vigilant market= =20 cop, we need to make sure that our bite matches our bark."=20 Wood and the other new commissioner, Nora Mead Brownell, will meet with Dav= is=20 in Sacramento on Monday.=20 RELATED STORY=20 =01=07 Energy notebook Energy notebook=20 Blackouts are still a hot prospect, officials warn=20 June 21, 2001=20 By the Associated Press=20 BERKELEY - Experts at the University of California Energy Institute say=20 residents statewide should not be comforted by the fact that widespread=20 blackouts have been avoided recently.=20 "I would say this is not a great sign that we're going to skate by later th= is=20 summer," said Severen Borenstein, a UC Berkeley economist who heads the=20 institute. "It doesn't look like the system right now can handle a blazing,= =20 hot day. If it's real hot in Northern and Southern California, we're going = to=20 have blackouts."=20 Greg Fishman, a spokesman for the California Independent System Operator,= =20 which controls the state's electricity grid, said ISO preferred to look on= =20 the bright side.=20 "Does the fact that we're meeting electricity demand today mean we're out o= f=20 the woods? No, but is the fact that we're meeting demand today good? Sure i= t=20 is," Fishman said.=20 Air conditioners are the single biggest factor in summer electricity demand= .=20 "If thermostats on air conditioners were turned to 78 degrees across the=20 state, this problem would pretty much go away," Borenstein said.=20 Davis' plan to buy SDG&E grid has fans and critics=20 SAN DIEGO - Gov. Gray Davis' plan for the state to buy San Diego Gas &=20 Electric Co.'s transmission system, owned by parent company Sempra Energy, = is=20 getting mixed reaction.=20 Under the plan unveiled Monday, the state would buy the system for $1=20 billion, and a $747 million debt owed to the utility by its customers would= =20 be forgiven.=20 "It would seem that anything that in the short term lets the ratepayers off= =20 the hook, particularly small businesses that can ill afford drastic balloon= =20 payments, is a good thing," said Suzanne Strassburger of Escondido's Downto= wn=20 Business Association.=20 Douglas Heller, a consumer advocate with the Foundation for Taxpayer and=20 Consumer Rights, called the deal "a cruel joke on the part of Gov. Davis to= =20 say that he's burst the balloon payment, because we're going to be paying f= or=20 it. We're applying that much to buy out Sempra's transmission lines."=20 GE tries to enter state's transmission-lines business=20 SACRAMENTO - Through an alliance with a little-known start-up company,=20 General Electric Co. is trying to enter California's transmission- lines=20 business.=20 Although Trans-Elect, a 2-year-old company based in Washington, has no=20 experience in the transmission business, it has the financial support of GE= 's=20 $66 billion financial arm, GE Capital. Trans-Elect's latest offer comes as= =20 Gov. Gray Davis seeks legislative approval for his plan to buy the=20 transmission lines of both San Diego Gas & Electric and Southern California= =20 Edison.=20 Any involvement by GE in the state's transmission grid could be a conflict = of=20 interest, said a lawmaker involved in the efforts to end California's power= =20 crisis.=20 "You've got someone with generation and transmission systems, how do they= =20 keep them separate and do they?" said Assemblyman Fred Keeley, D-Boulder=20 Creek. "That's a concern for me. Would they have the ability to restrict=20 competitors' access to transmissions?"=20 Bob Mitchell, Trans-Elect's vice president, said the company made its offer= =20 believing that the Legislature won't approve the deals to buy the two=20 utilities' lines.=20 GE joined forces with Trans-Elect on March 14, when GE Capital Services=20 Structured Finances Group Inc. announced it had bought a minority stake in= =20 the company. Neither company would reveal the size of the investment.=20 In other news:=20 A state board unanimously voted to reclaim its role in setting property tax= es=20 for electricity generators. Supporters say the Board of Equalization's=20 decision could mean millions of dollars in higher taxes for electricity=20 companies. The EOB will resume setting the assessed value of plants that=20 produce at least 50 megawatts of power and are owned by generating companie= s=20 whose rates are not controlled by the state.=20 Despite hot temperatures in much of the state, blackouts were averted=20 Wednesday as power reserves remained above 7 percent. Track the state's=20 blackout warnings on the Web at www.caiso.com/SystemStatus.html.=20 In rolling blackouts, 'together' is all relative=20 June 21, 2001=20 I have a confession to make: I'm an N001. And as an N001 I can't help feeli= ng=20 a little guilty.=20 I feel guilty that I won't be called upon to share the pain of all those=20 A001s in=20 Irvine and Laguna Woods, or the M003s in Costa Mesa and Cypress. While the= =20 M011s in Fountain=20 Valley suffer and sweat through rolling blackouts, I'll be sitting pretty.= =20 Because I'm an N001. And the dirty little secret about rolling power=20 blackouts is how many of us are out there.=20 Allow me to explain.=20 As you may have heard, Southern California Edison has been required to set = up=20 a public notification system for rolling blackouts. If you hear on the news= =20 that the power guys are expecting rolling blackouts, you can go to a Web si= te=20 (www.sce.com) or call a toll-free phone number (800-611-1911) to see if you= r=20 "rotating outage group" is on the list for going temporarily dark.=20 How do you know which group you're in? On your Edison power bill, next to= =20 your account number, there's a code that starts with A or M - A001, A002,= =20 M001, M002 and so on. That's your outage group number.=20 But wait. There's another category of outage group. If your power bill has= =20 the code number N001 on it, it means that you're exempt from rolling=20 blackouts.=20 You see, under Public Utilities Commission rules, electric power customers= =20 who provide "essential public health, safety and security services" - such = as=20 fire and police stations, hospitals, jails and so on - are automatically=20 exempt from rolling blackouts, even if they have emergency generators on=20 site. And because of the way electric power service is set up, anybody who'= s=20 on the same circuit with an essential service provider is also exempt from= =20 rolling blackouts.=20 For example, my house shares a circuit with a fire station. So I'm an exemp= t=20 N001, as are the other power customers on the same circuit.=20 But here's the kicker: According to an Edison spokesman, 50 percent of all= =20 Edison customers are N001s - that is, they share circuits with essential=20 service providers, and thus are currently exempt from rolling blackouts.=20 Let me repeat that: Half of all Edison customers are exempt from rolling=20 blackouts. (For San Diego Gas & Electric customers it's 40 percent.)=20 Mind you, this isn't something Edison likes to publicize. When I asked abou= t=20 it for a column three months ago, Edison said it didn't know how many power= =20 customers are automatically exempt. And when the company unveiled its=20 blackout warning plan this week, neither the Edison press release nor news= =20 reports mentioned the 50 percent exemption figure.=20 True, even exempt power customers can be affected by rolling blackouts - at= =20 work, at the store, at a traffic light.=20 Still, the next time you hear some power company or government official say= ,=20 "We're all in this together," don't believe it. When it comes to rolling=20 blackouts, the truth is that only half of us are really all in this togethe= r.=20 And even an N001 can see that isn't fair.=20

dasovich-j/all_documents/28054.

dasovich-j

Subject: Energy Issues Sender: angela.wilson@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'miyung.buster@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/28054. ===================================== Please see the following articles: Sac Bee, Fri, 6/22: Employees: Power supply held down Sac Bee, Fri, 6/22: Consumers cut down their own power in protest Sac Bee, Fri, 6/22: Davis consultants had contract with Edison: The=20 disclosures turn up the heat on the governor for hiring=20 ex-Clinton aides SD Union, Fri, 6/22: State deal may ease blackout threat Canada to supply energy as summer demand rises=20 SD Union, Fri, 6/22: Ex-worker: Duke manipulated market LA Times, Fri, 6/22: Estimates of power profits disputed LA Times, Fri, 6/22: Edison plans bond offer at 13% rate LA Times, Fri, 6/22: Energy company abandons plans for Baldwin Hills plant= =20 SF Chron, Fri, 6/22: Western states could feel pinch from California pricin= g=20 SF Chron, Fri, 6/22: Feds spurn Duke Energy in its bid to avoid refunds SF Chron, Fri, 6/22: News Analysis: Davis winning Washington PR battle=20 Price cap victory may rob Democrats of campaign issue SF Chron, Fri, 6/22: Suit filed over report on power lines, health=20 Deal on transmission grid could raise liability SF Chron, Fri, 6/22: Texas power firm's shares failing (Enron spotlighted) Power baron Enron finds fortunes fading Mercury News, Fri, 6/22: Power firm accused of price-fixing Mercury News, Fri, 6/22: Enron chief: Gov. Davis not to blame for energy=20 crisis (Jeff Skilling comments, Ken Lay and Enron mentioned) OC Register, Fri, 6/22: Three say company purposely cut power Ex-Duke workers say repairs were curbed in order to manipulate market OC Register, Fri, 6/22: FERC judge tackles task of generating a deal=20 OC Register, Fri, 6/22: Davis seeks $9 billion refund=20 OC Register, Fri, 6/22: Energy notebook: Blackouts are still a hot prospect= ,=20 officials warn OC Register, Fri, 6/22: In rolling blackouts, 'together' is all relative Employees: Power supply held down By Kevin Yamamura and Emily Bazar Bee Capitol Bureau (Published June 22, 2001)=20 Three former San Diego Gas & Electric Co. employees who worked at a Duke=20 Energy plant said Thursday that the generator destroyed working parts,=20 withheld power supply or otherwise took actions that they believe drove up= =20 the price of electricity.=20 State officials said the whistle-blowers' comments at a state Senate hearin= g=20 today could provide the most damaging illustration yet that power generator= s=20 held down production to inflate prices on the spot market. Gov. Gray Davis= =20 has long alleged that power companies have overcharged the state and=20 utilities.=20 Jimmy Olkjer, a former assistant control room operator at Duke's South Bay= =20 plant in San Diego, said in a phone interview that during the state's power= =20 shortages, Duke cut supply. Although Duke, a Charlotte, N.C.-based company,= =20 owned the plant, and it contracted with SDG&E to operate the unit, he said.= =20 "Rather than creating more power, they were creating less," Olkjer said. "I= =20 think there was manipulation of the market."=20 The California Public Utilities Commission and several state legislative=20 committees continue to investigate price manipulation allegations, and=20 Attorney General Bill Lockyer has said he will take witnesses to a grand ju= ry=20 next month.=20 The generators have denied they manipulated the market.=20 "We stand behind our maintenance practices and have done a good job keeping= =20 the power flowing," Duke spokesman Tom Williams told the CBS television=20 network.=20 But former mechanic Glenn Johnson said he saw generation units taken "down= =20 for economics."=20 Ed Edwards, also a mechanic, said he was ordered to destroy 23 pallets of= =20 working parts.=20 "We were asked, myself and other employees, to disperse of perfectly good= =20 parts that were used to make repairs of systems and components," Edwards=20 said.=20 State Sen. Joe Dunn, D-Santa Ana, chairman of the market-manipulation=20 committee, said his staff has been looking for employees or others with=20 intimate knowledge of power plant operation to come forward, and he promise= d=20 that others will testify at future hearings.=20 "It's the first time that we've had evidence from directly within power=20 plants in California that the ramping up and ramping down of power generati= on=20 was a response to price and not to demand," Dunn said.=20 He said he would reach no conclusions until Duke and other generators testi= fy=20 next month, but he added that the former employees' testimony raises=20 suspicions "at first blush."=20 The Bee's Kevin Yamamura can be reached at (916) 326-5542 or=20 kyamamura@sacbee.com. Consumers cut their own power in protest=20 By Silvina Mart?nez Bee Staff Writer=20 (Published June 22, 2001) When the temperature hit 100 degrees at 7 p.m. Thursday, Larry Lynch turned= =20 off the air conditioner, unplugged the refrigerator, pulled out the TV cord= s=20 and shut down all other appliances in the house.=20 Lynch, a 61-year-old newsletter publisher in Sacramento, responded to the= =20 "Roll Your Own Blackout" Thursday and joined thousands throughout the state= =20 to protest energy policies and promote conservation by stopping the use of= =20 energy from 7-10 p.m.=20 But the data coming off the grid at the California Independent System=20 Operator didn't show the effort.=20 During the first hour of the voluntary shut-off, the demand for energy by= =20 PG&E customers in Northern California was almost the same as at the same ti= me=20 Wednesday, ISO officials said.=20 Protesters didn't expect significant changes on the grid.=20 "I feel it will at least send a message that we don't have to depend on it= =20 (energy)," said Jackie Bell, 37, a consultant at the Capitol joining the=20 conservation drive from her apartment on Fulton Avenue.=20 "It's just a symbolic act," said Peter Lopez of Sacramento, who decided to= =20 use the evening to meditate. "Maybe I'll just go outside, stare at the star= s=20 and try to spot a few constellations in the night."=20 It was the longest day of the year, and one of the hottest. But those=20 determined to advocate conservation didn't mind the sacrifice.=20 "People are getting focused on the fact that we have power at our end," sai= d=20 Joan Blades, a spokeswoman for MoveOn, a grass-roots organization in the Ba= y=20 Area and one of hundreds of online groups passing along the call for the=20 voluntary blackout.=20 An electrical engineer in Oakland started the "Roll Your Own Blackout" idea= =20 when he posted a note in a political chat room in April. Then an artist in= =20 Los Angeles forwarded the e-mail to a number of friends and from there it= =20 quickly spanned the globe.=20 By Thursday afternoon, more than 12,000 people had signed up at the MoveOn= =20 Web site to join the protest, Blades said.=20 Many threw blackout parties. In San Francisco, the nonprofit group Global= =20 Exchange gathered hundreds around a big bonfire at Ocean Beach.=20 At his home in east Sacramento, Lynch did fine without electricity for thre= e=20 hours. He ate tuna salad for dinner, watered the lawn and when it got dark,= =20 he opened the windows and let some air in.=20 "We should show that people are willing to shut the power off if the prices= =20 go too high," he said.=20 ISO has not declared a power emergency since May 31.=20 "We have seen a consistent conservation on a day-to-day basis, and it's=20 making the difference between blackouts and no blackouts," ISO spokeswoman= =20 Stephanie McCorkle said.=20 McCorkle encouraged initiatives like "Roll Your Own Blackout."=20 "People are conserving," she said. "And we can only support this whole=20 effort."=20 The Bee's Silvina Mart?nez can be reached at (916) 321-1159 or=20 smartinez@sacbee.com. Davis consultants had contract with Edison: The disclosures turn up the hea= t=20 on the governor for hiring the ex-Clinton aides. By Emily Bazar Bee Capitol Bureau (Published June 22, 2001)=20 Two consultants hired to advise Gov. Gray Davis on energy policy officially= =20 disclosed their contract with Southern California Edison on Thursday, but= =20 Davis aides insisted it is not a conflict because "Edison and the Governor'= s=20 Office have the same goal."=20 Communications consultants Chris Lehane and Mark Fabiani have drawn intense= =20 criticism since they were hired last month to shape the Democratic governor= 's=20 public response to the state energy crisis.=20 The former Clinton administration communication aides -- nicknamed the=20 "Masters of Disaster" for their spin on the Whitewater, travel office and= =20 1996 fund-raising controversies at the Clinton White House -- have come und= er=20 fire for receiving a six-month, $30,000-a-month contract, more than the=20 governor or anyone on his staff makes.=20 Secretary of State Bill Jones, a Republican who is running for governor nex= t=20 year, has called for an investigation into potential conflicts. State=20 Controller Kathleen Connell, a Democrat, has said she will not issue=20 paychecks to the pair pending her own investigation.=20 The criticism mounted after the duo's economic interest disclosure forms we= re=20 released late Thursday, showing that each has received at least $10,000 und= er=20 contract from Edison in the past year.=20 But Davis spokeswoman Hilary McLean defended their credibility, saying=20 there's no conflict of interest because Lehane and Fabiani both disclosed= =20 that they had worked for Edison before they signed their contracts with the= =20 state.=20 Besides, she added, Edison and the governor are working toward the same goa= l:=20 Both want the Legislature to adopt a memorandum of understanding, a propose= d=20 agreement, that would prevent Edison from going bankrupt by financing a sta= te=20 purchase of the utility's transmission lines.=20 "It's not a conflict because there's been full disclosure," McLean said.=20 "Edison and the Governor's Office have the same goal, passing the MOU. We'r= e=20 working together at this point with Edison."=20 But open-government groups and Republican lawmakers bristled at the notion= =20 that disclosure negates any potential conflict.=20 Derek Cressman of the California Public Interest Research Group pointed to = a=20 section of state law that prohibits public officials from influencing=20 decisions if it would have "a material financial effect" on a business enti= ty=20 that provided them $500 or more within the last year.=20 "You have two individuals on the government payroll who had previously been= =20 on the Edison payroll and it's not clear to whom their loyalties are," he= =20 said. "Just because they've revealed it doesn't mean there's not a conflict= =20 there, and that they're not serving two masters."=20 On Thursday, Jones said he is awaiting the results of the Fair Political=20 Practices Commission investigation and agrees with Connell's decision this= =20 week to withhold payment from the consultants.=20 "This further calls into question the ethics of how these individuals were= =20 hired and contracts were let," Jones said.=20 Senate Republican leader Jim Brulte believes there's no question that Lehan= e=20 and Fabiani are violating conflict-of-interest laws and suggested that the= =20 two should be paid out of Davis' campaign funds, which had reached $26=20 million by Jan. 1.=20 Brulte, of Rancho Cucamonga, added that he would not vote for a state budge= t=20 as long as Lehane and Fabiani remain on the state payroll.=20 "The state of California does not need to be paying political wordsmiths=20 $30,000 a month," he said. "I just wish (Davis) were as frugal with the=20 taxpayers' money as he is with his campaign money."=20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . State deal may ease blackout threat=20 Canada to supply energy as summer demand rises By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 June 22, 2001=20 SACRAMENTO -- California may be able to avoid some of the blackouts predict= ed=20 for this summer, thanks to a little-known power-swapping agreement with a= =20 Canadian utility.=20 The arrangement is expected to give California electricity in July and Augu= st=20 from the hydroelectric generators of BC Hydro in British Columbia, despite = a=20 serious drought in the Northwest.=20 California has sold surplus power in recent months to the government-owned= =20 utility, which is expected to return power to the state as heat drives up t= he=20 demand for electricity.=20 State deal may ease blackout threat=20 Continuing coverage: California's Power Crisis=20 ?=20 Despite the energy crunch, the state often finds itself with surplus power= =20 that can be sold or swapped. For instance, advance power purchases that=20 provide energy at a better price may deliver more power than needed at any= =20 given time, particularly during off-peak hours.=20 BC Hydro's reservoirs and hydroelectric generators are a little like an=20 electricity storage battery. By importing California power, BC Hydro has be= en=20 able to conserve water that can be released this summer to produce power fo= r=20 California.=20 As a result of the agreement and other factors, state power buyers say they= =20 are in a stronger position going into the hot summer months than they had= =20 expected. So far this week, the state has managed to get through a heat wav= e=20 without so much as a Stage 1 power alert.=20 "We are in much better shape at this point than I imagined we would have be= en=20 as little as a month ago," said Ray Hart, head of the power purchasing unit= =20 in the state Department of Water Resources.=20 The North American Electric Reliability Council, which last month predicted= =20 260 hours of rolling blackouts for California this summer, has noticed a=20 change in recent weeks.=20 "We don't seem to have the crisis we were all expecting," said Ellen Vancko= ,=20 a council spokeswoman. "But whether that is a short-term or a long-term eve= nt=20 we don't think anyone knows yet."=20 Much of the credit for avoiding blackouts is given to unexpectedly high=20 conservation by Californians and an increased supply of power. Many=20 generators that had been shut down for maintenance or lack of payment are n= ow=20 back on line.=20 But the hydroelectric power agreement had gone unnoticed until now.=20 Hart mentioned it during a Senate Energy Committee hearing this week. But h= e=20 declined to reveal the amount of power banked with BC Hydro, saying it coul= d=20 hurt the state's competitive position in the market.=20 "If I start talking specifics," said Hart, "then I have to give out what I = am=20 doing every single day, and I have no market position."=20 In the past, California routinely sent power to a number of utilities in th= e=20 Pacific Northwest during the winter when residents there needed heat.=20 Northwest utilities returned power to California in the summer when air=20 conditioning drove up demand.=20 Little was expected from the reciprocal arrangement this year because=20 California was short of power last winter as electricity prices soared, and= =20 drought has sharply lowered reservoirs in the Northwest. But the agreement= =20 with BC Hydro will provide at least some power this summer.=20 The state was forced to begin buying power in January after its two largest= =20 utilities, Southern California Edison and Pacific Gas and Electric, were=20 unable to borrow because of a $13 billion debt. The rates that the utilitie= s=20 could charge their customers were frozen under a failed deregulation plan a= s=20 the cost of power on the wholesale market skyrocketed.=20 Hart said it took time to convince BC Hydro, which has demanded cash for so= me=20 electricity, that it could safely do business with California despite big= =20 debts owed to generators for power they supplied to the utilities.=20 "We have only been able to do it for the last couple of months," said Hart.= =20 "It took a long time to get them to do it because of credit issues."=20 A spokesman for BC Hydro said the utility engages in power swaps but does n= ot=20 release the name of the other parties or the terms of the agreements.=20 "Our first priority is taking care of our own," said Warren Cousins of BC= =20 Hydro. "We are still looking for opportunities to help out other entities= =20 when we can."=20 Hart said the state has another arrangement with the federal Bonneville Pow= er=20 Authority, but again refused to provide details. He said the state has sold= =20 surplus power to several buyers, including the Los Angeles Department of=20 Water and Power.=20 Information about state power purchases had been closely guarded until=20 recently. Gov. Gray Davis, pressured by lawsuits and a court ruling, releas= ed=20 edited versions last week of 38 long-term power contracts worth $43 billion= .=20 The Davis administration said it agreed to release contract information=20 because power prices have dropped, easing competitive pressures.=20 ?=20 Ex-worker: Duke manipulated market=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 June 22, 2001=20 SACRAMENTO -- A former operator at Duke Energy's Chula Vista plant said he= =20 was told frequently by company officials during the past year to alter the= =20 plant's output in a way that may have boosted electricity prices.=20 The operator, Jimmy Olkjer, said he was even ordered to cut power generatio= n=20 during energy emergencies, when the state faced rolling blackouts because o= f=20 a scarce supply of electricity.=20 He said he believes reducing the electricity generation helped the company= =20 charge higher prices. "It looks like that's what they were doing," Olkjer= =20 said in an interview.=20 He and another former plant employee said that during the past year the=20 company regularly operated its least-efficient turbine, possibly to justify= =20 higher prices.=20 The allegations, which they plan to repeat today at a state Senate hearing= =20 investigating power generators, provide the first insider evidence that Duk= e=20 Energy may have manipulated output at its South Bay plant to drive up price= s.=20 Duke, based in North Carolina, leases the South Bay plant from the San Dieg= o=20 Unified Port District.=20 A March report by the Independent System Operator, which manages California= 's=20 electricity grid, alleged that by withholding power Duke and four other=20 owners of generating plants have contributed to billions of dollars in=20 overcharges to California consumers.=20 Tom Williams, spokesman for Duke Energy North America, said that varying th= e=20 output of the generating units at the Chula Vista plant had nothing to do= =20 with trying to achieve higher prices.=20 He said the changes in output helped balance the state's grid by "dancing i= n=20 the market" -- providing flexibility for grid managers by allowing the plan= t=20 to add or reduce power quickly.=20 Williams added that the aging South Bay plant produced as many megawatts la= st=20 year as it did in 1994.=20 Olkjer served as a plant operator for 18 years, mostly when the plant was= =20 owned by San Diego Gas & Electric Co. After Duke took over the plant, worke= rs=20 were guaranteed their jobs for two years. In April, when that period ended,= =20 Duke laid off Olkjer and other workers. Now he is retired.=20 During the two years Duke has managed the plant, Olkjer said, operators=20 frequently got calls from officials with Duke Energy Trading and Marketing = in=20 Salt Lake City telling them to adjust their production schedule.=20 Some employees at the plant monitored the hourly price of electricity poste= d=20 by the Independent System Operator and recognized a correlation, he said.= =20 "We noticed that a lot of times when the price was down (our) megawatts wou= ld=20 go down," he said. "If the price was up, often the megawatts would go up."= =20 Olkjer said he was never told why he was being ordered to turn the plant's= =20 output up and down. When he asked, he said, company officials told him it w= as=20 none of his business.=20 Still, he was puzzled, particularly when he was told to throttle down the= =20 plant during electricity emergency alerts -- as he says he did Jan. 16 when= =20 the state declared a Stage 3 alert, with the possibility of rolling=20 blackouts.=20 "It doesn't make sense to cycle up and down when there's a Stage 3 alert," = he=20 said.=20 Duke spokesman Williams said the company may turn down units at the orders = of=20 the ISO during a Stage 3 alert because the grid manager can find cheaper=20 power somewhere else.=20 Lisa Szot, spokeswoman at the ISO, said she couldn't determine whether the= =20 ISO had ordered Duke to power down its Chula Vista plant Jan. 16.=20 Olkjer said the frequent adjustments of power production, which sometimes= =20 occurred every half-hour, wear out the plant's equipment.=20 "It's harder on the machinery," he said. "It's like driving down the street= =20 putting your (foot) on the gas and then slamming on the brake."=20 Before deregulation, Olkjer said, the four units at Chula Vista, which have= =20 the capacity to produce 706 megawatts, had been operated steadily during mu= ch=20 of their history.=20 S. David Freeman, formerly general manager of Los Angeles' Department of=20 Water and Power and now chief energy adviser to Gov. Gray Davis, said rapid= =20 cycling had become more common under deregulation and is hard on equipment.= =20 "We had almost 15,000 megawatts of generating capacity down for repair last= =20 winter," said Freeman, referring to what industry experts agreed was an=20 extraordinary level of plant outages over several months.=20 SDG&E, which built the Chula Vista plant in the 1960s, sold it to the Port= =20 District for $110 million. In 1998 the port leased the plant to Duke Energy= =20 for 101/2 years in what critics are now calling a sweetheart deal.=20 The company pays minimal rent, but has made large profits. In the first=20 quarter of this year, Duke, which owns three other plants in California, sa= id=20 profits rose 208 percent to $428 million from energy sales and trading.=20 Duke may hold the record for charging the highest price for electricity. It= =20 asked $3,880 per megawatt-hour this year. By comparison, before the energy= =20 crisis began, electricity sold for around $35 per megawatt-hour, an amount= =20 which powers about 750 homes.=20 Federal regulators have ordered the company to refund $20 million to the=20 state for charging excessive prices unless the company can justify them.=20 In May, the company offered to pay the state to settle any price gouging=20 investigations, but Gov. Gray Davis declined.=20 Olkjer and Ed Edwards Jr., who worked at the plant for 20 years before bein= g=20 laid off in April, said they couldn't understand why Duke ran the=20 inefficient, high-cost turbine unit during the past year while other=20 generators sat idle.=20 They said they believed it may have been an attempt to fetch a higher price= =20 for electricity because the company got extra fees when it ran.=20 Williams, the Duke spokesman, said the opposite was true. He said Duke ran= =20 the small turbine more frequently because it was less expensive. It ran on= =20 jet fuel, which was cheaper than the natural gas powering the other units.= =20 Edwards said the smaller unit was run so hard that it was destroyed.=20 "It ran so frequently and so hard, it needed extensive repairs," he said.= =20 Edwards told CBS News last night that plant outages at Chula Vista were=20 prolonged because one supervisor ordered him to dump spare parts.=20 The former power plant employees said they felt compelled to come forward= =20 because they saw the impact the power crisis was having on their community.= =20 "It kind of irritated me because you know there's people on a fixed income= =20 that can't afford a big utility bill," said Olkjer.=20 Staff writer Craig D. Rose contributed to this story.=20 ?=20 Estimates of Power Profits Disputed=20 Electricity: A study of overcharges by suppliers may be flawed, state=20 officials say. Davis quoted the figures to Congress.=20 By DOUG SMITH, ROBERT J. LOPEZ and RICH CONNELL, Times Staff Writers=20 ?????Gov. Gray Davis' contention that California has been nicked for billio= ns=20 of dollars in inflated electricity costs is based on a study that state=20 officials concede may have significant flaws, according to interviews and= =20 confidential government documents. ?????Those costs--estimated by the state to be as high as $9 billion--were= =20 central to Davis' testimony this week before a U.S. Senate committee, where= =20 he again denounced power wholesalers and urged federal regulators to "give = us=20 back the money that was wrongly taken from us." ?????The governor's impassioned demand, however, was based on shaky=20 calculations. The formulas are being reworked, said Charles Robinson, vice= =20 president of California's grid operator, which prepared the study. ?????Robinson said he "had no idea" how much the amount allegedly overcharg= ed=20 by the generators might change. For now, he said, the agency stands by the= =20 numbers. ?????But internal documents from the California Independent System Operator= =20 warn that some of the financial assumptions used to quantify the alleged=20 excess profits could be well off the mark. ?????What's more, the documents caution against relying on the agency's stu= dy=20 as a basis for allegations of overcharging--as Davis did during his testimo= ny=20 Wednesday. That warning was particularly important because the documents=20 provide for the first time a detailed accounting of how much each energy=20 supplier prospered from the state's power troubles between last summer and= =20 February. ?????The largest amounts were charged by four out-of-state power companies,= =20 according to the confidential Cal-ISO report. Okalhoma-based Williams Cos.= =20 led the group with $860 million, followed by Duke Energy with $805 million,= =20 Southern Company Energy Marketing (now Mirant) with $754 million and Relian= t=20 Energy Services with $750 million. ?????When told of the alleged profiteering attributed to them, executives o= f=20 the companies insisted the numbers were grossly overstated because of=20 Cal-ISO's poor methodology. ?????Duke spokesman Tom Williams said his company's entire energy earnings= =20 for North America were less than the amount it was accused of reaping=20 unfairly in California. ?????"It doesn't add up. It doesn't come close to adding up," Williams said= .=20 "What [Cal-ISO] has done is highly irresponsible math." ?????Paula Hall-Collins, a Williams Cos. spokeswoman, said the firm would= =20 need to study the ISO report further. But generally, she said, such reports= =20 fail to fully account for electricity production costs. ?????"We maintain that we have not overcharged, and that we have operated= =20 legally." ?????Reliant spokesman Richard Wheatley also questioned the figures, saying= ,=20 "There's a lot of misinformation out of there." ?????A Mirant spokesman said: "We haven 't overcharged. We haven't=20 manipulated. We haven't withheld."=20 ?????Even some firms alleged to have overcharged to a much lesser degree we= re=20 outraged. ?????Joe Ronan, vice president for government and regulatory relations at= =20 Calpine, said the $236 million attributed to his company "doesn't bear any= =20 relation to reality." ?????"Anybody can throw out any number," he said. "It's like McCarthyism. .= .=20 . Where is the evidence?" ?????A spokeswoman for Davis conceded that his refund figure was an estimat= e=20 but defended it as reasonable. ?????"It's no surprise that the people that are gouging us want to dispute = an=20 estimate of how much they're gouging us," senior advisor Nancy McFadden sai= d. ?????Despite the cautions expressed in the Cal-ISO documents, officials=20 Thursday insisted they were not troubled that the governor referred to the= =20 agency's figures as potential overcharges.=20 ?????"The way it should be characterized is the amount paid above a=20 competitive benchmark," said Robinson, who is also Cal-ISO's general counse= l. ?????The first version of the now-disputed Cal-ISO study was made public in= =20 March. It estimated that power sellers earned $6.3 billion in excess profit= s=20 between May 2000 and last February. The report, later revised upward to $6.= 7=20 billion, became a crucial element of the Davis Administration's campaign=20 against alleged electricity price gougers. ?????This week, just before Davis' appearance in Congress, the study was=20 updated again, adding another $2.2 billions in alleged excess profits throu= gh=20 May. ?????The orginal study, which did not include actual pricing data, was most= ly=20 intended to prod federal regulators into seeking information from generator= s=20 that the state had been denied, Robinson said. ?????Thus far, the Federal Energy Regulatory Commission has ordered refunds= =20 of only $125 million. Next week FERC is convening an unusual settlement=20 conference aimed at addressing the outstanding claims by the state, as well= =20 as those of sellers who claim they are owed hundreds of millions of dollars= =20 by California utilities. ?????One encouraging signal for state officials came this week when FERC=20 reiterated an earlier order that Duke Energy pay millions in refunds. The= =20 order stemmed from the company's sale of electricity at $3,880 a megawatt= =20 hour--for thousands of hours. ?????FERC's order said Duke's pricing had resulted in $11 million in=20 billings. A fair price for that power would have been $273 per megawatt hou= r,=20 the agency said. ?????Tom Williams, a Duke spokesman, said the firm is willing to accept the= =20 lower price. He said he company has yet to collect a dime.=20 ---=20 ?????Times staff writers Elizabeth Shogren and Dan Morain contributed to th= is=20 story. Edison Plans Bond Offer at 13% Rate=20 Debt: Yield is about double what a credit-worthy company would pay, analyst= s=20 say. But will investors bite?=20 By JERRY HIRSCH, Times Staff Writer=20 ?????Edison International is offering investors what analysts are calling a= n=20 unprecedented 13% interest rate for $1.2 billion in notes to refinance debt= .=20 Even so, it's far from certain that the Rosemead-based power company will= =20 find enough buyers to complete the deal. ?????A failure by Edison to refinance $618 million in bank debt that comes= =20 due June 30 and an additional $250 million in notes due in July could put t= he=20 company precariously close to bankruptcy and cast a shadow on California's= =20 plan to sell $12.5 billion in bonds to pay for power purchases, said Dan=20 Scotto, a bond analyst at PNB Paribas in New York. ?????"Even though it would at first appear to be a company setback, it woul= d=20 really be a major setback for the state," said Scotto, who added that=20 Edison's credit troubles could translate into higher prices for California'= s=20 proposed bond offering. ?????Edison, however, said Thursday that the deal is moving forward. ?????"We believe our deal is going well, and we are comfortable with it,"= =20 said Jo Ann Goddard, vice president for investor relations. She declined to= =20 discuss other details of the offering. ?????Goldman Sachs Group, Edison's investment bank, expects to formally pri= ce=20 the offering Monday. Edison officials would not comment on the proposed pri= ce=20 of the note offering, but Wall Street sources said the power company was=20 shopping the issue at the 13% rate. ?????Edison floated the plan earlier this month as a way to tap the borrowi= ng=20 power of a profitable subsidiary to trim debt that comes due this year and = to=20 insulate itself from a possible bankruptcy of its ailing utility unit. The= =20 utility, Southern California Edison, has lost billions of dollars on=20 electricity sales over the last year. ?????The high interest rate on Edison's proposed sale of seven-year notes i= s=20 about double what a credit-worthy company would pay for a similar bond or= =20 note issue and would add a premium amounting to tens of millions of dollars= =20 in annual interest costs to the company's already strapped financial=20 condition, analysts said. It's a full two percentage points higher than the= =20 average rate for other junk, or speculative, bonds. And corporate bonds wit= h=20 similar ratings are going out at 9% to 10%. ?????Edison originally started marketing the issue at 12%, a full two=20 percentage points higher than what analysts initially expected, but then=20 raised the rate to 13% in recent days because it was finding few takers on= =20 Wall Street. ?????"The word is that they couldn't get people interested and that they=20 might not be able to get it done," said Kurt Stabel, a money manager at=20 Street Asset Management in Newport Beach. ?????The higher rate, however, might be pulling investors out of the woodwo= rk=20 and has increased the chance that Edison will pull off the deal, Scotto sai= d. ?????"This never promised to be a day at the beach," Scotto said. "I think = it=20 is really a question of find the right price, the price at which people fee= l=20 comfortable with the risk." ?????Both Stabel and Scotto said that Edison's note offering is unusually= =20 complicated and requires far more explaining or "selling" than typical=20 corporate offerings. ?????Mission Energy Holding Co., a company created by Edison for the sole= =20 purpose of issuing these bonds, will offer the notes. The assets of Edison= =20 Mission Energy, a subsidiary that owns a network of power plants across the= =20 United States and in Asia, Australia and New Zealand, will secure the debt. ?????Mission Energy Holding plans to issue the proceeds to Edison in the fo= rm=20 of dividends, giving the parent company funds to pay off a substantial=20 portion of its debt. ?????The notes will have a credit rating of BB-minus and come due in 2008,= =20 according to bond rating agency Standard & Poor's. That's slightly higher= =20 than the near-default CC rating now carried by Edison. ?????If the offering failed, Edison would face a series of difficult choice= s=20 that range from depleting its cash cushion to going back to its bankers and= =20 begging for continued forbearance.=20 ?????Its SCE subsidiary already has defaulted on $931 million in bonds and= =20 notes. That triggered a default in bank lines of credit at Edison=20 International and SCE, which has since operated under extensions from its= =20 lenders. ?????Edison has about $3 billion in cash, including $2 billion held by SCE,= =20 according to regulatory documents. ?????"This could all still unravel, but I have been impressed with [Edison'= s]=20 effort to inch along so far," said Ellen Lapson, an analyst at Fitch Inc., = a=20 corporate credit rating service. "Who would have thought that they could ha= ve=20 lasted so many months after their first default in January and still not be= =20 in bankruptcy?" ?????Positive developments for Edison, including a deal to hold small=20 generators at bay with partial payments from SCE and progress at crafting a= =20 rescue plan in both the state Legislature and the Public Utilities Commissi= on=20 have sparked a small rally in the company's stock.=20 ?????Edison shares have risen 8% this month. They gained 21 cents Thursday = to=20 close at $11.90 on the New York Stock Exchange. Energy Company Abandons Plans for Baldwin Hills Plant=20 Power: Homeowners and environmentalists rejoice at decision. The site is=20 proposed as a 1,200-acre state park.=20 By JOE MOZINGO, Times Staff Writer=20 ?????In a victory for environmentalists and nearby homeowners, an energy=20 company announced Thursday that it was abandoning its plan to build a power= =20 plant on the site of a proposed state park in the Baldwin Hills.=20 ?????La Jolla Energy Development Inc., in a letter to the state Energy=20 Commission, said it was withdrawing its application for fast-track approval= =20 of the 53-megawatt plant and "will not pursue the Baldwin facility in the= =20 future." ?????"We listened to the community," La Jolla President Steve Wilburn said = in=20 an interview Thursday. "We need to find another place for this equipment." ?????The project was to be a joint venture between La Jolla and Stocker=20 Resources, an oil company that leases the land where the trailer-sized=20 natural-gas plant would sit. ?????Stocker officials said they will decide in the next few days whether= =20 they will pursue the project. "At this point it's just La Jolla pulling out= ,"=20 Stocker spokesman Steve Rusch said. ?????But most observers said it would be difficult to move forward on the= =20 fast-track schedule the state has implemented to relieve the energy crisis. ?????The state commission was scheduled to decide whether to approve the=20 project today in Sacramento, but the hearing has been canceled. ?????The news sparked elation among environmentalists and nearby homeowners= =20 who had fought the proposal on grounds that it would pollute neighborhoods= =20 and threaten an ambitious plan to piece together 1,200 acres of public open= =20 space in the hills. ?????"We're getting ready to have the biggest party," said Tony Nicholas,= =20 president of the hills' United Homeowners Assn. "This shows how a community= =20 can come together for a common goal and mobilize the people in a matter of= =20 days." ?????About 76% of the residents in the hills are African American and many= =20 saw the issue as a matter of environmental justice.=20 ?????In addition, Stocker and La Jolla were seeking approval for the plant= =20 within 21 days of filing their application, under the governor's emergency= =20 power orders. By following this fast-tracked procedure, they would have bee= n=20 able to avoid the normal, time-consuming environmental review process. ?????That angered opponents even further, and nearly 1,000 people showed up= =20 at a public hearing Monday to fight the project. ?????But what officials said turned the tide against the project--at a time= =20 when the energy commission is approving such plants as fast as possible--wa= s=20 testimony from a South Coast Air Quality Management official who said his= =20 agency would not be able to approve the plant quickly. ?????Executive Director Barry Wallerstein said his agency would have to=20 conduct hearings that would take up to 60 days, pushing construction well= =20 beyond a Sept. 30 deadline set by the governor for fast-track projects. He= =20 also said it was unlikely Stocker could get needed exemptions from federal= =20 clean air laws. ?????In a letter to the Energy Commission this week, Wallerstein wrote: "It= =20 appears that the Baldwin Energy Facility could not begin operation until so= me=20 time in the first part of 2002 at the earliest." By Wednesday night, the=20 energy commissioner who presided over the public hearings issued a statemen= t=20 recommending that the rest of the commission deny the application for a=20 plant, citing Wallerstein's concerns. ?????Conservationists embraced the outcome as a sign that the movement to= =20 create a park was gaining steam. The Baldwin Hills Conservancy was created= =20 last year with the idea of creating green space for the densely populated= =20 neighborhoods of south Los Angeles. With support from the governor and loca= l=20 politicians, the state recently bought a 68-acre parcel in the area for an= =20 unprecedented $41 million. ?????"This is a great day for the Baldwin Hills and all the people who have= =20 worked so hard to bring this world-class vision to reality," said Esther=20 Feldman, president of Community Conservancy International and the main=20 organizer to build the park. ?????Also applauding La Jolla's decision were state Sen. Kevin Murray=20 (D-Culver City) and Assemblyman Herb Wesson (D-Culver City), who had come o= ut=20 strongly against the project. They and others questioned whether the small= =20 amount of power provided by the facility--coming online after the dog days = of=20 summer--would do much to relieve the energy crisis. ?????"I'm ecstatic" Wesson said. "At this point the environment has won." ?????The plant would have sat on what is a working oil field about 650 feet= =20 from the Kenneth Hahn State Recreation Area. And according to park=20 proponents, it would lie in the middle of the grander state conservancy, on= =20 what would be a half-mile bridge of land arching over La Cienega Boulevard. ?????Rusch, the spokesman for Stocker, said much of the information=20 circulating about the trailer-sized plant is false. ?????The plan did not call for "a stack with billowing smoke," he said. "If= =20 the issue is air quality, we've cleaned air quality up." In the last decade= ,=20 Rusch said, the company's existing 400 oil pumps on the property have reduc= ed=20 nitrogen oxide emissions from 374 tons to 3 tons a year. The power=20 plant--with two 70-foot stacks--would ultimately add about 18 tons a year. ?????He said the company was trying to cut its energy bills by providing it= s=20 own power to pump oil, while also contributing an extra 39 megawatts to the= =20 state grid during the energy crisis. ?????Residents say there are more desolate places for the state to relieve= =20 the energy problem. Said Mary Ann Green, president of the Blair Hills=20 Homeowners Assn.: "We just hope that Stocker would be responsive to the=20 outcry from the community." Western states could feel pinch from California pricing=20 KAREN GAUDETTE, Associated Press Writer Friday, June 22, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/22/n= ation al0545EDT0489.DTL&type=3Dnews=20 (06-22) 02:45 PDT SAN FRANCISCO (AP) --=20 When power supplies stretch thin across the West this summer, who will deci= de=20 whether Silicon Valley computers, Washington apple orchards or Las Vegas=20 casinos get first dibs on what's left?=20 It's a key question raised by the decision of federal energy regulators thi= s=20 week to cap electricity prices throughout the West, using a formula based o= n=20 California's power costs.=20 Economists, energy industry executives and officials in all 11 states are= =20 beginning to analyze the fit of this new piece in the energy puzzle.=20 Though most call the order a good step that could prevent price gouging,=20 others worry the pricing system could lead to electricity shortages for=20 California's neighbors, or prompt utilities to stock up on power contracts = to=20 fend off shortages. That could diminish any leverage power buyers might hav= e=20 as they compete for the remaining megawatts available each day.=20 Tying the highest possible power price to California could cause a problem= =20 come winter, when power demand drops in the Golden State, said Gary Ackerma= n,=20 director of the Western Power Trading Forum, which represents most sellers = of=20 energy.=20 States where consumers need electricity to heat furnaces through the winter= =20 would be unable to outbid each other above the price cap, which is usually= =20 determined by a formula based on the highest bid for last-minute power duri= ng=20 the most recent energy supply emergency in California.=20 That may leave power wholesalers, and not a free market, to decide who gets= =20 the energy.=20 "Certainly, California has a tremendous pull on our prices and has for=20 probably the last year," said Claudia Rapkoch, spokeswoman for Montana Powe= r=20 Co., which supplies natural gas and electricity to two-thirds of the Big Sk= y=20 state. "What it means for this winter, we're just going to have to wait and= =20 see."=20 California utilities had much more control over power supplies before=20 deregulation in 1996 obligated them to sell off their power plants to=20 encourage competition. This brought lower prices for a time, but gave contr= ol=20 over power supplies to wholesalers that aren't obligated by state law to=20 serve the serve the best interests of local customers.=20 Rather than appointing one power grid manager to decide how to divide power= =20 in the West, Ackerman predicts utilities in non-deregulated states will=20 simply sell their power within their borders. That would hurt California,= =20 which this week imported about 10 percent of its electricity and its=20 remaining supply from local plants owned by out-of-state power companies.= =20 Price cap or not, utilities in the region will watch out for each other as= =20 best they can, because they might need the favor returned, said Charles=20 Reinhold, executive consultant for Electric Resources Strategies in Ariz.= =20 Saddled with rising bills that threatened to exhaust the state's budget,=20 California recently began to sign long-term contracts with generators. Gov.= =20 Gray Davis credits the change for helping to drastically reduce prices on t= he=20 spot market, which earlier this month fell below $50 per megawatt hour for= =20 the first time in a year.=20 The long-term contracts, though, weren't cheap. California will pay an=20 average of $70 per megawatt hour during the next decade under 38 different= =20 contracts signed so far.=20 On the Net:=20 Western Power Trading Forum: www.wptf.org=20 RTO West: www.rtowest.org=20 ,2001 Associated Press ?=20 Feds spurn Duke Energy in its bid to avoid refunds=20 Christian Berthelsen, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N95159.DTL&type=3Dnews=20 Federal regulators have rejected attempts by Duke Energy Inc. to avoid=20 refunding millions of dollars to California for charging exorbitant=20 electricity prices in January and February.=20 The Federal Energy Regulatory Commission first ordered the refunds on March= =20 9, and Duke responded by filing a challenge. But the commission on Monday= =20 rejected the company's appeal and reiterated its earlier order, claiming Du= ke=20 had abused its power in the California energy market when it sold power for= =20 $3, 880 per megawatt hour.=20 "We will not tolerate abuse of market power or anticompetitive bidding or= =20 behavior," the commission said.=20 Duke acknowledged this month that it had charged $3,880 per megawatt for=20 about 5,500 megawatt hours sold to the state's major utilities in January a= nd=20 February, netting it more than $19 million in receivables.=20 The commission did not specify how much money Duke should refund, but it=20 directed the company to readjust its January billings for those hours to a= =20 price of $273. From a FERC document, it appears that about 2,835 hours=20 occurred in January, which would result in a total refund for that month of= =20 $10.2 million.=20 Duke is one of the companies that have been identified by both the Californ= ia=20 Independent System Operator, the manager of the state's electricity grid, a= nd=20 the FERC as having exercised market power and overcharged Californians for= =20 electricity.=20 Meanwhile, employees at the South Bay power plant in San Diego run by Duke= =20 are expected to testify in a state Senate committee hearing today that the= =20 company ramped production up and down. That allegedly was aimed at lowering= =20 power production during shortages and attempting to drive up electricity=20 prices on the spot market.=20 The workers were employed by San Diego Gas & Electric Co. but were working= =20 under contract to Duke.=20 E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4 NEWS ANALYSIS=20 Davis winning Washington PR battle=20 Price cap victory may rob Democrats of campaign issue=20 Marc Sandalow, Washington Bureau Chief Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N167044.DTL&type=3Dnews=20 Washington -- There was a reason Gov. Gray Davis donned a dark blue jacket= =20 and endured beastly humid 90-degree heat this week in an area behind the=20 Capitol known as the "House swamp."=20 The nation was watching. And after months of political free fall, his messa= ge=20 seemed to be taking hold.=20 "California has been bilked out of $9 billion while the Federal Energy=20 Regulatory Commission was asleep at the switch," Davis declared, repeating= =20 testimony he had delivered hours earlier in the air-conditioned confines of= a=20 Senate hearing room.=20 Wiping a bead of sweat from his brow as 10 television cameras and two dozen= =20 reporters recorded the scene, the California governor apparently couldn't= =20 resist taking another shot: "For nearly a year I've been pounding on this= =20 commission to enforce the law."=20 The state's energy crisis, with its volatile spot markets, out-of-state=20 generators and dearth of alternative energy providers, is a dizzyingly=20 complex policy puzzle. The politics are much simpler.=20 Democrats present themselves as consumer crusaders, defending helpless=20 utility customers from greedy energy conglomerates and misguided regulators= .=20 Republicans portray themselves as stewards of the free market and long-term= =20 solutions, rejecting price caps and refunds as heavy-handed overreactions= =20 with Soviet-style results.=20 The Democratic populism seems to be winning the battle. Though the debate i= s=20 far from settled, the consumer-oriented approach to California's energy woe= s=20 has raised their hopes of winning back the House of Representatives in 2002= =20 and the White House in 2004.=20 "Republicans are scared out of their minds about this," said one gleeful=20 Democrat on Capitol Hill, who suggested that the White House's lackadaisica= l=20 response to California's problems would rile consumers from coast to coast.= =20 "This could rival Pete Wilson's alienation of Latinos," said the Democrat,= =20 referring to the former Republican governor's strident stand against illega= l=20 immigrants, which many blame for the party's weak standing in California.= =20 A sign of the GOP's concern surfaced this week with television ads, finance= d=20 by anonymous sources but produced by Republican Party strategists, that bla= me=20 the Democratic governor for California's energy problems.=20 Democrats, who long have worried that the crisis could cost Davis a second= =20 term, now take credit for having pressured the White House and federal=20 regulators to take a more active role.=20 The Federal Energy Regulatory Commission, which had previously resisted suc= h=20 efforts, took steps toward controlling wholesale electricity prices Monday.= =20 Later in the week, two commissioners appointed by President Bush testified= =20 that they might be open to further price restrictions and support huge=20 refunds to California. And just yesterday, Vice President Dick Cheney, who= =20 has been among California's most vocal critics, told Senate Democrats behin= d=20 closed doors that he could support refunds to California if federal=20 regulators agreed, according to those in the meeting.=20 "There is no doubt in my mind that action (taken by federal regulators) was= =20 the direct result of pressure for price relief led primarily by the=20 California delegation," Davis said.=20 The pressure did not come only from Democrats. Republican lawmakers, some o= f=20 whom fear the crisis could cost them seats in 2002, wrote FERC last week,= =20 requesting commissioners to "take further actions" to help the state.=20 The Democrats' public relations success follows an effort by the party to= =20 raise the profile of its consumer crusade. Hardly a day has passed in the= =20 past several weeks without a group of Democrats holding a news conference t= o=20 attack the White House, the Republican controlled House or FERC for inactio= n.=20 But it may have just as much to do with a White House that has been far mor= e=20 focused on long-term energy production than the immediate concerns of=20 Californians. Even as it engaged in a legitimate policy dispute over how to= =20 solve the power mess, the Bush administration appeared indifferent to the= =20 plight of residents experiencing skyrocketing energy bills and rolling=20 blackouts.=20 Bush tried to correct that impression with a trip to the state last month.= =20 But the damage appears to have extended beyond California.=20 A CBS News/New York Times poll released this week of 1,050 adults from acro= ss=20 the country showed that only one in three voters approved of the job Bush w= as=20 doing on energy. More than half the respondents said that protecting the=20 environment was a higher priority than producing energy, yet barely one in = 10=20 said that Bush shared that priority.=20 Some Republicans say that Bush was in a no-win position, contending that=20 anything he did would have been attacked by California's opportunistic=20 governor.=20 "Politics is (Davis') main objective, and I don't see the Bush administrati= on=20 being that way," said Rep. George Radanovich, R-Fresno.=20 The question for some analysts is whether Democrats might have been too=20 successful. By pressuring the federal government to take a more active role= ,=20 Democrats may lose their ability to point the finger at a convenient=20 scapegoat.=20 "Davis has always needed rate caps much less than he needed a scapegoat. No= w=20 that FERC has given him what he wants, or close enough to it, it's a lot=20 harder for him to lay blame back on Washington when the blackouts kick in,"= =20 said Dan Schnur, a GOP analyst based in San Francisco.=20 E-mail Marc Sandalow at msandalow@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4=20 Suit filed over report on power lines, health=20 Deal on transmission grid could raise liability=20 Matthew Yi, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/M N114037.DTL&type=3Dnews=20 As state legislators consider Gov. Gray Davis' deal to buy part of the powe= r=20 grid in California, a public records advocacy group filed a lawsuit yesterd= ay=20 demanding that the state release a report on potential health hazards of=20 living near high-voltage transmission lines.=20 The document could be vital to how legislators vote on the $2.76 billion de= al=20 to buy Southern California Edison's power lines, said Terry Francke, genera= l=20 counsel for the California First Amendment Coalition, which filed the lawsu= it=20 in Alameda County Superior Court. The power line deal was brokered by the= =20 governor to help the cash-strapped utility.=20 Legislators must approve the power grid purchase by Aug. 15 or the utility= =20 can back out. Davis also has a $1 billion agreement to purchase San Diego G= as=20 and Electric's power grid, which also would require the Legislature's=20 approval.=20 Pacific Gas and Electric has not agreed to sell its transmission lines.=20 The power lines report was completed in April by California Electric and=20 Magnetic Fields Program, an agency set up by the state Department of Health= =20 Services to study the issue, Francke said. Both state agencies and their=20 directors are named in the lawsuit.=20 Efforts to keep the report secret are suspect, Francke said.=20 "If it's known there's some danger . . . do you want the state owning that= =20 liability?" he asked.=20 The study began in 1993 after the state Public Utilities Commission committ= ed=20 $7.2 million for research and education on the subject, Francke said.=20 The state document deals with scientific findings on how magnetic and=20 electric fields from transmission lines affect humans and possible policies= =20 based on those findings, he said.=20 The report was scheduled to be released to the public on May 7, but "at the= =20 last minute, the Public Utilities Commission apparently instructed the staf= f=20 of the EMF Program to keep the reports secret," the lawsuit said.=20 State health services spokeswoman Lea Brooks said that the report was only = a=20 draft and that her department was following orders from the PUC.=20 "The PUC wanted to see the draft before (it is released)," she said. "We=20 prepared (the report) for them. We are following their request."=20 Brooks refused comment on the lawsuit, saying her office hadn't seen it. PU= C=20 officials were not available for comment.=20 Studies on the effects of magnetic fields have resulted in no clear consens= us=20 on their effects, Francke said. That's what makes the state study important= =20 for legislators to consider before voting on the governor's deal to buy=20 transmission lines, he said.=20 Opponents of the power grid deals say the report may add to objections to= =20 Davis' agreements with the utilities. Some legislators would rather the sta= te=20 help build more power generators in California.=20 "They are extra nails in the coffin," said James Fisfis, spokesman for stat= e=20 Assembly minority leader Dave Cox, R-Fair Oaks. "We have fundamental issues= =20 with the transmission lines, but when you start stacking these items up,=20 you have an undigestible deal."=20 Davis' spokesman Roger Salazar said he believed the governor hadn't seen th= e=20 health hazard report.=20 "Obviously, if something pops up and is an issue, you'll take a look at it,= =20 but I don't think we're at that point yet," he said.=20 An Alameda County Superior Court judge will hear the lawsuit on July 23,=20 Francke said.=20 E-mail Matthew Yi at myi@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 4=20 Texas power firm's shares falling=20 Power baron Enron finds fortunes fading=20 Christian Berthelsen, Chronicle Staff Writer Friday, June 22, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /22/B U178338.DTL&type=3Dnews=20 There's trouble in Texas.=20 Enron Corp., the Houston power firm that's profited mightily during=20 California's energy crisis, is suffering a surprising lack of popularity on= =20 Wall Street.=20 While all eyes have been on Enron's enormous profits here and its enormous= =20 pull in Washington, D.C., the reputed titan of the newly incarnated, free-= =20 wheeling power industry has lost half its market capitalization -- more tha= n=20 $30 billion -- since its peak in August.=20 Forgive Californians for savoring a bit of schadenfreude over the Houston= =20 boys' reversal of fortunes. But what gives? Isn't this the company that was= =20 fattening up on the backs of the state's beleaguered utilities, residents a= nd=20 state budget? Isn't this the company with such close ties to the Bush=20 administration that Kenneth Lay, Enron's chairman, was reported to have=20 interviewed a candidate for a job on the commission that regulates his=20 company?=20 Yup. That Enron.=20 On Monday, Enron shares hit a 52-week low of $43.07, after the Federal Ener= gy=20 Regulatory Commission decided to apply the same price controls to power=20 marketers such as Enron that had applied to power-generating companies for= =20 months. That's a far cry from August, when the company's shares peaked at= =20 $90.=20 "There's a whole kaleidoscope of issues that Enron is being challenged with= =20 in the marketplace right now, none of which on the surface is a major deal,= "=20 said Donato J. Eassey, an analyst with Merrill Lynch Global Securities in= =20 Houston. "But when you combine them all . . . I think what's happening here= =20 is you have a crescendo with this FERC announcement. You have people saying= ,=20 'OK, the growth rate is now in question.' "=20 That growth rate was an eye-popping 88.82 percent in revenues for the Unite= d=20 States on a two-year average, and nearly 98 percent in the rest of the worl= d.=20 Enron officials did not respond to a request for interviews, but as the sto= ck=20 continued to drop Tuesday morning, chief executive Jeff Skilling issued a= =20 statement to the markets in which he reiterated "strong confidence" in its= =20 earnings guidance. The stock rebounded slightly throughout the week, closin= g=20 at $44.05 yesterday.=20 In a speech at the Commonwealth Club last night, Skilling blamed regulatory= =20 interference with the "free market" for investor flight from his company.= =20 "Our stock prices have gotten hammered," he said. "They're half what they= =20 were a year ago."=20 Tumbling stock prices weren't the only bad news for Skilling last night. A= =20 protester pelted the executive with a berry pie just before he began=20 speaking. As Skilling used paper towels to wipe the pie from his face, a=20 woman was arrested on battery and malicious mischief charges.=20 Enron isn't the only company with stock prices that soared in tandem with= =20 California's power crisis and are now suddenly headed south. Shares of=20 Reliant Energy Inc., AES Inc. and Williams Companies Inc., which generate a= nd=20 sell electricity in California, and El Paso Energy Corp., which sells natur= al=20 gas here, are all trading near 52-week lows.=20 The main culprit appears to be the suddenly serious talk in Washington abou= t=20 power price controls, re-regulation and now, the possibility of big refunds= =20 being ordered for California. Even Calpine Corp. of San Jose, which has=20 developed a reputation as an industry good guy because it has not played th= e=20 spot market and has not been accused of manipulative tactics, dropped nearl= y=20 7 percent yesterday, to $37.10. But none of the companies has been hit as= =20 hard as Enron.=20 Such a drastic drop in market capitalization poses serious problems for any= =20 company. It leaves it less money to invest in its own growth, and because= =20 executive compensation is so closely tied to stock price, a sharp decline= =20 makes it more difficult to retain talented leaders.=20 While Enron's power wholesaling division seems to be doing fine, the firm h= as=20 been buffeted by disappointments in other lines of business and other regio= ns=20 in recent months. In the financial press, the continuing knock on Enron is= =20 that its business lines are so new and complex, and the company is so=20 secretive about its operations, that analysts and fund managers don't feel= =20 confident in their understanding of what it does.=20 A look at the firm's recent troubles exemplifies its diversity.=20 For instance, Enron has engaged in repeated battles with the state governme= nt=20 of Maharashtra in India over a 2,184-megawatt power plant there. The Dahbol= =20 Power Co., which is 65 percent controlled by Enron, stopped construction on= a=20 second phase of the project on Sunday, claiming it is owed $48 million by t= he=20 Maharashtra State Electricity Board. The state has accused Enron of chargin= g=20 too much and not generating enough, and stopped buying power from the plant= =20 last month.=20 Closer to home, Enron has struggled with its investments in fiber-optic=20 bandwidth. The company buys and sells unused, high-speed bandwidth space,= =20 treating it like a commodity as it does electricity, coal or natural gas. B= ut=20 the fiber-optic sector has imploded in recent weeks as it has become clear= =20 that for all the long-distance cable laid in the ground, there have not bee= n=20 enough "last mile" connections set up for users to actually take advantage = of=20 it. Earlier this year, Enron scuttled plans for a joint venture with=20 Blockbuster to offer what it called "video on demand," in which customers a= t=20 home would be able to select a video of their choice for a fee and have it= =20 transmitted via fiber-optic cables.=20 Then there was the FERC ruling. For months, the agency had resisted=20 aggressive price controls in the West, preferring to let the market run its= =20 course. But as control of the U.S. Senate was handed to Democrats this mont= h=20 and President Bush appointed a tough Texan regulator named Patrick Wood III= =20 to the commission, the agency changed its tune. It expanded price controls = to=20 all hours of the day, spread the controls throughout the Western region and= =20 brought previously excluded power marketers under the tent.=20 So under current calculations, that means Enron could sell power for no mor= e=20 than $108 per megawatt in a shortage and about $90 during normal hours -- f= ar=20 short of the hundreds of dollars that companies were regularly charging=20 during the past year.=20 In part, the company's gyrating stock price reflects the volatile nature of= =20 the businesses Enron has decided to pursue. And the hard-charging company h= as=20 a reputation for going aggressively into entirely new markets. But sometime= s=20 that approach gets it in trouble, as was the case last year, when Enron had= =20 to take a $400 million charge for its failed investment in Azurix, a global= =20 water company that set out to make a commodity out of water supply the same= =20 way it had done for electricity service, as governments privatized their=20 water systems. The opportunities never materialized.=20 Add it all together and Enron has a tough time supporting a price-earnings= =20 ratio of nearly 39, considerably above the liberal standard of health, whic= h=20 is 25. The company had less than $1 billion in profits on more than $100=20 billion in revenues last year. Still, a survey by Thomson Financial/First= =20 Call found that analysts expect Enron to deliver earnings of 42 cents per= =20 share in the second quarter (up from 34 cents last year), and $1.79 per sha= re=20 on the year. Most maintain a strong "buy" rating on the stock.=20 But investors with big positions in Enron have taken a hit. Hardest-put of= =20 them will be the Janus funds, which, as Enron's largest mutual fund investo= r,=20 held nearly $3.33 billion of its stock as of the end of April.=20 In a semiannual report to investors, John Schreiber, a portfolio manager,= =20 said the stock price of the "new-age energy merchant" was a victim of=20 negative psychology resulting from the California energy crisis. Janus=20 declined to make fund managers available for interviews.=20 "There are tremendous rewards for being first into new markets," said Raymo= nd=20 Niles, an energy analyst with Salomon Smith Barney in New York. "When you'r= e=20 an aggressive first-mover, from time to time you're going to make mistakes.= =20 But I don't think any of the mistakes Enron has made hit the core of the=20 company."=20 E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?B - 1=20 Power firm accused of price-fixing Former employees say Duke Energy slowed production of electricity to create= =20 an artificial shortage, boost profits=20 BY DION NISSENBAUM Mercury News Sacramento Bureau=20 SACRAMENTO -- One of the largest companies producing power in California=20 ordered workers to throw out spare parts and shut down equipment in an effo= rt=20 to drive up the price of electricity, former power plant workers said=20 Thursday.=20 Speaking out on the eve of appearances at a state Senate hearing, the three= =20 men offered the strongest evidence yet that at least one power producer --= =20 Duke Energy -- sought to make more money by creating an artificial shortage= =20 that may have created huge electricity price spikes.=20 ``Their intent, in my opinion, was to boost the price up,'' said Glenn=20 Johnson, a mechanic who worked for two decades at the Chula Vista power pla= nt=20 now run by Duke. ``If I've got the only box of penicillin in town and you'r= e=20 sick, I can charge a million dollars a box,'' he said. ``If you want to liv= e,=20 you're going to have to pay.''=20 Officials at Duke angrily challenged the accusations, calling them=20 irresponsible charges by disgruntled workers who were let go in April.=20 ``Their allegations are just comical, just highly erroneous,'' said Tom=20 Williams, a spokesman for Duke, which runs four plants in California that= =20 produce enough energy for nearly 2.6 million homes.=20 The charges come as the state heads into negotiations next week with=20 generators over the $8.9 billion the state claims its consumers have been= =20 overcharged. Duke, based in Charlotte, N.C., came under considerable=20 criticism when it disclosed that it charged the state a record $3,880 a=20 megawatt-hour for power in January. Federal officials have called the charg= e=20 unreasonable and ordered Duke to refund California the money.=20 The employees, who first made their allegations public on ``CBS Evening=20 News'' Thursday night, will be the only witnesses today at an energy crisis= =20 hearing headed by lawmakers who suspect that power companies have been=20 illegally gouging California.=20 State Sen. Joe Dunn, D-Garden Grove, chairman of a committee investigating= =20 price gouging, said the allegations raise serious concerns. ``While we stil= l=20 need to hear the other side of the story from Duke, if there's any truth to= =20 the information, I believe it would be devastating to the generators,'' he= =20 said.=20 `Perfectly good parts'=20 In interviews with the Mercury News Thursday night, the three former plant= =20 workers said that they were directed to scale back energy production and=20 throw out good spare parts that kept the plant from getting up to full powe= r=20 for weeks.=20 Ed Edwards, who worked in the Southern California plant, said that he was= =20 told to get rid of many boxes of good spare parts. Edwards said he tossed= =20 more than 23 pallets of parts into a dumpster.=20 ``I don't know why they were throwing away perfectly good parts,'' he said.= =20 ``It didn't make sense.''=20 Johnson said the lack of on-site parts prevented workers from quickly fixin= g=20 problems that reduced the amount of power the plant could produce. Sometime= s,=20 he said, it took weeks to get parts.=20 Johnson's suspicions of gouging were echoed by Jimmey Olkjer, who spent 18= =20 years in the plant and worked as an assistant control operator.=20 Even at times when California regulators were warning residents the state= =20 might not be able to find enough energy to prevent imminent blackouts, Olkj= er=20 said, he was directed to scale back the amount of electricity the plant was= =20 producing.=20 ``In hindsight, it looks to me like they were manipulating the power,''=20 Olkjer said.=20 Duke called the allegations ``baseless'' and said the workers didn't=20 understand the reasons for the actions. ``Continued accusations, repetitive= =20 investigations and inflammatory rhetoric concerning the company's operation= s=20 in the state are distracting attention from the true issue of solving=20 California's energy crisis,'' Duke said in a statement.=20 Williams did not directly dispute the worker's allegations. But he said the= y=20 did not understand the reasons behind the decisions.=20 State directives=20 Duke cut back on the amount of power it was producing in response to=20 directives from state regulators at the Independent System Operator, which= =20 runs the power grid, Williams said.=20 ``They did not know that the ISO was instructing them to go up and down to= =20 meet supply and demand,'' he said.=20 An ISO spokeswoman said that the grid manager sometimes asks generators to= =20 produce more or less power to adjust traffic on the transmission system or= =20 respond to the state's electricity needs.=20 Some companies ``bid'' power into the reserve market, which means these=20 plants run only when the extra energy is tapped. ISO officials say they are= =20 prohibited from discussing individual bids.=20 As for the spare parts, Williams said they were eliminated as unnecessary= =20 after Duke bought the plants from San Diego Gas & Electric.=20 Williams said Duke has one of the best performance records in the state, wi= th=20 its power plants off-line for unscheduled maintenance only about 1.1 percen= t=20 of the time.=20 All three workers were given severance packages and let go in April.=20 But Edwards disputed any contention that they were trying to get back at=20 Duke.=20 ``I'm not a disgruntled employee,'' he said. ``I'm just telling the truth o= f=20 what I saw the last two years I worked there.''=20 No matter what the reasons were for the decisions, Duke has made huge profi= ts=20 during the California energy crisis. And those profits apparently created= =20 good cheer among Duke executives.=20 At one party, Johnson said, executives gleefully celebrated their good=20 fortune.=20 ``We're making more money than we ever thought possible,'' Johnson quoted t= he=20 plant's manager as saying.=20 Mercury News staff writer John Woolfolk contributed to this report.=20 Contact Dion Nissenbaum at dnissenbaum@sjmercury.com or (916) 441-4603.=20 Enron chief: Gov. Davis not to blame for energy crisis BY KAREN GAUDETTE Associated Press Writer SAN FRANCISCO (AP) -- California Gov. Gray Davis isn't to blame for=20 California's power crisis, and neither are electricity wholesalers, a Texas= =20 energy executive told a crowd at the Commonwealth Club of California.=20 Jeffrey Skilling, CEO and president of Houston-based Enron Corp., wiped awa= y=20 the remnants of a pie hurled by a protester Thursday and placed the blame= =20 squarely on California's energy regulators.=20 The state Public Utilities Commission in the early 1990s put together a=20 broken market by preventing utilities to pass along the full cost of power= =20 and discouraging power contracts that would have lowered dependence on buyi= ng=20 last-minute power, Skilling said.=20 ``Because of these rules, the power consumers of the state of California we= re=20 thrown totally to the mercy of the spot market,'' Skilling said.=20 PUC president Loretta Lynch defended the regulators' actions last week,=20 saying utilities have been free to enter into long-term contracts. Utilitie= s=20 countered that the PUC never made clear what contracts it would accept, whi= ch=20 left open the possibility they would later be overruled.=20 ``I think consumers in California are angry and they should be,'' Skilling= =20 said. ``Prices in California shouldn't be as high as they are.''=20 Skilling also:=20 --Congratulated Davis for California's ``unprecedented'' conservation=20 --Denied accusations that Enron chairman Kenneth Lay personally interviewed= =20 candidates for the Federal Energy Regulatory Commission, which oversees=20 interstate energy markets=20 --Told the audience to expect a report that would show California municipal= =20 utilities have profited the most selling power to the state=20 --Said price caps ordered by FERC earlier this week would likely damage the= =20 markets and would only exacerbate the problem=20 --Acknowledged that municipal utilities in the state have managed to provid= e=20 cheaper power to their customers and even profit from the power crisis by= =20 selling off extra power despite public control=20 Enron has come under fire after accusations from Davis and state officials= =20 that it and other energy companies forced electricity prices skyward by=20 holding back supply.=20 Enron denies such claims, and joins other power producers in arguing that t= he=20 state and utilities still owe them billions in unpaid bills. Davis=20 acknowledges that Pacific Gas & Electric Co., which has declared bankruptcy= ,=20 and Southern California Edison together still owe generators such as Enron,= =20 Duke Energy, Mirant and Reliant Energy about $2.5 billion for past=20 electricity sales.=20 ``Our success is linked to efficient markets, not higher prices in Californ= ia=20 or anywhere else,'' Skilling said.=20 Protesters gathered outside the building wearing pig masks and carrying=20 hand-made signs, one of which read ``Greed is the only power crisis.''=20 ``It's basically Enron and the other companies raising prices,'' said Berna= rd=20 Greening, a Santa Clara computer programmer who said he's unhappy with the= =20 record prices for electricity and natural gas.=20 Pete Snoek of Tiburon said he believed what Skilling had to say.=20 ``I believe the energy situation has been politicized so badly,'' Snoek sai= d,=20 saying he was one of several in the audience to shush protesters during the= =20 meeting. ``I hear the same people out there, as if it's a sin to make any= =20 money in this country.''=20 State officials counter that wholesalers charged as much as $9 billion in= =20 illegal overcharges dating back to May 2000.=20 Companies have said California's claims are wildly exaggerated.=20 The Federal Energy Regulatory Commission has already estimated that=20 wholesalers owe California $124 million in overcharges for the first four= =20 months of the year. Davis and others say that's a mere drop in the bucket.= =20 Enron has also been tied to President Bush's hands-off approach to the ener= gy=20 crisis. Company chairman Kenneth Lay is a friend and one of the largest=20 campaign contributors to Bush and the GOP. Several prominent members of the= =20 Bush administration hold stock in the company.=20 Enron is one of several major GOP donors accused of meeting secretly with= =20 Vice President Dick Cheney as he drafted the Bush administration's energy= =20 plan.=20 Enron is one of the world's leading electricity, natural gas and=20 communications companies, with $101 billion in revenues in 2000. It owns=20 30,000 miles of pipeline, has 20,000 employees and is active in 40 countrie= s.=20 During the first quarter of this year, Enron's revenues increased 281 perce= nt=20 to $50.1 billion.=20 Three say company purposely cut power=20 Ex-Duke workers say repairs were curbed in order to manipulate output.=20 June 22, 2001=20 By KIMBERLY KINDY The Orange County Register=20 FORMER DUKE ENERGY employees Ed Edwards, left, Glenn Johnson, center, and= =20 Jimmy Olkjer are to appear before a state Senate committee today. Photo: Dave Yoder / The Register ? Three former Duke Energy workers say they were ordered to tamper with=20 equipment at a San Diego County power plant - causing mechanical problems= =20 that helped drive up electricity prices during the state's energy crisis.= =20 The workers say they will offer eyewitness testimony to a state Senate=20 committee today - the first public accounts from power plant employees of h= ow=20 energy production may have been manipulated.=20 Duke officials deny most of the allegations. The whistle-blowers - mechanic= s=20 Ed Edwards and Glenn Johnson and control room operator Jimmy Olkjer - lost= =20 their jobs four months ago.=20 State Sen. Joe Dunn, the Santa Ana Democrat who is chairing the investigati= ve=20 committee on price-fixing, said his staff will attempt to verify the accoun= ts=20 from the whistle-blowers. But their mere presence in a Capitol hearing room= =20 is expected to set off a media circus. And if the accusations are true, it= =20 could have wide-ranging effects on the North Carolina company's operations = in=20 California. Duke officials were working late into the night to prepare for= =20 the hearing and have scheduled a news conference later today.=20 "They were doing all kinds of things that didn't make sense," Johnson said = in=20 an interview. "But if you asked them why, to explain, they told you to shut= =20 up and do your job."=20 The testimony comes on the heels of a Federal Energy Regulatory Commission= =20 ruling Thursday ordering Duke to refund $10 million in overcharges for=20 January 2001.=20 "This information lends credence to the concern that there was a deliberate= =20 strategy for outages for the sole purpose of impacting price," Dunn said.= =20 "What they are saying is disturbing."=20 Duke Energy spokesman Tom Williams said the fact that the former workers lo= st=20 their jobs may be shaping their testimony.=20 "The proof is in the pudding. Production is up and we've had fewer forced= =20 outages since we've taken over,'' said Williams.=20 But control-room logs obtained by The Orange County Register show Duke's=20 trading arm ordered its South Bay power plant in Chula Vista to reduce=20 production minutes after Stage Three alerts were issued. The logs are for= =20 January 2001 - the same month that Duke was accused of overcharging in=20 California.=20 The three former Duke workers each worked at the Chula Vista plant for more= =20 than two decades when it was owned by San Diego Gas & Electric. They lost= =20 their jobs when Duke assembled a new team to run the plant.=20 The three whistle-blowers outlined their accusations in interviews with the= =20 Register. The accusations include:=20 The company ordered workers to throw unopened boxes of bolts, steam seals,= =20 valves and other parts into Dumpsters. The parts were needed to perform=20 routine maintenance but were no longer available when repairs were required= .=20 Duke officials acknowledge that new parts were discarded, but say the high= =20 inventory tax made it more efficient to order parts as needed because they= =20 could be delivered within 24 hours.=20 Edwards and Johnson say they were ordered to dismantle critical equipment= =20 necessary for the generating units to run at full capacity. Because parts= =20 were thrown away, they couldn't make repairs and generators ran at diminish= ed=20 capacity for days or weeks. Energy experts say this allegation, if true,=20 would allow Duke to withhold energy from the marketplace, which could drive= =20 up the price. Duke officials counter that production has increased at its= =20 power plants and forced outages have decreased since they took over. But in= =20 late 2000, there was a spike in outages at the Chula Vista plant, according= =20 to records kept by the state's power-grid operator. The plant reported 3,00= 0=20 hours of outages from October through December. There were relatively few= =20 outages before that.=20 The mechanics say the inability to perform repairs forced them to use a=20 small, expensive generator that was rarely powered up before Duke took over= =20 the plant. Experts say that could have been used to exploit federal rules= =20 allowing generators to justify prices based on the costliest units online.= =20 Olkjer says he received orders from Duke's trading arm to reduce production= .=20 Then, when energy prices jumped, he would get new instructions to power up= =20 again. Duke officials did not respond to Olkjer's claim.=20 Stanford professor Frank Wolak, an expert in California's energy market, sa= id=20 that if their testimony can be proven, the state could be refunded millions= =20 of dollars and future energy prices could be dramatically reduced.=20 "What they are saying is amazing. This is a classic plot. I've always=20 wondered how they kept the generators out for so long,'' said Wolak, who=20 heads an electricity market surveillance for the California agency that=20 oversees the buying and selling of power. "They were very happy to have the= m=20 off-line because it allowed them to make more money.=20 Wolak said the testimony seems to back up research conducted by the state= =20 Independent System Operator, which runs most of the state's power grid and= =20 oversees the buying and selling of electricity in California.=20 In a report to federal regulators, ISO said that from May to November 2000,= =20 Duke withheld electricity from the state's power grid 80 percent of the tim= e.=20 The report accused more than a dozen power plant companies of powering down= =20 generators to create scarcity in the marketplace that would in turn drive u= p=20 prices.=20 In a separate report, the state power grid operator accused Duke of=20 overcharging California again in January of this year, resulting in the $10= =20 million refund order. Duke officials say charging $3,880 a megawatt-hour wa= s=20 justified during a short period of time. Federal regulators disagreed and= =20 said the power merchant should have charged no more than $273 per=20 megawatt-hour.=20 Williams, Duke's spokesman, said that the company has been an ethical=20 operator.=20 "All but 1.1 percent of the time, we were operating. That's very good,'' sa= id=20 Williams, adding that when SDG&E owned the plant forced outages took place= =20 1.8 percent of the time.=20 But Dunn said that if the testimony from the whistle-blowers is true, and= =20 Duke had the ability to manipulate prices, federal regulators would be=20 required under the Federal Power Act to move them out of the competitive=20 marketplace.=20 This would mean they would be moved back into a "cost-based" market structu= re=20 and would only be allowed to recover costs at a fair rate of return.=20 "This would bring the prices down dramatically in California,'' Dunn said.= =20 "What generators fear most is being returned to cost-based rate regulation.= "=20 Allegations=20 of market manipulation Nearly a dozen investigations are under way to determine if=20 energy producers=20 illegally manipulated California's dysfunctional electricity market. Here a= re=20 the main allegations: Was power=20 deliberately withheld to boost prices?=20 Several investigators, including the Public Utilities Commission, the=20 California attorney general and the Federal Energy Regulatory Commission, a= re=20 trying to determine if the largest generators and power marketers - includi= ng=20 Duke, Reliant, Mirant and Dynegy - shut down power plants at key times.=20 Federal=20 Environmental Protection Agency records showed times in December when=20 Tulsa-based Williams throttled back at midday, letting=20 Williams boost profits at other plants it=20 controlled, including a=20 Huntington Beach plant owned by AES Corp.=20 Were financial=20 incentives offered to plant operators who shut down?=20 Federal regulators have settled a case for $8.million with Williams. Among= =20 the allegations: Williams offered ffinancial incentives to AES if it would= =20 keep its plants offline. Williams has denied any wrongdoing. Did companies=20 collude?=20 Traders and producers were able to share=20 information on Web sites that helped them determine when to get the highest= =20 prices for electricity. Attorney General Bill Lockyer is investigating othe= r=20 allegations of collusion.=20 Were workers ordered to fake outages?=20 Three former Duke=20 employees will testify today that they were ordered to create=20 malfunctions at a San Diego County power plant, allowing the=20 company to command higher prices at other Duke-owned power plants. Duke=20 denies this. RELATED STORIES=20 =01=07 FERC judge tackles task of generating a deal =01=07 California's blackout forecasts rolled back=20 FERC judge tackles task of generating a deal=20 He's described as a down-to-earth gentleman, but one who 'can slice you up'= =20 if you cross him.=20 June 22, 2001=20 By DENA BUNIS The Orange County Register=20 WASHINGTON - He's a plain-talking, folksy Southern gentleman. But if the=20 nation's chief energy judge, Curtis Lee Wagner Jr., believes the players in= =20 Monday's megaconference aren't dealing straight with each other, watch out.= =20 "He's kind of like (President) Reagan -- a big-picture guy," says Patrick= =20 Wood, the newest federal energy commissioner who's known Wagner for years.= =20 "He can tell a story that always fits the situation." But cross him, and "h= e=20 can slice you up like a Veg-O-Matic."=20 The 72-year-old Tennessee lawyer has been the Federal Energy Regulatory=20 Commission's chief judge for 22 years. His 47 years of government service= =20 includes being a lawyer with the military and Justice Department.=20 And beginning Monday, he'll have California's electricity crisis in his=20 hands. All the players -- from the state to utilities to power generators -= -=20 will be in one room trying to settle who owes whom money and how much.=20 The state wants $9 billion in refunds from generators they say charged too= =20 much for electricity. The generators want billions from the utilities and t= he=20 state that they say didn't pay the bill for other power they bought. And=20 California's ratepayers just want to keep the lights on.=20 "I don't think there's $9 billion," Wagner said Thursday from his office at= =20 FERC headquarters. "I think there may be a billion or so."=20 He spent much of the day fielding calls from some of the several hundred=20 people who could show up in his hearing room Monday.=20 "Let's see, I've talked to Reliant, to Dynergy once, Mirant. I'm going to= =20 talk to Dynergy again this afternoon. And I've talked to the governor's=20 office, and I've talked to some FERC folks, to someone from Oregon and some= =20 municipalities in California. Oh, and I've talked to the fellow who is goin= g=20 to represent the city of Los Angeles."=20 Wagner likes to know what he's getting into ahead of time. He makes a habit= =20 of talking to everyone individually.=20 Monday's is the kind of deal Wagner likes best. Rather than a formal trial= =20 where he wears the robe, pounds the gavel and renders a decision after both= =20 sides make their cases, settlement conferences give him a chance to wheel a= nd=20 deal.=20 "First thing, I'll make an opening statement of some kind, give 'em a pep= =20 talk," Wagner said. "And if we have any big wheels there I'll let them say = a=20 thing or two."=20 After the introductions, he'll start to work through the issues. He'll take= =20 one guy aside, he said, then maybe two. Then maybe a group. And little by= =20 little he hopes to bring them together.=20 By all accounts this case could be more difficult than any he has handled.= =20 "This has got more dollars,'' Wagner said.=20 Thursday, Wagner asked California's Independent System Operator and the pow= er=20 sellers for information that can help him sort out the complicated issues. = He=20 wants the ISO to calculate what wholesale electricity prices wold have been= =20 had the price caps FERC ordered Monday been in effect in the fall of 2000.= =20 And he wants the power companies to tell him how much power they have to se= ll=20 - short and long term.=20 And as if his task wasn't difficult enough, FERC has asked Wagner to make= =20 this deal in 15 days.=20 "It's pretty tight," he said, "but it can be done."=20 Stephen Angle, a Washington lawyer who represents power producers and=20 utilities, ran FERC's trial section for 14 years. The California case is on= e=20 of the most difficult he's seen. But he's not counting Wagner out.=20 "I have learned that it's unwise to assume he won't be successful," Angle= =20 said. The odds that Wagner will get a deal? "Fifty-fifty."=20 This is not the only high-profile case that's taking up the chief's time=20 these days. He's presiding over a FERC inquiry into whether El Paso Energy= =20 Corp., a large natural gas pipeline owner, is overcharging California.=20 Wagner has a history of taking impossible cases.=20 Angle says he recently worked with the judge on a dispute in the Midwest.= =20 "That was a case where few people thought would be successful," Angle said.= =20 It had been on FERC's docket for years. Wagner got the people talking and= =20 emerged with a settlement.=20 And Monday won't be Wagner's first effort at solving California's energy=20 crisis.=20 Last December, he got the parties together to try to break the logjam over= =20 the long-term contracting issue. But just as he was getting a head of steam= =20 on that, says Wood, the Clinton administration yanked the deal away from=20 Wagner and tried to broker it themselves.=20 "I know he's too much of a gentleman to say it. But that was a missed=20 opportunity."=20 Now he'll be reuniting some of the same parties that were together six mont= hs=20 ago.=20 Because of Wagner's longevity on the bench, almost every lawyer or energy= =20 executive who is likely to be in the hearing Monday will have had some=20 dealings with him.=20 "He'll be very clear. He will not mince words," said former FERC Chairman= =20 James Hoecker. "He will make his impatience with any dawdling very, very=20 obvious to everyone.''=20 Davis seeks $9 billion refund=20 The governor tells a Senate panel that power operators 'bilked our state.'= =20 June 21, 2001=20 By DENA BUNIS and KATE BERRY The Orange County Register=20 WASHINGTON - Gov. Gray Davis told anyone here who would listen Wednesday th= at=20 overcharges from what he calls greedy power generators have now risen to $9= =20 billion - $2 billion more than earlier reported.=20 And he wants that money back.=20 The governor said if the meetings federal regulators have ordered next week= =20 to try and hammer out the differences between power companies, utilities an= d=20 the state do not end with that kind of money in California's pocket, he'll = be=20 back.=20 "They must be required to give us back our money,'' Davis told the Senate= =20 Government Affairs Committee during two hours of testimony and questioning.= =20 It was the first time California's chief executive has testified on the=20 state's crisis. "It is unconscionable that FERC looked the other way while= =20 energy companies bilked our state for up to $9 billion."=20 The $9 billion is the amount California's Independent System Operator says= =20 generators overcharged utilities and the state from May 2000 to May of this= =20 year. It had initially calculated that between May 2000 and February 2001= =20 there were $6.7 billion in overcharges, Davis said. Those figures are a far= =20 cry from the $124 million that the Federal Energy Regulatory Commission say= s=20 were overcharges. That's because FERC only looked at three months of rates= =20 and only when the state was in an energy alert.=20 The governor faced tough, pointed questioning from Republican members and= =20 glowing praise and sympathy for his state's plight from Democratic=20 colleagues.=20 Everything from refunds to long-term contracts will be on the table at next= =20 week's settlement meeting. FERC has given the parties until July 9 to make = a=20 deal.=20 If they can't, the administrative judge overseeing the talks will make a=20 recommendation to FERC, which can order the paybacks. Sen. Barbara Boxer=20 introduced a bill Wednesday to require refunds if FERC doesn't act.=20 Not surprisingly, generators don't see the refund issue the governor's way.= =20 "It's just crazy," said Tom Williams, a spokesman at Duke Energy. "I don't= =20 know how they're coming up with these numbers."=20 And there's skepticism about next week's talks.=20 "The negotiations are going to be like the SALT Treaty," said Gary Ackerman= ,=20 president of the Western Power Trading Forum, which represents power=20 suppliers. "I question whether it can happen and work out."=20 Also at issue is money generators say they are owed by the utilities. Davis= =20 said that's about $2.5 billion. But power companies say it's more like $5.5= =20 billion to $6.5 billion.=20 Whatever the figure, Davis said, "we want to see their money in our pockets= =20 before we talk about working anything out on their end."=20 The settlement conference was part of FERC's order instituting=20 around-the-clock price caps for California and its 10 Western neighbors.=20 Those price caps were made possible, experts agree, because California=20 lawmakers from both sides of the aisle riled up the public enough over the= =20 issue that the Bush administration felt the heat.=20 The question is whether that can work with refunds.=20 "Pressure could come from a number of places," said Charles Cook, a=20 nonpartisan political analyst who has followed California's crisis. "It cou= ld=20 come from Republican members from the state, from party donors in Californi= a=20 who (President George W.) Bush is going to have to go back to, and then may= be=20 from his economic advisers who say that California can't be allowed to go= =20 belly up."=20 Davis and Sen. Dianne Feinstein, D-Calif., said new FERC Commissioner Patri= ck=20 Wood, a confidant of Bush, has been receptive to their refund pleas. That w= as=20 the case Wednesday when Wood - expected to be named FERC chairman sometime= =20 this year - told members of the Senate panel that refunds "may be an=20 important tool in the regulatory toolbox. If we're to be a vigilant market= =20 cop, we need to make sure that our bite matches our bark."=20 Wood and the other new commissioner, Nora Mead Brownell, will meet with Dav= is=20 in Sacramento on Monday.=20 RELATED STORY=20 =01=07 Energy notebook Energy notebook=20 Blackouts are still a hot prospect, officials warn=20 June 21, 2001=20 By the Associated Press=20 BERKELEY - Experts at the University of California Energy Institute say=20 residents statewide should not be comforted by the fact that widespread=20 blackouts have been avoided recently.=20 "I would say this is not a great sign that we're going to skate by later th= is=20 summer," said Severen Borenstein, a UC Berkeley economist who heads the=20 institute. "It doesn't look like the system right now can handle a blazing,= =20 hot day. If it's real hot in Northern and Southern California, we're going = to=20 have blackouts."=20 Greg Fishman, a spokesman for the California Independent System Operator,= =20 which controls the state's electricity grid, said ISO preferred to look on= =20 the bright side.=20 "Does the fact that we're meeting electricity demand today mean we're out o= f=20 the woods? No, but is the fact that we're meeting demand today good? Sure i= t=20 is," Fishman said.=20 Air conditioners are the single biggest factor in summer electricity demand= .=20 "If thermostats on air conditioners were turned to 78 degrees across the=20 state, this problem would pretty much go away," Borenstein said.=20 Davis' plan to buy SDG&E grid has fans and critics=20 SAN DIEGO - Gov. Gray Davis' plan for the state to buy San Diego Gas &=20 Electric Co.'s transmission system, owned by parent company Sempra Energy, = is=20 getting mixed reaction.=20 Under the plan unveiled Monday, the state would buy the system for $1=20 billion, and a $747 million debt owed to the utility by its customers would= =20 be forgiven.=20 "It would seem that anything that in the short term lets the ratepayers off= =20 the hook, particularly small businesses that can ill afford drastic balloon= =20 payments, is a good thing," said Suzanne Strassburger of Escondido's Downto= wn=20 Business Association.=20 Douglas Heller, a consumer advocate with the Foundation for Taxpayer and=20 Consumer Rights, called the deal "a cruel joke on the part of Gov. Davis to= =20 say that he's burst the balloon payment, because we're going to be paying f= or=20 it. We're applying that much to buy out Sempra's transmission lines."=20 GE tries to enter state's transmission-lines business=20 SACRAMENTO - Through an alliance with a little-known start-up company,=20 General Electric Co. is trying to enter California's transmission- lines=20 business.=20 Although Trans-Elect, a 2-year-old company based in Washington, has no=20 experience in the transmission business, it has the financial support of GE= 's=20 $66 billion financial arm, GE Capital. Trans-Elect's latest offer comes as= =20 Gov. Gray Davis seeks legislative approval for his plan to buy the=20 transmission lines of both San Diego Gas & Electric and Southern California= =20 Edison.=20 Any involvement by GE in the state's transmission grid could be a conflict = of=20 interest, said a lawmaker involved in the efforts to end California's power= =20 crisis.=20 "You've got someone with generation and transmission systems, how do they= =20 keep them separate and do they?" said Assemblyman Fred Keeley, D-Boulder=20 Creek. "That's a concern for me. Would they have the ability to restrict=20 competitors' access to transmissions?"=20 Bob Mitchell, Trans-Elect's vice president, said the company made its offer= =20 believing that the Legislature won't approve the deals to buy the two=20 utilities' lines.=20 GE joined forces with Trans-Elect on March 14, when GE Capital Services=20 Structured Finances Group Inc. announced it had bought a minority stake in= =20 the company. Neither company would reveal the size of the investment.=20 In other news:=20 A state board unanimously voted to reclaim its role in setting property tax= es=20 for electricity generators. Supporters say the Board of Equalization's=20 decision could mean millions of dollars in higher taxes for electricity=20 companies. The EOB will resume setting the assessed value of plants that=20 produce at least 50 megawatts of power and are owned by generating companie= s=20 whose rates are not controlled by the state.=20 Despite hot temperatures in much of the state, blackouts were averted=20 Wednesday as power reserves remained above 7 percent. Track the state's=20 blackout warnings on the Web at www.caiso.com/SystemStatus.html.=20 In rolling blackouts, 'together' is all relative=20 June 21, 2001=20 I have a confession to make: I'm an N001. And as an N001 I can't help feeli= ng=20 a little guilty.=20 I feel guilty that I won't be called upon to share the pain of all those=20 A001s in=20 Irvine and Laguna Woods, or the M003s in Costa Mesa and Cypress. While the= =20 M011s in Fountain=20 Valley suffer and sweat through rolling blackouts, I'll be sitting pretty.= =20 Because I'm an N001. And the dirty little secret about rolling power=20 blackouts is how many of us are out there.=20 Allow me to explain.=20 As you may have heard, Southern California Edison has been required to set = up=20 a public notification system for rolling blackouts. If you hear on the news= =20 that the power guys are expecting rolling blackouts, you can go to a Web si= te=20 (www.sce.com) or call a toll-free phone number (800-611-1911) to see if you= r=20 "rotating outage group" is on the list for going temporarily dark.=20 How do you know which group you're in? On your Edison power bill, next to= =20 your account number, there's a code that starts with A or M - A001, A002,= =20 M001, M002 and so on. That's your outage group number.=20 But wait. There's another category of outage group. If your power bill has= =20 the code number N001 on it, it means that you're exempt from rolling=20 blackouts.=20 You see, under Public Utilities Commission rules, electric power customers= =20 who provide "essential public health, safety and security services" - such = as=20 fire and police stations, hospitals, jails and so on - are automatically=20 exempt from rolling blackouts, even if they have emergency generators on=20 site. And because of the way electric power service is set up, anybody who'= s=20 on the same circuit with an essential service provider is also exempt from= =20 rolling blackouts.=20 For example, my house shares a circuit with a fire station. So I'm an exemp= t=20 N001, as are the other power customers on the same circuit.=20 But here's the kicker: According to an Edison spokesman, 50 percent of all= =20 Edison customers are N001s - that is, they share circuits with essential=20 service providers, and thus are currently exempt from rolling blackouts.=20 Let me repeat that: Half of all Edison customers are exempt from rolling=20 blackouts. (For San Diego Gas & Electric customers it's 40 percent.)=20 Mind you, this isn't something Edison likes to publicize. When I asked abou= t=20 it for a column three months ago, Edison said it didn't know how many power= =20 customers are automatically exempt. And when the company unveiled its=20 blackout warning plan this week, neither the Edison press release nor news= =20 reports mentioned the 50 percent exemption figure.=20 True, even exempt power customers can be affected by rolling blackouts - at= =20 work, at the store, at a traffic light.=20 Still, the next time you hear some power company or government official say= ,=20 "We're all in this together," don't believe it. When it comes to rolling=20 blackouts, the truth is that only half of us are really all in this togethe= r.=20 And even an N001 can see that isn't fair.=20 =====================================

karen.denne@enron.com

Davis Wants Generators to Accept Less Than Owed (Update2)

Davis Wants Generators to Accept Less Than Owed (Update2) 2/28/1 18:56 (New York) Davis Wants Generators to Accept Less Than Owed (Update2) (Adds names of California generators in fifth paragraph, and Reliant comment in sixth.) New York, Feb. 28 (Bloomberg) -- California Governor Gray Davis said he intends to ask power generators to accept partial payment for power sold to the state's cash-strapped utilities this summer and winter, Wall Street analysts who attended a closed-door meeting with the governor said. ``It looks like the people he wants sharing the pain are the companies generating power sold to utilities,'' said Kevin Boone, a bond analyst with Bear, Stearns & Co. who attended the meeting in New York. ``He wants to force them to take cents on the dollar. That seems to be what his initial proposal will be.'' PG&E Corp.'s Pacific Gas & Electric, and Edison International's Southern California Edison, the state's largest utilities, are near bankruptcy after accumulating more than $12 billion in debt buying power from generators at soaring prices. Regulators have not let the utilities pass on most of their power- buying debt to consumers. Davis said some generators have approached him with offers to accept less than full payment, said Michael Worms, a utility analyst with Gerard Klauer Mattison & Co. Davis spoke to about 35 analysts from Wall Street and energy-research firms in New York in a meeting that was criticized by investors and analysts who were not allowed to attend. No Names Mentioned Davis didn't specify which companies came to him with partial- payment proposals, analysts said. Duke Energy Corp., Calpine Corp., Willams Cos., Dynegy Inc. and Reliant Energy Inc. are among the biggest suppliers of electricity to California utilities. ``I'm not aware of him talking to anyone at Duke about forgiveness,'' Duke Energy spokesman Tom Williams said. Reliant spokesman Richard Wheatley said Davis's proposal ``doesn't really come as a surprise'' because politicians in Sacramento, the capital of California, have been discussing the idea for weeks. Reliant has opposed anything other than full payment of its debts. ``Williams fully expects to be paid the money that is owed us,'' spokeswoman Paula Hall-Collins said. ``We have worked in very good faith with the state, selling voluntarily into the market, negotiating with them for long-term contracts and working with them to solve the problem.'' Enron Corp., an energy trader that has set aside unspecified reserve for possible losses in California, has not been approached about debt forgiveness, said Karen Denne, a company spokeswoman. ``This proposal. . . is news to us,'' and does not address the immediate problem of electricity shortages in California this summer, Denne said. Industry analysts say California, which has already had scattered blackouts this winter, will face more this summer when power demand surges. Buying the Grid Davis said at the meeting that negotiations to buy PG&E Corp.'s power transmission system may take another 30 days, though he was optimistic an agreement could be reached within two weeks, analysts said. He offered few other specifics on the PG&E talks, said Steve Fetter, group managing director of global power for Fitch Inc. State officials are trying to reach agreement with PG&E and Edison, as well as with Sempra Energy, to buy their transmission lines as part of a plan to help them pay debt and borrow money at low interest rates to avoid bankruptcy. A tentative agreement to buy Edison's lines for $2.76 billion was reached last week. Talks with Sempra are continuing. The governor said he was optimistic an agreement with PG&E could be reached in two weeks, but negotiations could drag on longer, Fetter said. ``We are making progress,'' Davis said at a news conference after the analysts meeting at the Cornell Club on the east side of Manhattan. ``We are close to a final agreement with (Edison) and relatively close with Sempra.'' The governor told analysts he's confident he can get a utility rescue plan that doesn't require an immediate rate increase, but Davis did say that rate increases are going to be needed at some unspecified time in the future, Fetter said. Davis said he wasn't sure if he resolved all of analysts' doubts about California's plans to save its utilities from bankruptcy. ``He's in a hole and he's got a long way to go to get out of it,'' said Paul Patterson, an analyst with Credit Suisse First Boston who attended the meeting. ``We still don't have a final solution in sight.'' Shares of San Francisco-based PG&E fell 9 cents to $13.96. Rosemead, California-based Edison shares fell 4 cents to $14.90. San Diego-based Sempra fell 16 cents to $22.15. --Mark Johnson and Jonathan Berr in New York (212) 318-2300 or mjohnson7@bloomberg.net and jberr@bloomberg.net with reporting by Margot Habiby in Dallas and Jim Kennett in Houston/alp

dasovich-j/all_documents/9540.

dasovich-j

Subject: Davis Wants Generators to Accept Less Than Owed (Update2) Sender: karen.denne@enron.com Recipients: ['james.steffes@enron.com', 'richard.shapiro@enron.com', 'jeff.dasovich@enron.com'] File: dasovich-j/all_documents/9540. ===================================== Davis Wants Generators to Accept Less Than Owed (Update2) 2/28/1 18:56 (New York) Davis Wants Generators to Accept Less Than Owed (Update2) (Adds names of California generators in fifth paragraph, and Reliant comment in sixth.) New York, Feb. 28 (Bloomberg) -- California Governor Gray Davis said he intends to ask power generators to accept partial payment for power sold to the state's cash-strapped utilities this summer and winter, Wall Street analysts who attended a closed-door meeting with the governor said. ``It looks like the people he wants sharing the pain are the companies generating power sold to utilities,'' said Kevin Boone, a bond analyst with Bear, Stearns & Co. who attended the meeting in New York. ``He wants to force them to take cents on the dollar. That seems to be what his initial proposal will be.'' PG&E Corp.'s Pacific Gas & Electric, and Edison International's Southern California Edison, the state's largest utilities, are near bankruptcy after accumulating more than $12 billion in debt buying power from generators at soaring prices. Regulators have not let the utilities pass on most of their power- buying debt to consumers. Davis said some generators have approached him with offers to accept less than full payment, said Michael Worms, a utility analyst with Gerard Klauer Mattison & Co. Davis spoke to about 35 analysts from Wall Street and energy-research firms in New York in a meeting that was criticized by investors and analysts who were not allowed to attend. No Names Mentioned Davis didn't specify which companies came to him with partial- payment proposals, analysts said. Duke Energy Corp., Calpine Corp., Willams Cos., Dynegy Inc. and Reliant Energy Inc. are among the biggest suppliers of electricity to California utilities. ``I'm not aware of him talking to anyone at Duke about forgiveness,'' Duke Energy spokesman Tom Williams said. Reliant spokesman Richard Wheatley said Davis's proposal ``doesn't really come as a surprise'' because politicians in Sacramento, the capital of California, have been discussing the idea for weeks. Reliant has opposed anything other than full payment of its debts. ``Williams fully expects to be paid the money that is owed us,'' spokeswoman Paula Hall-Collins said. ``We have worked in very good faith with the state, selling voluntarily into the market, negotiating with them for long-term contracts and working with them to solve the problem.'' Enron Corp., an energy trader that has set aside unspecified reserve for possible losses in California, has not been approached about debt forgiveness, said Karen Denne, a company spokeswoman. ``This proposal. . . is news to us,'' and does not address the immediate problem of electricity shortages in California this summer, Denne said. Industry analysts say California, which has already had scattered blackouts this winter, will face more this summer when power demand surges. Buying the Grid Davis said at the meeting that negotiations to buy PG&E Corp.'s power transmission system may take another 30 days, though he was optimistic an agreement could be reached within two weeks, analysts said. He offered few other specifics on the PG&E talks, said Steve Fetter, group managing director of global power for Fitch Inc. State officials are trying to reach agreement with PG&E and Edison, as well as with Sempra Energy, to buy their transmission lines as part of a plan to help them pay debt and borrow money at low interest rates to avoid bankruptcy. A tentative agreement to buy Edison's lines for $2.76 billion was reached last week. Talks with Sempra are continuing. The governor said he was optimistic an agreement with PG&E could be reached in two weeks, but negotiations could drag on longer, Fetter said. ``We are making progress,'' Davis said at a news conference after the analysts meeting at the Cornell Club on the east side of Manhattan. ``We are close to a final agreement with (Edison) and relatively close with Sempra.'' The governor told analysts he's confident he can get a utility rescue plan that doesn't require an immediate rate increase, but Davis did say that rate increases are going to be needed at some unspecified time in the future, Fetter said. Davis said he wasn't sure if he resolved all of analysts' doubts about California's plans to save its utilities from bankruptcy. ``He's in a hole and he's got a long way to go to get out of it,'' said Paul Patterson, an analyst with Credit Suisse First Boston who attended the meeting. ``We still don't have a final solution in sight.'' Shares of San Francisco-based PG&E fell 9 cents to $13.96. Rosemead, California-based Edison shares fell 4 cents to $14.90. San Diego-based Sempra fell 16 cents to $22.15. --Mark Johnson and Jonathan Berr in New York (212) 318-2300 or mjohnson7@bloomberg.net and jberr@bloomberg.net with reporting by Margot Habiby in Dallas and Jim Kennett in Houston/alp =====================================

courtney.votaw@enron.com

Enron Mentions

US Power, Gas Companies Restrict Dealings With Enron Dow Jones Energy Service, 11/08/01 USA: Enron provides financing data, restates earnings. Reuters English News Service, 11/08/01 Enron Thinks Ex-CFO Got More Than $30M Thru Partnerships Dow Jones Corporate Filings Alert, 11/08/01 Dynegy confirms in talks with Enron over possible tie-up AFX News, 11/08/01 USA: Dynegy says in talks with Enron over possible deal. Reuters English News Service, 11/08/01 U.S. Stocks Open Higher on Retail Sales Data, European Rate Cuts Dow Jones Business News, 11/08/01 Dynegy/Enron Talks -4: Follows SEC Inquiry Launch Dow Jones News Service, 11/08/01 Dynegy Confirms Discussions With Enron Business Wire, 11/08/01 USA: UPDATE 1-Before the Bell - Dynegy flat, Enron slips. Reuters English News Service, 11/08/01 FERC 'Watching With Interest' Enron's Woes, Chairman Says Dow Jones Energy Service, 11/08/01 Ripples From Enron's Troubles Hit Its Trading Partners Dow Jones Energy Service, 11/08/01 Enron in Talks With Dynegy; to Restate Earnings (Update8) Bloomberg, 11/08/01 Fitch Comment on Wessex Water Ratings Following Enron Downgrade Bloomberg, 11/08/01 NewPower 3rd-Qtr Loss Narrows After Adding Customers (Update2) Bloomberg, 11/08/001 Dynegy May Offer at Least $8 Bln to Acquire Enron (Update5) Bloomberg, 11/08/01 Enron Bonds Gain as Dynegy Considers $8 Bln Buyout (Update1) Bloomberg, 11/08/01 Enron Confirms Dynegy Talks TheStreet.com, 11/08/01 Stocks Surge On Rate Cuts, Jobless Numbers TheStreet.com, 11/08/01 Some Glamour Stocks That Are Ugly Down Deep RealMoney.com, 11/08/01 Top Of The News Enron Trades Itself Forbes.com, 11/08/01 US Power, Gas Companies Restrict Dealings With Enron By Jon Kamp, Kristen McNamara and Mark Golden Of DOW JONES NEWSWIRES 11/08/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) (This article was originally published Wednesday.) NEW YORK -(Dow Jones)- Trading companies in Enron Corp.'s (ENE) key North American power and gas markets are restricting their dealings with the ailing Houston-based giant, people at those companies said Wednesday. Concerns have mounted because Enron, which accounts for about a quarter of the trade in the country's power and gas markets and which makes a market for those commodities on its Internet-based system EnronOnline, has seen its share price fall by about 75% and its credit ratings downgraded since mid-October due to uncertainties about its extremely complex financial structure. "We've restricted our business with them," said Mike Smith, chief financial officer for Mirant Corp. (MIR) unit Mirant Americas Group, a Top 10 trader of power and gas in the U.S. Smith wouldn't be more specific, but his comments echoed those of others in the business. "Our exposure to Enron is insignificant compared with the previous exposure," said Al Butkus, spokesman for Aquila Inc. (ILA), a Top 5 U.S. power and gas trader. Tractebel Energy Marketing, the North American subsidiary of the Belgian company Tractebel S.A., has limited the term of transactions with Enron to three years or less, a person at the company said. And a power broker said some medium sized western utilities have stopped trading with Enron even for near-term delivery. Enron didn't return calls seeking comment. The Wall Street Journal reported Wednesday that Enron was in talks for a capital infusion and possible acquisition by competitor Dynegy Inc. (DYN). Also, Enron said Thursday it was restating its financial statements from 1997 through the second quarter of 2001, saying its financial and audit reports are unreliable for all those periods. The company fired its treasurer and general counsel. Key Markets Enron's ability to transact in its core markets - North American wholesale gas and power - is essential if the company maintain the earnings and cash flow needed to emerge from its current credit crisis, Wall Street analysts and ratings agencies have said. Standard & Poor's and Moody's Investors Service downgraded Enron's credit to within two steps of junk-bond status last week and have it on watch for further downgrade. Enron still has its supporters. Exelon Corp. (EXC) is monitoring its own risk management, but hasn't changed its relationship with Enron, said Chief Financial Officer Ruth Ann M. Gillis. "We haven't changed our relationship," Gillis said. Enron is a very important factor in the vitality of the wholesale energy markets, she said. They're still the "largest, best" of the companies out there, she said. Likewise, a trading floor manager at one energy company said Enron called earlier in the week and asked that the company increase its trading on EnronOnline. The company's EOL volumes had fallen, but it honored Enron's request out of respect for Enron's still market-making power. PPL Corp. (PPL) moved to mitigate its exposure to Enron following the downgrades, a person in the marketing organization at PPL EnergyPlus said. "Enron would not be a first choice to do long-term transactions," the person said. "For shorter terms, deals, they wouldn't be considered equally with everyone else. There's just too much risk there." Since Enron's troubles began several weeks ago, energy trading partners had stood by the company in ways that stock and bond traders hadn't. Until this week, "business as usual" was an almost constant refrain. Energy companies' immediate exposure to Enron was limited to a maximum of seven weeks of receivables, and Enron was paying its bills. But for some of those companies, business as usual also meant not changing value-at-risk formulas, even though the formulas were generating ever lower allowable volumes of business with Enron as the company's credit quality deteriorated, one risk manager said Wednesday. Lower value-at-risk limits got most trading companies to flatten their portfolios by taking positions to offset currently profitable long-term positions with Enron. PPL, for example, is still following its credit policy and as a result has limited its dealings with Enron, which has seen its credit quality fall, the person at PPL EnergyPlus said. "We've taken a look at our book," the person said. "Based on the events of this and last week, we've taken some action to mitigate the risk based on their ratings downgrade." Trading companies constantly evaluate their counterparties' credit and adjust their dealings accordingly, but rarely have been required to address problems on the scale of Enron's recent difficulties. "It certainly ranks just behind California," the person at PPL said. Enron Claims Trading Normal An Enron spokesman, reached later, said the company continues to see a normal range of transactions, including long-term deals. "We've not seen closing out of positions," spokesman Eric Thode said. Susan Abbott, a managing director in corporate finance at Moody's, said the ratings agency wasn't aware of significant changes in trading companies' dealings with Enron. The agency continues to watch for new restrictions, in particular margin calls, which could quickly strain Enron's liquidity. A drop in new business with Enron isn't as much of a concern, she said. "If you're restricting new business with the company, what you're doing is moving the company out of the market in an orderly way," Abbott said. PPL is shying away from doing deals with Enron and is limiting the dollar amount and terms of the deals it will do with the company, but hasn't yet imposed margin calls or required additional collateral, the person in the marketing organization said. "Neither the credit thresholds nor our exposure threshold have been breached," the person said. PPL said it's limiting exposure to Enron for shorter-term deals too, the person said. "Their liquidity just isn't there anymore," the person said. No large company can afford to pull the plug on Enron, given the company's centrality to the power and gas markets. "Enron is such a large player and they're so important in terms of maintaining the liquidity of the markets," said Sandy Fruhman, spokeswoman for Reliant Energy Inc. (REI). "We see this as a situation that has potential downsides for the entire industry." Enron's North American wholesale trading unit brought in $1.9 billion in income before interest and taxes in the first nine months of the year, up from $1.1 billion in the same period last year. Reliant continues to do business, but Fruhman wouldn't say specifically whether it had restricted its dealings. "We're monitoring the situation carefully and making sure we follow prudent business practices," she said. "But we're trying to work with them, because it's in the best interest of the entire industry to overcome their current problems." -By Jon Kamp, Dow Jones Newswires; 312-750-4129; jon.kamp@dowjones.com (Kristen McNamara, Mark Golden and Andrew Dowell in New York, John Edmiston in Houston and Erik Ahlberg in Chicago contributed to this article.) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron provides financing data, restates earnings. 11/08/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Nov 8 (Reuters) - Enron Corp. said on Thursday it has provided additional information about off-balance sheet and other transactions that led to an investigation by the U.S. Securities and Exchange Commission and a shattering of the energy trader's credibility. Houston-based Enron also confirmed it is in talks with its hometown rival Dynegy Inc. over a possible business combination. Terms of any transaction have not been agreed on, the two companies said. Enron said that it will restate its earnings from 1997 to 2000, and the first two quarters of 2001 as the company addresses concerns raised by the SEC and shareholders. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Thinks Ex-CFO Got More Than $30M Thru Partnerships 11/08/2001 Dow Jones Corporate Filings Alert (Copyright (c) 2001, Dow Jones & Company, Inc.) ISSUER: ENRON CORP. SYMBOL: ENE 10:02 DJ CFA SOURCE:SEC 8-K ISSUER: ENRON CORP. SYMBOL: ENE REASON CODES: 5 -- Other Materially Important Events WASHINGTON (Dow Jones)--Enron Corp. (ENE) said it believes the company's former chief financial officer, Andrew Fastow, received more than $30 million from managing and investing in several partnerships that did business with the energy giant. The company disclosed the information in a Form 8-K filing released Thursday by the Securities and Exchange Commission. Enron said it believes it committed $16 million in initial capital to one of the partnerships run by Fastow and paid $394 million in capital commitments to another partnership he managed. The partnerships were described to Enron's board as potential sources of capital to buy assets from Enron, potential equity partners for Enron investments, and counterparties to help mitigate risks associated with Enron investments, the filing said. As reported, shareholders and analysts have questioned whether the partnerships posed a conflict by putting Enron's CFO, who has a fiduciary duty to Enron shareholders, in a position of reaping financial rewards for representing partnership investors in business deals with Enron. On Oct. 24, Enron dismissed Fastow as its financial chief. As reported, the board of Dynegy (DYN) tentatively agreed last night to acquire Enron for about $8 billion in stock, or roughly $10 a share. Enron is a Houston-based energy and utilities company. -Dan Lowrey; Dow Jones Corporate Filings Alert; 202-393-7402; dan.lowrey@dowjones.com 10:30 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy confirms in talks with Enron over possible tie-up 11/08/2001 AFX News (c) 2001 by AFP-Extel News Ltd HOUSTON (AFX) - Dynegy Inc, a ChevronTexaco Corp affiliate, confirmed it is in talks with Enron Corp over a possible business combination. Dynegy said it has not agreed to the terms of any transaction with Enron. Dynegy added that it does not anticipate making any further announcement with respect to a possible transaction until a definitive agreement is reached or discussions are terminated. aw/shw For more information and to contact AFX: www.afxnews.com and www.afxpress.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Dynegy says in talks with Enron over possible deal. 11/08/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Nov 8 (Reuters) - Dynegy Inc. said on Thursday it is in talks over a possible combination with Enron Corp., the beleaguered energy-trading giant crippled by an SEC probe and investor doubts about its ability to raise cash. Dynegy has not agreed to the terms of any transaction with Enron, the Houston-based rival of Enron said. Dynegy said it does not anticipate making any further announcement with respect to a possible transaction until a definitive agreement is reached or discussions are terminated. A source close to the talks told Reuters on Wednesday that Dynegy is in talks to buy Enron in a deal that would involve a stock swap and $1.5 billion in capital from ChevronTexaco Corp., which has a big stake in Dynegy, The deal, which could be announced officially this week, was expected to give what the source called a "modest premium" to Enron shareholders, whose stock has plummeted in value as a fast-moving financial crisis enveloped the company. Enron shares, which traded as high as $90 in August of last year, dropped to a 10-year-low of $7 during Wednesday trading, before rallying on news of the Dynegy talks and closing at $9.05 a share. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. U.S. Stocks Open Higher on Retail Sales Data, European Rate Cuts By Erin Schulte 11/08/2001 Dow Jones Business News (Copyright (c) 2001, Dow Jones & Company, Inc.) The Wall Street Journal Online Stocks logged solid gains Thursday as investors focused on a few bright spots in sales reports from U.S. retailers. Interest-rate cuts from two European central banks also bolstered confidence. The Dow Jones Industrial Average was up 40 to 9595 soon after the opening bell, after losing 36.75 in the previous session. The Nasdaq Composite Index gained 21.20 to 1858.80, after inching ahead 2.45 points on Wednesday. Other indexes also lost ground on Thursday. The Standard & Poor's 500-stock index advanced 6.50 to 1122.30, the New York Stock Exchange Composite Index moved up 2.50 to 571 and the Russell 2000 Index edged up 1.90 to 442.70. Bonds were mixed and the dollar fell. Traders said interest-rate cuts by the European Central Bank and the Bank of England helped to underpin U.S. equities. Both banks lowered key rates by a half percentage point on Thursday, in an effort to keep the regional economy from slipping into recession. Investors are hoping October sales figures show that consumer spending is on the road to recovery and will gain steam during the holiday shopping season. Consumer spending slowed significantly in the wake of the Sept. 11 terrorist attacks. Wal-Mart Stores said sales at stores open at least a year rose 6.7%, including the results of its Sam's Club chain. The nation's biggest retailer, whose same-store sales topped analysts' expectations, also said total sales for the four weeks ended Nov. 2 jumped more than 14% to $16.62 billion. Its shares rose 1.4%. But Federated Department Stores posted a steeper-than-anticipated 8.7% drop in same-store sales. The company, which operates the Bloomingdale's and Macy's chains, said total sales also suffered, falling 8.9% to nearly $1.12 billion. Its shares slipped. Trendy discounter Target said same-store sales climbed 2%, while total sales for the week ended Nov. 3 increased 8.9%; its stock edged higher. And TJX, which owns popular discount clothier T.J. Maxx, said same-store sales climbed 4%, while total retail sales jumped 12% for the month. In addition to sorting through the retail-sales reports, investors also will have two economic indicators to scrutinize Thursday morning. The Labor Department reported initial jobless claims fell to 450,000 in the week ended Nov. 3 from 496,000 a week earlier. Economists surveyed by Thomson Global Markets anticipated 513,000 jobless claims for the latest period. A separate Labor Department report showed a 2.4% decline in prices of imported goods for October, following a 0.1% rise in September. Economists had forecast a 0.5% fall in prices. Among stocks to watch, Dynegy held talks to buy Enron for roughly $7 billion to $8 billion in stock, one-tenth of what Enron was worth 15 months ago. The energy trading and power firm also is expected to inject $1.5 billion into Enron. Exxon Mobil won a significant victory as an appeals court ruled that a jury's $5 billion punitive-damage verdict for the Exxon Valdez oil spill was excessive and should be reduced. Its shares rose 1.2%. Gains in key international markets may help put U.S. investors in a buying mood. Frankfurt's DAX index was up 1.6% in intraday trading, while London's Financial Times-Stock Exchange 100-Share Index was 0.6% higher. Earlier, Japan's Nikkei 225 average closed with a gain of 1.4% and Hong Kong's Hang Seng Index jumped 2.6%. On Wednesday, U.S. blue-chip stocks came under pressure from weakness in overseas markets, particularly in Tokyo, as well as profit-taking following the Federal Reserve's decision Tuesday to cut interest rates. In major U.S. market action Thursday: Stocks climbed. On the Big Board, where 32.2 million shares traded, 624 stocks rose and 259 fell. On the Nasdaq, 88.3 million shares changed hands. Bonds were mixed. The 10-year Treasury note slipped less than 1/8, or $2.50 for a $1,000 bond, pushing the yield to 4.19%. The 30-year bond rose almost 3/8 to yield 4.77%. The dollar fell. It traded at 89.84 U.S. cents to the euro, compared with 89.81 late Wednesday in New York. The dollar fell to 120.69 yen from 120.92. For continuously updated news from The Wall Street Journal, see WSJ.com at http://wsj.com. Copyright (c) 2001 Dow Jones & Company, Inc. All Rights Reserved. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy/Enron Talks -4: Follows SEC Inquiry Launch 11/08/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) The talks between Enron and Dynegy follow a sharp drop in Enron's stock over the past several weeks as controversy arose over the companies dealings with certain partnerships. The SEC later requested information from Enron related to the company's dealings with those partnerships, which were set up and run until recently by Andrew S. Fastow, who was recently replaced as Enron's chief financial officer. The investigation is centered on disclosure controversies that have damaged the Houston energy company's credibility. Internal partnership documents indicate Fastow and possibly a handful of associates made millions of dollars from the partnerships. Fastow severed his ties with those partnerships in July. Internal documents related to one of the Fastow partnerships disclose that Enron also did as much as hundreds of millions of dollars of business with an entity connected to another company official, who has since left Enron, the Wall Street Journal reported on Oct. 26. While Enron disclosed its Fastow-related transactions in SEC filings, a computerized search of the SEC's database of public filings produced no reference to this other employee-related entity known as Chewco. Over the past couple of days, Enron has been scrambling to line up quick financing from a prominent outside investor and has been in discussions with private-equity firms and power-trading companies. Discussions between Dynegy and Enron began about 10 days ago, but reportedly intensified last weekend. Also Thursday, Enron restated its earnings for 1997 through 2000 and the first half of 2001 due to the transactions and resulting account adjustments. -Thomas Gryta; Dow Jones Newswires; 201-938-5400 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy Confirms Discussions With Enron 11/08/2001 Business Wire (Copyright (c) 2001, Business Wire) HOUSTON--(BUSINESS WIRE)--Nov. 8, 2001--Dynegy Inc. confirmed today that it is engaged in discussions with respect to a possible business combination with Enron. Dynegy has not agreed to the terms of any transaction with Enron. Dynegy does not anticipate making any further announcement with respect to a possible transaction until a definitive agreement is reached or discussions are terminated. CONTACT: Dynegy Inc. 713/507-6400 09:36 EST NOVEMBER 8, 2001 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 1-Before the Bell - Dynegy flat, Enron slips. 11/08/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Nov 8 (Reuters) - Dynegy Inc. shares traded flat and Enron Corp. slipped as the market mulled news that the companies are in an advanced stage of talks for Dynegy to acquire Enron by means of a stock swap, according to a source familiar with the deal. Terms of the possible combinmation have not yet been decided, but Enron stockholders would likely receive an amount of Dynegy stock that would give them a "modest premium" over current Enron stock prices, said the source, who spoke on condition of anonymity. Enron shares traded at $8.50, down from $9.05, and Dynegy was at $33, in line with the price at the prior New York Stock Exchange close. More broadly, the U.S. stock markets were expected to gain at the open, based on the upward moves of equity-index futures. The Standard & Poor's 500 December contract rose 7.5 points to 1,127.00 and the Nasdaq 100 index contact added 19.00 points to 1,554.50. Shares in XO Communications Inc. rose to $1.38 per share from $1.17 in very active pre-open trade on Thursday as the voice and data services company posted a narrower third-quarter loss. Markets overseas rallied on back-to-back interest-rate cuts by the European Central Bank and the Bank of England on Thursday. The reductions follow the Federal Reserve's rate cut two days ago, the U.S. central's bank's 10th such move of the year. Among other issues active ahead of the regular trading session, Intel Corp. rose to $28.80 from $28.29, BEA Systems Inc. traded up to $15.25 from $14.71 and Cisco Systems Inc. improved to $19.40 from $18.93. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. FERC 'Watching With Interest' Enron's Woes, Chairman Says 11/08/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) (This article was originally published Wednesday) WASHINGTON -(Dow Jones)- The U.S. Federal Energy Regulatory Commission is "watching with interest" the problems confronting Enron Corp. (ENE), but isn't intervening in the matter, Pat Wood III, FERC's chairman, said Wednesday. "We're watching the impact Enron or other entities would have on the markets," Wood told reporters during a press conference following the commission's meeting Wednesday. "We are watching with interest," he said for emphasis. But the commission doesn't intend to intervene in the U.S. Securities and Exchange Commission's investigation of financial hedging instruments with partnerships overseen by Enron's former financial officer, Wood said. The dealings led to a $1.2 billion writedown in Enron shareholder equity earlier this year. -By Bryan Lee, Dow Jones Newswires; 202-862-6647; Bryan.Lee@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Ripples From Enron's Troubles Hit Its Trading Partners By Sarah Spikes Of DOW JONES NEWSWIRES 11/08/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) LONDON -(Dow Jones)- Enron Corp.'s (ENE) financial troubles have created a new problem for U.K. power market players, and they don't quite know how to respond. Enron's significant presence in the U.K. market means there are many trading partners who are counterparties in deals with a company whose creditworthiness is now less secure than when those deals were struck. Companies are reluctant to cease doing business with a firm of Enron's size and stature, but they're also aware of the risk of becoming creditors to a bankrupt Enron. Since Enron revealed a $1.2 billion reduction in shareholder equity last month related to controversial transactions with entities connected to former Chief Financial Officer Andrew Fastow, the company's shares have tumbled; its senior unsecured debt has been downgraded by Fitch Inc., Standard & Poor's Corp. and Moody's Investors Service; and the U.S. Securities and Exchange Commission has launched a formal investigation into the matter. Already, many have backed off from trading power with Enron, citing the need to minimize exposure, but to what, exactly, they're not sure. Three Options For Enron's Trading Partners Enron's problems give rise to three major options for counterparties. They can wait, anticipating that Enron will go bust, and then terminate their contracts; they can try to invoke a controversial clause in their contracts and get Enron to put up more collateral; or they can back off from new forward trading and hope a company like Dynegy Inc. (DYN) will take Enron over and assume the contracts. One is available only if Enron goes bankrupt, and the other two are available right now, but most market-makers are still undecided. "No huge power merchant has ever had serious problems with their credit in the U.K. market before, so the viability of any theoretical option is uncertain," said a partner in a London-based law firm with an international energy practice. If a company takes the first option - continuing to trade with Enron - and Enron does go bankrupt, the trading partner would then be able to terminate existing contracts. Sarah Moynihan, an associate with Allen & Overy, the firm that wrote the Grid Trade Master Agreement - the contract used by most power trading parties in the U.K. - says the GTMA allows parties to terminate outstanding transactions with an insolvent company. "To terminate any transactions under one master agreement though, they would have to terminate all of them," she added. Terminating parties would be reimbursed, or charged, based on a marked-to-market value of their contracts. Power prices have been on a steep decline since the introduction of the New Electricity Trading Arrangements in March, so parties with majority selling positions through Enron would suffer financial penalties when they had to resell their power for less, but if they had bought through Enron, they would be able to get the same power for less money on the U.K. market today. "Market participants calculate the mark-to-market value all the time anyway, but particularly as this is the first NETA winter, the trust in price forecasting isn't as strong as it could be, so you may not be confident that (would be able to get) the equivalent of your contract...and you will live without peace of mind in the meantime," said the head of trading at a large generating and trading company. "Even if you were successful in terminating contracts, you might not get paid, and then who will trade with you, if you have a big debt owed to you by someone who can't pay it?" said a lawyer from a London law firm with an international energy practice. The only U.K. power-related company to go into insolvency recently was Independent Energy a small supply company. In that case, Innogy Holdings PLC (U.IOG), the company which took it over, assumed its contracts. Many Can't Afford To Lose Enron As A Partner Enron has always traded with a wide range of counterparties, some of which other big players wouldn't go near because of their relative lack of size and financial strength. This means there will be many companies that may not be able to afford to let Enron go. Not trading with Enron will make recovery harder, but a trading party will appear foolhardy if it continues to trade with a company that eventually goes under. The second option open to Enron's trading partners involves trying to invoke a muddied clause in the GTMA - the material adverse change, or MAC, clause. By asserting that the company's credit is not compatible with one with which they would normally agree to trade, they may be able get Enron to put up more collateral in support of the contracts. By asserting that Enron's credit isn't as secure as they expected when they agreed to the contracts, they may be able get Enron to put up more collateral in support of the contracts. The problem is that it's hard to be sure that a change in circumstances warrants invoking the MAC clause. However, this hasn't stopped some counterparties from asking their lawyers to investigate the feasibility of invoking MACs in their contracts with Enron, said lawyers who declined to be identified. "People are definitely talking about the chances of getting a MAC through these days," said one lawyer who declined to be named. Having to put up more capital would worsen Enron's situation, particularly if several counterparties were to ask for it, and most aren't interested in making Enron's situation worse. "Enron helps the U.K. market. It would be unhelpful for them not to be there and do what they do in terms of providing liquidity," said British Energy PLC (BGY) Chief Financial Officer Keith Lough in a conference call Wednesday. He said BE's dealings with Enron are two-way - Enron takes part of its baseload generation from BE's nuclear facilities while BE takes peak power from Enron for its direct sales unit. So far, the dilemma means most companies are taking the middle ground. They are reducing the number of new forward contract deals they do with Enron, but they aren't ceasing altogether and they aren't trying to get out of existing contracts. This partly reflects confidence that Enron will remain solvent, either on its own or through a merger. The company does have several things in its favor. First, Enron secured $1 billion in new credit lines using its gas pipeline assets as collateral. Second, there is no evidence that Enron is on the wrong side of the U.K. power market. Many traders say Enron has in fact gone into the first NETA winter short - a strategy that appears prescient in light of the warmest October in recent memory and low power prices. -Sarah Spikes, Dow Jones Newswires; (+44 20) 7842 9345; sarah.spikes@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron in Talks With Dynegy; to Restate Earnings (Update8) 2001-11-08 11:09 (New York) Enron in Talks With Dynegy; to Restate Earnings (Update8) (Updating to add stock movement.) Houston, Nov. 8 (Bloomberg) -- Enron Corp., the largest energy trader, restated and reduced its earnings for the past four years because of losses from partnerships that are under investigation by the Securities and Exchange Commission. Dynegy Inc. said it may acquire Enron, whose shares have plunged 89 percent this year. Dynegy's board last night weighed a proposal to pay $8 billion in stock, said people familiar with the situation. Concerns Enron may be lowered to a junk credit rating within days stalled the talks, the people said. Houston-based Dynegy is concerned that a reduction to junk status would precipitate a cash crisis by requiring Enron to repay early $3.3 billion of bonds. Enron's credit rating, currently rated ``BBB'' by Standard & Poor's Corp., or two levels above junk, is on review to be lowered. ``Merging with Enron is fraught with potential problems for Dynegy,'' said Commerzbank analyst Andre Meade. ``The bulk of Enron's value is in its trading business, and it's trading business is people.'' Enron shares were little changed after the announcement hich will result in a $96 million reduction in 1997 net income, $113 million in 1998, $250 million in 1999 and $132 million in 2000. In 2001, the changes result in an increase to net income of $17 million and $5 million in the first and second quarters, respectively, and reduction of $17 million for the third quarter. Enron also fired Treasurer Ben Glisan and Kristina Mourdant, a lawyer for an Enron division. The company ``now believes'' Glisan, Mourdant and two other employees no longer working for Enron bought interests in subsidiaries of a partnership run by former Chief Financial Officer Andrew Fastow. Enron said it believes Fastow made more than $30 million from partnerships called LJM1 and LJM2 which he ran. `Running Out of Time' ``Enron is running out of time and that's what's pushing them to the bargaining table,'' said Zach Wagner, an analyst with Edward Jones & Co., who cut his recommendation on Enron to ``reduce'' from ``accumulate'' on Oct. 23. Dynegy would gain a wholesale energy business, the leading energy manager for commercial and small-industrial customers, and an Internet energy trading operation many times larger than its own, said UBS Warburg LLC analyst James Yanello. ChevronTexaco Corp., which owns about 27 percent of Dynegy, is also involved in the talks. ``If history is any guide, Dynegy is stingy when it comes to acquisitions, so I don't expect them to do anything stupid'' such as overpaying for Enron, said Yanello. ``A deal could provide Dynegy with tremendous opportunity.'' He rates Dynegy ``strong buy'' and doesn't own shares of either company. Enron Chairman and Chief Executive Officer Kenneth Lay wouldn't hold a management position with the combined company under terms being discussed Wednesday, the Wall Street Journal reported. He would get a seat on the board, the paper added. ChevronTexaco is considering adding $1.5 billion to the transaction to help Enron. It would provide another $1 billion when the purchase is closed, the New York Times and Wall Street Journal reported. The companies agreed on a breakup fee providing Dynegy with about $400 million if Enron accepts a higher offer, people familiar with the talks said. Dynegy spokesman Steve Stengel, Enron spokesman Mark Palmer and ChevronTexaco spokesman Fred Gorell declined to comment. Losing Confidence Companies that trade natural gas, electricity and other commodities with Enron may pull back if Enron's finances deteriorate to the point that it loses its investment-grade credit rating, investors say. ``Dynegy has to act fast,'' said Roger Hamilton, a money manager with John Hancock Advisers Inc., which sold its Enron shares in recent weeks. ``If Enron can't get financing and its bonds go to junk, they lose counterparties and their marvelous business vanishes.'' Moody's Investors Service lowered its rating on Enron's bonds to ``Baa2'' and Standard & Poor's cut the debt to ``BBB.'' in the past two weeks. Federal regulators may overlook antitrust concerns in order to keep Enron afloat, Hamilton said. Securities regulators are investigating trading by partnerships run by Fastow, the former financial director. The entities bought and sold Enron shares and assets, with trades costing Enron $35 million and $1.2 billion in lost shareholder equity. Enron ousted CFO Fastow last month. Shares of ChevronTexaco rose 34 cents to $87.80 in early trading. Dynegy, the fifth-largest U.S. natural gas marketer, rose 25 cents to $33.25. Enron shares and bonds have tumbled in the past month. One of its bonds, an issue paying 6.725 percent that matures in November 2008, fell to 69.11 cents on the dollar, according to Bloomberg data, down from 71.90 cents yesterday. ``We would be very surprised if Dynegy buys the whole company,'' said Tim Ghriskey, president of Ghriskey Capital Partners, which doesn't own Enron or Dynegy shares. ``All the (Dynegy) board has to do is look at what's happening to their stock price today, and you'd wonder why they would want to do it in the face of what's happening with the stock.'' Ghriskey made his comments on Wednesday. Enron Meets Creditors Enron is to meet with J.P. Morgan Chase & Co., Citigroup Inc. and other lenders on Friday to discuss merger plans and a possible increase in the amount the company pays for existing credit lines, according to bankers familiar with the matter. The company has invited more than 300 creditors to its offices in Houston to listen to presentations by Enron's financial team, led by its new chief financial officer, Jeffrey McMahon, the bankers said. Dynegy began in 1985 as Natural Gas Clearinghouse, a gas- trading company. In 1998, the company took the name Dynegy -- a combination of the words dynamic and energy -- to reflect its expansion beyond natural gas. Chuck Watson, the company's president from 1985, became chairman and chief executive in 1989. Watson is an investor with Enron CEO Lay in the Houston Texans, who begin playing in the National Football League next year, and is a board member at Baker Hughes Inc. As of an April filing with the SEC, Watson owned 12.3 million Dynegy shares, or about 5.1 percent of the common stock. Fitch Comment on Wessex Water Ratings Following Enron Downgrade 2001-11-08 10:48 (New York) FITCH COMMENT ON WESSEX WATER RATINGS FOLLOWING ENRON DOWNGRADE Fitch-London-08 November 2001: In light of the recent downgrade of the Senior Unsecured and Short-term ratings of Enron Corp ("Enron") to 'BBB-' and 'F3' respectively, Fitch has commented today on the ratings of the Azurix Europe Limited group of companies. Enron, in conjunction with Marlin Water Trust, owns Azurix Corp. ("AZX"), which in turn owns Azurix Europe Limited ("AEL", rated 'BBB+/F2'). AEL is the ultimate UK parent of Wessex Water Services Limited ("WWSL", rated 'A-/F2'). AEL owns WWSL via an intermediate holding company, Wessex Water Limited ("WWL"), rated 'BBB+/F2'. The Outlook for the ratings of AEL, WWL and WWSL is Stable. WWSL is one of the UK's 10 monopoly, regulated water and sewerage companies. Fitch has not changed the ratings of the AEL group companies but notes the deteriorating credit profile of Enron, the group's ultimate US parent. Ring-fencing provisions between AEL and AZX are not considered by Fitch to be entirely watertight, particularly as AEL is allowed to loan funds to subsidiaries of AZX, which can be used for acquisitions and for general corporate purposes within the acquired businesses. Notwithstanding, the companies remain largely insulated from potential negative events at Enron. Credit protection is derived from a GBP425 million banking facility to AEL, which prohibits the company from making dividends or loans directly to AZX. AEL is also prohibited from taking on additional indebtedness and engaging in any business other than owning WWSL. In addition, under the banking facility, the total amount that can be borrowed by AEL in its name, yet on-lent to AZX subsidiaries, is capped at GBP240m. The capped amount was originally earmarked to help fund AZX's growth aspirations. All loans from AEL to AZX subsidiaries are short-term, on commercial terms, are senior obligations of the SPV (AEL's direct counter-party) and are guaranteed by AZX. However, hypothetically, these loans may have been re-invested in a subordinated stake in a water project. Mitigating this risk profile, the bank facility has certain ratio thresholds measured on a consolidated AEL group and a de-consolidated AEL basis. Considering a worst case scenario, (assuming a failure to recover the maximum amount that could be on-lent to entities outside the AEL group), within the bank facility's ratio thresholds, Fitch calculates that the AEL group would be able to maintain its current rating category. Going forward, Enron has publicly stated that is does not view AZX as a core strategic asset. The latter has stated that it is pursuing the disposal of certain assets, including those in North America that have since been sold for USD150m. This deal, which is not expected to have any impact on AEL, is due to close soon. At this time Enron has made no public statement about the future of the AEL business although it is reviewing its options internally. Fitch will continue to monitor developments in this respect and would expect to review the ratings of AEL and WWSL in the context of clear announcements from Enron. A key factor in assessing the remaining AEL group would be the level of debt "crystallised", or assumed, by that entity. The assigned ratings reflect Fitch's approach to rating regulated utilities in the UK, which starts with the consolidated debt and income profiles of the ultimate UK holding company, (in this case AEL), while considering both intermediate holding companies (here, WWL) and the operating business (WWSL). The ratings of AEL and WWL are supported by strong operating performance in the monopoly business of WWSL, which is regulated by Ofwat, and delivers relatively predictable cash flows within the context of its regulatory price controls. NewPower 3rd-Qtr Loss Narrows After Adding Customers (Update2) 2001-11-08 10:38 (New York) NewPower 3rd-Qtr Loss Narrows After Adding Customers (Update2) (Adds job cuts in fourth paragraph.) Purchase, New York, Nov. 8 (Bloomberg) -- NewPower Holdings Inc., a venture formed by Enron Corp. to compete with traditional gas and electric utilities, said its third-quarter loss narrowed after cutting costs and adding customers. The loss was $67.1 million, or $1.15 a share, compared with a loss of $69.9 million, or $2.96, a year earlier. Revenue tripled to $54.7 million from $18.2 million, the company said. NewPower was forecast to have a loss of $1.16 a share, the average estimate of three analysts polled by Thomson Financial/First Call. NewPower added 80,000 customers in the third quarter and expects to have 840,000 to 860,000 customers by the end of the year. The company, based in Purchase, New York, reduced sales, general and administrative costs by 41 percent, primarily by cutting systems-development and professional expenses. The company is eliminating 40 jobs, or 22 percent of its workforce, to cut costs, Chief Financial Officer William Jacobs said on a conference call. The company expects severance costs of $16 million in the fourth quarter. Enron, the largest energy trader, owns about 44 percent of NewPower. Houston-based Enron, whose shares have fallen 73 percent since Oct. 16 amid concern over affiliated partnerships run by its former chief financial officer, said it had $544 million in losses on investments including NewPower in the third quarter. Shares of NewPower rose 39 cents to $1.20 in midmorning trading. The company went public in October 2000 for $21 a share. Fourth-Quarter Excluding severance costs, NewPower expects a fourth-quarter loss of $41 million to $46 million, or 65 cents to 73 cents a share, and a full-year loss of $210 million to $215 million, or $3.55 to $3.63. The company was expected to lose 74 cents in the fourth quarter, according to First Call's average of three analysts' estimates. The full-year's loss was expected to be $3.71, the average of four analysts' estimates. In 2002, NewPower expects to have a loss of $100 million to $125 million, or $1.59 to $1.99 a share. The average estimate of four analysts polled by First Call was $2.26. NewPower expects to be profitable in 2003 with 1.5 million customers. The company is focusing more on small businesses. It now has 25,000 small-business customers and expects to have more than 35,000 by the end of the year. International Business Machines Corp. owns 1.5 million shares of NewPower, less than 5 percent of the company. Dynegy May Offer at Least $8 Bln to Acquire Enron (Update5) 2001-11-08 10:17 (New York) Dynegy May Offer at Least $8 Bln to Acquire Enron (Update5) (Updates with Dynegy statement.) Houston, Nov. 8 (Bloomberg) -- Dynegy Inc.'s board last night failed to agree to pay $8 billion in stock to acquire Enron Corp. in part because of concerns the biggest energy trader may be lowered to a junk rating within the coming days, people familiar with the situtation said. Dynegy, a Houston-based energy trader, said the talks were continuing. The company is concerned that Enron's ``BBB'' credit rating may be lowered by Standard & Poor's Corp. The rating company is reviewing the company, which it downgraded Nov. 1. ChevronTexaco Corp., which owns about 27 percent of Dynegy, is also involved in the talks. The prospect of a lower credit rating, which would force Enron to repay $3.3 billion of bonds that mature in 2003 early, along with an investigation by the Securities and Exchange Commission investigation into partnerships run by former Chief Financial Officer Andrew Fastow prompted Enron's board to consider selling the company. Enron today said it would restate its financial statements since 1997 after concluding some of the accounting for its partnerships didn't comply with generally accepted accounting principles. ``Enron is running out of time and that's what's pushing them to the bargaining table,'' said Zach Wagner, an analyst with Edward Jones & Co., who cut his recommendation on Enron to ``reduce'' from ``accumulate'' on Oct. 23. Shares of Enron fell 45 cents to $8.60 cents in early trading on the news, which was previously reported by the Wall Street Journal and New York Times. The stock reached a record $90.75 in August 2000. With 850 million shares outstanding, the company has a market value of about $7.7 billion. Dynegy would gain a wholesale energy business, the leading energy manager for commercial and small-industrial customers, and an Internet energy trading operation many times larger than its own, said UBS Warburg LLC analyst James Yanello. `Stingy' Buyer ``If history is any guide, Dynegy is stingy when it comes to acquisitions, so I don't expect them to do anything stupid'' such as overpaying for Enron, said Yanello. ``A deal could provide Dynegy with tremendous opportunity.'' He rates Dynegy ``strong buy'' and doesn't own shares of either company. Enron Chairman and Chief Executive Officer Kenneth Lay wouldn't hold a management position with the combined company under terms being discussed Wednesday, the Wall Street Journal reported. He would get a seat on the board, the paper added. ChevronTexaco is considering adding $1.5 billion to the transaction to help Enron. It would provide another $1 billion when the purchase is closed, the New York Times and Wall Street Journal reported. The companies agreed on a breakup fee providing Dynegy with about $400 million if Enron accepts a higher offer, people familiar with the talks said. Dynegy spokesman Steve Stengel, Enron spokesman Mark Palmer and ChevronTexaco spokesman Fred Gorell declined to comment. Losing Confidence Companies that trade natural gas, electricity and other commodities with Enron may pull back if Enron's finances deteriorate to the point that it loses its investment-grade credit rating, investors say. ``Dynegy has to act fast,'' said Roger Hamilton, a money manager with John Hancock Advisers Inc., which sold its Enron shares in recent weeks. ``If Enron can't get financing and its bonds go to junk, they lose counterparties and their marvelous business vanishes.'' Moody's Investors Service lowered its rating on Enron's bonds to ``Baa2'' and Standard & Poor's cut the debt to ``BBB.'' in the past two weeks. Federal regulators may overlook antitrust concerns in order to keep Enron afloat, Hamilton said. SEC Probe Securities regulators are investigating trading by partnerships run by Fastow, the former financial director. The entities bought and sold Enron shares and assets, with trades costing Enron $35 million and $1.2 billion in lost shareholder equity. Enron ousted CFO Andrew Fastow last month. Shares of ChevronTexaco rose 34 cents to $87.80 in early trading. Dynegy, the fifth-largest U.S. natural gas marketer, rose 25 cents to $33.25. Enron shares and bonds have tumbled in the past month. One of its bonds, an issue paying 6.725 percent that matures in November 2008, fell to 69.11 cents on the dollar, according to Bloomberg data, down from 71.90 cents yesterday. ``We would be very surprised if Dynegy buys the whole company,'' said Tim Ghriskey, president of Ghriskey Capital Partners, which doesn't own Enron or Dynegy shares. ``All the (Dynegy) board has to do is look at what's happening to their stock price today, and you'd wonder why they would want to do it in the face of what's happening with the stock.'' Ghriskey made his comments on Wednesday. Enron Meets Creditors Enron is to meet with J.P. Morgan Chase & Co., Citigroup Inc. and other lenders on Friday to discuss merger plans and a possible increase in the amount the company pays for existing credit lines, according to bankers familiar with the matter. The company has invited more than 300 creditors to its offices in Houston to listen to presentations by Enron's financial team, led by its new chief financial officer, Jeffrey McMahon, the bankers said. Dynegy began in 1985 as Natural Gas Clearinghouse, a gas- trading company. In 1998, the company took the name Dynegy -- a combination of the words dynamic and energy -- to reflect its expansion beyond natural gas. Chuck Watson, the company's president from 1985, became chairman and chief executive in 1989. Watson is an investor with Enron CEO Lay in the Houston Texans, who begin playing in the National Football League next year, and is a board member at Baker Hughes Inc. As of an April filing with the SEC, Watson owned 12.3 million Dynegy shares, or about 5.1 percent of the common stock. Enron Bonds Gain as Dynegy Considers $8 Bln Buyout (Update1) 2001-11-08 10:12 (New York) Enron Bonds Gain as Dynegy Considers $8 Bln Buyout (Update1) (Updates note prices in second and fourth paragraphs.) New York, Nov. 8 (Bloomberg) -- Enron Corp. bonds gained as Dynegy Inc. considered paying about $8 billion in stock for the biggest energy trader. An acquisition would bolster Enron's credit rating, which was recently lowered, traders said. Enron's 7.88 percent coupon notes due in 2003 rose 5 cents to be bid at 82 cents on the dollar this morning from 77 cents yesterday, traders said. The yield declined to 22 percent from 27 percent. The debt was trading near 100 last month. ``Enron bonds have been in free fall,'' said Joe Walker, who follows Dynegy bonds for SWS Securities in Dallas. Enron's bondholders ``now have the opportunity of going to a much stronger source.'' Enron's 6.4 percent notes due in 2006 traded at 84 cents on the dollar today, up 10 cents to 12 cents from yesterday, traders said. The company's longer-dated debt, bonds with maturities of 10 years or more, rose as much as 10 cents. While Moody's Investors Service rates Enron's credit as ``Baa2'', one rung higher than its ``Baa3'' grade for Dynegy, other ratings companies including Standard & Poor's and Fitch Inc. have assigned Dynegy a higher rating. Also, Enron's ratings have been cut in recent weeks and face further reduction, while Dynegy's credit outlook is stable. Enron bonds and shares have fallen in recent weeks on concern about partnerships run by the company's former chief financial officer and concerns the company's trading business will be hurt by the downgrades. Dynegy and Enron, both based in Houston, met yesterday to negotiate terms of a buyout, said people familiar with the situation. Enron Confirms Dynegy Talks By TSC Staff <<mailto:letters@thestreet.com>> TheStreet.com 11/08/2001 08:00 AM EST Enron (ENE:NYSE - news - commentary) and rival energy trader Dynegy (DYN:NYSE - news - commentary) confirmed Thursday they were in merger talks. According to reports, Dynegy held talks to acquire Enron for up to $8 billion in stock and to make an immediate cash infusion of up to $2 billion to help relieve Enron's debt crisis. The possible agreement is said to have the backing of ChevronTexaco (CVX:NYSE - news - commentary) , which owns about a quarter of Dynegy. Enron shares continued their recent fall, dropping 16 cents to $8.89, while Dynegy jumped $1.83 to $34.83. Stocks Surge On Rate Cuts, Jobless Numbers By Kevin Burke <<mailto:kburke@thestreet.com>> Staff Reporter 11/08/2001 09:42 AM EST TheStreet.com Updated from 8:49 a.m. EST Stocks surged at the open following surprising moves by two European central banks and a positive report from the Labor Department. The Dow was recently gaining 39 points, or 0.41%, to 9594. The Nasdaq was up about 17 points, or 0.95%, to 1855, and the S&P 500 was unchanged at 1116. Both the Bank of England and European Central Bank announced half-point reductions in their key lending rates Thursday, the BOE dropping its to 4% and the ECB lowering to 3.25%. The cuts were larger than expected and reflected increased economic risk in a low-inflation environment, the banks said. Overseas markets were uniformly higher on the moves. London's FTSE 100 was gaining fractionally at 5219, while Germany's Xetra DAX was up 1.5% to 4936. In Asia, Japan's Nikkei gained 1.4% to 10,432 while Hong Kong's Hang Seng added 2.6% to 10,539. The Labor Department said initial claims for jobless benefits fell unexpectedly by 46,000 to 450,000 in the week ended Saturday. Retail sales reports for October were also pouring in Thursday, with Wal-Mart (WMT:NYSE - news - commentary) posting a slightly higher-than-expected gain in same-store sales. Limited (LTD:NYSE - news - commentary) said same-store sales fell 6% while Gap Stores' (GPS:NYSE - news - commentary) fell 17%. The Enron (ENE:NYSE - news - commentary) saga continued with news that rival energy trader Dynegy (DYN:NYSE - news - commentary) has held talks to buy the company for up to $8 billion in stock. The possible deal is said to have the blessing of ChevronTexaco (CVX:NYSE - news - commentary) , which owns 27% of Dynegy. The price of crude oil was rising Thursday after Saudi Arabia's oil minister warned of impending OPEC production cuts. Prices were up almost 4% on the news, the biggest jump since just after the terrorist attacks. The 10-year Treasury note was recently losing 6/32 to 106 11/32, yielding 4.20%. Some Glamour Stocks That Are Ugly Down Deep By Brett Messing <<mailto:bmessing@oscarcap.com>> Special to TheStreet.com 11/08/2001 08:16 AM EST RealMoney.com I know it's tempting. I know what you're thinking: If I can catch a big ride on one of these beaten-down stocks, I can get my portfolio back to where it was in March 2000. Forget it. Rip up those old statements. Treat them like UFOs. Instead, think singles and doubles instead of homers. While a number of glamour stocks have been decimated, they deserve to be decimated. I am an opportunist. I've looked at all of them. They are a collective disaster, and they are not worth the risk. Let's start with Jim Cramer's favorite punching bag, Enron (ENE:NYSE - news - commentary) . As bad as this situation is, it is going to get worse before it is over. And while the Bushies may have been willing to help out Bill Gates with his little Justice Department problem, they will not go near this one with a 10-foot pole. Enron is not an energy company. It is a trading company. Moreover, it appears they are not particularly good traders. Instead of Enron, invest your money with the best trading company in the world, Goldman Sachs (GS:NYSE - news - commentary) . These guys have probably been picking Enron's pockets for years. Isn't it interesting that Goldman Sachs was unwilling to participate in the recent short-term loans to Enron, an investment banking client? They might actually know what's behind the curtain. I worked at Goldman Sachs for eight years, and I have tremendous respect for them. They know how to trade. They made a ton of money handling Sid Bass' recent 125 million-share block of Walt Disney (DIS:NYSE - news - commentary) stock. Forget about the 6-cent-per-share fee they charged. How about the 10 million to 20 million shares that they kept for themselves? I imagine that Goldman made more than $30 million on this one trade. Not a bad day's work. Stay away from Qwest (Q:NYSE - news - commentary) . Taken in the best light, the company is way too aggressive with its accounting; Qwest bullies the analyst community and it overpromises and underdelivers. Qwest has justifiably lost the trust of the investment community. It will take years of execution and fence-mending to earn this trust back. Ask Cendant CEO Henry Silverman. He is still paying for the damage inflicted upon him by former Cendant Chairman Walter Forbes, who has pleaded not guilty to conspiracy and wire fraud charges. Go with WorldCom (WCOM:Nasdaq - news - commentary) instead. These guys actually get it. They are among the telecom industry's best operators, and they are the best dealmakers. Like everyone else, they goofed, but they have found religion. This quarter's operating results show some promise. Previously skeptical analysts at Lehman and Merrill had some nice things to say about the company. I think WorldCom is an up stock from here. It is not going back to the $60s, but I could see it above the driving age by year-end. I know it's also tempting to think that if the economy rebounds, consumer finance stocks will scream. You are turned on by Providian (PVN:NYSE - news - commentary) and Conseco (CNC:NYSE - news - commentary) . Providian recently hired my pals at Goldman Sachs to help them out. Forget this, too. Providian feels like a doughnut to me. Their balance sheet is a mess. We do not know how bad it is. They may not know how bad it is. Moreover, they were not candid with the investment community. Conseco announced that Gary Wendt and other senior managers bought a bunch of stock with their own money. While I love to see management buying stock, this one feels too staged to me. Pre-Wendt, Conseco had a long history of management buying stock with loans from the corporate treasury. Moreover, 1 million shares (or $3 million) is not that much money to Wendt. I would like to see him buy $25 million of restricted stock directly from the company. Conseco is probably the best speculative bet of the bunch, but I would still pass. It is a very high-risk situation, given the leveraged state of its balance sheet. Wendt is a tremendous manager, and he did a great job with GE Capital. However, he would not be the first guy to have a sequel that bombs at the box office. Go with Citigroup (C:NYSE - news - commentary) instead. Citigroup is the biggest and best financial services company in the world. While Wendt is something special, I would draft Weill and Rubin ahead of him in my CEO Rotisserie League. The best way to make money is to stay out of trouble. Stick with singles and doubles. Don't be tempted. Top Of The News Enron Trades Itself Dan Ackman , Forbes.com , 11.08.01, 8:47 AM ET NEW YORK - Enron, once a star, has lately looked more like a truck racing down a Texas highway with a load of burning lumber: no one knew where it was going or why. Finally, it seems to be nearing a rest stop as Enron (nyse: ENE) is reportedly about to sell itself to its much smaller rival Dynegy (DYN ) for $8 billion in stock, a fraction of its former value. As part of the deal, ChevronTexaco (CVX ) , which owns 27% of Dynegy, would pump at least $1.5 billion in cash into Enron upon the inking of an agreement and an additional $1 billion when the deal closed. The deal, if consummated, represents a possible way out for Enron, which has been humbled by an accounting scandal, the resignation and firing of top executives, the defection of investors, and massive losses. The rough outlines of what humbled Houston-based Enron are known, but the details remain a mystery, as well as the subject of a Securities and Exchange Commission investigation and at least one major lawsuit, with more to come. Once basically an oil and natural gas pipeline company, Enron expanded into energy trading, broadband telecommunications and other businesses. It was often said to be at the center of a "revolution," perhaps several revolutions, with telecommunications, the Internet, and energy deregulation among them. But a revolution is not a tea party. For a while, the fact that few investors understood what Enron did was probably a plus. Between 1997 and the end of 2000, Enron's share price climbed steadily from less than $20 per share to over $80 per share. It had a $70 billion market value as recently as a year ago. During the run-up, Enron's financial conditions don't seem to have justified the surge. Revenues were growing wildly, from $20 billion in 1997 to $101 billion in 2000. But much of that increase was due to the fact that Enron was now a trading company, and revenues were of a different type altogether. In any event, profits, after a huge jump between 1997 and 1998, increased much more slowly, from $878 million in 1998 to $1.4 billion. Of course, whether these profits were real is now very much in doubt. Last quarter, Enron reported a $618 million loss, mostly due to accounting charges. The road down has been a lot steeper. Over the last 12 months, the stock fell all the way back and closed Wednesday at $9.05, wiping out all the gains and then some. Today, the inscrutability of Enron's finances is considered a bad thing. Jeffrey Skilling, the company's new chief executive officer, resigned in August after just six months at the helm. Kenneth Lay, 58, the former C.E.O. and a close friend of President George W. Bush, was brought back in. Lay will have a seat on the combined company's board, but no day-to-day job, according to reports. Lay earned $12 million in total compensation from Enron in 2000, not counting his profits from the exercise of $123 million in options. Other Enron executives also exercised tens of millions in options in 2000, when the stock was flying high. Enron paid Skilling, once Lay's top lieutenant, $84.5 million over the last five years. Last month, the company's problems became public. It disclosed $1 billion in write-downs and a $1.2 billion reduction in shareholder equity. The reduction in equity arose from "related party" transactions that turned out to be with investment partnerships involving Andrew Fastow, the chief financial officer. Fastow was forced to resign on Oct. 24. The Securities and Exchange Commission is investigating. Today, Enron is expected to send the S.E.C. answers to questions the agency has posed in its investigation. Dynegy officials have seen those answers already, and the public should see them soon. Enron will meet Friday with its creditors about the company's continuing crisis and the proposed merger. The hope is a deal with Dynegy, also based in Houston, will lead Enron out of the storm and cause its trading partners to have enough confidence to do business with the company. Enron's credit rating is in jeopardy. Both Moody's Investors Service and Standard & Poor's have already cut it to two rungs above junk status. On Nov. 5, Fitch cut it to one notch above junk. As part of the deal, Dynegy, which had 2000 revenues of $29.5 billion, would be taking on Enron's $12.8 billion debt load. But this figure does not include billions of dollars of other debt, accumulated off the balance sheet, that has played a major role in Enron's current problems. Some of Enron's assets will likely be sold to pay down the debt. The acquisition would combine Enron, a dominant player in the trading of electricity and natural gas in the U.S., but which has been selling off hard assets such as utilities, with Dynegy, a company that uses trading to maximize earnings from its power plants. Dynegy will pick up the pieces of Enron, hoping it can make some sense of it. After that it may make some money, too.

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Subject: Enron Mentions Sender: courtney.votaw@enron.com Recipients: [] File: dasovich-j/inbox/1592. ===================================== US Power, Gas Companies Restrict Dealings With Enron Dow Jones Energy Service, 11/08/01 USA: Enron provides financing data, restates earnings. Reuters English News Service, 11/08/01 Enron Thinks Ex-CFO Got More Than $30M Thru Partnerships Dow Jones Corporate Filings Alert, 11/08/01 Dynegy confirms in talks with Enron over possible tie-up AFX News, 11/08/01 USA: Dynegy says in talks with Enron over possible deal. Reuters English News Service, 11/08/01 U.S. Stocks Open Higher on Retail Sales Data, European Rate Cuts Dow Jones Business News, 11/08/01 Dynegy/Enron Talks -4: Follows SEC Inquiry Launch Dow Jones News Service, 11/08/01 Dynegy Confirms Discussions With Enron Business Wire, 11/08/01 USA: UPDATE 1-Before the Bell - Dynegy flat, Enron slips. Reuters English News Service, 11/08/01 FERC 'Watching With Interest' Enron's Woes, Chairman Says Dow Jones Energy Service, 11/08/01 Ripples From Enron's Troubles Hit Its Trading Partners Dow Jones Energy Service, 11/08/01 Enron in Talks With Dynegy; to Restate Earnings (Update8) Bloomberg, 11/08/01 Fitch Comment on Wessex Water Ratings Following Enron Downgrade Bloomberg, 11/08/01 NewPower 3rd-Qtr Loss Narrows After Adding Customers (Update2) Bloomberg, 11/08/001 Dynegy May Offer at Least $8 Bln to Acquire Enron (Update5) Bloomberg, 11/08/01 Enron Bonds Gain as Dynegy Considers $8 Bln Buyout (Update1) Bloomberg, 11/08/01 Enron Confirms Dynegy Talks TheStreet.com, 11/08/01 Stocks Surge On Rate Cuts, Jobless Numbers TheStreet.com, 11/08/01 Some Glamour Stocks That Are Ugly Down Deep RealMoney.com, 11/08/01 Top Of The News Enron Trades Itself Forbes.com, 11/08/01 US Power, Gas Companies Restrict Dealings With Enron By Jon Kamp, Kristen McNamara and Mark Golden Of DOW JONES NEWSWIRES 11/08/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) (This article was originally published Wednesday.) NEW YORK -(Dow Jones)- Trading companies in Enron Corp.'s (ENE) key North American power and gas markets are restricting their dealings with the ailing Houston-based giant, people at those companies said Wednesday. Concerns have mounted because Enron, which accounts for about a quarter of the trade in the country's power and gas markets and which makes a market for those commodities on its Internet-based system EnronOnline, has seen its share price fall by about 75% and its credit ratings downgraded since mid-October due to uncertainties about its extremely complex financial structure. "We've restricted our business with them," said Mike Smith, chief financial officer for Mirant Corp. (MIR) unit Mirant Americas Group, a Top 10 trader of power and gas in the U.S. Smith wouldn't be more specific, but his comments echoed those of others in the business. "Our exposure to Enron is insignificant compared with the previous exposure," said Al Butkus, spokesman for Aquila Inc. (ILA), a Top 5 U.S. power and gas trader. Tractebel Energy Marketing, the North American subsidiary of the Belgian company Tractebel S.A., has limited the term of transactions with Enron to three years or less, a person at the company said. And a power broker said some medium sized western utilities have stopped trading with Enron even for near-term delivery. Enron didn't return calls seeking comment. The Wall Street Journal reported Wednesday that Enron was in talks for a capital infusion and possible acquisition by competitor Dynegy Inc. (DYN). Also, Enron said Thursday it was restating its financial statements from 1997 through the second quarter of 2001, saying its financial and audit reports are unreliable for all those periods. The company fired its treasurer and general counsel. Key Markets Enron's ability to transact in its core markets - North American wholesale gas and power - is essential if the company maintain the earnings and cash flow needed to emerge from its current credit crisis, Wall Street analysts and ratings agencies have said. Standard & Poor's and Moody's Investors Service downgraded Enron's credit to within two steps of junk-bond status last week and have it on watch for further downgrade. Enron still has its supporters. Exelon Corp. (EXC) is monitoring its own risk management, but hasn't changed its relationship with Enron, said Chief Financial Officer Ruth Ann M. Gillis. "We haven't changed our relationship," Gillis said. Enron is a very important factor in the vitality of the wholesale energy markets, she said. They're still the "largest, best" of the companies out there, she said. Likewise, a trading floor manager at one energy company said Enron called earlier in the week and asked that the company increase its trading on EnronOnline. The company's EOL volumes had fallen, but it honored Enron's request out of respect for Enron's still market-making power. PPL Corp. (PPL) moved to mitigate its exposure to Enron following the downgrades, a person in the marketing organization at PPL EnergyPlus said. "Enron would not be a first choice to do long-term transactions," the person said. "For shorter terms, deals, they wouldn't be considered equally with everyone else. There's just too much risk there." Since Enron's troubles began several weeks ago, energy trading partners had stood by the company in ways that stock and bond traders hadn't. Until this week, "business as usual" was an almost constant refrain. Energy companies' immediate exposure to Enron was limited to a maximum of seven weeks of receivables, and Enron was paying its bills. But for some of those companies, business as usual also meant not changing value-at-risk formulas, even though the formulas were generating ever lower allowable volumes of business with Enron as the company's credit quality deteriorated, one risk manager said Wednesday. Lower value-at-risk limits got most trading companies to flatten their portfolios by taking positions to offset currently profitable long-term positions with Enron. PPL, for example, is still following its credit policy and as a result has limited its dealings with Enron, which has seen its credit quality fall, the person at PPL EnergyPlus said. "We've taken a look at our book," the person said. "Based on the events of this and last week, we've taken some action to mitigate the risk based on their ratings downgrade." Trading companies constantly evaluate their counterparties' credit and adjust their dealings accordingly, but rarely have been required to address problems on the scale of Enron's recent difficulties. "It certainly ranks just behind California," the person at PPL said. Enron Claims Trading Normal An Enron spokesman, reached later, said the company continues to see a normal range of transactions, including long-term deals. "We've not seen closing out of positions," spokesman Eric Thode said. Susan Abbott, a managing director in corporate finance at Moody's, said the ratings agency wasn't aware of significant changes in trading companies' dealings with Enron. The agency continues to watch for new restrictions, in particular margin calls, which could quickly strain Enron's liquidity. A drop in new business with Enron isn't as much of a concern, she said. "If you're restricting new business with the company, what you're doing is moving the company out of the market in an orderly way," Abbott said. PPL is shying away from doing deals with Enron and is limiting the dollar amount and terms of the deals it will do with the company, but hasn't yet imposed margin calls or required additional collateral, the person in the marketing organization said. "Neither the credit thresholds nor our exposure threshold have been breached," the person said. PPL said it's limiting exposure to Enron for shorter-term deals too, the person said. "Their liquidity just isn't there anymore," the person said. No large company can afford to pull the plug on Enron, given the company's centrality to the power and gas markets. "Enron is such a large player and they're so important in terms of maintaining the liquidity of the markets," said Sandy Fruhman, spokeswoman for Reliant Energy Inc. (REI). "We see this as a situation that has potential downsides for the entire industry." Enron's North American wholesale trading unit brought in $1.9 billion in income before interest and taxes in the first nine months of the year, up from $1.1 billion in the same period last year. Reliant continues to do business, but Fruhman wouldn't say specifically whether it had restricted its dealings. "We're monitoring the situation carefully and making sure we follow prudent business practices," she said. "But we're trying to work with them, because it's in the best interest of the entire industry to overcome their current problems." -By Jon Kamp, Dow Jones Newswires; 312-750-4129; jon.kamp@dowjones.com (Kristen McNamara, Mark Golden and Andrew Dowell in New York, John Edmiston in Houston and Erik Ahlberg in Chicago contributed to this article.) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron provides financing data, restates earnings. 11/08/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Nov 8 (Reuters) - Enron Corp. said on Thursday it has provided additional information about off-balance sheet and other transactions that led to an investigation by the U.S. Securities and Exchange Commission and a shattering of the energy trader's credibility. Houston-based Enron also confirmed it is in talks with its hometown rival Dynegy Inc. over a possible business combination. Terms of any transaction have not been agreed on, the two companies said. Enron said that it will restate its earnings from 1997 to 2000, and the first two quarters of 2001 as the company addresses concerns raised by the SEC and shareholders. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Thinks Ex-CFO Got More Than $30M Thru Partnerships 11/08/2001 Dow Jones Corporate Filings Alert (Copyright (c) 2001, Dow Jones & Company, Inc.) ISSUER: ENRON CORP. SYMBOL: ENE 10:02 DJ CFA SOURCE:SEC 8-K ISSUER: ENRON CORP. SYMBOL: ENE REASON CODES: 5 -- Other Materially Important Events WASHINGTON (Dow Jones)--Enron Corp. (ENE) said it believes the company's former chief financial officer, Andrew Fastow, received more than $30 million from managing and investing in several partnerships that did business with the energy giant. The company disclosed the information in a Form 8-K filing released Thursday by the Securities and Exchange Commission. Enron said it believes it committed $16 million in initial capital to one of the partnerships run by Fastow and paid $394 million in capital commitments to another partnership he managed. The partnerships were described to Enron's board as potential sources of capital to buy assets from Enron, potential equity partners for Enron investments, and counterparties to help mitigate risks associated with Enron investments, the filing said. As reported, shareholders and analysts have questioned whether the partnerships posed a conflict by putting Enron's CFO, who has a fiduciary duty to Enron shareholders, in a position of reaping financial rewards for representing partnership investors in business deals with Enron. On Oct. 24, Enron dismissed Fastow as its financial chief. As reported, the board of Dynegy (DYN) tentatively agreed last night to acquire Enron for about $8 billion in stock, or roughly $10 a share. Enron is a Houston-based energy and utilities company. -Dan Lowrey; Dow Jones Corporate Filings Alert; 202-393-7402; dan.lowrey@dowjones.com 10:30 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy confirms in talks with Enron over possible tie-up 11/08/2001 AFX News (c) 2001 by AFP-Extel News Ltd HOUSTON (AFX) - Dynegy Inc, a ChevronTexaco Corp affiliate, confirmed it is in talks with Enron Corp over a possible business combination. Dynegy said it has not agreed to the terms of any transaction with Enron. Dynegy added that it does not anticipate making any further announcement with respect to a possible transaction until a definitive agreement is reached or discussions are terminated. aw/shw For more information and to contact AFX: www.afxnews.com and www.afxpress.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Dynegy says in talks with Enron over possible deal. 11/08/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Nov 8 (Reuters) - Dynegy Inc. said on Thursday it is in talks over a possible combination with Enron Corp., the beleaguered energy-trading giant crippled by an SEC probe and investor doubts about its ability to raise cash. Dynegy has not agreed to the terms of any transaction with Enron, the Houston-based rival of Enron said. Dynegy said it does not anticipate making any further announcement with respect to a possible transaction until a definitive agreement is reached or discussions are terminated. A source close to the talks told Reuters on Wednesday that Dynegy is in talks to buy Enron in a deal that would involve a stock swap and $1.5 billion in capital from ChevronTexaco Corp., which has a big stake in Dynegy, The deal, which could be announced officially this week, was expected to give what the source called a "modest premium" to Enron shareholders, whose stock has plummeted in value as a fast-moving financial crisis enveloped the company. Enron shares, which traded as high as $90 in August of last year, dropped to a 10-year-low of $7 during Wednesday trading, before rallying on news of the Dynegy talks and closing at $9.05 a share. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. U.S. Stocks Open Higher on Retail Sales Data, European Rate Cuts By Erin Schulte 11/08/2001 Dow Jones Business News (Copyright (c) 2001, Dow Jones & Company, Inc.) The Wall Street Journal Online Stocks logged solid gains Thursday as investors focused on a few bright spots in sales reports from U.S. retailers. Interest-rate cuts from two European central banks also bolstered confidence. The Dow Jones Industrial Average was up 40 to 9595 soon after the opening bell, after losing 36.75 in the previous session. The Nasdaq Composite Index gained 21.20 to 1858.80, after inching ahead 2.45 points on Wednesday. Other indexes also lost ground on Thursday. The Standard & Poor's 500-stock index advanced 6.50 to 1122.30, the New York Stock Exchange Composite Index moved up 2.50 to 571 and the Russell 2000 Index edged up 1.90 to 442.70. Bonds were mixed and the dollar fell. Traders said interest-rate cuts by the European Central Bank and the Bank of England helped to underpin U.S. equities. Both banks lowered key rates by a half percentage point on Thursday, in an effort to keep the regional economy from slipping into recession. Investors are hoping October sales figures show that consumer spending is on the road to recovery and will gain steam during the holiday shopping season. Consumer spending slowed significantly in the wake of the Sept. 11 terrorist attacks. Wal-Mart Stores said sales at stores open at least a year rose 6.7%, including the results of its Sam's Club chain. The nation's biggest retailer, whose same-store sales topped analysts' expectations, also said total sales for the four weeks ended Nov. 2 jumped more than 14% to $16.62 billion. Its shares rose 1.4%. But Federated Department Stores posted a steeper-than-anticipated 8.7% drop in same-store sales. The company, which operates the Bloomingdale's and Macy's chains, said total sales also suffered, falling 8.9% to nearly $1.12 billion. Its shares slipped. Trendy discounter Target said same-store sales climbed 2%, while total sales for the week ended Nov. 3 increased 8.9%; its stock edged higher. And TJX, which owns popular discount clothier T.J. Maxx, said same-store sales climbed 4%, while total retail sales jumped 12% for the month. In addition to sorting through the retail-sales reports, investors also will have two economic indicators to scrutinize Thursday morning. The Labor Department reported initial jobless claims fell to 450,000 in the week ended Nov. 3 from 496,000 a week earlier. Economists surveyed by Thomson Global Markets anticipated 513,000 jobless claims for the latest period. A separate Labor Department report showed a 2.4% decline in prices of imported goods for October, following a 0.1% rise in September. Economists had forecast a 0.5% fall in prices. Among stocks to watch, Dynegy held talks to buy Enron for roughly $7 billion to $8 billion in stock, one-tenth of what Enron was worth 15 months ago. The energy trading and power firm also is expected to inject $1.5 billion into Enron. Exxon Mobil won a significant victory as an appeals court ruled that a jury's $5 billion punitive-damage verdict for the Exxon Valdez oil spill was excessive and should be reduced. Its shares rose 1.2%. Gains in key international markets may help put U.S. investors in a buying mood. Frankfurt's DAX index was up 1.6% in intraday trading, while London's Financial Times-Stock Exchange 100-Share Index was 0.6% higher. Earlier, Japan's Nikkei 225 average closed with a gain of 1.4% and Hong Kong's Hang Seng Index jumped 2.6%. On Wednesday, U.S. blue-chip stocks came under pressure from weakness in overseas markets, particularly in Tokyo, as well as profit-taking following the Federal Reserve's decision Tuesday to cut interest rates. In major U.S. market action Thursday: Stocks climbed. On the Big Board, where 32.2 million shares traded, 624 stocks rose and 259 fell. On the Nasdaq, 88.3 million shares changed hands. Bonds were mixed. The 10-year Treasury note slipped less than 1/8, or $2.50 for a $1,000 bond, pushing the yield to 4.19%. The 30-year bond rose almost 3/8 to yield 4.77%. The dollar fell. It traded at 89.84 U.S. cents to the euro, compared with 89.81 late Wednesday in New York. The dollar fell to 120.69 yen from 120.92. For continuously updated news from The Wall Street Journal, see WSJ.com at http://wsj.com. Copyright (c) 2001 Dow Jones & Company, Inc. All Rights Reserved. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy/Enron Talks -4: Follows SEC Inquiry Launch 11/08/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) The talks between Enron and Dynegy follow a sharp drop in Enron's stock over the past several weeks as controversy arose over the companies dealings with certain partnerships. The SEC later requested information from Enron related to the company's dealings with those partnerships, which were set up and run until recently by Andrew S. Fastow, who was recently replaced as Enron's chief financial officer. The investigation is centered on disclosure controversies that have damaged the Houston energy company's credibility. Internal partnership documents indicate Fastow and possibly a handful of associates made millions of dollars from the partnerships. Fastow severed his ties with those partnerships in July. Internal documents related to one of the Fastow partnerships disclose that Enron also did as much as hundreds of millions of dollars of business with an entity connected to another company official, who has since left Enron, the Wall Street Journal reported on Oct. 26. While Enron disclosed its Fastow-related transactions in SEC filings, a computerized search of the SEC's database of public filings produced no reference to this other employee-related entity known as Chewco. Over the past couple of days, Enron has been scrambling to line up quick financing from a prominent outside investor and has been in discussions with private-equity firms and power-trading companies. Discussions between Dynegy and Enron began about 10 days ago, but reportedly intensified last weekend. Also Thursday, Enron restated its earnings for 1997 through 2000 and the first half of 2001 due to the transactions and resulting account adjustments. -Thomas Gryta; Dow Jones Newswires; 201-938-5400 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy Confirms Discussions With Enron 11/08/2001 Business Wire (Copyright (c) 2001, Business Wire) HOUSTON--(BUSINESS WIRE)--Nov. 8, 2001--Dynegy Inc. confirmed today that it is engaged in discussions with respect to a possible business combination with Enron. Dynegy has not agreed to the terms of any transaction with Enron. Dynegy does not anticipate making any further announcement with respect to a possible transaction until a definitive agreement is reached or discussions are terminated. CONTACT: Dynegy Inc. 713/507-6400 09:36 EST NOVEMBER 8, 2001 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 1-Before the Bell - Dynegy flat, Enron slips. 11/08/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Nov 8 (Reuters) - Dynegy Inc. shares traded flat and Enron Corp. slipped as the market mulled news that the companies are in an advanced stage of talks for Dynegy to acquire Enron by means of a stock swap, according to a source familiar with the deal. Terms of the possible combinmation have not yet been decided, but Enron stockholders would likely receive an amount of Dynegy stock that would give them a "modest premium" over current Enron stock prices, said the source, who spoke on condition of anonymity. Enron shares traded at $8.50, down from $9.05, and Dynegy was at $33, in line with the price at the prior New York Stock Exchange close. More broadly, the U.S. stock markets were expected to gain at the open, based on the upward moves of equity-index futures. The Standard & Poor's 500 December contract rose 7.5 points to 1,127.00 and the Nasdaq 100 index contact added 19.00 points to 1,554.50. Shares in XO Communications Inc. rose to $1.38 per share from $1.17 in very active pre-open trade on Thursday as the voice and data services company posted a narrower third-quarter loss. Markets overseas rallied on back-to-back interest-rate cuts by the European Central Bank and the Bank of England on Thursday. The reductions follow the Federal Reserve's rate cut two days ago, the U.S. central's bank's 10th such move of the year. Among other issues active ahead of the regular trading session, Intel Corp. rose to $28.80 from $28.29, BEA Systems Inc. traded up to $15.25 from $14.71 and Cisco Systems Inc. improved to $19.40 from $18.93. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. FERC 'Watching With Interest' Enron's Woes, Chairman Says 11/08/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) (This article was originally published Wednesday) WASHINGTON -(Dow Jones)- The U.S. Federal Energy Regulatory Commission is "watching with interest" the problems confronting Enron Corp. (ENE), but isn't intervening in the matter, Pat Wood III, FERC's chairman, said Wednesday. "We're watching the impact Enron or other entities would have on the markets," Wood told reporters during a press conference following the commission's meeting Wednesday. "We are watching with interest," he said for emphasis. But the commission doesn't intend to intervene in the U.S. Securities and Exchange Commission's investigation of financial hedging instruments with partnerships overseen by Enron's former financial officer, Wood said. The dealings led to a $1.2 billion writedown in Enron shareholder equity earlier this year. -By Bryan Lee, Dow Jones Newswires; 202-862-6647; Bryan.Lee@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Ripples From Enron's Troubles Hit Its Trading Partners By Sarah Spikes Of DOW JONES NEWSWIRES 11/08/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) LONDON -(Dow Jones)- Enron Corp.'s (ENE) financial troubles have created a new problem for U.K. power market players, and they don't quite know how to respond. Enron's significant presence in the U.K. market means there are many trading partners who are counterparties in deals with a company whose creditworthiness is now less secure than when those deals were struck. Companies are reluctant to cease doing business with a firm of Enron's size and stature, but they're also aware of the risk of becoming creditors to a bankrupt Enron. Since Enron revealed a $1.2 billion reduction in shareholder equity last month related to controversial transactions with entities connected to former Chief Financial Officer Andrew Fastow, the company's shares have tumbled; its senior unsecured debt has been downgraded by Fitch Inc., Standard & Poor's Corp. and Moody's Investors Service; and the U.S. Securities and Exchange Commission has launched a formal investigation into the matter. Already, many have backed off from trading power with Enron, citing the need to minimize exposure, but to what, exactly, they're not sure. Three Options For Enron's Trading Partners Enron's problems give rise to three major options for counterparties. They can wait, anticipating that Enron will go bust, and then terminate their contracts; they can try to invoke a controversial clause in their contracts and get Enron to put up more collateral; or they can back off from new forward trading and hope a company like Dynegy Inc. (DYN) will take Enron over and assume the contracts. One is available only if Enron goes bankrupt, and the other two are available right now, but most market-makers are still undecided. "No huge power merchant has ever had serious problems with their credit in the U.K. market before, so the viability of any theoretical option is uncertain," said a partner in a London-based law firm with an international energy practice. If a company takes the first option - continuing to trade with Enron - and Enron does go bankrupt, the trading partner would then be able to terminate existing contracts. Sarah Moynihan, an associate with Allen & Overy, the firm that wrote the Grid Trade Master Agreement - the contract used by most power trading parties in the U.K. - says the GTMA allows parties to terminate outstanding transactions with an insolvent company. "To terminate any transactions under one master agreement though, they would have to terminate all of them," she added. Terminating parties would be reimbursed, or charged, based on a marked-to-market value of their contracts. Power prices have been on a steep decline since the introduction of the New Electricity Trading Arrangements in March, so parties with majority selling positions through Enron would suffer financial penalties when they had to resell their power for less, but if they had bought through Enron, they would be able to get the same power for less money on the U.K. market today. "Market participants calculate the mark-to-market value all the time anyway, but particularly as this is the first NETA winter, the trust in price forecasting isn't as strong as it could be, so you may not be confident that (would be able to get) the equivalent of your contract...and you will live without peace of mind in the meantime," said the head of trading at a large generating and trading company. "Even if you were successful in terminating contracts, you might not get paid, and then who will trade with you, if you have a big debt owed to you by someone who can't pay it?" said a lawyer from a London law firm with an international energy practice. The only U.K. power-related company to go into insolvency recently was Independent Energy a small supply company. In that case, Innogy Holdings PLC (U.IOG), the company which took it over, assumed its contracts. Many Can't Afford To Lose Enron As A Partner Enron has always traded with a wide range of counterparties, some of which other big players wouldn't go near because of their relative lack of size and financial strength. This means there will be many companies that may not be able to afford to let Enron go. Not trading with Enron will make recovery harder, but a trading party will appear foolhardy if it continues to trade with a company that eventually goes under. The second option open to Enron's trading partners involves trying to invoke a muddied clause in the GTMA - the material adverse change, or MAC, clause. By asserting that the company's credit is not compatible with one with which they would normally agree to trade, they may be able get Enron to put up more collateral in support of the contracts. By asserting that Enron's credit isn't as secure as they expected when they agreed to the contracts, they may be able get Enron to put up more collateral in support of the contracts. The problem is that it's hard to be sure that a change in circumstances warrants invoking the MAC clause. However, this hasn't stopped some counterparties from asking their lawyers to investigate the feasibility of invoking MACs in their contracts with Enron, said lawyers who declined to be identified. "People are definitely talking about the chances of getting a MAC through these days," said one lawyer who declined to be named. Having to put up more capital would worsen Enron's situation, particularly if several counterparties were to ask for it, and most aren't interested in making Enron's situation worse. "Enron helps the U.K. market. It would be unhelpful for them not to be there and do what they do in terms of providing liquidity," said British Energy PLC (BGY) Chief Financial Officer Keith Lough in a conference call Wednesday. He said BE's dealings with Enron are two-way - Enron takes part of its baseload generation from BE's nuclear facilities while BE takes peak power from Enron for its direct sales unit. So far, the dilemma means most companies are taking the middle ground. They are reducing the number of new forward contract deals they do with Enron, but they aren't ceasing altogether and they aren't trying to get out of existing contracts. This partly reflects confidence that Enron will remain solvent, either on its own or through a merger. The company does have several things in its favor. First, Enron secured $1 billion in new credit lines using its gas pipeline assets as collateral. Second, there is no evidence that Enron is on the wrong side of the U.K. power market. Many traders say Enron has in fact gone into the first NETA winter short - a strategy that appears prescient in light of the warmest October in recent memory and low power prices. -Sarah Spikes, Dow Jones Newswires; (+44 20) 7842 9345; sarah.spikes@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron in Talks With Dynegy; to Restate Earnings (Update8) 2001-11-08 11:09 (New York) Enron in Talks With Dynegy; to Restate Earnings (Update8) (Updating to add stock movement.) Houston, Nov. 8 (Bloomberg) -- Enron Corp., the largest energy trader, restated and reduced its earnings for the past four years because of losses from partnerships that are under investigation by the Securities and Exchange Commission. Dynegy Inc. said it may acquire Enron, whose shares have plunged 89 percent this year. Dynegy's board last night weighed a proposal to pay $8 billion in stock, said people familiar with the situation. Concerns Enron may be lowered to a junk credit rating within days stalled the talks, the people said. Houston-based Dynegy is concerned that a reduction to junk status would precipitate a cash crisis by requiring Enron to repay early $3.3 billion of bonds. Enron's credit rating, currently rated ``BBB'' by Standard & Poor's Corp., or two levels above junk, is on review to be lowered. ``Merging with Enron is fraught with potential problems for Dynegy,'' said Commerzbank analyst Andre Meade. ``The bulk of Enron's value is in its trading business, and it's trading business is people.'' Enron shares were little changed after the announcement hich will result in a $96 million reduction in 1997 net income, $113 million in 1998, $250 million in 1999 and $132 million in 2000. In 2001, the changes result in an increase to net income of $17 million and $5 million in the first and second quarters, respectively, and reduction of $17 million for the third quarter. Enron also fired Treasurer Ben Glisan and Kristina Mourdant, a lawyer for an Enron division. The company ``now believes'' Glisan, Mourdant and two other employees no longer working for Enron bought interests in subsidiaries of a partnership run by former Chief Financial Officer Andrew Fastow. Enron said it believes Fastow made more than $30 million from partnerships called LJM1 and LJM2 which he ran. `Running Out of Time' ``Enron is running out of time and that's what's pushing them to the bargaining table,'' said Zach Wagner, an analyst with Edward Jones & Co., who cut his recommendation on Enron to ``reduce'' from ``accumulate'' on Oct. 23. Dynegy would gain a wholesale energy business, the leading energy manager for commercial and small-industrial customers, and an Internet energy trading operation many times larger than its own, said UBS Warburg LLC analyst James Yanello. ChevronTexaco Corp., which owns about 27 percent of Dynegy, is also involved in the talks. ``If history is any guide, Dynegy is stingy when it comes to acquisitions, so I don't expect them to do anything stupid'' such as overpaying for Enron, said Yanello. ``A deal could provide Dynegy with tremendous opportunity.'' He rates Dynegy ``strong buy'' and doesn't own shares of either company. Enron Chairman and Chief Executive Officer Kenneth Lay wouldn't hold a management position with the combined company under terms being discussed Wednesday, the Wall Street Journal reported. He would get a seat on the board, the paper added. ChevronTexaco is considering adding $1.5 billion to the transaction to help Enron. It would provide another $1 billion when the purchase is closed, the New York Times and Wall Street Journal reported. The companies agreed on a breakup fee providing Dynegy with about $400 million if Enron accepts a higher offer, people familiar with the talks said. Dynegy spokesman Steve Stengel, Enron spokesman Mark Palmer and ChevronTexaco spokesman Fred Gorell declined to comment. Losing Confidence Companies that trade natural gas, electricity and other commodities with Enron may pull back if Enron's finances deteriorate to the point that it loses its investment-grade credit rating, investors say. ``Dynegy has to act fast,'' said Roger Hamilton, a money manager with John Hancock Advisers Inc., which sold its Enron shares in recent weeks. ``If Enron can't get financing and its bonds go to junk, they lose counterparties and their marvelous business vanishes.'' Moody's Investors Service lowered its rating on Enron's bonds to ``Baa2'' and Standard & Poor's cut the debt to ``BBB.'' in the past two weeks. Federal regulators may overlook antitrust concerns in order to keep Enron afloat, Hamilton said. Securities regulators are investigating trading by partnerships run by Fastow, the former financial director. The entities bought and sold Enron shares and assets, with trades costing Enron $35 million and $1.2 billion in lost shareholder equity. Enron ousted CFO Fastow last month. Shares of ChevronTexaco rose 34 cents to $87.80 in early trading. Dynegy, the fifth-largest U.S. natural gas marketer, rose 25 cents to $33.25. Enron shares and bonds have tumbled in the past month. One of its bonds, an issue paying 6.725 percent that matures in November 2008, fell to 69.11 cents on the dollar, according to Bloomberg data, down from 71.90 cents yesterday. ``We would be very surprised if Dynegy buys the whole company,'' said Tim Ghriskey, president of Ghriskey Capital Partners, which doesn't own Enron or Dynegy shares. ``All the (Dynegy) board has to do is look at what's happening to their stock price today, and you'd wonder why they would want to do it in the face of what's happening with the stock.'' Ghriskey made his comments on Wednesday. Enron Meets Creditors Enron is to meet with J.P. Morgan Chase & Co., Citigroup Inc. and other lenders on Friday to discuss merger plans and a possible increase in the amount the company pays for existing credit lines, according to bankers familiar with the matter. The company has invited more than 300 creditors to its offices in Houston to listen to presentations by Enron's financial team, led by its new chief financial officer, Jeffrey McMahon, the bankers said. Dynegy began in 1985 as Natural Gas Clearinghouse, a gas- trading company. In 1998, the company took the name Dynegy -- a combination of the words dynamic and energy -- to reflect its expansion beyond natural gas. Chuck Watson, the company's president from 1985, became chairman and chief executive in 1989. Watson is an investor with Enron CEO Lay in the Houston Texans, who begin playing in the National Football League next year, and is a board member at Baker Hughes Inc. As of an April filing with the SEC, Watson owned 12.3 million Dynegy shares, or about 5.1 percent of the common stock. Fitch Comment on Wessex Water Ratings Following Enron Downgrade 2001-11-08 10:48 (New York) FITCH COMMENT ON WESSEX WATER RATINGS FOLLOWING ENRON DOWNGRADE Fitch-London-08 November 2001: In light of the recent downgrade of the Senior Unsecured and Short-term ratings of Enron Corp ("Enron") to 'BBB-' and 'F3' respectively, Fitch has commented today on the ratings of the Azurix Europe Limited group of companies. Enron, in conjunction with Marlin Water Trust, owns Azurix Corp. ("AZX"), which in turn owns Azurix Europe Limited ("AEL", rated 'BBB+/F2'). AEL is the ultimate UK parent of Wessex Water Services Limited ("WWSL", rated 'A-/F2'). AEL owns WWSL via an intermediate holding company, Wessex Water Limited ("WWL"), rated 'BBB+/F2'. The Outlook for the ratings of AEL, WWL and WWSL is Stable. WWSL is one of the UK's 10 monopoly, regulated water and sewerage companies. Fitch has not changed the ratings of the AEL group companies but notes the deteriorating credit profile of Enron, the group's ultimate US parent. Ring-fencing provisions between AEL and AZX are not considered by Fitch to be entirely watertight, particularly as AEL is allowed to loan funds to subsidiaries of AZX, which can be used for acquisitions and for general corporate purposes within the acquired businesses. Notwithstanding, the companies remain largely insulated from potential negative events at Enron. Credit protection is derived from a GBP425 million banking facility to AEL, which prohibits the company from making dividends or loans directly to AZX. AEL is also prohibited from taking on additional indebtedness and engaging in any business other than owning WWSL. In addition, under the banking facility, the total amount that can be borrowed by AEL in its name, yet on-lent to AZX subsidiaries, is capped at GBP240m. The capped amount was originally earmarked to help fund AZX's growth aspirations. All loans from AEL to AZX subsidiaries are short-term, on commercial terms, are senior obligations of the SPV (AEL's direct counter-party) and are guaranteed by AZX. However, hypothetically, these loans may have been re-invested in a subordinated stake in a water project. Mitigating this risk profile, the bank facility has certain ratio thresholds measured on a consolidated AEL group and a de-consolidated AEL basis. Considering a worst case scenario, (assuming a failure to recover the maximum amount that could be on-lent to entities outside the AEL group), within the bank facility's ratio thresholds, Fitch calculates that the AEL group would be able to maintain its current rating category. Going forward, Enron has publicly stated that is does not view AZX as a core strategic asset. The latter has stated that it is pursuing the disposal of certain assets, including those in North America that have since been sold for USD150m. This deal, which is not expected to have any impact on AEL, is due to close soon. At this time Enron has made no public statement about the future of the AEL business although it is reviewing its options internally. Fitch will continue to monitor developments in this respect and would expect to review the ratings of AEL and WWSL in the context of clear announcements from Enron. A key factor in assessing the remaining AEL group would be the level of debt "crystallised", or assumed, by that entity. The assigned ratings reflect Fitch's approach to rating regulated utilities in the UK, which starts with the consolidated debt and income profiles of the ultimate UK holding company, (in this case AEL), while considering both intermediate holding companies (here, WWL) and the operating business (WWSL). The ratings of AEL and WWL are supported by strong operating performance in the monopoly business of WWSL, which is regulated by Ofwat, and delivers relatively predictable cash flows within the context of its regulatory price controls. NewPower 3rd-Qtr Loss Narrows After Adding Customers (Update2) 2001-11-08 10:38 (New York) NewPower 3rd-Qtr Loss Narrows After Adding Customers (Update2) (Adds job cuts in fourth paragraph.) Purchase, New York, Nov. 8 (Bloomberg) -- NewPower Holdings Inc., a venture formed by Enron Corp. to compete with traditional gas and electric utilities, said its third-quarter loss narrowed after cutting costs and adding customers. The loss was $67.1 million, or $1.15 a share, compared with a loss of $69.9 million, or $2.96, a year earlier. Revenue tripled to $54.7 million from $18.2 million, the company said. NewPower was forecast to have a loss of $1.16 a share, the average estimate of three analysts polled by Thomson Financial/First Call. NewPower added 80,000 customers in the third quarter and expects to have 840,000 to 860,000 customers by the end of the year. The company, based in Purchase, New York, reduced sales, general and administrative costs by 41 percent, primarily by cutting systems-development and professional expenses. The company is eliminating 40 jobs, or 22 percent of its workforce, to cut costs, Chief Financial Officer William Jacobs said on a conference call. The company expects severance costs of $16 million in the fourth quarter. Enron, the largest energy trader, owns about 44 percent of NewPower. Houston-based Enron, whose shares have fallen 73 percent since Oct. 16 amid concern over affiliated partnerships run by its former chief financial officer, said it had $544 million in losses on investments including NewPower in the third quarter. Shares of NewPower rose 39 cents to $1.20 in midmorning trading. The company went public in October 2000 for $21 a share. Fourth-Quarter Excluding severance costs, NewPower expects a fourth-quarter loss of $41 million to $46 million, or 65 cents to 73 cents a share, and a full-year loss of $210 million to $215 million, or $3.55 to $3.63. The company was expected to lose 74 cents in the fourth quarter, according to First Call's average of three analysts' estimates. The full-year's loss was expected to be $3.71, the average of four analysts' estimates. In 2002, NewPower expects to have a loss of $100 million to $125 million, or $1.59 to $1.99 a share. The average estimate of four analysts polled by First Call was $2.26. NewPower expects to be profitable in 2003 with 1.5 million customers. The company is focusing more on small businesses. It now has 25,000 small-business customers and expects to have more than 35,000 by the end of the year. International Business Machines Corp. owns 1.5 million shares of NewPower, less than 5 percent of the company. Dynegy May Offer at Least $8 Bln to Acquire Enron (Update5) 2001-11-08 10:17 (New York) Dynegy May Offer at Least $8 Bln to Acquire Enron (Update5) (Updates with Dynegy statement.) Houston, Nov. 8 (Bloomberg) -- Dynegy Inc.'s board last night failed to agree to pay $8 billion in stock to acquire Enron Corp. in part because of concerns the biggest energy trader may be lowered to a junk rating within the coming days, people familiar with the situtation said. Dynegy, a Houston-based energy trader, said the talks were continuing. The company is concerned that Enron's ``BBB'' credit rating may be lowered by Standard & Poor's Corp. The rating company is reviewing the company, which it downgraded Nov. 1. ChevronTexaco Corp., which owns about 27 percent of Dynegy, is also involved in the talks. The prospect of a lower credit rating, which would force Enron to repay $3.3 billion of bonds that mature in 2003 early, along with an investigation by the Securities and Exchange Commission investigation into partnerships run by former Chief Financial Officer Andrew Fastow prompted Enron's board to consider selling the company. Enron today said it would restate its financial statements since 1997 after concluding some of the accounting for its partnerships didn't comply with generally accepted accounting principles. ``Enron is running out of time and that's what's pushing them to the bargaining table,'' said Zach Wagner, an analyst with Edward Jones & Co., who cut his recommendation on Enron to ``reduce'' from ``accumulate'' on Oct. 23. Shares of Enron fell 45 cents to $8.60 cents in early trading on the news, which was previously reported by the Wall Street Journal and New York Times. The stock reached a record $90.75 in August 2000. With 850 million shares outstanding, the company has a market value of about $7.7 billion. Dynegy would gain a wholesale energy business, the leading energy manager for commercial and small-industrial customers, and an Internet energy trading operation many times larger than its own, said UBS Warburg LLC analyst James Yanello. `Stingy' Buyer ``If history is any guide, Dynegy is stingy when it comes to acquisitions, so I don't expect them to do anything stupid'' such as overpaying for Enron, said Yanello. ``A deal could provide Dynegy with tremendous opportunity.'' He rates Dynegy ``strong buy'' and doesn't own shares of either company. Enron Chairman and Chief Executive Officer Kenneth Lay wouldn't hold a management position with the combined company under terms being discussed Wednesday, the Wall Street Journal reported. He would get a seat on the board, the paper added. ChevronTexaco is considering adding $1.5 billion to the transaction to help Enron. It would provide another $1 billion when the purchase is closed, the New York Times and Wall Street Journal reported. The companies agreed on a breakup fee providing Dynegy with about $400 million if Enron accepts a higher offer, people familiar with the talks said. Dynegy spokesman Steve Stengel, Enron spokesman Mark Palmer and ChevronTexaco spokesman Fred Gorell declined to comment. Losing Confidence Companies that trade natural gas, electricity and other commodities with Enron may pull back if Enron's finances deteriorate to the point that it loses its investment-grade credit rating, investors say. ``Dynegy has to act fast,'' said Roger Hamilton, a money manager with John Hancock Advisers Inc., which sold its Enron shares in recent weeks. ``If Enron can't get financing and its bonds go to junk, they lose counterparties and their marvelous business vanishes.'' Moody's Investors Service lowered its rating on Enron's bonds to ``Baa2'' and Standard & Poor's cut the debt to ``BBB.'' in the past two weeks. Federal regulators may overlook antitrust concerns in order to keep Enron afloat, Hamilton said. SEC Probe Securities regulators are investigating trading by partnerships run by Fastow, the former financial director. The entities bought and sold Enron shares and assets, with trades costing Enron $35 million and $1.2 billion in lost shareholder equity. Enron ousted CFO Andrew Fastow last month. Shares of ChevronTexaco rose 34 cents to $87.80 in early trading. Dynegy, the fifth-largest U.S. natural gas marketer, rose 25 cents to $33.25. Enron shares and bonds have tumbled in the past month. One of its bonds, an issue paying 6.725 percent that matures in November 2008, fell to 69.11 cents on the dollar, according to Bloomberg data, down from 71.90 cents yesterday. ``We would be very surprised if Dynegy buys the whole company,'' said Tim Ghriskey, president of Ghriskey Capital Partners, which doesn't own Enron or Dynegy shares. ``All the (Dynegy) board has to do is look at what's happening to their stock price today, and you'd wonder why they would want to do it in the face of what's happening with the stock.'' Ghriskey made his comments on Wednesday. Enron Meets Creditors Enron is to meet with J.P. Morgan Chase & Co., Citigroup Inc. and other lenders on Friday to discuss merger plans and a possible increase in the amount the company pays for existing credit lines, according to bankers familiar with the matter. The company has invited more than 300 creditors to its offices in Houston to listen to presentations by Enron's financial team, led by its new chief financial officer, Jeffrey McMahon, the bankers said. Dynegy began in 1985 as Natural Gas Clearinghouse, a gas- trading company. In 1998, the company took the name Dynegy -- a combination of the words dynamic and energy -- to reflect its expansion beyond natural gas. Chuck Watson, the company's president from 1985, became chairman and chief executive in 1989. Watson is an investor with Enron CEO Lay in the Houston Texans, who begin playing in the National Football League next year, and is a board member at Baker Hughes Inc. As of an April filing with the SEC, Watson owned 12.3 million Dynegy shares, or about 5.1 percent of the common stock. Enron Bonds Gain as Dynegy Considers $8 Bln Buyout (Update1) 2001-11-08 10:12 (New York) Enron Bonds Gain as Dynegy Considers $8 Bln Buyout (Update1) (Updates note prices in second and fourth paragraphs.) New York, Nov. 8 (Bloomberg) -- Enron Corp. bonds gained as Dynegy Inc. considered paying about $8 billion in stock for the biggest energy trader. An acquisition would bolster Enron's credit rating, which was recently lowered, traders said. Enron's 7.88 percent coupon notes due in 2003 rose 5 cents to be bid at 82 cents on the dollar this morning from 77 cents yesterday, traders said. The yield declined to 22 percent from 27 percent. The debt was trading near 100 last month. ``Enron bonds have been in free fall,'' said Joe Walker, who follows Dynegy bonds for SWS Securities in Dallas. Enron's bondholders ``now have the opportunity of going to a much stronger source.'' Enron's 6.4 percent notes due in 2006 traded at 84 cents on the dollar today, up 10 cents to 12 cents from yesterday, traders said. The company's longer-dated debt, bonds with maturities of 10 years or more, rose as much as 10 cents. While Moody's Investors Service rates Enron's credit as ``Baa2'', one rung higher than its ``Baa3'' grade for Dynegy, other ratings companies including Standard & Poor's and Fitch Inc. have assigned Dynegy a higher rating. Also, Enron's ratings have been cut in recent weeks and face further reduction, while Dynegy's credit outlook is stable. Enron bonds and shares have fallen in recent weeks on concern about partnerships run by the company's former chief financial officer and concerns the company's trading business will be hurt by the downgrades. Dynegy and Enron, both based in Houston, met yesterday to negotiate terms of a buyout, said people familiar with the situation. Enron Confirms Dynegy Talks By TSC Staff <<mailto:letters@thestreet.com>> TheStreet.com 11/08/2001 08:00 AM EST Enron (ENE:NYSE - news - commentary) and rival energy trader Dynegy (DYN:NYSE - news - commentary) confirmed Thursday they were in merger talks. According to reports, Dynegy held talks to acquire Enron for up to $8 billion in stock and to make an immediate cash infusion of up to $2 billion to help relieve Enron's debt crisis. The possible agreement is said to have the backing of ChevronTexaco (CVX:NYSE - news - commentary) , which owns about a quarter of Dynegy. Enron shares continued their recent fall, dropping 16 cents to $8.89, while Dynegy jumped $1.83 to $34.83. Stocks Surge On Rate Cuts, Jobless Numbers By Kevin Burke <<mailto:kburke@thestreet.com>> Staff Reporter 11/08/2001 09:42 AM EST TheStreet.com Updated from 8:49 a.m. EST Stocks surged at the open following surprising moves by two European central banks and a positive report from the Labor Department. The Dow was recently gaining 39 points, or 0.41%, to 9594. The Nasdaq was up about 17 points, or 0.95%, to 1855, and the S&P 500 was unchanged at 1116. Both the Bank of England and European Central Bank announced half-point reductions in their key lending rates Thursday, the BOE dropping its to 4% and the ECB lowering to 3.25%. The cuts were larger than expected and reflected increased economic risk in a low-inflation environment, the banks said. Overseas markets were uniformly higher on the moves. London's FTSE 100 was gaining fractionally at 5219, while Germany's Xetra DAX was up 1.5% to 4936. In Asia, Japan's Nikkei gained 1.4% to 10,432 while Hong Kong's Hang Seng added 2.6% to 10,539. The Labor Department said initial claims for jobless benefits fell unexpectedly by 46,000 to 450,000 in the week ended Saturday. Retail sales reports for October were also pouring in Thursday, with Wal-Mart (WMT:NYSE - news - commentary) posting a slightly higher-than-expected gain in same-store sales. Limited (LTD:NYSE - news - commentary) said same-store sales fell 6% while Gap Stores' (GPS:NYSE - news - commentary) fell 17%. The Enron (ENE:NYSE - news - commentary) saga continued with news that rival energy trader Dynegy (DYN:NYSE - news - commentary) has held talks to buy the company for up to $8 billion in stock. The possible deal is said to have the blessing of ChevronTexaco (CVX:NYSE - news - commentary) , which owns 27% of Dynegy. The price of crude oil was rising Thursday after Saudi Arabia's oil minister warned of impending OPEC production cuts. Prices were up almost 4% on the news, the biggest jump since just after the terrorist attacks. The 10-year Treasury note was recently losing 6/32 to 106 11/32, yielding 4.20%. Some Glamour Stocks That Are Ugly Down Deep By Brett Messing <<mailto:bmessing@oscarcap.com>> Special to TheStreet.com 11/08/2001 08:16 AM EST RealMoney.com I know it's tempting. I know what you're thinking: If I can catch a big ride on one of these beaten-down stocks, I can get my portfolio back to where it was in March 2000. Forget it. Rip up those old statements. Treat them like UFOs. Instead, think singles and doubles instead of homers. While a number of glamour stocks have been decimated, they deserve to be decimated. I am an opportunist. I've looked at all of them. They are a collective disaster, and they are not worth the risk. Let's start with Jim Cramer's favorite punching bag, Enron (ENE:NYSE - news - commentary) . As bad as this situation is, it is going to get worse before it is over. And while the Bushies may have been willing to help out Bill Gates with his little Justice Department problem, they will not go near this one with a 10-foot pole. Enron is not an energy company. It is a trading company. Moreover, it appears they are not particularly good traders. Instead of Enron, invest your money with the best trading company in the world, Goldman Sachs (GS:NYSE - news - commentary) . These guys have probably been picking Enron's pockets for years. Isn't it interesting that Goldman Sachs was unwilling to participate in the recent short-term loans to Enron, an investment banking client? They might actually know what's behind the curtain. I worked at Goldman Sachs for eight years, and I have tremendous respect for them. They know how to trade. They made a ton of money handling Sid Bass' recent 125 million-share block of Walt Disney (DIS:NYSE - news - commentary) stock. Forget about the 6-cent-per-share fee they charged. How about the 10 million to 20 million shares that they kept for themselves? I imagine that Goldman made more than $30 million on this one trade. Not a bad day's work. Stay away from Qwest (Q:NYSE - news - commentary) . Taken in the best light, the company is way too aggressive with its accounting; Qwest bullies the analyst community and it overpromises and underdelivers. Qwest has justifiably lost the trust of the investment community. It will take years of execution and fence-mending to earn this trust back. Ask Cendant CEO Henry Silverman. He is still paying for the damage inflicted upon him by former Cendant Chairman Walter Forbes, who has pleaded not guilty to conspiracy and wire fraud charges. Go with WorldCom (WCOM:Nasdaq - news - commentary) instead. These guys actually get it. They are among the telecom industry's best operators, and they are the best dealmakers. Like everyone else, they goofed, but they have found religion. This quarter's operating results show some promise. Previously skeptical analysts at Lehman and Merrill had some nice things to say about the company. I think WorldCom is an up stock from here. It is not going back to the $60s, but I could see it above the driving age by year-end. I know it's also tempting to think that if the economy rebounds, consumer finance stocks will scream. You are turned on by Providian (PVN:NYSE - news - commentary) and Conseco (CNC:NYSE - news - commentary) . Providian recently hired my pals at Goldman Sachs to help them out. Forget this, too. Providian feels like a doughnut to me. Their balance sheet is a mess. We do not know how bad it is. They may not know how bad it is. Moreover, they were not candid with the investment community. Conseco announced that Gary Wendt and other senior managers bought a bunch of stock with their own money. While I love to see management buying stock, this one feels too staged to me. Pre-Wendt, Conseco had a long history of management buying stock with loans from the corporate treasury. Moreover, 1 million shares (or $3 million) is not that much money to Wendt. I would like to see him buy $25 million of restricted stock directly from the company. Conseco is probably the best speculative bet of the bunch, but I would still pass. It is a very high-risk situation, given the leveraged state of its balance sheet. Wendt is a tremendous manager, and he did a great job with GE Capital. However, he would not be the first guy to have a sequel that bombs at the box office. Go with Citigroup (C:NYSE - news - commentary) instead. Citigroup is the biggest and best financial services company in the world. While Wendt is something special, I would draft Weill and Rubin ahead of him in my CEO Rotisserie League. The best way to make money is to stay out of trouble. Stick with singles and doubles. Don't be tempted. Top Of The News Enron Trades Itself Dan Ackman , Forbes.com , 11.08.01, 8:47 AM ET NEW YORK - Enron, once a star, has lately looked more like a truck racing down a Texas highway with a load of burning lumber: no one knew where it was going or why. Finally, it seems to be nearing a rest stop as Enron (nyse: ENE) is reportedly about to sell itself to its much smaller rival Dynegy (DYN ) for $8 billion in stock, a fraction of its former value. As part of the deal, ChevronTexaco (CVX ) , which owns 27% of Dynegy, would pump at least $1.5 billion in cash into Enron upon the inking of an agreement and an additional $1 billion when the deal closed. The deal, if consummated, represents a possible way out for Enron, which has been humbled by an accounting scandal, the resignation and firing of top executives, the defection of investors, and massive losses. The rough outlines of what humbled Houston-based Enron are known, but the details remain a mystery, as well as the subject of a Securities and Exchange Commission investigation and at least one major lawsuit, with more to come. Once basically an oil and natural gas pipeline company, Enron expanded into energy trading, broadband telecommunications and other businesses. It was often said to be at the center of a "revolution," perhaps several revolutions, with telecommunications, the Internet, and energy deregulation among them. But a revolution is not a tea party. For a while, the fact that few investors understood what Enron did was probably a plus. Between 1997 and the end of 2000, Enron's share price climbed steadily from less than $20 per share to over $80 per share. It had a $70 billion market value as recently as a year ago. During the run-up, Enron's financial conditions don't seem to have justified the surge. Revenues were growing wildly, from $20 billion in 1997 to $101 billion in 2000. But much of that increase was due to the fact that Enron was now a trading company, and revenues were of a different type altogether. In any event, profits, after a huge jump between 1997 and 1998, increased much more slowly, from $878 million in 1998 to $1.4 billion. Of course, whether these profits were real is now very much in doubt. Last quarter, Enron reported a $618 million loss, mostly due to accounting charges. The road down has been a lot steeper. Over the last 12 months, the stock fell all the way back and closed Wednesday at $9.05, wiping out all the gains and then some. Today, the inscrutability of Enron's finances is considered a bad thing. Jeffrey Skilling, the company's new chief executive officer, resigned in August after just six months at the helm. Kenneth Lay, 58, the former C.E.O. and a close friend of President George W. Bush, was brought back in. Lay will have a seat on the combined company's board, but no day-to-day job, according to reports. Lay earned $12 million in total compensation from Enron in 2000, not counting his profits from the exercise of $123 million in options. Other Enron executives also exercised tens of millions in options in 2000, when the stock was flying high. Enron paid Skilling, once Lay's top lieutenant, $84.5 million over the last five years. Last month, the company's problems became public. It disclosed $1 billion in write-downs and a $1.2 billion reduction in shareholder equity. The reduction in equity arose from "related party" transactions that turned out to be with investment partnerships involving Andrew Fastow, the chief financial officer. Fastow was forced to resign on Oct. 24. The Securities and Exchange Commission is investigating. Today, Enron is expected to send the S.E.C. answers to questions the agency has posed in its investigation. Dynegy officials have seen those answers already, and the public should see them soon. Enron will meet Friday with its creditors about the company's continuing crisis and the proposed merger. The hope is a deal with Dynegy, also based in Houston, will lead Enron out of the storm and cause its trading partners to have enough confidence to do business with the company. Enron's credit rating is in jeopardy. Both Moody's Investors Service and Standard & Poor's have already cut it to two rungs above junk status. On Nov. 5, Fitch cut it to one notch above junk. As part of the deal, Dynegy, which had 2000 revenues of $29.5 billion, would be taking on Enron's $12.8 billion debt load. But this figure does not include billions of dollars of other debt, accumulated off the balance sheet, that has played a major role in Enron's current problems. Some of Enron's assets will likely be sold to pay down the debt. The acquisition would combine Enron, a dominant player in the trading of electricity and natural gas in the U.S., but which has been selling off hard assets such as utilities, with Dynegy, a company that uses trading to maximize earnings from its power plants. Dynegy will pick up the pieces of Enron, hoping it can make some sense of it. After that it may make some money, too. =====================================

ann.schmidt@enron.com

Enron Mentions

Public Service Says 1st-Qtr Profit Fell 5.9 Percent (Update2) Bloomberg, 04/17/01 Enron Bandwidth Unit Reports Loss For First Quarter Dow Jones Energy Service, 04/17/01 USA: Enron CEO uses naughty word on conference call. Reuters English News Service, 04/17/01 Enron, Dynegy post healthy profit gains on energy demand Associated Press Newswires, 04/17/01 USA: Enron Broadband posts expected loss amid mixed growth. Reuters English News Service, 04/17/01 WSJ.COM WRAP: Enron, Dynegy Post Immpressive Results Dow Jones News Service, 04/17/01 Action on energy trading floors reverberate in power-hungry California Associated Press Newswires, 04/17/01 Energy Trading-Floor Gambits Perturb Power-Hungry US West Dow Jones Energy Service, 04/17/01 High demand for power behind Enron's increased earnings Associated Press Newswires, 04/17/01 Enron CEO: Earnings Target Up By A Nickel CNNfn: Market Coverage - Morning, 04/17/01 Enron Corp. Says First-Quarter Profit Rose 20 Percent (Update6) Bloomberg, 04/17/01 Dynegy's 1st-Qtr Profit Rises 73% on Gas, Power Sales (Update4) Bloomberg, 04/17/01 Red Herring 100 Celebrates Top Companies Reshaping Business PR Newswire, 04/17/01 Enron Says PG&E Owes About $570 Million, CNBC Says (Update1) Bloomberg, 04/17/01 Public Service Says 1st-Qtr Profit Fell 5.9 Percent (Update2) 2001-04-17 17:25 (New York) Public Service Says 1st-Qtr Profit Fell 5.9 Percent (Update2) (Updates with profit from operations in second paragraph and possible expansion in California in second section. For more on the California electricity crisis, see {EXTRA <GO>}.) Newark, New Jersey, April 17 (Bloomberg) -- Public Service Enterprise Group Inc., owner of New Jersey's largest utility, said first-quarter profit fell 5.9 percent because of a rate cut and higher fuel costs. Profit from operations fell to $254 million, or $1.22 a share, from net income of $270 million, or $1.25, a year earlier, spokesman Paul Rosengren said. Revenue rose 13 percent to $2.81 billion from $2.48 billion. The company has been trying to expand outside New Jersey as the state opens its energy markets to competition. Talks to buy Cinergy Corp., owner of Cincinnati's utility, for about $5.6 billion fell apart in March, possibly because it offered only a slight premium, according to newspaper reports. The company's Public Service Electric & Gas utility has 3.5 million New Jersey customers. Utility profit fell 11 percent because of a 2 percent power-rate cut and costs to refinance debt, the Newark, New Jersey-based company said. Profit at PSEG Power, the company's U.S. trading and power- generation unit, fell 19 percent because of higher fuel costs and interest expenses. Public Service uses natural gas to fuel some of its power plants. Gas prices more than doubled from a year ago. A $2 million charge for a debt payment and a $9 million gain from an accounting change made net income $261 million, or $1.25 a share, the company said. Public Service had 208 million shares outstanding in the latest quarter. It had 216 million shares outstanding a year earlier. Operating profit of PSEG Energy Holdings, which includes international business, rose 88 percent. Public Service expects to have 3.7 million customers outside the U.S. after some acquisitions are complete, the company said. California Public Service is talking with California officials about expanding six power plants in the state, Rosengren said. The plants, owned 50 percent by Public Service, generate enough power for 150,000 U.S. homes and might be ``substantially enlarged'' with turbines Public Service has on order, provided the state confirms payment for power, he said. He declined to provide details on the size of the expansion. Shares of Public Service rose 90 cents to $46.08. They have fallen 5.2 percent this year. Enron Bandwidth Unit Reports Loss For First Quarter 04/17/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Broadband Services was the only one of Enron Corp.'s (ENE) business sectors to report a loss for the first quarter of 2001, company executives said in a conference call with analysts Tuesday. Before interest and taxes, Enron reported a loss for Broadband Services of $35 million for the first quarter of this year compared to a break-even quarter a year ago. "Only one sector is down from what we expected and that's broadband," Enron President and Chief Executive Jeff Skilling told investors. "The other sectors are up, significantly up." Enron Corp. reported earnings of $405 million on revenues of $50.1 billion for the first quarter of 2001. The per-diluted share earnings were 49 cents, compared with 40 cents in the year-ago period. Company executives also revised upward their per-share earnings goal for 2001 from $1.73 to the $1.75-$1.80 range. The Broadband Services loss came on $83 million in revenues compared to $59 million last year. The total value of contracts for the first quarter 2001 was $45 million, compared with $31 million in the first quarter 2000. Broadband Services delivered 43,400 terabytes of capacity in the first quarter 2001, up from 6,005 terabytes a year ago. For all of last year, the company delivered a total of 72,406 terabytes of bandwidth. Skilling said the company has contracts to deliver 40% of its goal of 570,000 terabytes this year. "We're making excellent progress in creating a commodities market," he said. Broadband Services did a total of 580 transactions in the first quarter of 2001, double the 236 transactions it did in the fourth quarter of last year. In all of 2000, the company did 321 trades. In the first quarter, Enron added 70 new customers, bringing its total up to 120, Skilling said. He added that 70% of those customers are carriers or network service providers. Skilling said he is disappointed with the slow growth of the long-term deal origination segment of the bandwidth operation. "We face one big issue in this market, the counterparties have no credit capacity," he said. The Broadband Services loss wasn't due to increased costs of seeking video-on-demand partners to replace Blockbuster Inc. (BBI). Enron and Blockbuster canceled an exclusive agreement to distribute movies via the Internet in the first quarter. Enron will seek to make deals with motion picture companies directly. The biggest snag in making those deals are Hollywood's desires. "They want to keep as much of the money as they can," said Ken Rice, chairman and chief executive of Broadband Services. -By Erwin Seba, Dow Jones Newswires, 713-547-9214 erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron CEO uses naughty word on conference call. 04/17/2001 Reuters English News Service (C) Reuters Limited 2001. (Editors note language) By C. Bryson Hull HOUSTON, April 17 (Reuters) - Enron Corp.'s top executive Tuesday publicly fired off the same vulgarity that brought President George W. Bush embarrassing headlines when he unwittingly uttered it in front of an open microphone last fall. But unlike Bush, Enron President and Chief Executive Officer Jeff Skilling says he knew the microphone was on when he called a fund manager an "asshole" during a conference call to discuss first-quarter earnings with analysts. Bush made headlines on the campaign trail last year when he remarked to Vice President Dick Cheney that a New York Times reporter was a "major-league asshole," not knowing that a microphone had picked up his remark. Skilling laid down the insult after an exchange with Richard Grubman, managing director of Highfields Capital Management in Boston, who asked to see Enron's balance sheet and was told it would not be available until its inclusion in a Securities and Exchange Commission filing later this month. "You're the only financial institution that can't come up with balance sheet or cash flow statement after earnings," Grubman grumbled. "Well, thank you very much, we appreciate that. Asshole," Skilling responded with a laugh. Skilling, whose candor frequently gives his public relations staff fits, told Reuters in a telephone interview that he knew the microphone was on. "The specific fellow that I was not real happy with is a shortseller in the market. I don't think it is fair to our shareholders to give someone a platform like that they are using for some personal vested interest related to their stock position," Skilling told Reuters in an interview. "I get a little exasperated with that sort of thing, and I want people to know I am exasperated," he said. Grubman said he felt "pretty thin-skinned" about the remark. He disputed Enron's assertion the balance sheets and cash flow statements were not ready yet, particularly in light of Skilling's mention during the call that Enron reconciles its credit risks and trading book daily. "I'm sort of at a loss as to why that was such an objectionable question," Grubman said, adding: "He's got some nerve. He and his management team sold 7 million shares into the market last year, so he's plugged the market for a half a billion dollars worth of stock valued in the $70s and $80s. "Now the stock is the high $50s-low $60s and I'm an asshole because I ask about the balance sheet?" Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron, Dynegy post healthy profit gains on energy demand By The Associated Press 04/17/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. Energy wholesalers Dynegy Inc. and Enron Corp. posted healthy profit gains Tuesday, beating Wall Street's expectations, as demand for electricity and natural gas surged during the first quarter. Both companies saw revenues jump as well, with Enron's sales coming in nearly four times that of the previous quarter. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said Enron's results were no surprise because of increased demand for power and gas in power-strapped California and across the country. "Clearly the California energy crisis has raised the bar on those power and gas trading and marketing profits," she said. "Opportunities have existed outside California as well." Meanwhile, Dynegy, a major power generator in California, said it was being "unfairly and inaccurately" accused of withholding power from the state's power market. It said that sales there "did not make a material contribution" to first-quarter results. Enron Corp. Houston-based Enron, the world's top buyer and seller of natural gas and electricity, said Tuesday that it earned $425 million, or 49 cents per share, in the three months ended March 31, compared with $338 million, or 40 cents per share in the year-ago period. This year's results include a $19 million, or 2 cents per share gain, due to the adoption of new accounting standards; excluding the item, Enron earned $406 million, or 47 cents per share. The result beat comparable expectations of analysts surveyed by Thomson Financial/First Call, who predicted earnings of 45 cents per share. First-quarter revenues nearly quadrupled to $50.1 billion, compared to revenues of $13.1 billion in the first three months of 2000. Enron also increased its 2001 overall earnings prediction to $1.75 to $1.80 per share. Previously, the company said it expected 2001 earnings of $1.70 and $1.75 per share, and the consensus of analysts was for $1.74 per share. "Enron's wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability," said Jeff Skilling, president and CEO of Enron. The company attributed the increase to continued growth in its wholesale energy-trading business, acceleration in its retail energy services and in its broadband Internet business. In its wholesale business, Enron resells power and gas to utilities and other large customers. That business accounted for 96 percent of its first-quarter revenues. Shares of Enron rose $1.04 to $60.48 in trading Tuesday on the New York Stock Exchange. Dynegy Inc. The Houston-based energy marketer said Tuesday it earned $139.5 million, or 41 cents a share, in the first three months of 2001, more than double that from first-quarter 2000 earnings of $69 million, or 26 cents per share. Analysts surveyed by Thomson Financial/First Call expected Dynegy's first-quarter earnings to be 40 cents a share. The results include a $2 million gain for an accounting change, which did not affect the per-share figure. Revenues for the first three months of the year were $14.2 billion, nearly triple the $5.3 billion reported in the same period a year ago. Dynegy chairman and chief executive officer Chuck Watson attributed the increase to cold weather demands in northern states, not the California power shortage. In a statement following the release of the earnings, president and chief operating officer Steve Bergstrom defended the company, saying it had been "unfairly and inaccurately accused of withholding power from the California market." "As we have repeatedly communicated to California policy-makers and regulators and to industry officials, we remain ready and willing to generate and sell power to any and all buyers, at fair and reasonable prices, when they are able to provide appropriate assurances that they will fulfill their obligation to pay for those purchases, Bergstrom said. Dynegy said it has softened nearly all of its prospective credit exposure in the California market through an agreement with the California Department of Water Resources to provide the state with up to 2,300 megawatts of electricity through 2004. Shares of Dynegy rose $2.17 to $55.32 in trading on the NYSE. --- On the Net: http://www.enron.com http://www.dynegy.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron Broadband posts expected loss amid mixed growth. By C. Bryson Hull 04/17/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, April 17 (Reuters) - Enron Corp.'s nascent broadband Internet division posted an expected quarterly loss on Tuesday amid a weak telecommunications market and mixed growth in the Houston energy giant's flashiest unit. Enron Broadband Services reported a loss of $35 million on $83 million in revenue, compared with a break-even first quarter in 2000, when it had $59 million in revenues. Enron has consistently said it did not expect its broadband arm to record a profit until 2002 and instead has offered other measures of growth by which to benchmark the unit's progress. The broadband unit encompasses two distinct segments: the bandwidth intermediation business, which turns Internet bandwidth into a tradeable commodity; and the content services division, which engages in sales and transmission of Internet content. The bandwidth trading unit recorded 580 transactions in the first quarter of 2001, compared with 321 in all of last year. It delivered 43,400 terabytes - a unit equal to one trillion bytes - in the first quarter, compared with 6,000 in the similar year-ago period, a more than sixfold increase. But Enron President and Chief Executive Jeff Skilling said he was disappointed with the rate at which Enron is signing large, structured bandwidth contracts, which he said are a casualty of the low credit capacity of potential counterparties. "If you look at most of the large telecom companies right now, you would be hard-pressed to assume they could perform on a contract that is anything more than six months to a year long," Skilling said. Enron's bread-and butter, developed in the natural gas business, is creating long-term commodity deals that are geared to combat price volatility for its customers. Skilling said Enron is looking at ways to use the inherent credit of telecommunication companies' assets to finance the deals, much as Enron did with credit-poor natural gas companies in the mid-1980s. "This is going to come a little slower than what we expected," he acknowledged. The content services unit had suffered some setbacks during the first quarter, including the premature dissolution of its marquee 20-year video on demand deal with Blockbuster Inc. EBS also trimmed 20 percent of its staff last month, moving them out of the unit and into other parts of the parent company. "The losses in bandwidth have nothing to do with Blockbuster," Skilling told investors. Rather, the changes came as a result of Enron slashing $500 million off the $750 million it had set aside to build its network. The weak telecom market means a long bandwidth supply and an easy way for Enron to secure contractual access to bandwidth at low prices, Skilling has said. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. WSJ.COM WRAP: Enron, Dynegy Post Immpressive Results 04/17/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) A WSJ.COM News Roundup HOUSTON -(Dow Jones)- Electricity suppliers Enron Corp. (ENE) and Dynegy Inc. (DYN) posted strong first-quarter results as their wholesaling and trading businesses thrived in a market roiled by California's energy crisis. Enron on Tuesday reported net income that rose 26% to $425 million, or 49 cents a diluted share, compared with net income of $338 million, or 40 cents a share, a year earlier. Results in the latest quarter include a gain related to the required adoption of new accounting standards. Excluding the gain, the company earned $406 million, or 47 cents a share, two cents better than the estimate from analysts surveyed by Thomson Financial/First Call. Revenue in the quarter surged to $50.13 billion from $13.15 billion a year earlier. The energy giant also boosted its earnings outlook for 2001 to $1.75 to $1.80 a share. As recently as March 23, the company said it expected to earn $1.70 to $1.75 a share. The current consensus estimate of analysts is $1.75 a share for 2001. "Enron's wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability," Jeff Skilling, Enron's president and chief executive, said in a prepared statement. "In addition, our retail energy services and broadband intermediation activities are rapidly accelerating." The company's wholesale-services operations reported a 76% increase in income before interest, minority interests and taxes, or IBIT, to $755 million, led by growth in its natural-gas and power businesses. In addition, Enron's new wholesale commodity businesses, including coal, steel and forest products, contributed to the quarter's strong results. Enron's assets and investments unit posted a 73% drop in IBIT to $59 million because of lower earnings from merchant investments and related assets. Enron said IBIT at its retail energy services group surged to $40 million from $6 million a year earlier, amid a 60% increase in contracting in the period. The company said its new long-term energy-management customers include Owens-Illinois Inc., Quaker Oats Co., Eli Lilly & Co., J.C. Penney Co. and Saks Inc. The transportation-services unit reported IBIT that inched up 3.9% to $133 million, amid strong demand for natural-gas pipeline services. Its Portland General Electric investor-owned utility posted a 43% drop in IBIT to $60 million, which reflects higher power costs, reduced investment income and the effect of certain regulatory events. Enron's broadband-services operations reported a $35 million loss before interest, minority interests and taxes for the quarter. The company said it added 70 new broadband customers this quarter for a total of 120 customers. Unlike beleaguered utilities such as PG&E Corp.'s Pacific Gas & Electric Co. and Edison International's Southern California Edison Co., Enron's Portland General has benefited from the power crisis in California, where a botched utility-deregulation plan combined with general power shortages have driven average wholesale prices 10 times as high as a year ago. Before the energy crisis, Portland General locked in low prices and more power than it needed through long-term contracts. Then, by the third quarter of 2000, Portland General nearly tripled its revenue from selling excess power on the wholesale market. The higher revenue led to higher profits, which allowed the company to rescind a 17% rate increase that was to go into effect in January. Meanwhile, the inability to keep up with soaring electricity prices forced Pacific Gas to seek Chapter 11 bankruptcy protection earlier this month. Pacific Gas and Southern California Edison weren't allowed to fully pass on the high power costs to customers because, under deregulation, they agreed to assume the risk of fluctuating power prices. For the first two years of this arrangement, wholesale prices were so low that the utilities collected billions of dollars extra that they used to pay down old debts. But with skyrocketing wholesale costs, Pacific Gas and Edison accrued billions of dollars of power-purchase liabilities. By early this year, both had stopped paying many of their obligations to conserve cash. Dynegy's Net Income, Revenue More Than Double Dynegy, a big supplier of electrical energy to the California market, saw its first-quarter net income more than double amid a surge in revenue. The Houston-based company posted net income of $139.5 million, or 41 cents a diluted share, compared with net income of $69 million, or 23 cents a share, a year earlier. Excluding a $2 million gain from an accounting change, Dynegy earned $137.5 million, or 41 cents a share, a penny better than the mean estimate from analysts surveyed by Thomson Financial/First Call. Revenue in the quarter more than doubled to $14.17 billion from $5.35 billion. Dynegy's earnings a year earlier include a gain of $33.8 million from the sale of certain power-generation facilities, and a charge of $44.2 million for merger-related costs and the sale and impairment of certain liquids assets. Excluding the items, the company earned $79.4 million, or 26 cents a share, for the 2000 first quarter. The company's outstanding shares rose 16% to 337.7 million as of March 31 from 291.9 million shares a year earlier. Dynegy attributed first-quarter growth to "nationwide asset optimization, increased customer origination and risk-management activities." The company said it benefited from strong industry fundamentals in both natural gas and power. It capitalized on a return to seasonal winter weather and the supply and demand imbalances affecting multiple energy commodities. Earlier this month, Dynegy raised its first-quarter earnings outlook to 40 cents a share. At the time, analysts had expected the power supplier to earn 31 cents a share. Dynegy's marketing and trading unit, which also runs power generators, turned in another strong performance, accounting for 73% of the company's net income for the quarter. The segment earned $100.3 million for the first quarter, nearly double the $50.3 million it posted a year earlier. The company said its marketing and trading operation benefited from seasonal winter weather across the U.S. and strong supply and demand fundamentals, which allowed for higher prices. Increased origination activity from Dynegy's European operations also contributed to the segment's positive results. Dynegy said generation operations at West Coast Power, its joint venture with NRG Energy Inc., Minneapolis, didn't make a "material contribution" during the quarter. But the venture reduced its prospective credit exposure in the California market through its agreement with the California Department of Water Resources to provide the state with up to 2,300 megawatts of energy through 2004. In February, Dynegy joined Reliant Energy Inc. and Mirant Corp. to form a creditors committee to explore options for getting paid for electricity sold to the California Independent System Operator and California's investor-owned utilities, amid frustration with the slow progress in California's attempts to solve the energy crisis. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Action on energy trading floors reverberate in power-hungry California By MICHAEL LIEDTKE AP Business Writer 04/17/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. In Houston, it's known as "the power corner." Separated by just a few city blocks, four major power wholesalers run trading exchanges that have a strong influence on energy prices nationwide. The trading floors run by Enron Corp., Reliant Energy Inc., Dynegy Inc. and Duke Energy Corp. represent ground zero in a power crisis threatening the quality of life in much of the western United States this summer. By seizing upon opportunities created by deregulation, the energy traders have turned up the juice in the electricity business in ways similar to how junk bond traders ignited Wall Street in the 1980s and venture capitalists fueled Silicon Valley last decade. And thanks to an exemption granted in the early 1990s, nobody monitors daily trading to detect unfair or illegal practices. Utility bills in California have gone up nearly fourfold in the past year, to $27.1 billion. Without fundamental changes in the energy market, this year's bill will rise to $70 billion - more than $2,000 for every person in the state, according to operators of the state's power grid. The staggering electricity price increases have pushed the state's largest utility, Pacific Gas and Electric, into bankruptcy and left No. 2 Southern California Edison on the brink of insolvency. California's once-ample budget surplus also has shriveled, as the state is spending about $50 million a day to buy enough power to keep the lights on. The energy wholesalers say they're doing nothing wrong. They blame the high prices on the rising price of natural gas, burned to generate electricity, and the state's botched deregulation plan. By failing to line up reliable power ahead of time and by imposing price caps for consumers, the state put itself into this mess, the companies say. "There have been accusations of wrongdoing for eight months now and there isn't a shred of evidence to support the allegations," said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park, Calif., trade group. "People are very angry and frustrated about electricity right now and attorneys are trying to take that anger out on us." Attorneys general in Washington, Oregon and California are probing whether the wholesalers have violated antitrust laws or engaged in unfair business practices. A California state senate committee may issue subpoenas for records and the testimony of top energy executives, and at least five lawsuits accuse energy companies of market abuses. "This is the best fraud I have ever seen," attorney Michael Aguirre of San Diego, who is involved in one of the class-action suits. "The generators are doing everything that you think that they might be doing, only it's worse than you ever imagined." The lawsuits and investigations allege that generators have conspired to hijack billions of dollars from consumers and taxpayers by withholding electricity from energy-starved California until the last minute, and then supplying it at exorbitant prices. At Enron's headquarters in Houston, energy specialists among the company's 1,500 traders swap electricity and natural gas contracts like stocks and bonds. Mathematicians, meteorologists and economists make complex calculations to identify where to buy the cheapest power and where to deliver it at the greatest profit. "They are extremely good at what they do," said Severin Borenstein, director of the University of California at Berkeley's energy institute. The Internet has provided the traders with the tools to do their jobs even better. Online marketplaces and password-protected exchanges provide them with invaluable real-time information on the buying and selling patterns of their rivals. Two lawsuits allege that traders have parlayed the sensitive information collected online to fix prices artificially high, a violation of antitrust laws. Aguirre has spent six months assembling reams of data about traders and their activities, but he has yet to develop concrete evidence to prove his price-fixing allegations. A March 21 report by California's electricity grid managers concluded that, between last May and November, 98 percent of trading bids were driven up by noncompetitive patterns of behavior. The California Independent System Operator report stopped short of accusing wholesalers of illegal market manipulation, but it did determine that the wholesalers collected as much as $6.9 billion in "unjust and unreasonable" rates. Enron says its trading system, particularly the online exchange, has resulted in fairer and more efficient markets. The allegations of market abuse are "just some sour grapes from people who didn't come up with the idea in the first place," said Enron spokesman Eric Thode. The online exchanges and other industry Web sites provide the energy traders with a window to see the energy availability and bids in markets around the country. Power industry critics, however, contend the Web's instant access provides the traders a way to exploit a delicate supply-demand balance. If the scale is tipped even slightly toward an inadequate supply, they say, prices soar and energy traders reap huge gains. "The whole trading thing is just a front that lets them game the market," Aguirre said. "They can get away with it because no one (outside the industry) can figure out what they are doing." Whatever the energy traders are doing, it's not closely monitored by government regulators. In 1993, the trading of energy products received an exemption from oversight by the Commodity Futures Trading Commission, a federal agency that oversees commodity and options trading to protect markets from fraud and manipulation. Energy is the only commodity that has received a blanket CFTC exemption. The exemption was shepherded beginning in 1992 by then-CFTC chairwoman Wendy Gramm, wife of Texas Sen. Phil Gramm. She left the CFTC three months before the exemption received final approval in 1993. That same year, she joined the Enron board of directors, a post that last year earned her $50,000. Gramm, an economist at the Mercatus Center at George Mason University, said she doesn't recall talking with Enron about the exemption, which she characterized as a routine matter triggered by an antitrust case involving crude oil. "It really didn't have anything to do with Enron or any specific company," said Gramm. "It had to do with a general market problem." In granting the exemption, the CFTC accepted the industry's contention that it shouldn't be subjected to the government's usual commodities regulation because its markets are dominated by "large sophisticated commercial entities" capable of protecting themselves - in short, that there would be no little people to hurt. At the time, then-CFTC commissioner Sheila Bair scoffed at the reasoning, comparing energy traders to boiler room sales operations that had the potential to violate federal anti-fraud laws. "Is it really that much of burden on market participants (for the CFTC) to retain a sliver of authority regarding fraudulent activity?" Bair wrote in a dissenting opinion. Wholesale electricity prices negotiated by the traders are eventually compiled in quarterly reports and reviewed by the Federal Energy Regulatory Commission. And while FERC by law is supposed to prevent unfair prices, a majority of its commissioners have advocated a hands-off approach to California's energy crisis, insisting that the market can correct itself. That posture may finally be changing somewhat. On Wednesday in San Jose, Calif., FERC chairman Curt Hebert told lawmakers that his agency hopes to begin "monitoring and mitigating" the wholesale electricity market by May 1. This could allow FERC to preemptively influence prices. Energy economists who have studied the market see signs of ruthless, but perfectly legal, behavior. Paul Joskow, an MIT economist, concluded in January that electricity producers deliberately withheld power to drive up prices. "Every business exercises market power when it can, so I don't know why people are so surprised that (the generators) used their market power," Joskow said. "I didn't see any evidence of collusion in what they did ... It was just good business." Enron's specific trading methods remain a mystery even to industry analysts, partly because the company considers its techniques to be proprietary. But it yielded a big payoff last year - an operating profit of $1.6 billion, up 160 percent from $628 million in 1999. When electricity and natural gas prices soared to record highs in the fourth quarter, Enron's trading profit more than tripled to $538 million. Without providing specifics, Enron officials said the profits poured in from all over the country. "Our success is linked to efficient markets, not higher prices in California, or anywhere else for that matter," Steve Kean, an Enron executive vice president, said in January testimony before the U.S. Senate. "What we are interested in is competitive and well-functioning markets. Our financial success is not built on California's back." AP Photo FX101 of April 16, AP Graphic POWER PLAYERS Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Energy Trading-Floor Gambits Perturb Power-Hungry US West 04/17/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON (AP)--In Houston, it's known as "the power corner." Separated by just a few city blocks, four major power wholesalers run trading exchanges that have a strong influence on energy prices nationwide. The trading floors run by Enron Corp. (ENE), Reliant Energy Inc. (REI), Dynegy Inc. (DYN) and Duke Energy Corp. (DUK) represent ground zero in a power crisis threatening the quality of life in much of the western U.S. this summer. By seizing upon opportunities created by deregulation, the energy traders have turned up the juice in the electricity business in ways similar to how junk bond traders ignited Wall Street in the 1980s and venture capitalists fueled Silicon Valley last decade. And thanks to an exemption granted in the early 1990s, nobody monitors daily trading to detect unfair or illegal practices. Utility bills in California have gone up nearly fourfold in the past year, to $27.1 billion. Without fundamental changes in the energy market, this year's bill will rise to $70 billion - more than $2,000 for every person in the state, according to operators of the state's power grid. The staggering electricity price increases have pushed the state's largest utility, Pacific Gas and Electric (PCG), into bankruptcy and left No. 2 Southern California Edison (EIX) on the brink of insolvency. California's once-ample budget surplus also has shriveled, as the state is spending about $50 million a day to buy enough power to keep the lights on. The energy wholesalers say they're doing nothing wrong. They blame the high prices on the rising price of natural gas, burned to generate electricity, and the state's botched deregulation plan. By failing to line up reliable power ahead of time and by imposing price caps for consumers, the state put itself into this mess, the companies say. "There have been accusations of wrongdoing for eight months now and there isn't a shred of evidence to support the allegations," said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park, Calif., trade group. "People are very angry and frustrated about electricity right now and attorneys are trying to take that anger out on us." Attorneys general in Washington, Oregon and California are probing whether the wholesalers have violated antitrust laws or engaged in unfair business practices. A California state senate committee may issue subpoenas for records and the testimony of top energy executives, and at least five lawsuits accuse energy companies of market abuses. "This is the best fraud I have ever seen," attorney Michael Aguirre of San Diego, who is involved in one of the class-action suits. "The generators are doing everything that you think that they might be doing, only it's worse than you ever imagined." The lawsuits and investigations allege that generators have conspired to hijack billions of dollars from consumers and taxpayers by withholding electricity from energy-starved California until the last minute, and then supplying it at exorbitant prices. At Enron's headquarters in Houston, energy specialists among the company's 1,500 traders swap electricity and natural gas contracts like stocks and bonds. Mathematicians, meteorologists and economists make complex calculations to identify where to buy the cheapest power and where to deliver it at the greatest profit. "They are extremely good at what they do," said Severin Borenstein, director of the University of California at Berkeley's energy institute. The Internet has provided the traders with the tools to do their jobs even better. Online marketplaces and password-protected exchanges provide them with invaluable real-time information on the buying and selling patterns of their rivals. Two lawsuits allege that traders have parlayed the sensitive information collected online to fix prices artificially high, a violation of antitrust laws. Aguirre has spent six months assembling reams of data about traders and their activities, but he has yet to develop concrete evidence to prove his price-fixing allegations. A March 21 report by California's electricity grid managers concluded that, between last May and November, 98% of trading bids were driven up by noncompetitive patterns of behavior. The California Independent System Operator report stopped short of accusing wholesalers of illegal market manipulation, but it did determine that the wholesalers collected as much as $6.9 billion in "unjust and unreasonable" rates. Enron says its trading system, particularly the online exchange, has resulted in fairer and more efficient markets. The allegations of market abuse are "just some sour grapes from people who didn't come up with the idea in the first place," said Enron spokesman Eric Thode. The online exchanges and other industry Web sites provide the energy traders with a window to see the energy availability and bids in markets around the country. Power industry critics, however, contend the Web's instant access provides the traders a way to exploit a delicate supply-demand balance. If the scale is tipped even slightly toward an inadequate supply, they say, prices soar and energy traders reap huge gains. "The whole trading thing is just a front that lets them game the market," Aguirre said. "They can get away with it because no one (outside the industry) can figure out what they are doing." Whatever the energy traders are doing, it's not closely monitored by government regulators. In 1993, the trading of energy products received an exemption from oversight by the Commodity Futures Trading Commission, a federal agency that oversees commodity and options trading to protect markets from fraud and manipulation. Energy is the only commodity that has received a blanket CFTC exemption. The exemption was shepherded beginning in 1992 by then-CFTC chairwoman Wendy Gramm, wife of Texas Sen. Phil Gramm. She left the CFTC three months before the exemption received final approval in 1993. That same year, she joined the Enron board of directors, a post that last year earned her $50,000. Gramm, an economist at the Mercatus Center at George Mason University, said she doesn't recall talking with Enron about the exemption, which she characterized as a routine matter triggered by an antitrust case involving crude oil. "It really didn't have anything to do with Enron or any specific company," said Gramm. "It had to do with a general market problem." In granting the exemption, the CFTC accepted the industry's contention that it shouldn't be subjected to the government's usual commodities regulation because its markets are dominated by "large sophisticated commercial entities" capable of protecting themselves - in short, that there would be no little people to hurt. At the time, then-CFTC commissioner Sheila Bair scoffed at the reasoning, comparing energy traders to boiler room sales operations that had the potential to violate federal anti-fraud laws. "Is it really that much of burden on market participants (for the CFTC) to retain a sliver of authority regarding fraudulent activity?" Bair wrote in a dissenting opinion. Wholesale electricity prices negotiated by the traders are eventually compiled in quarterly reports and reviewed by the Federal Energy Regulatory Commission. And while FERC by law is supposed to prevent unfair prices, a majority of its commissioners have advocated a hands-off approach to California's energy crisis, insisting that the market can correct itself. That posture may finally be changing somewhat. On Wednesday in San Jose, Calif., FERC chairman Curt Hebert told lawmakers that his agency hopes to begin "monitoring and mitigating" the wholesale electricity market by May 1. This could allow FERC to preemptively influence prices. Energy economists who have studied the market see signs of ruthless, but perfectly legal, behavior. Paul Joskow, an MIT economist, concluded in January that electricity producers deliberately withheld power to drive up prices. "Every business exercises market power when it can, so I don't know why people are so surprised that (the generators) used their market power," Joskow said. "I didn't see any evidence of collusion in what they did... It was just good business." Enron's specific trading methods remain a mystery even to industry analysts, partly because the company considers its techniques to be proprietary. But it yielded a big payoff last year - an operating profit of $1.6 billion, up 160 percent from $628 million in 1999. When electricity and natural gas prices soared to record highs in the fourth quarter, Enron's trading profit more than tripled to $538 million. Without providing specifics, Enron officials said the profits poured in from all over the country. "Our success is linked to efficient markets, not higher prices in California, or anywhere else for that matter," Steve Kean, an Enron executive vice president, said in January testimony before the U.S. Senate. "What we are interested in is competitive and well-functioning markets. Our financial success is not built on California's back." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. High demand for power behind Enron's increased earnings By KRISTEN HAYS Associated Press Writer 04/17/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - High demand for electricity and natural gas helped Enron Corp.'s first-quarter net income surge more than 25 percent. The company also announced increased earnings expectations for 2001. Houston-based Enron, the world's top buyer and seller of natural gas and electricity, said Tuesday that it earned $425 million, or 49 cents per share, in the three months ended March 31, compared with $338 million, or 40 cents per share in the year-ago period. This year's results include a $19 million, or 2 cents per share gain, due to the adoption of new accounting standards; excluding the item, Enron earned $406 million, or 47 cents per share. The result beat comparable expectations of analysts surveyed by Thomson Financial/First Call, who predicted earnings of 45 cents per share. First-quarter revenues nearly quadrupled to $50.1 billion, compared to revenues of $13.1 billion in the first three months of 2000. Enron also increased its 2001 overall earnings prediction to $1.75 to $1.80 per share. Previously, the company said it expected 2001 earnings of $1.70 to $1.75 per share, and the consensus of analysts was for $1.74 per share. "Enron's wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability," said Jeff Skilling, president and CEO of Enron. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said Enron's earnings reports were no surprise because of increased demand for power and gas in power-strapped California and across the country. "Clearly the California energy crisis has raised the bar on those power and gas trading and marketing profits," she said. "Opportunities have existed outside California as well." Coale said volatile electricity prices have helped trading profits, and demand remains strong despite an economic slowdown. The company attributed the increase to continued growth in its wholesale energy-trading business, acceleration in its retail energy services and in its broadband Internet business. In its wholesale business, Enron resells power and gas to utilities and other large customers. That business accounted for 96 percent of its first-quarter revenues. Shares of Enron rose $1.29 to $60.73 in trading Tuesday on the New York Stock Exchange. --- On the Net: http://www.enron.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Business Enron CEO: Earnings Target Up By A Nickel Rhonda Schaffler, Gregg Hymowitz 04/17/2001 CNNfn: Market Coverage - Morning (c) Copyright Federal Document Clearing House. All Rights Reserved. RHONDA SCHAFFLER, CNNfn ANCHOR, MARKET CALL: Markets are down. We`re going to talk about one stock moving higher, though. North America`s largest gas and electricity maker is bucking the current earnings trend. Enron (URL: http://.www.enron.com/) is raising its earnings forecast for this year by a nickel. The company also earned 47cents a share for its first quarter, 2 pennies better than estimates and 7 cents better than the year ago. Revenues rose a healthy 282 percent. Jobs cuts and the end of its video on demand deal with Blockbuster (URL: http://www.blockbuster.com/) put pressure on the stock, which has fallen from $90, to significantly lower level right now, about $60 a share. Joining us from Houston with an inside look at Enron is the company`s CEO, Jeff Skilling. Jeff, welcome back to "Market Call." JEFFREY SKILLING, CEO, ENRON CORP.: Thank you, Rhonda. Glad to be here. SCHAFFLER: Let`s talk about the revenue growth because it is rather impressive. You`re an old economy company with a new twist. Where was most of the revenue growth from? SKILLING: Well, surprisingly, it came from our natural gas and electricity business. SCHAFFLER: No, well that`s not surprising. It`s a key part of your business. As opposed to your broadband, do you mean? SKILLILNG: Well, just about 90 percent of our earnings- I`m going to pull this out of my ear because I`m getting some feedback on the earphone. Actually that`s working better now. About 90 percent, or 95 percent, of our revenues are in the natural gas and electricity business, so as long as that business is healthy, our business overall is healthy. GREGG HYMOWITZ, CNNfn GUEST HOST, MARKET CALL: Jeff, it`s Gregg Hymowitz. Can you discuss, as related to that business, the pricing of megawatt hours going forward, what we`ve seen it at. And also can you just touch upon fiber-optic bandwidth pricing lately? SKILLING: Sure-a tale of two cities. The electricity business is seeing very strong prices. In California, for example, probably a year and a half ago power sold for about $20 to $22 a megawatt hour. Right now in California, we`re probably closer to $550 a megawatt hour for the summer. And this is just because we have a short supply situation. There`s a lot of demand growth in California. We just haven`t built the power plants to serve it. Now, conversely in the fiber business, we`ve seen enormous capital investments over the last several years. Supply much exceeds demand and in that market prices have collapsed. In fact by our numbers, as you know, we`re in the process of creating a market for bandwidth, those prices are dropping in some cases by 30 percent a month. SCHAFFLER: Let`s talk about California for a moment. Pacific Gas & Electric (URL: http://www.pgecorp.com/) owes you some money. You`ve taken reserves against that. I`m wondering if you feel a need to increase reserves going forward or you`re comfortable with the situation as it is? SKILLING: We`re very comfortable. What we had said to investors, as long ago as December, was that we felt very comfortable with the $1.70 to $1.75 number for this year. As you mentioned, we`re raising that from $1.75 to $1.80. And we feel very comfortable with that number really regardless of what happens with the credit situation in California. HYMOWITZ: Jeff, getting back to that tale of two markets, discuss what could potentially happen to change the trend in both markets? SKILLING: Well, I think in the electricity market, we`ll have tight prices for another couple of years. It takes that long to get the construction cycle going. But once that construction cycle gets going it`s pretty easy to bring on capacity and prices will drop significantly. And probably the $30 to $40 megawatt hour area in the next couple of years and I think that`s very possible. In fact, I think that`s probable. In the bandwidth market, very, very different situation. The problem, to date, is that we built what amounts to an interstate highway system for bandwidth, or for data, with no on ramps and no off ramps. We need to get this last-mile problem fixed, so that people can get data from these networks all the way out to end-use customers. Once that happens, we`ll see a lot of applications developed that use bandwidth. It will soak up some of that excess supply and we might see prices coming back. I think that`s a much longer term proposition. SKILLING: Jeff, we`ve heard so much about this last-mile for so many years now. I mean when is it going to actually happen? SKILLING: Well, it`s just been slower. You were just mentioning the earnings of Sprint FON (URL: http://www.sprint.com/) . Many telecom companies are working to put DSL cable systems on, that helped bridge the last-mile problem, but it`s come much slower than people expected. These are enormously capital intensive investments. They take a long time to put in. There are still technical issues with some of these solutions. So, I just think we have a little ways to go. It will take some more time. SCHAFFLER: You had incredible revenue growth, which we mentioned, up 282 percent. Do you do anything different in this quarter? It`s always hard to top the last great act on Wall Street. SKILLING: The revenue numbers are not as important as our volume growth numbers. What really drives our profitability is growth in volume, physical volumes. They were up about 69 percent. Actual revenue numbers will be influenced by price changes. Price changes really don`t make that much of a difference for us. We don`t have any exposure to the commodity price cycle. So, what we look at is physical volumes transported through the system. And we`ve had just a tremendous track record for the last couple of years on volume. As I mentioned, this quarter up 69 percent in physical volumes. We think that`s a function of our market share position. And what amounts to a unique, logistics capability in North America and Europe. No one else can match it. SCHAFFLER: Jeffrey Skilling, we`ll leave it at that. Congratulations on the quarter. SKILLING: Thank you, Rhonda. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Corp. Says First-Quarter Profit Rose 20 Percent (Update6) 2001-04-17 16:04 (New York) Enron Corp. Says First-Quarter Profit Rose 20 Percent (Update6) (Adds closing share price in eighth paragraph.) Houston, April 17 (Bloomberg) -- Enron Corp., the largest energy-trading company, said first-quarter profit rose 20 percent as increased electricity and natural-gas demand sent prices surging in California and other parts of the U.S. Profit from operations rose to $406 million, or 47 cents a share, from $338 million, or 40 cents, in the year-earlier period, Enron Chief Executive Jeffrey Skilling said. Revenue almost quadrupled to $50.1 billion from $13.1 billion. ``The market is perfect for a trader and marketer,'' Commerzbank Capital Markets Co. analyst Andre Meade said. ``Volume is growing, prices are high and prices are volatile.'' Enron sold 90 percent more power and 32 percent more gas in North America than in the year-earlier quarter as prices surged. About one-fifth of the power-sales increase came from the western U.S. as California electricity prices averaged nine times higher than a year earlier. The rest came from the eastern U.S., which also has had power shortages. The Houston-based company also raised its 2001 profit forecast to $1.75 to $1.80 a share, from its January projection of $1.70 to $1.75. Once just a natural-gas pipeline company, Enron has spent more than a decade creating a trading operation that buys power, gas and other commodities and resells them to utilities and other large consumers, a business made possibly by deregulation of U.S. energy markets in the 1980s and 1990s. As a result, the company's sales have risen an average of 66 percent annually for the past five years. Enron had 2000 revenue of $101 billion, making it the second-largest U.S. energy company behind Exxon Mobil Corp. Revenue will total as much as $170 billion this year, Skilling estimated in March. Enron shares rose 56 cents to $60. They had fallen 28 percent this year on concerns about the company's telecommunications business and an India power project. California Business Electricity prices in California were higher in the first quarter than a year earlier as a power shortage continued and generators demanded higher payments to offset the risk of selling to the state's utilities. Prices for gas, used to fuel power plants, were more than double the year-earlier average. The higher prices have left California utilities more than $14 billion in debt because regulators won't let them pass on all the cost of power purchases on to consumers. Enron is owed $570 million by PG&E Corp.'s Pacific Gas & Electric, Skilling said in an interview. Pacific Gas & Electric, California's biggest utility, filed for Chapter 11 bankruptcy protection April 6. Enron has set aside money to cover potential California losses and doesn't expect the energy crisis to affect 2001 earnings, Skilling said. He wouldn't say how much was set aside. Investors are entitled to know how much Enron has put in reserves, analysts told Skilling on a conference call today. Skilling disagreed. ``I think that would hurt our competitive position, particularly when people are jostling for position in bankruptcy,'' Skilling said. Enron's business in energy-services contracts has escalated as a result of California's power crisis. Skilling has said demand is increasing as companies look to cut energy costs and protect themselves from the risks of energy-price movements. ``If you or I were running a factory around New York right now, we'd be calling Enron or a company like them to lock in energy prices,'' Credit Suisse First Boston analyst Curtis Launer said. ``That business is going gangbusters.'' Contracts increased nearly 60 percent to $5.9 billion in the quarter. Enron, which recently signed contracts with Owens- Illinois Inc., Quaker Oats Co. and Eli Lilly & Co., manages energy buying and consumption at more than 31,000 facilities. It is the largest manager of customer energy assets, Skilling said. Energy Deregulation The company's Wholesale Energy Operations and Services business, which includes trading and power-plant development, saw first-quarter profit before interest, minority interests and taxes rise 76 percent to $755 million from $429 million. In the first quarter, gas volumes more than tripled outside North America and rose 55 percent worldwide. On the power side, worldwide volumes more than doubled, while sales outside North America more than quadrupled. Enron has gained customers through EnronOnline, its Internet trading site. EnronOnline handled $162 billion in transactions in the quarter, Skilling said. It has handled more than $525 billion since it opened in late 1999. Enron's broadband unit, set up to build a U.S. fiber-optic network and help trade space on such networks, had a quarterly loss of $35 million on revenue of $83 million. It broke even a year earlier. Enron added 70 broadband customers in the latest quarter, for a total of 120. Broadband Woes Shares of Enron fell 11 percent on March 12 after the collapse of an agreement for Blockbuster Inc., the largest video- store chain, to deliver movies on demand over Enron's fiber-optic system. The stock continued to fall on speculation Enron would exit the broadband business, analysts said. Enron denied the speculation. Enron has been trying to get paid for power sold by its India unit to the western Indian state of Maharashtra. Enron's $3 billion, 740-megawatt project is the biggest foreign investment in India. A first-quarter gain of $19 million, or 2 cents a share, for an accounting change, made net income $425 million, or 49 cents a share. There were no charges or gains in the year-earlier period. The company was expected to make 45 cents a share, the average estimate of analysts polled by First Call/Thomson Financial. Estimates ranged from 43 cents to 47 cents. Dynegy's 1st-Qtr Profit Rises 73% on Gas, Power Sales (Update4) 2001-04-17 16:21 (New York) Dynegy's 1st-Qtr Profit Rises 73% on Gas, Power Sales (Update4) (Adds company comment on future earnings and additional generation capacity in the fifth paragraph, closes shares. For more on California, see {EXTRA <GO>}.) Houston, April 17 (Bloomberg) -- Dynegy Inc., a U.S. electricity and natural gas trader, said first-quarter profit rose 73 percent as colder winter weather boosted gas and power sales. Profit from operations rose to $137.5 million, or 41 cents a share, from $79.4 million, or 26 cents, a year earlier, the company said in a statement. Revenue more than doubled to $14.2 billion from $5.35 billion. Marketing and trading profit almost doubled to $100.3 million, or 73 percent of net income as the average price of gas more than doubled from a year ago. Power sales to California, hit by a 10-month electricity crisis, ``did not make a material contribution'' to earnings, the statement said. ``It's not just a California ballgame,'' UBS Warburg analyst James Yanello said. ``Lots of areas around the country have supply and demand imbalances, and this is one of the big players capable of resolving those supply and demand issues.'' Company executives remain comfortable with their earlier second-quarter earnings guidance of 35 cents a share, Chairman Chuck Watson told analysts during a conference call. Next year's earnings likewise should increase by up to 25 percent as Dynegy continues to build or acquire power plants, he said. ``What's driving the train for Dynegy for the past few years is the continued adding to our portfolio in generation across the country, and I don't see that slowing down in 2002,'' Watson said. California Reserves Dynegy has a reserve to cover money it might not get from power sales to California, canceling out profit from the state, spokesman Steve Stengel said. The company was owed $265 million from power sales to California as of Feb. 28, a filing with the U.S. Securities and Exchange Commission said. Dynegy, based in Houston, and joint venture partner NRG Energy Inc. have sold 2,300 megawatts of power to the state's Department of Water Resources through 2004. That has cut credit risk from the state's cash-strapped utilities, the company said. California power prices rose ninefold last quarter from a year ago. A megawatt is enough power to light about 1,000 U.s. home. Shares of Dynegy rose $2.80 to close at $55.95. They are almost unchanged for the year. Northeast Dynegy's electricity sales and production rose 19 percent last quarter to 26.1 million megawatt-hours from a year ago, boosted by the addition of 1,100 megawatts of generation in the 2000 second half and the purchase last quarter of New York state power plants that can produce 1,700 megawatts. ``Dynegy is in a good position to earn good returns from those plants,'' analyst Anatol Feygin of J.P. Morgan Securities Inc. said. ``The press is full of prognostications that the New York area and the Northeast are the next California.'' New York and New England won't have enough generators or power lines to meet demand if temperatures are higher than normal this summer, industry officials have said. Few were built in the Northeast in recent years because of regulatory hurdles, even as economic growth boosted electricity consumption. Broadband Loss Dynegy's new Global Communications division, which markets and trades broadband, had a $11.6 million loss from start-up and expansion costs. Profit from the processing and marketing of natural-gas liquids fell 5.4 percent to $22.9 million. Last year's profit included about $4 million from assets that have been sold. Profit at Dynegy's Illinois Power utility, with 650,000 gas and power customers in southern Illinois, more than quintupled to $25.9 million on cost reductions and higher winter demand. The company was expected to earn 40 cents, based on the average estimate of analysts surveyed by First Call/Thomson Financial. A gain of $2.03 million in the quarter from an accounting change made net income of $139.5 million, or 41 cents a share. A year ago, a gain of $33.8 million from a power-plant sale and a charge of $44.2 million made net income $69 million, or 23 cents. Red Herring 100 Celebrates Top Companies Reshaping Business 04/17/2001 PR Newswire (Copyright (c) 2001, PR Newswire) Magazine Chooses 50 Private and 50 Public Companies That Continue to Reshape Markets Despite Current Economic Trends SAN FRANCISCO, April 17 /PRNewswire/ -- In the fifth annual Red Herring 100, editors of Red Herring, the leading magazine on the business of technology and innovation, identify the 100 companies whose products, services or business models - despite current economic uncertainties-continue to forge new markets. The leaders are profiled in Red Herring's May 1 double issue and are posted at http://www.rh100.redherring.com. The Red Herring 100 stands apart because companies are not measured by statistics alone, but are also reviewed on the subjective and metrical criteria favored by venture capitalists and investment bankers, including: a company's potential for disrupting its market, its execution of a sound strategy, the quality of its management and its financial performance, which is summed up by "The Herring Take". The listing favors companies whose promise is based on innovative and defensible technology with more than a dozen sectors represented, including software, biotechnology and communications services. Major category shifts were recognized in this year's Red Herring 100 in sectors like data storage, enterprise software and semiconductors, while entire sectors that failed to remain innovative are gone: Linux companies, PC makers, wireless communications and commerce. Editor Jason Pontin explained that companies were chosen for the Red Herring 100 based upon the magazine's belief in certain broad trends: continuing importance of IP telephony, critical advancements in energy production, the sudden glamour of biotechnology, and the utility of reconfigurable microchips. "In short, the Red Herring 100 are companies that retain the capacity to disrupt existing markets or create entirely new ones," Pontin exclaims. "As we shout on our cover, whatever the state of public and private equity markets, these companies still matter." The Red Herring 100 50 Private Companies 50 Public Companies Accel Partners Akamai Technologies Accenture AOL Time Warner Aimster Applied Micro Circuits Corporation AirFiber Ballard Power Systems Altra Energy Technologies Charles Schwab Amber Networks Check Point Software Technologies Asera Ciena Bang Networks Cisco Systems Bertelsmann Citigroup Bowstreet Corning Centerpoint Broadband Technologies Credit Suisse Group Cereva Networks eBay Cytokinetics Electronic Arts eCredit.com Enron Excelergy EMC Foliofn Exodus Communications Genoa Flextronics ID Software Gemstar-TV Guide Intira Genentech Jamcracker Goldman Sachs Kleiner Perkins Caufield & Byers Homestore.com LaserComm i2 Technologies Layton BioScience IBM Matrix Partners Illumina Mellanox Technologies Immunex Metro-Optix JDS Uniphase NerveWire Juniper Networks Nishan Systems McLeodUSA PhotonEx Metromedia Fiber Network PurpleYogi Microsoft RealChip Communications Morgan Stanley Dean Witter Savi Technology Network Appliance Scale Eight Nortel Networks Science Applications International Corp. NTT DoCoMo SeeCommerce Oracle Sequoia Capital Palm SmartPipes PMC-Sierra Telseon Qwest Communications Tensilica Research in Motion Thomas Weisel Partners Siebel Systems Tradescape.com Singapore Telecommunications Troika Networks Sun Microsystems Tropian Sycamore Networks VBrick Systems Taiwan Semiconductor Manufacturing Co. Voxeo Texas Instruments Walmart.com Veritas Software Xacct Technologies Vitesse Semiconductor Xenoport Vivendi Universal Yipes Communications Vodafone Group Zaplet Yahoo About Red Herring Communications, Inc. Red Herring Communications, Inc. is an integrated network of media properties connecting the people, companies and industries whose ideas and technological innovations are inspiring and reshaping the world of business. Founded in 1993, Red Herring magazine, the company's flagship platform, provides in-depth analysis and reporting on the business of technology, innovation and entrepreneurialism. RedHerring.com, Red Herring Research and Red Herring Events offer a unique blend of news, commentary, financial analysis, investor tools and access to leaders of emerging technologies and markets. A privately held company, Red Herring Communications, Inc. is headquartered in San Francisco and has offices in New York, Los Angeles, Boston and London. /CONTACT: Deirdre Hussey of Red Herring Communications, Inc., 415-486-2879, dhussey@redherring.com/ 16:47 EDT Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Says PG&E Owes About $570 Million, CNBC Says (Update1) 2001-04-17 11:08 (New York) Enron Says PG&E Owes About $570 Million, CNBC Says (Update1) (Adds earlier report in fifth paragraph.) Houston, April 17 (Bloomberg) -- Enron Corp. is owed about $570 million in gross receivables by PG&E Corp., Enron President and Chief Executive Jeffrey Skilling said in an interview with financial news network CNBC. Enron, the largest energy trader, is fully reserved and has some offsets against that amount, Skilling said. PG&E filed for bankruptcy this month. ''It's not a good situation when a state allows a company with a 100-year history to go bankrupt,'' Skilling said. ``It's kind of surprising.'' There is a big threat of politicizing the energy situation in the West, Skilling said. Some proposals in various state legislatures ``would be enough to make an economist cry,'' he said. The Houston Chronicle reported the $570 million figure this weekend, citing a letter from Enron to a bankruptcy trustee. Enron refused to confirm the figure until today.

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Subject: Enron Mentions Sender: ann.schmidt@enron.com Recipients: [] File: dasovich-j/all_documents/11215. ===================================== Public Service Says 1st-Qtr Profit Fell 5.9 Percent (Update2) Bloomberg, 04/17/01 Enron Bandwidth Unit Reports Loss For First Quarter Dow Jones Energy Service, 04/17/01 USA: Enron CEO uses naughty word on conference call. Reuters English News Service, 04/17/01 Enron, Dynegy post healthy profit gains on energy demand Associated Press Newswires, 04/17/01 USA: Enron Broadband posts expected loss amid mixed growth. Reuters English News Service, 04/17/01 WSJ.COM WRAP: Enron, Dynegy Post Immpressive Results Dow Jones News Service, 04/17/01 Action on energy trading floors reverberate in power-hungry California Associated Press Newswires, 04/17/01 Energy Trading-Floor Gambits Perturb Power-Hungry US West Dow Jones Energy Service, 04/17/01 High demand for power behind Enron's increased earnings Associated Press Newswires, 04/17/01 Enron CEO: Earnings Target Up By A Nickel CNNfn: Market Coverage - Morning, 04/17/01 Enron Corp. Says First-Quarter Profit Rose 20 Percent (Update6) Bloomberg, 04/17/01 Dynegy's 1st-Qtr Profit Rises 73% on Gas, Power Sales (Update4) Bloomberg, 04/17/01 Red Herring 100 Celebrates Top Companies Reshaping Business PR Newswire, 04/17/01 Enron Says PG&E Owes About $570 Million, CNBC Says (Update1) Bloomberg, 04/17/01 Public Service Says 1st-Qtr Profit Fell 5.9 Percent (Update2) 2001-04-17 17:25 (New York) Public Service Says 1st-Qtr Profit Fell 5.9 Percent (Update2) (Updates with profit from operations in second paragraph and possible expansion in California in second section. For more on the California electricity crisis, see {EXTRA <GO>}.) Newark, New Jersey, April 17 (Bloomberg) -- Public Service Enterprise Group Inc., owner of New Jersey's largest utility, said first-quarter profit fell 5.9 percent because of a rate cut and higher fuel costs. Profit from operations fell to $254 million, or $1.22 a share, from net income of $270 million, or $1.25, a year earlier, spokesman Paul Rosengren said. Revenue rose 13 percent to $2.81 billion from $2.48 billion. The company has been trying to expand outside New Jersey as the state opens its energy markets to competition. Talks to buy Cinergy Corp., owner of Cincinnati's utility, for about $5.6 billion fell apart in March, possibly because it offered only a slight premium, according to newspaper reports. The company's Public Service Electric & Gas utility has 3.5 million New Jersey customers. Utility profit fell 11 percent because of a 2 percent power-rate cut and costs to refinance debt, the Newark, New Jersey-based company said. Profit at PSEG Power, the company's U.S. trading and power- generation unit, fell 19 percent because of higher fuel costs and interest expenses. Public Service uses natural gas to fuel some of its power plants. Gas prices more than doubled from a year ago. A $2 million charge for a debt payment and a $9 million gain from an accounting change made net income $261 million, or $1.25 a share, the company said. Public Service had 208 million shares outstanding in the latest quarter. It had 216 million shares outstanding a year earlier. Operating profit of PSEG Energy Holdings, which includes international business, rose 88 percent. Public Service expects to have 3.7 million customers outside the U.S. after some acquisitions are complete, the company said. California Public Service is talking with California officials about expanding six power plants in the state, Rosengren said. The plants, owned 50 percent by Public Service, generate enough power for 150,000 U.S. homes and might be ``substantially enlarged'' with turbines Public Service has on order, provided the state confirms payment for power, he said. He declined to provide details on the size of the expansion. Shares of Public Service rose 90 cents to $46.08. They have fallen 5.2 percent this year. Enron Bandwidth Unit Reports Loss For First Quarter 04/17/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Broadband Services was the only one of Enron Corp.'s (ENE) business sectors to report a loss for the first quarter of 2001, company executives said in a conference call with analysts Tuesday. Before interest and taxes, Enron reported a loss for Broadband Services of $35 million for the first quarter of this year compared to a break-even quarter a year ago. "Only one sector is down from what we expected and that's broadband," Enron President and Chief Executive Jeff Skilling told investors. "The other sectors are up, significantly up." Enron Corp. reported earnings of $405 million on revenues of $50.1 billion for the first quarter of 2001. The per-diluted share earnings were 49 cents, compared with 40 cents in the year-ago period. Company executives also revised upward their per-share earnings goal for 2001 from $1.73 to the $1.75-$1.80 range. The Broadband Services loss came on $83 million in revenues compared to $59 million last year. The total value of contracts for the first quarter 2001 was $45 million, compared with $31 million in the first quarter 2000. Broadband Services delivered 43,400 terabytes of capacity in the first quarter 2001, up from 6,005 terabytes a year ago. For all of last year, the company delivered a total of 72,406 terabytes of bandwidth. Skilling said the company has contracts to deliver 40% of its goal of 570,000 terabytes this year. "We're making excellent progress in creating a commodities market," he said. Broadband Services did a total of 580 transactions in the first quarter of 2001, double the 236 transactions it did in the fourth quarter of last year. In all of 2000, the company did 321 trades. In the first quarter, Enron added 70 new customers, bringing its total up to 120, Skilling said. He added that 70% of those customers are carriers or network service providers. Skilling said he is disappointed with the slow growth of the long-term deal origination segment of the bandwidth operation. "We face one big issue in this market, the counterparties have no credit capacity," he said. The Broadband Services loss wasn't due to increased costs of seeking video-on-demand partners to replace Blockbuster Inc. (BBI). Enron and Blockbuster canceled an exclusive agreement to distribute movies via the Internet in the first quarter. Enron will seek to make deals with motion picture companies directly. The biggest snag in making those deals are Hollywood's desires. "They want to keep as much of the money as they can," said Ken Rice, chairman and chief executive of Broadband Services. -By Erwin Seba, Dow Jones Newswires, 713-547-9214 erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron CEO uses naughty word on conference call. 04/17/2001 Reuters English News Service (C) Reuters Limited 2001. (Editors note language) By C. Bryson Hull HOUSTON, April 17 (Reuters) - Enron Corp.'s top executive Tuesday publicly fired off the same vulgarity that brought President George W. Bush embarrassing headlines when he unwittingly uttered it in front of an open microphone last fall. But unlike Bush, Enron President and Chief Executive Officer Jeff Skilling says he knew the microphone was on when he called a fund manager an "asshole" during a conference call to discuss first-quarter earnings with analysts. Bush made headlines on the campaign trail last year when he remarked to Vice President Dick Cheney that a New York Times reporter was a "major-league asshole," not knowing that a microphone had picked up his remark. Skilling laid down the insult after an exchange with Richard Grubman, managing director of Highfields Capital Management in Boston, who asked to see Enron's balance sheet and was told it would not be available until its inclusion in a Securities and Exchange Commission filing later this month. "You're the only financial institution that can't come up with balance sheet or cash flow statement after earnings," Grubman grumbled. "Well, thank you very much, we appreciate that. Asshole," Skilling responded with a laugh. Skilling, whose candor frequently gives his public relations staff fits, told Reuters in a telephone interview that he knew the microphone was on. "The specific fellow that I was not real happy with is a shortseller in the market. I don't think it is fair to our shareholders to give someone a platform like that they are using for some personal vested interest related to their stock position," Skilling told Reuters in an interview. "I get a little exasperated with that sort of thing, and I want people to know I am exasperated," he said. Grubman said he felt "pretty thin-skinned" about the remark. He disputed Enron's assertion the balance sheets and cash flow statements were not ready yet, particularly in light of Skilling's mention during the call that Enron reconciles its credit risks and trading book daily. "I'm sort of at a loss as to why that was such an objectionable question," Grubman said, adding: "He's got some nerve. He and his management team sold 7 million shares into the market last year, so he's plugged the market for a half a billion dollars worth of stock valued in the $70s and $80s. "Now the stock is the high $50s-low $60s and I'm an asshole because I ask about the balance sheet?" Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron, Dynegy post healthy profit gains on energy demand By The Associated Press 04/17/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. Energy wholesalers Dynegy Inc. and Enron Corp. posted healthy profit gains Tuesday, beating Wall Street's expectations, as demand for electricity and natural gas surged during the first quarter. Both companies saw revenues jump as well, with Enron's sales coming in nearly four times that of the previous quarter. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said Enron's results were no surprise because of increased demand for power and gas in power-strapped California and across the country. "Clearly the California energy crisis has raised the bar on those power and gas trading and marketing profits," she said. "Opportunities have existed outside California as well." Meanwhile, Dynegy, a major power generator in California, said it was being "unfairly and inaccurately" accused of withholding power from the state's power market. It said that sales there "did not make a material contribution" to first-quarter results. Enron Corp. Houston-based Enron, the world's top buyer and seller of natural gas and electricity, said Tuesday that it earned $425 million, or 49 cents per share, in the three months ended March 31, compared with $338 million, or 40 cents per share in the year-ago period. This year's results include a $19 million, or 2 cents per share gain, due to the adoption of new accounting standards; excluding the item, Enron earned $406 million, or 47 cents per share. The result beat comparable expectations of analysts surveyed by Thomson Financial/First Call, who predicted earnings of 45 cents per share. First-quarter revenues nearly quadrupled to $50.1 billion, compared to revenues of $13.1 billion in the first three months of 2000. Enron also increased its 2001 overall earnings prediction to $1.75 to $1.80 per share. Previously, the company said it expected 2001 earnings of $1.70 and $1.75 per share, and the consensus of analysts was for $1.74 per share. "Enron's wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability," said Jeff Skilling, president and CEO of Enron. The company attributed the increase to continued growth in its wholesale energy-trading business, acceleration in its retail energy services and in its broadband Internet business. In its wholesale business, Enron resells power and gas to utilities and other large customers. That business accounted for 96 percent of its first-quarter revenues. Shares of Enron rose $1.04 to $60.48 in trading Tuesday on the New York Stock Exchange. Dynegy Inc. The Houston-based energy marketer said Tuesday it earned $139.5 million, or 41 cents a share, in the first three months of 2001, more than double that from first-quarter 2000 earnings of $69 million, or 26 cents per share. Analysts surveyed by Thomson Financial/First Call expected Dynegy's first-quarter earnings to be 40 cents a share. The results include a $2 million gain for an accounting change, which did not affect the per-share figure. Revenues for the first three months of the year were $14.2 billion, nearly triple the $5.3 billion reported in the same period a year ago. Dynegy chairman and chief executive officer Chuck Watson attributed the increase to cold weather demands in northern states, not the California power shortage. In a statement following the release of the earnings, president and chief operating officer Steve Bergstrom defended the company, saying it had been "unfairly and inaccurately accused of withholding power from the California market." "As we have repeatedly communicated to California policy-makers and regulators and to industry officials, we remain ready and willing to generate and sell power to any and all buyers, at fair and reasonable prices, when they are able to provide appropriate assurances that they will fulfill their obligation to pay for those purchases, Bergstrom said. Dynegy said it has softened nearly all of its prospective credit exposure in the California market through an agreement with the California Department of Water Resources to provide the state with up to 2,300 megawatts of electricity through 2004. Shares of Dynegy rose $2.17 to $55.32 in trading on the NYSE. --- On the Net: http://www.enron.com http://www.dynegy.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron Broadband posts expected loss amid mixed growth. By C. Bryson Hull 04/17/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, April 17 (Reuters) - Enron Corp.'s nascent broadband Internet division posted an expected quarterly loss on Tuesday amid a weak telecommunications market and mixed growth in the Houston energy giant's flashiest unit. Enron Broadband Services reported a loss of $35 million on $83 million in revenue, compared with a break-even first quarter in 2000, when it had $59 million in revenues. Enron has consistently said it did not expect its broadband arm to record a profit until 2002 and instead has offered other measures of growth by which to benchmark the unit's progress. The broadband unit encompasses two distinct segments: the bandwidth intermediation business, which turns Internet bandwidth into a tradeable commodity; and the content services division, which engages in sales and transmission of Internet content. The bandwidth trading unit recorded 580 transactions in the first quarter of 2001, compared with 321 in all of last year. It delivered 43,400 terabytes - a unit equal to one trillion bytes - in the first quarter, compared with 6,000 in the similar year-ago period, a more than sixfold increase. But Enron President and Chief Executive Jeff Skilling said he was disappointed with the rate at which Enron is signing large, structured bandwidth contracts, which he said are a casualty of the low credit capacity of potential counterparties. "If you look at most of the large telecom companies right now, you would be hard-pressed to assume they could perform on a contract that is anything more than six months to a year long," Skilling said. Enron's bread-and butter, developed in the natural gas business, is creating long-term commodity deals that are geared to combat price volatility for its customers. Skilling said Enron is looking at ways to use the inherent credit of telecommunication companies' assets to finance the deals, much as Enron did with credit-poor natural gas companies in the mid-1980s. "This is going to come a little slower than what we expected," he acknowledged. The content services unit had suffered some setbacks during the first quarter, including the premature dissolution of its marquee 20-year video on demand deal with Blockbuster Inc. EBS also trimmed 20 percent of its staff last month, moving them out of the unit and into other parts of the parent company. "The losses in bandwidth have nothing to do with Blockbuster," Skilling told investors. Rather, the changes came as a result of Enron slashing $500 million off the $750 million it had set aside to build its network. The weak telecom market means a long bandwidth supply and an easy way for Enron to secure contractual access to bandwidth at low prices, Skilling has said. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. WSJ.COM WRAP: Enron, Dynegy Post Immpressive Results 04/17/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) A WSJ.COM News Roundup HOUSTON -(Dow Jones)- Electricity suppliers Enron Corp. (ENE) and Dynegy Inc. (DYN) posted strong first-quarter results as their wholesaling and trading businesses thrived in a market roiled by California's energy crisis. Enron on Tuesday reported net income that rose 26% to $425 million, or 49 cents a diluted share, compared with net income of $338 million, or 40 cents a share, a year earlier. Results in the latest quarter include a gain related to the required adoption of new accounting standards. Excluding the gain, the company earned $406 million, or 47 cents a share, two cents better than the estimate from analysts surveyed by Thomson Financial/First Call. Revenue in the quarter surged to $50.13 billion from $13.15 billion a year earlier. The energy giant also boosted its earnings outlook for 2001 to $1.75 to $1.80 a share. As recently as March 23, the company said it expected to earn $1.70 to $1.75 a share. The current consensus estimate of analysts is $1.75 a share for 2001. "Enron's wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability," Jeff Skilling, Enron's president and chief executive, said in a prepared statement. "In addition, our retail energy services and broadband intermediation activities are rapidly accelerating." The company's wholesale-services operations reported a 76% increase in income before interest, minority interests and taxes, or IBIT, to $755 million, led by growth in its natural-gas and power businesses. In addition, Enron's new wholesale commodity businesses, including coal, steel and forest products, contributed to the quarter's strong results. Enron's assets and investments unit posted a 73% drop in IBIT to $59 million because of lower earnings from merchant investments and related assets. Enron said IBIT at its retail energy services group surged to $40 million from $6 million a year earlier, amid a 60% increase in contracting in the period. The company said its new long-term energy-management customers include Owens-Illinois Inc., Quaker Oats Co., Eli Lilly & Co., J.C. Penney Co. and Saks Inc. The transportation-services unit reported IBIT that inched up 3.9% to $133 million, amid strong demand for natural-gas pipeline services. Its Portland General Electric investor-owned utility posted a 43% drop in IBIT to $60 million, which reflects higher power costs, reduced investment income and the effect of certain regulatory events. Enron's broadband-services operations reported a $35 million loss before interest, minority interests and taxes for the quarter. The company said it added 70 new broadband customers this quarter for a total of 120 customers. Unlike beleaguered utilities such as PG&E Corp.'s Pacific Gas & Electric Co. and Edison International's Southern California Edison Co., Enron's Portland General has benefited from the power crisis in California, where a botched utility-deregulation plan combined with general power shortages have driven average wholesale prices 10 times as high as a year ago. Before the energy crisis, Portland General locked in low prices and more power than it needed through long-term contracts. Then, by the third quarter of 2000, Portland General nearly tripled its revenue from selling excess power on the wholesale market. The higher revenue led to higher profits, which allowed the company to rescind a 17% rate increase that was to go into effect in January. Meanwhile, the inability to keep up with soaring electricity prices forced Pacific Gas to seek Chapter 11 bankruptcy protection earlier this month. Pacific Gas and Southern California Edison weren't allowed to fully pass on the high power costs to customers because, under deregulation, they agreed to assume the risk of fluctuating power prices. For the first two years of this arrangement, wholesale prices were so low that the utilities collected billions of dollars extra that they used to pay down old debts. But with skyrocketing wholesale costs, Pacific Gas and Edison accrued billions of dollars of power-purchase liabilities. By early this year, both had stopped paying many of their obligations to conserve cash. Dynegy's Net Income, Revenue More Than Double Dynegy, a big supplier of electrical energy to the California market, saw its first-quarter net income more than double amid a surge in revenue. The Houston-based company posted net income of $139.5 million, or 41 cents a diluted share, compared with net income of $69 million, or 23 cents a share, a year earlier. Excluding a $2 million gain from an accounting change, Dynegy earned $137.5 million, or 41 cents a share, a penny better than the mean estimate from analysts surveyed by Thomson Financial/First Call. Revenue in the quarter more than doubled to $14.17 billion from $5.35 billion. Dynegy's earnings a year earlier include a gain of $33.8 million from the sale of certain power-generation facilities, and a charge of $44.2 million for merger-related costs and the sale and impairment of certain liquids assets. Excluding the items, the company earned $79.4 million, or 26 cents a share, for the 2000 first quarter. The company's outstanding shares rose 16% to 337.7 million as of March 31 from 291.9 million shares a year earlier. Dynegy attributed first-quarter growth to "nationwide asset optimization, increased customer origination and risk-management activities." The company said it benefited from strong industry fundamentals in both natural gas and power. It capitalized on a return to seasonal winter weather and the supply and demand imbalances affecting multiple energy commodities. Earlier this month, Dynegy raised its first-quarter earnings outlook to 40 cents a share. At the time, analysts had expected the power supplier to earn 31 cents a share. Dynegy's marketing and trading unit, which also runs power generators, turned in another strong performance, accounting for 73% of the company's net income for the quarter. The segment earned $100.3 million for the first quarter, nearly double the $50.3 million it posted a year earlier. The company said its marketing and trading operation benefited from seasonal winter weather across the U.S. and strong supply and demand fundamentals, which allowed for higher prices. Increased origination activity from Dynegy's European operations also contributed to the segment's positive results. Dynegy said generation operations at West Coast Power, its joint venture with NRG Energy Inc., Minneapolis, didn't make a "material contribution" during the quarter. But the venture reduced its prospective credit exposure in the California market through its agreement with the California Department of Water Resources to provide the state with up to 2,300 megawatts of energy through 2004. In February, Dynegy joined Reliant Energy Inc. and Mirant Corp. to form a creditors committee to explore options for getting paid for electricity sold to the California Independent System Operator and California's investor-owned utilities, amid frustration with the slow progress in California's attempts to solve the energy crisis. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Action on energy trading floors reverberate in power-hungry California By MICHAEL LIEDTKE AP Business Writer 04/17/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. In Houston, it's known as "the power corner." Separated by just a few city blocks, four major power wholesalers run trading exchanges that have a strong influence on energy prices nationwide. The trading floors run by Enron Corp., Reliant Energy Inc., Dynegy Inc. and Duke Energy Corp. represent ground zero in a power crisis threatening the quality of life in much of the western United States this summer. By seizing upon opportunities created by deregulation, the energy traders have turned up the juice in the electricity business in ways similar to how junk bond traders ignited Wall Street in the 1980s and venture capitalists fueled Silicon Valley last decade. And thanks to an exemption granted in the early 1990s, nobody monitors daily trading to detect unfair or illegal practices. Utility bills in California have gone up nearly fourfold in the past year, to $27.1 billion. Without fundamental changes in the energy market, this year's bill will rise to $70 billion - more than $2,000 for every person in the state, according to operators of the state's power grid. The staggering electricity price increases have pushed the state's largest utility, Pacific Gas and Electric, into bankruptcy and left No. 2 Southern California Edison on the brink of insolvency. California's once-ample budget surplus also has shriveled, as the state is spending about $50 million a day to buy enough power to keep the lights on. The energy wholesalers say they're doing nothing wrong. They blame the high prices on the rising price of natural gas, burned to generate electricity, and the state's botched deregulation plan. By failing to line up reliable power ahead of time and by imposing price caps for consumers, the state put itself into this mess, the companies say. "There have been accusations of wrongdoing for eight months now and there isn't a shred of evidence to support the allegations," said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park, Calif., trade group. "People are very angry and frustrated about electricity right now and attorneys are trying to take that anger out on us." Attorneys general in Washington, Oregon and California are probing whether the wholesalers have violated antitrust laws or engaged in unfair business practices. A California state senate committee may issue subpoenas for records and the testimony of top energy executives, and at least five lawsuits accuse energy companies of market abuses. "This is the best fraud I have ever seen," attorney Michael Aguirre of San Diego, who is involved in one of the class-action suits. "The generators are doing everything that you think that they might be doing, only it's worse than you ever imagined." The lawsuits and investigations allege that generators have conspired to hijack billions of dollars from consumers and taxpayers by withholding electricity from energy-starved California until the last minute, and then supplying it at exorbitant prices. At Enron's headquarters in Houston, energy specialists among the company's 1,500 traders swap electricity and natural gas contracts like stocks and bonds. Mathematicians, meteorologists and economists make complex calculations to identify where to buy the cheapest power and where to deliver it at the greatest profit. "They are extremely good at what they do," said Severin Borenstein, director of the University of California at Berkeley's energy institute. The Internet has provided the traders with the tools to do their jobs even better. Online marketplaces and password-protected exchanges provide them with invaluable real-time information on the buying and selling patterns of their rivals. Two lawsuits allege that traders have parlayed the sensitive information collected online to fix prices artificially high, a violation of antitrust laws. Aguirre has spent six months assembling reams of data about traders and their activities, but he has yet to develop concrete evidence to prove his price-fixing allegations. A March 21 report by California's electricity grid managers concluded that, between last May and November, 98 percent of trading bids were driven up by noncompetitive patterns of behavior. The California Independent System Operator report stopped short of accusing wholesalers of illegal market manipulation, but it did determine that the wholesalers collected as much as $6.9 billion in "unjust and unreasonable" rates. Enron says its trading system, particularly the online exchange, has resulted in fairer and more efficient markets. The allegations of market abuse are "just some sour grapes from people who didn't come up with the idea in the first place," said Enron spokesman Eric Thode. The online exchanges and other industry Web sites provide the energy traders with a window to see the energy availability and bids in markets around the country. Power industry critics, however, contend the Web's instant access provides the traders a way to exploit a delicate supply-demand balance. If the scale is tipped even slightly toward an inadequate supply, they say, prices soar and energy traders reap huge gains. "The whole trading thing is just a front that lets them game the market," Aguirre said. "They can get away with it because no one (outside the industry) can figure out what they are doing." Whatever the energy traders are doing, it's not closely monitored by government regulators. In 1993, the trading of energy products received an exemption from oversight by the Commodity Futures Trading Commission, a federal agency that oversees commodity and options trading to protect markets from fraud and manipulation. Energy is the only commodity that has received a blanket CFTC exemption. The exemption was shepherded beginning in 1992 by then-CFTC chairwoman Wendy Gramm, wife of Texas Sen. Phil Gramm. She left the CFTC three months before the exemption received final approval in 1993. That same year, she joined the Enron board of directors, a post that last year earned her $50,000. Gramm, an economist at the Mercatus Center at George Mason University, said she doesn't recall talking with Enron about the exemption, which she characterized as a routine matter triggered by an antitrust case involving crude oil. "It really didn't have anything to do with Enron or any specific company," said Gramm. "It had to do with a general market problem." In granting the exemption, the CFTC accepted the industry's contention that it shouldn't be subjected to the government's usual commodities regulation because its markets are dominated by "large sophisticated commercial entities" capable of protecting themselves - in short, that there would be no little people to hurt. At the time, then-CFTC commissioner Sheila Bair scoffed at the reasoning, comparing energy traders to boiler room sales operations that had the potential to violate federal anti-fraud laws. "Is it really that much of burden on market participants (for the CFTC) to retain a sliver of authority regarding fraudulent activity?" Bair wrote in a dissenting opinion. Wholesale electricity prices negotiated by the traders are eventually compiled in quarterly reports and reviewed by the Federal Energy Regulatory Commission. And while FERC by law is supposed to prevent unfair prices, a majority of its commissioners have advocated a hands-off approach to California's energy crisis, insisting that the market can correct itself. That posture may finally be changing somewhat. On Wednesday in San Jose, Calif., FERC chairman Curt Hebert told lawmakers that his agency hopes to begin "monitoring and mitigating" the wholesale electricity market by May 1. This could allow FERC to preemptively influence prices. Energy economists who have studied the market see signs of ruthless, but perfectly legal, behavior. Paul Joskow, an MIT economist, concluded in January that electricity producers deliberately withheld power to drive up prices. "Every business exercises market power when it can, so I don't know why people are so surprised that (the generators) used their market power," Joskow said. "I didn't see any evidence of collusion in what they did ... It was just good business." Enron's specific trading methods remain a mystery even to industry analysts, partly because the company considers its techniques to be proprietary. But it yielded a big payoff last year - an operating profit of $1.6 billion, up 160 percent from $628 million in 1999. When electricity and natural gas prices soared to record highs in the fourth quarter, Enron's trading profit more than tripled to $538 million. Without providing specifics, Enron officials said the profits poured in from all over the country. "Our success is linked to efficient markets, not higher prices in California, or anywhere else for that matter," Steve Kean, an Enron executive vice president, said in January testimony before the U.S. Senate. "What we are interested in is competitive and well-functioning markets. Our financial success is not built on California's back." AP Photo FX101 of April 16, AP Graphic POWER PLAYERS Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Energy Trading-Floor Gambits Perturb Power-Hungry US West 04/17/2001 Dow Jones Energy Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON (AP)--In Houston, it's known as "the power corner." Separated by just a few city blocks, four major power wholesalers run trading exchanges that have a strong influence on energy prices nationwide. The trading floors run by Enron Corp. (ENE), Reliant Energy Inc. (REI), Dynegy Inc. (DYN) and Duke Energy Corp. (DUK) represent ground zero in a power crisis threatening the quality of life in much of the western U.S. this summer. By seizing upon opportunities created by deregulation, the energy traders have turned up the juice in the electricity business in ways similar to how junk bond traders ignited Wall Street in the 1980s and venture capitalists fueled Silicon Valley last decade. And thanks to an exemption granted in the early 1990s, nobody monitors daily trading to detect unfair or illegal practices. Utility bills in California have gone up nearly fourfold in the past year, to $27.1 billion. Without fundamental changes in the energy market, this year's bill will rise to $70 billion - more than $2,000 for every person in the state, according to operators of the state's power grid. The staggering electricity price increases have pushed the state's largest utility, Pacific Gas and Electric (PCG), into bankruptcy and left No. 2 Southern California Edison (EIX) on the brink of insolvency. California's once-ample budget surplus also has shriveled, as the state is spending about $50 million a day to buy enough power to keep the lights on. The energy wholesalers say they're doing nothing wrong. They blame the high prices on the rising price of natural gas, burned to generate electricity, and the state's botched deregulation plan. By failing to line up reliable power ahead of time and by imposing price caps for consumers, the state put itself into this mess, the companies say. "There have been accusations of wrongdoing for eight months now and there isn't a shred of evidence to support the allegations," said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park, Calif., trade group. "People are very angry and frustrated about electricity right now and attorneys are trying to take that anger out on us." Attorneys general in Washington, Oregon and California are probing whether the wholesalers have violated antitrust laws or engaged in unfair business practices. A California state senate committee may issue subpoenas for records and the testimony of top energy executives, and at least five lawsuits accuse energy companies of market abuses. "This is the best fraud I have ever seen," attorney Michael Aguirre of San Diego, who is involved in one of the class-action suits. "The generators are doing everything that you think that they might be doing, only it's worse than you ever imagined." The lawsuits and investigations allege that generators have conspired to hijack billions of dollars from consumers and taxpayers by withholding electricity from energy-starved California until the last minute, and then supplying it at exorbitant prices. At Enron's headquarters in Houston, energy specialists among the company's 1,500 traders swap electricity and natural gas contracts like stocks and bonds. Mathematicians, meteorologists and economists make complex calculations to identify where to buy the cheapest power and where to deliver it at the greatest profit. "They are extremely good at what they do," said Severin Borenstein, director of the University of California at Berkeley's energy institute. The Internet has provided the traders with the tools to do their jobs even better. Online marketplaces and password-protected exchanges provide them with invaluable real-time information on the buying and selling patterns of their rivals. Two lawsuits allege that traders have parlayed the sensitive information collected online to fix prices artificially high, a violation of antitrust laws. Aguirre has spent six months assembling reams of data about traders and their activities, but he has yet to develop concrete evidence to prove his price-fixing allegations. A March 21 report by California's electricity grid managers concluded that, between last May and November, 98% of trading bids were driven up by noncompetitive patterns of behavior. The California Independent System Operator report stopped short of accusing wholesalers of illegal market manipulation, but it did determine that the wholesalers collected as much as $6.9 billion in "unjust and unreasonable" rates. Enron says its trading system, particularly the online exchange, has resulted in fairer and more efficient markets. The allegations of market abuse are "just some sour grapes from people who didn't come up with the idea in the first place," said Enron spokesman Eric Thode. The online exchanges and other industry Web sites provide the energy traders with a window to see the energy availability and bids in markets around the country. Power industry critics, however, contend the Web's instant access provides the traders a way to exploit a delicate supply-demand balance. If the scale is tipped even slightly toward an inadequate supply, they say, prices soar and energy traders reap huge gains. "The whole trading thing is just a front that lets them game the market," Aguirre said. "They can get away with it because no one (outside the industry) can figure out what they are doing." Whatever the energy traders are doing, it's not closely monitored by government regulators. In 1993, the trading of energy products received an exemption from oversight by the Commodity Futures Trading Commission, a federal agency that oversees commodity and options trading to protect markets from fraud and manipulation. Energy is the only commodity that has received a blanket CFTC exemption. The exemption was shepherded beginning in 1992 by then-CFTC chairwoman Wendy Gramm, wife of Texas Sen. Phil Gramm. She left the CFTC three months before the exemption received final approval in 1993. That same year, she joined the Enron board of directors, a post that last year earned her $50,000. Gramm, an economist at the Mercatus Center at George Mason University, said she doesn't recall talking with Enron about the exemption, which she characterized as a routine matter triggered by an antitrust case involving crude oil. "It really didn't have anything to do with Enron or any specific company," said Gramm. "It had to do with a general market problem." In granting the exemption, the CFTC accepted the industry's contention that it shouldn't be subjected to the government's usual commodities regulation because its markets are dominated by "large sophisticated commercial entities" capable of protecting themselves - in short, that there would be no little people to hurt. At the time, then-CFTC commissioner Sheila Bair scoffed at the reasoning, comparing energy traders to boiler room sales operations that had the potential to violate federal anti-fraud laws. "Is it really that much of burden on market participants (for the CFTC) to retain a sliver of authority regarding fraudulent activity?" Bair wrote in a dissenting opinion. Wholesale electricity prices negotiated by the traders are eventually compiled in quarterly reports and reviewed by the Federal Energy Regulatory Commission. And while FERC by law is supposed to prevent unfair prices, a majority of its commissioners have advocated a hands-off approach to California's energy crisis, insisting that the market can correct itself. That posture may finally be changing somewhat. On Wednesday in San Jose, Calif., FERC chairman Curt Hebert told lawmakers that his agency hopes to begin "monitoring and mitigating" the wholesale electricity market by May 1. This could allow FERC to preemptively influence prices. Energy economists who have studied the market see signs of ruthless, but perfectly legal, behavior. Paul Joskow, an MIT economist, concluded in January that electricity producers deliberately withheld power to drive up prices. "Every business exercises market power when it can, so I don't know why people are so surprised that (the generators) used their market power," Joskow said. "I didn't see any evidence of collusion in what they did... It was just good business." Enron's specific trading methods remain a mystery even to industry analysts, partly because the company considers its techniques to be proprietary. But it yielded a big payoff last year - an operating profit of $1.6 billion, up 160 percent from $628 million in 1999. When electricity and natural gas prices soared to record highs in the fourth quarter, Enron's trading profit more than tripled to $538 million. Without providing specifics, Enron officials said the profits poured in from all over the country. "Our success is linked to efficient markets, not higher prices in California, or anywhere else for that matter," Steve Kean, an Enron executive vice president, said in January testimony before the U.S. Senate. "What we are interested in is competitive and well-functioning markets. Our financial success is not built on California's back." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. High demand for power behind Enron's increased earnings By KRISTEN HAYS Associated Press Writer 04/17/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - High demand for electricity and natural gas helped Enron Corp.'s first-quarter net income surge more than 25 percent. The company also announced increased earnings expectations for 2001. Houston-based Enron, the world's top buyer and seller of natural gas and electricity, said Tuesday that it earned $425 million, or 49 cents per share, in the three months ended March 31, compared with $338 million, or 40 cents per share in the year-ago period. This year's results include a $19 million, or 2 cents per share gain, due to the adoption of new accounting standards; excluding the item, Enron earned $406 million, or 47 cents per share. The result beat comparable expectations of analysts surveyed by Thomson Financial/First Call, who predicted earnings of 45 cents per share. First-quarter revenues nearly quadrupled to $50.1 billion, compared to revenues of $13.1 billion in the first three months of 2000. Enron also increased its 2001 overall earnings prediction to $1.75 to $1.80 per share. Previously, the company said it expected 2001 earnings of $1.70 to $1.75 per share, and the consensus of analysts was for $1.74 per share. "Enron's wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability," said Jeff Skilling, president and CEO of Enron. Carol Coale, an analyst with Prudential Securities Inc. in Houston, said Enron's earnings reports were no surprise because of increased demand for power and gas in power-strapped California and across the country. "Clearly the California energy crisis has raised the bar on those power and gas trading and marketing profits," she said. "Opportunities have existed outside California as well." Coale said volatile electricity prices have helped trading profits, and demand remains strong despite an economic slowdown. The company attributed the increase to continued growth in its wholesale energy-trading business, acceleration in its retail energy services and in its broadband Internet business. In its wholesale business, Enron resells power and gas to utilities and other large customers. That business accounted for 96 percent of its first-quarter revenues. Shares of Enron rose $1.29 to $60.73 in trading Tuesday on the New York Stock Exchange. --- On the Net: http://www.enron.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Business Enron CEO: Earnings Target Up By A Nickel Rhonda Schaffler, Gregg Hymowitz 04/17/2001 CNNfn: Market Coverage - Morning (c) Copyright Federal Document Clearing House. All Rights Reserved. RHONDA SCHAFFLER, CNNfn ANCHOR, MARKET CALL: Markets are down. We`re going to talk about one stock moving higher, though. North America`s largest gas and electricity maker is bucking the current earnings trend. Enron (URL: http://.www.enron.com/) is raising its earnings forecast for this year by a nickel. The company also earned 47cents a share for its first quarter, 2 pennies better than estimates and 7 cents better than the year ago. Revenues rose a healthy 282 percent. Jobs cuts and the end of its video on demand deal with Blockbuster (URL: http://www.blockbuster.com/) put pressure on the stock, which has fallen from $90, to significantly lower level right now, about $60 a share. Joining us from Houston with an inside look at Enron is the company`s CEO, Jeff Skilling. Jeff, welcome back to "Market Call." JEFFREY SKILLING, CEO, ENRON CORP.: Thank you, Rhonda. Glad to be here. SCHAFFLER: Let`s talk about the revenue growth because it is rather impressive. You`re an old economy company with a new twist. Where was most of the revenue growth from? SKILLING: Well, surprisingly, it came from our natural gas and electricity business. SCHAFFLER: No, well that`s not surprising. It`s a key part of your business. As opposed to your broadband, do you mean? SKILLILNG: Well, just about 90 percent of our earnings- I`m going to pull this out of my ear because I`m getting some feedback on the earphone. Actually that`s working better now. About 90 percent, or 95 percent, of our revenues are in the natural gas and electricity business, so as long as that business is healthy, our business overall is healthy. GREGG HYMOWITZ, CNNfn GUEST HOST, MARKET CALL: Jeff, it`s Gregg Hymowitz. Can you discuss, as related to that business, the pricing of megawatt hours going forward, what we`ve seen it at. And also can you just touch upon fiber-optic bandwidth pricing lately? SKILLING: Sure-a tale of two cities. The electricity business is seeing very strong prices. In California, for example, probably a year and a half ago power sold for about $20 to $22 a megawatt hour. Right now in California, we`re probably closer to $550 a megawatt hour for the summer. And this is just because we have a short supply situation. There`s a lot of demand growth in California. We just haven`t built the power plants to serve it. Now, conversely in the fiber business, we`ve seen enormous capital investments over the last several years. Supply much exceeds demand and in that market prices have collapsed. In fact by our numbers, as you know, we`re in the process of creating a market for bandwidth, those prices are dropping in some cases by 30 percent a month. SCHAFFLER: Let`s talk about California for a moment. Pacific Gas & Electric (URL: http://www.pgecorp.com/) owes you some money. You`ve taken reserves against that. I`m wondering if you feel a need to increase reserves going forward or you`re comfortable with the situation as it is? SKILLING: We`re very comfortable. What we had said to investors, as long ago as December, was that we felt very comfortable with the $1.70 to $1.75 number for this year. As you mentioned, we`re raising that from $1.75 to $1.80. And we feel very comfortable with that number really regardless of what happens with the credit situation in California. HYMOWITZ: Jeff, getting back to that tale of two markets, discuss what could potentially happen to change the trend in both markets? SKILLING: Well, I think in the electricity market, we`ll have tight prices for another couple of years. It takes that long to get the construction cycle going. But once that construction cycle gets going it`s pretty easy to bring on capacity and prices will drop significantly. And probably the $30 to $40 megawatt hour area in the next couple of years and I think that`s very possible. In fact, I think that`s probable. In the bandwidth market, very, very different situation. The problem, to date, is that we built what amounts to an interstate highway system for bandwidth, or for data, with no on ramps and no off ramps. We need to get this last-mile problem fixed, so that people can get data from these networks all the way out to end-use customers. Once that happens, we`ll see a lot of applications developed that use bandwidth. It will soak up some of that excess supply and we might see prices coming back. I think that`s a much longer term proposition. SKILLING: Jeff, we`ve heard so much about this last-mile for so many years now. I mean when is it going to actually happen? SKILLING: Well, it`s just been slower. You were just mentioning the earnings of Sprint FON (URL: http://www.sprint.com/) . Many telecom companies are working to put DSL cable systems on, that helped bridge the last-mile problem, but it`s come much slower than people expected. These are enormously capital intensive investments. They take a long time to put in. There are still technical issues with some of these solutions. So, I just think we have a little ways to go. It will take some more time. SCHAFFLER: You had incredible revenue growth, which we mentioned, up 282 percent. Do you do anything different in this quarter? It`s always hard to top the last great act on Wall Street. SKILLING: The revenue numbers are not as important as our volume growth numbers. What really drives our profitability is growth in volume, physical volumes. They were up about 69 percent. Actual revenue numbers will be influenced by price changes. Price changes really don`t make that much of a difference for us. We don`t have any exposure to the commodity price cycle. So, what we look at is physical volumes transported through the system. And we`ve had just a tremendous track record for the last couple of years on volume. As I mentioned, this quarter up 69 percent in physical volumes. We think that`s a function of our market share position. And what amounts to a unique, logistics capability in North America and Europe. No one else can match it. SCHAFFLER: Jeffrey Skilling, we`ll leave it at that. Congratulations on the quarter. SKILLING: Thank you, Rhonda. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Corp. Says First-Quarter Profit Rose 20 Percent (Update6) 2001-04-17 16:04 (New York) Enron Corp. Says First-Quarter Profit Rose 20 Percent (Update6) (Adds closing share price in eighth paragraph.) Houston, April 17 (Bloomberg) -- Enron Corp., the largest energy-trading company, said first-quarter profit rose 20 percent as increased electricity and natural-gas demand sent prices surging in California and other parts of the U.S. Profit from operations rose to $406 million, or 47 cents a share, from $338 million, or 40 cents, in the year-earlier period, Enron Chief Executive Jeffrey Skilling said. Revenue almost quadrupled to $50.1 billion from $13.1 billion. ``The market is perfect for a trader and marketer,'' Commerzbank Capital Markets Co. analyst Andre Meade said. ``Volume is growing, prices are high and prices are volatile.'' Enron sold 90 percent more power and 32 percent more gas in North America than in the year-earlier quarter as prices surged. About one-fifth of the power-sales increase came from the western U.S. as California electricity prices averaged nine times higher than a year earlier. The rest came from the eastern U.S., which also has had power shortages. The Houston-based company also raised its 2001 profit forecast to $1.75 to $1.80 a share, from its January projection of $1.70 to $1.75. Once just a natural-gas pipeline company, Enron has spent more than a decade creating a trading operation that buys power, gas and other commodities and resells them to utilities and other large consumers, a business made possibly by deregulation of U.S. energy markets in the 1980s and 1990s. As a result, the company's sales have risen an average of 66 percent annually for the past five years. Enron had 2000 revenue of $101 billion, making it the second-largest U.S. energy company behind Exxon Mobil Corp. Revenue will total as much as $170 billion this year, Skilling estimated in March. Enron shares rose 56 cents to $60. They had fallen 28 percent this year on concerns about the company's telecommunications business and an India power project. California Business Electricity prices in California were higher in the first quarter than a year earlier as a power shortage continued and generators demanded higher payments to offset the risk of selling to the state's utilities. Prices for gas, used to fuel power plants, were more than double the year-earlier average. The higher prices have left California utilities more than $14 billion in debt because regulators won't let them pass on all the cost of power purchases on to consumers. Enron is owed $570 million by PG&E Corp.'s Pacific Gas & Electric, Skilling said in an interview. Pacific Gas & Electric, California's biggest utility, filed for Chapter 11 bankruptcy protection April 6. Enron has set aside money to cover potential California losses and doesn't expect the energy crisis to affect 2001 earnings, Skilling said. He wouldn't say how much was set aside. Investors are entitled to know how much Enron has put in reserves, analysts told Skilling on a conference call today. Skilling disagreed. ``I think that would hurt our competitive position, particularly when people are jostling for position in bankruptcy,'' Skilling said. Enron's business in energy-services contracts has escalated as a result of California's power crisis. Skilling has said demand is increasing as companies look to cut energy costs and protect themselves from the risks of energy-price movements. ``If you or I were running a factory around New York right now, we'd be calling Enron or a company like them to lock in energy prices,'' Credit Suisse First Boston analyst Curtis Launer said. ``That business is going gangbusters.'' Contracts increased nearly 60 percent to $5.9 billion in the quarter. Enron, which recently signed contracts with Owens- Illinois Inc., Quaker Oats Co. and Eli Lilly & Co., manages energy buying and consumption at more than 31,000 facilities. It is the largest manager of customer energy assets, Skilling said. Energy Deregulation The company's Wholesale Energy Operations and Services business, which includes trading and power-plant development, saw first-quarter profit before interest, minority interests and taxes rise 76 percent to $755 million from $429 million. In the first quarter, gas volumes more than tripled outside North America and rose 55 percent worldwide. On the power side, worldwide volumes more than doubled, while sales outside North America more than quadrupled. Enron has gained customers through EnronOnline, its Internet trading site. EnronOnline handled $162 billion in transactions in the quarter, Skilling said. It has handled more than $525 billion since it opened in late 1999. Enron's broadband unit, set up to build a U.S. fiber-optic network and help trade space on such networks, had a quarterly loss of $35 million on revenue of $83 million. It broke even a year earlier. Enron added 70 broadband customers in the latest quarter, for a total of 120. Broadband Woes Shares of Enron fell 11 percent on March 12 after the collapse of an agreement for Blockbuster Inc., the largest video- store chain, to deliver movies on demand over Enron's fiber-optic system. The stock continued to fall on speculation Enron would exit the broadband business, analysts said. Enron denied the speculation. Enron has been trying to get paid for power sold by its India unit to the western Indian state of Maharashtra. Enron's $3 billion, 740-megawatt project is the biggest foreign investment in India. A first-quarter gain of $19 million, or 2 cents a share, for an accounting change, made net income $425 million, or 49 cents a share. There were no charges or gains in the year-earlier period. The company was expected to make 45 cents a share, the average estimate of analysts polled by First Call/Thomson Financial. Estimates ranged from 43 cents to 47 cents. Dynegy's 1st-Qtr Profit Rises 73% on Gas, Power Sales (Update4) 2001-04-17 16:21 (New York) Dynegy's 1st-Qtr Profit Rises 73% on Gas, Power Sales (Update4) (Adds company comment on future earnings and additional generation capacity in the fifth paragraph, closes shares. For more on California, see {EXTRA <GO>}.) Houston, April 17 (Bloomberg) -- Dynegy Inc., a U.S. electricity and natural gas trader, said first-quarter profit rose 73 percent as colder winter weather boosted gas and power sales. Profit from operations rose to $137.5 million, or 41 cents a share, from $79.4 million, or 26 cents, a year earlier, the company said in a statement. Revenue more than doubled to $14.2 billion from $5.35 billion. Marketing and trading profit almost doubled to $100.3 million, or 73 percent of net income as the average price of gas more than doubled from a year ago. Power sales to California, hit by a 10-month electricity crisis, ``did not make a material contribution'' to earnings, the statement said. ``It's not just a California ballgame,'' UBS Warburg analyst James Yanello said. ``Lots of areas around the country have supply and demand imbalances, and this is one of the big players capable of resolving those supply and demand issues.'' Company executives remain comfortable with their earlier second-quarter earnings guidance of 35 cents a share, Chairman Chuck Watson told analysts during a conference call. Next year's earnings likewise should increase by up to 25 percent as Dynegy continues to build or acquire power plants, he said. ``What's driving the train for Dynegy for the past few years is the continued adding to our portfolio in generation across the country, and I don't see that slowing down in 2002,'' Watson said. California Reserves Dynegy has a reserve to cover money it might not get from power sales to California, canceling out profit from the state, spokesman Steve Stengel said. The company was owed $265 million from power sales to California as of Feb. 28, a filing with the U.S. Securities and Exchange Commission said. Dynegy, based in Houston, and joint venture partner NRG Energy Inc. have sold 2,300 megawatts of power to the state's Department of Water Resources through 2004. That has cut credit risk from the state's cash-strapped utilities, the company said. California power prices rose ninefold last quarter from a year ago. A megawatt is enough power to light about 1,000 U.s. home. Shares of Dynegy rose $2.80 to close at $55.95. They are almost unchanged for the year. Northeast Dynegy's electricity sales and production rose 19 percent last quarter to 26.1 million megawatt-hours from a year ago, boosted by the addition of 1,100 megawatts of generation in the 2000 second half and the purchase last quarter of New York state power plants that can produce 1,700 megawatts. ``Dynegy is in a good position to earn good returns from those plants,'' analyst Anatol Feygin of J.P. Morgan Securities Inc. said. ``The press is full of prognostications that the New York area and the Northeast are the next California.'' New York and New England won't have enough generators or power lines to meet demand if temperatures are higher than normal this summer, industry officials have said. Few were built in the Northeast in recent years because of regulatory hurdles, even as economic growth boosted electricity consumption. Broadband Loss Dynegy's new Global Communications division, which markets and trades broadband, had a $11.6 million loss from start-up and expansion costs. Profit from the processing and marketing of natural-gas liquids fell 5.4 percent to $22.9 million. Last year's profit included about $4 million from assets that have been sold. Profit at Dynegy's Illinois Power utility, with 650,000 gas and power customers in southern Illinois, more than quintupled to $25.9 million on cost reductions and higher winter demand. The company was expected to earn 40 cents, based on the average estimate of analysts surveyed by First Call/Thomson Financial. A gain of $2.03 million in the quarter from an accounting change made net income of $139.5 million, or 41 cents a share. A year ago, a gain of $33.8 million from a power-plant sale and a charge of $44.2 million made net income $69 million, or 23 cents. Red Herring 100 Celebrates Top Companies Reshaping Business 04/17/2001 PR Newswire (Copyright (c) 2001, PR Newswire) Magazine Chooses 50 Private and 50 Public Companies That Continue to Reshape Markets Despite Current Economic Trends SAN FRANCISCO, April 17 /PRNewswire/ -- In the fifth annual Red Herring 100, editors of Red Herring, the leading magazine on the business of technology and innovation, identify the 100 companies whose products, services or business models - despite current economic uncertainties-continue to forge new markets. The leaders are profiled in Red Herring's May 1 double issue and are posted at http://www.rh100.redherring.com. The Red Herring 100 stands apart because companies are not measured by statistics alone, but are also reviewed on the subjective and metrical criteria favored by venture capitalists and investment bankers, including: a company's potential for disrupting its market, its execution of a sound strategy, the quality of its management and its financial performance, which is summed up by "The Herring Take". The listing favors companies whose promise is based on innovative and defensible technology with more than a dozen sectors represented, including software, biotechnology and communications services. Major category shifts were recognized in this year's Red Herring 100 in sectors like data storage, enterprise software and semiconductors, while entire sectors that failed to remain innovative are gone: Linux companies, PC makers, wireless communications and commerce. Editor Jason Pontin explained that companies were chosen for the Red Herring 100 based upon the magazine's belief in certain broad trends: continuing importance of IP telephony, critical advancements in energy production, the sudden glamour of biotechnology, and the utility of reconfigurable microchips. "In short, the Red Herring 100 are companies that retain the capacity to disrupt existing markets or create entirely new ones," Pontin exclaims. "As we shout on our cover, whatever the state of public and private equity markets, these companies still matter." The Red Herring 100 50 Private Companies 50 Public Companies Accel Partners Akamai Technologies Accenture AOL Time Warner Aimster Applied Micro Circuits Corporation AirFiber Ballard Power Systems Altra Energy Technologies Charles Schwab Amber Networks Check Point Software Technologies Asera Ciena Bang Networks Cisco Systems Bertelsmann Citigroup Bowstreet Corning Centerpoint Broadband Technologies Credit Suisse Group Cereva Networks eBay Cytokinetics Electronic Arts eCredit.com Enron Excelergy EMC Foliofn Exodus Communications Genoa Flextronics ID Software Gemstar-TV Guide Intira Genentech Jamcracker Goldman Sachs Kleiner Perkins Caufield & Byers Homestore.com LaserComm i2 Technologies Layton BioScience IBM Matrix Partners Illumina Mellanox Technologies Immunex Metro-Optix JDS Uniphase NerveWire Juniper Networks Nishan Systems McLeodUSA PhotonEx Metromedia Fiber Network PurpleYogi Microsoft RealChip Communications Morgan Stanley Dean Witter Savi Technology Network Appliance Scale Eight Nortel Networks Science Applications International Corp. NTT DoCoMo SeeCommerce Oracle Sequoia Capital Palm SmartPipes PMC-Sierra Telseon Qwest Communications Tensilica Research in Motion Thomas Weisel Partners Siebel Systems Tradescape.com Singapore Telecommunications Troika Networks Sun Microsystems Tropian Sycamore Networks VBrick Systems Taiwan Semiconductor Manufacturing Co. Voxeo Texas Instruments Walmart.com Veritas Software Xacct Technologies Vitesse Semiconductor Xenoport Vivendi Universal Yipes Communications Vodafone Group Zaplet Yahoo About Red Herring Communications, Inc. Red Herring Communications, Inc. is an integrated network of media properties connecting the people, companies and industries whose ideas and technological innovations are inspiring and reshaping the world of business. Founded in 1993, Red Herring magazine, the company's flagship platform, provides in-depth analysis and reporting on the business of technology, innovation and entrepreneurialism. RedHerring.com, Red Herring Research and Red Herring Events offer a unique blend of news, commentary, financial analysis, investor tools and access to leaders of emerging technologies and markets. A privately held company, Red Herring Communications, Inc. is headquartered in San Francisco and has offices in New York, Los Angeles, Boston and London. /CONTACT: Deirdre Hussey of Red Herring Communications, Inc., 415-486-2879, dhussey@redherring.com/ 16:47 EDT Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Says PG&E Owes About $570 Million, CNBC Says (Update1) 2001-04-17 11:08 (New York) Enron Says PG&E Owes About $570 Million, CNBC Says (Update1) (Adds earlier report in fifth paragraph.) Houston, April 17 (Bloomberg) -- Enron Corp. is owed about $570 million in gross receivables by PG&E Corp., Enron President and Chief Executive Jeffrey Skilling said in an interview with financial news network CNBC. Enron, the largest energy trader, is fully reserved and has some offsets against that amount, Skilling said. PG&E filed for bankruptcy this month. ''It's not a good situation when a state allows a company with a 100-year history to go bankrupt,'' Skilling said. ``It's kind of surprising.'' There is a big threat of politicizing the energy situation in the West, Skilling said. Some proposals in various state legislatures ``would be enough to make an economist cry,'' he said. The Houston Chronicle reported the $570 million figure this weekend, citing a letter from Enron to a bankruptcy trustee. Enron refused to confirm the figure until today. =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Thurs, 5/10: "PUC sweats $4.8 billion rate raise" Sac Bee, Thurs, 5/10: "PG&E wants panel to get boot" Sac Bee, Thurs, 5/10: "Major job losses predicted; governor presses=20 generators" Sac Bee, Thurs, 5/10: "Bond-sale bill goes to Davis " Sac Bee, Thurs, 5/10: "State revenue outlook shrinks " SD Union, Thurs, 5/10: "No blackouts despite dip in supplies" SD Union (AP), Wed, 5/9: "Biggest users face huge rate hikes under PUC pla= n" LA Times, Thurs, 5/10: "Rate Hikes Up to 60" Proposed by PUC Chief" LA Times, Thurs, 5/10: "Bush Energy Stance Begins to Worry Some in GOP" LA Times, Thurs, 5/10: "In Office Buildings, the Lights Are On, But Nobody= 's=20 Home" LA Times, Thurs, 5/10: "Power Shifts to Congress" (Commentary) SF Chron, Thurs, 5/10: "Proud state forced to knees in power hunt"=20 SF Chron, Thurs, 5/10: "Power bills set to skyrocket for heavy users=20 Graduated rate increase would take effect in June " SF Chron (AP), Thurs, 5/10: "Developments in California's energy crisis " SF Chron (AP), Thurs, 5/10: "PG&E says fewer small power plants offline " SF Chron (AP), Thurs, 5/10: "A look at two rate designs before power=20 regulators" SF Chron, Thurs, 5/10: "Lights stay on despite failure of big plant"=20 SF Chron, Thurs, 5/10: "PG&E fights consumer committee=20 Obstruction feared in bankruptcy case " SF Chron, Thurs, 5/10: "Generators silent on Davis plan=20 He offers lower compensation to stave off Edison bankruptcy " Mercury News, Thurs, 5/10: "Rate plans shield most households" Mercury News, Thurs, 5/10: "Energy bond plan gets final legislative OK,=20 faces delay" Mercury News, Thurs, 5/10: "Fusion research gets a boost" OC Register, Thurs, 5/10: "Power is Money PUC details plan to raise Edison rates up to 34%. Half of users to see no= =20 hike" OC Register, Thurs, 5/10: "Economic crisis in forecast" OC Register, Thurs, 5/10: "GOP stalls sale of bonds with vote" OC Register, Thurs, 5/10: "Electricity notebook Davis asks power suppliers to accept 30% less than owed" OC Register, Thurs, 5/10: "Regulators says more electricity rate hikes are= =20 likely" OC Register, Thurs, 5/10: "Starting all over again The Legislature's special session on the power crisis ends today -- with mo= re work to do at an added cost" OC Register, Thurs, 5/10: "Davis is set to sign a $13.4 billion bond-issue= =20 measure today to cover electricity costs" OC Register, Thurs, 5/10: "Papering over state electricity problems" Individual.com (AP), Thurs, 5/10: "Task Force To Propose Legislation" Individual.com (AP), Thurs, 5/10: "Stage 2 Electrical Emergency Declaratio= n; SCE to Curtail 'Load' for Some Customers" Individual.com (Bridgenews), Thurs, 5/10: "[B] FULL/ Pacific Gas & Electri= c=20 restores all Qualifying=20 Facilities --Pacific Gas & Electric says 8 of 300 QFs still shut down"=20 ---------------------------------------------------------------------------= --- ------------------------------------- PUC sweats $4.8 billion rate raise By Carrie Peyton Bee Staff Writer (Published May 10, 2001)=20 Big industries' electric bills would leap 50 percent or more and household= =20 bills would rise an average of 11 percent to 17 percent under two proposals= =20 outlined by state regulators Wednesday for revamping electric rates.=20 The twin proposals are efforts by Loretta Lynch, president of the state=20 Public Utilities Commission, and Christine Walwyn, a PUC administrative=20 judge, to decide how to divide the burden of a $4.8 billion rate hike.=20 "Both of them are just going to be very, very hard on business," said Bill= =20 Booth, an attorney for the California Large Energy Consumers Association. H= e=20 said it appeared that some cement and steel makers could face 90 percent ra= te=20 hikes.=20 But small consumers were equally dismayed.=20 "This never should have happened in the first place," said Bob Finkelstein,= =20 an attorney with The Utility Reform Network, placing the blame for soaring= =20 rates on electric deregulation.=20 "In terms of allocating the fallout from the failed experiment, they seemed= =20 to do a reasonable job. But it assumes that the fallout should be allocated= =20 in the first place, and that just sticks in our craw," he said.=20 Several PUC commissioners have said they want to select a new rate design a= t=20 a special meeting Monday, so the higher electric bills can begin going out= =20 June 1 to customers of Pacific Gas and Electric Co. and Southern California= =20 Edison.=20 One version before the PUC would include Lynch's call to begin looking for= =20 ways to charge federal installations power rates that are tied to wildly=20 gyrating wholesale costs.=20 Reportedly first floated as a joke, the idea quickly took hold within the= =20 PUC. Lynch said she wants to set it up as "pilot program," perhaps beginnin= g=20 in mid-summer, so the federal government can test its own theories about=20 unfettered market prices being good for consumers.=20 "I don't believe it's a dig at the FERC (Federal Energy Regulatory=20 Commission)," she said during a news conference.=20 But she repeated her attack on federal regulators, saying electric rates ar= e=20 rising in California only because the FERC has refused to cap runaway=20 wholesale electric prices.=20 Commissioner Richard Bilas later called a special federal rate "silly" and= =20 "kindergartenish," and said the proposal was clearly intended "just to get= =20 back at the federal government."=20 Any of the five appointed commissioners can offer an alternate version of t= he=20 rate design, as Lynch did. The alternates will be considered alongside the= =20 proposal by Walwyn, the judge who presided over lengthy hearings on how the= =20 new rates should be crafted.=20 She recommended increases that would fall slightly more softly on residenti= al=20 customers -- averaging 11 percent for Edison and 15 percent for PG&E -- and= =20 more heavily on large industrial users, averaging 52 percent for Edison and= =20 55 percent for PG&E.=20 But within those averages could be much higher individual increases, and=20 advocates for everyone from farmers to manufacturers waited anxiously=20 throughout the day for detailed tables that would list rates for dozens of= =20 customer categories.=20 "I have got my expert economist standing by to look at the numbers when the= y=20 come out," said Ron Liebert, associate counsel for the California Farm Bure= au=20 Federation.=20 The release of the rate proposal has been delayed repeatedly as the PUC tri= ed=20 to cram work that usually takes months into just a few weeks, and many of i= ts=20 details remained obscure late Wednesday, dismaying those who are still=20 arguing for changes.=20 "We have to file comments on this by Friday. What they're doing is, they're= =20 shutting down the comment period," said Jack Stewart, president of the=20 California Manufacturers & Technology Association.=20 He said it appears that some rates could nearly double, and "that's just a= =20 death knell for many California manufacturers."=20 Lynch provided only sketchy summaries of her ideas, saying she wanted to=20 raise residential rates 16 percent for Edison and 17 percent for PG&E on=20 average, raise industrial rates 50 percent to 52 percent and cap agricultur= al=20 rate increases on a sliding scale from 23 percent to 30 percent, partly at= =20 Gov. Gray Davis' urging.=20 She said that about half of households statewide would see no increase unde= r=20 a state law that protects those who use less than 130 percent of a "baselin= e"=20 amount. However, PG&E has calculated that far more households -- 69 percent= =20 -- use more than the baseline at some point during the year.=20 PG&E's baseline varies by region and season but generally runs between 300= =20 and 400 kilowatt-hours, or about 50 percent to 60 percent of average=20 electricity use per household. It was created to give people access to a=20 minimal amount of power at a lower rate.=20 The heaviest household users still would see no increase on their first few= =20 hundred kilowatt-hours, but after that prices would rise sharply, in tiers,= =20 so that some households could see their overall bills rise 34 percent or=20 more.=20 Lynch and Walwyn also have proposed "bill limiters" so that businesses with= =20 unusual usage patterns won't get hammered by unintended rate spikes.=20 The increases will not affect customers of the Sacramento Municipal Utility= =20 District, which recently approved its own hikes, averaging 22 percent, and= =20 other ratepayer-owned utilities.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com.=20 PG&E wants panel to get boot By Claire Cooper Bee Legal Affairs Writer (Published May 10, 2001)=20 SAN FRANCISCO -- Pacific Gas and Electric Co. on Wednesday asked a judge to= =20 disband an unprecedented committee of ratepayers appointed last week to=20 represent consumers in the utility's bankruptcy case, saying that some in t= he=20 group were politically biased.=20 The utility filed a motion arguing that U.S. Bankruptcy trustee Linda Ekstr= om=20 Stanley exceeded her legal authority by designating a consumers committee= =20 armed with broad powers to investigate and negotiate alongside the utility= =20 and its creditors.=20 The utility denounced the committee as a collection of "special interest"= =20 groups with "well-known political and policy agendas" and a "history of=20 aggressive lobbying and litigation."=20 The PG&E motion, which was set for a hearing May 18 before Bankruptcy Judge= =20 Dennis Montali, warned that turning the consumer committee loose could=20 "substantially retard the progress of this case and seriously prejudice its= =20 outcome."=20 On Friday, PG&E singled out Consumers Union and The Utility Reform Network = as=20 "well-organized lobbyists and political operatives."=20 Consumers Union regional chief Harry Snyder, a committee member, said he=20 would have no comment. TURN's representative to the committee, Nettie Hoge,= =20 did not respond to a request for comment.=20 In appointing the ratepayers committee last week, Stanley, who is=20 administering the bankruptcy proceedings, said she was bringing it into the= =20 case because the state, which ordinarily would represent the public, has=20 chosen to stay out.=20 Stanley chose the nine committee members to represent a mix of energy=20 consumers -- households, businesses, farms and government. In addition to= =20 Consumers Union and TURN, the groups include the California Farm Bureau, th= e=20 California School Boards Association and the California Manufacturers &=20 Technology Association.=20 If Montali upholds Stanley's action, PG&E must pay for the committee's=20 lawyers, accountants and other consultants to analyze data and present=20 arguments in the bankruptcy proceedings from the consumer's perspective.=20 "They (will) have all of the information that's going on," said Judy Beckne= r=20 Sloan, a bankruptcy expert at Southwestern Law School, who speculated that= =20 PG&E was balking at the committee's potential power and its costs to the=20 bankruptcy estate.=20 "The creditors and PG&E are opposed to their presence because to the extent= =20 the judge heeds the consumers' concerns, he's going to be less aggressive= =20 about raising rates," said Jesse Fried, a law professor at the University o= f=20 California, Berkeley.=20 While Fried said Stanley's decision was defensible because the judge "is=20 supposed to take into account the wider interests of society," Los Angeles= =20 bankruptcy lawyer Richard Levin sided with PG&E. Only the state should have= =20 been allowed to represent consumers, Levin said, and its decision not to do= =20 so should be final.=20 The Bee's Claire Cooper can be reached at (415) 551-7701 or=20 ccooper@sacbee.com.=20 Major job losses predicted; governor presses generators By Dale Kasler, Ed Fletcher and Emily Bazar By Dale Kasler, Ed Fletcher and Emily Bazar (Published May 10, 2001)=20 As a private consultant predicted the state will lose 135,000 jobs from a= =20 summer of blackouts, Gov. Gray Davis on Wednesday pressed power generators = to=20 forgo 30 percent of their California earnings to help pull the state out of= =20 the energy crisis.=20 Summoning executives of the companies he has repeatedly accused of price=20 gouging, Davis said the generators probably would have to forgive a portion= =20 of the debt they're owed by California's two destitute utilities to win the= =20 Legislature's approval for his controversial plan to repay the debts and=20 rescue the utilities.=20 "I suggest that they should look to (accept) 70 percent of what they claim= =20 they were owed," Davis said after a four-hour meeting in the Capitol. "I fe= lt=20 the Legislature will insist on a reduction."=20 Although Davis said, "I believe they are willing to take some reduction," a= t=20 least one generator, Reliant Energy Inc., immediately dismissed the=20 governor's proposal.=20 The meeting capped a roller-coaster day in which anti-generator protesters= =20 brought a pig to the Capitol and the state narrowly averted a third straigh= t=20 day of rolling blackouts. But while enough megawatts were found to scrape b= y=20 for a day, the state is surely facing a summer of severe shortages.=20 A study, commissioned by some of the state's most influential business=20 lobbyists and partly funded by Intel Corp., predicted chronic blackouts wil= l=20 mean significant economic harm to California.=20 The study by John Urbanchuck of New Jersey-based AUS Consultants said the= =20 blackouts would erase 135,000 jobs and cause $26 billion in economic=20 devastation.=20 Several California economists said the prediction was overblown, but none= =20 doubted the electricity crisis could significantly harm the state's busines= s=20 climate.=20 "It really depends on how severe the blackouts are," said UCLA economist=20 Chris Thornberg. "If we have 30 straight days of blackouts in June ... you'= re=20 going to end up with a mess."=20 Everything else being equal, the loss of 135,000 jobs would raise=20 California's unemployment rate by 0.7 percent, to 5.4 percent, based on the= =20 latest numbers from the Employment Development Department.=20 Ted Gibson, chief economist with the state Department of Finance, said AUS'= =20 estimates seem high.=20 "It'd be hard for me to think those relatively limited, one-hour-at-a-time= =20 (blackouts) would have such an impact," Gibson said.=20 As it is, the blackouts have struck some of California's most important=20 employers, such as Sun Microsystems Inc. and Advanced Micro Devices.=20 Tuesday's blackout hit Apple Computer Inc.'s lone U.S. factory, in Elk Grov= e.=20 Economic development agencies from other states have stepped up recruiting= =20 efforts in California, hoping to capitalize on the state's misfortunes. A f= ew=20 glass manufacturers have moved production, said Jack Stewart, president of= =20 the California Manufacturers & Technology Association.=20 It could get worse. For example, a leading Silicon Valley electronics=20 manufacturer, Solectron Corp. of Milpitas, said it is seriously considering= =20 pulling some of its operations out of California.=20 "The blackouts and the lack of reliable power are our biggest concerns," sa= id=20 Solectron spokesman Bob Kula. "We have the ability to move (production)=20 quickly."=20 Solectron, whose factories were hit with blackouts in January and March,=20 employs 4,000 workers in Northern California.=20 A top state official said business leaders around the country look at the= =20 electricity crisis as emblematic of a state that's becoming iffy as a place= =20 to do business.=20 "The whole question of how did the state allow it to get this far -- I keep= =20 hearing that from Wall Street, I keep hearing that from the business=20 community," said the official, who asked to remain anonymous. "The last yea= r=20 has demonstrated that the risks of doing business in California are much=20 higher than anywhere else in the United States."=20 The state was spared a third day of blackouts Wednesday when cooler, windie= r=20 weather in the late afternoon produced a spurt of wind-generated electricit= y=20 and a much-needed drop in demand. Throw in an unexpected power purchase fro= m=20 the Pacific Northwest, and the state's fragile power grid suddenly had 1,40= 0=20 megawatts it wasn't expecting, more than enough to compensate for a breakdo= wn=20 of a major Bay Area power plant in early afternoon.=20 Another boost: Pacific Gas and Electric Co. said all but a handful of its= =20 alternative-energy suppliers have resumed production. These suppliers,=20 responsible for a fourth of the state's energy supply, have been closed for= =20 weeks because of nonpayment by PG&E and Southern California Edison. The two= =20 stricken utilities are paying them again.=20 But while blackouts were unlikely today, there were no guarantees.=20 "We're not swimming in megawatts," said spokeswoman Stephanie McCorkle of t= he=20 Independent System Operator, which runs the state's power grid.=20 Representatives from a dozen wholesale power generators -- 10 in person and= =20 two by phone -- attended the Capitol summit.=20 Despite months of verbal potshots between Davis and the generators, the=20 meeting was described as cordial by John Stout, senior vice president of=20 Houston-based Reliant.=20 But Davis also said he told the executives that unless they accept a=20 reduction in payment for back debts, the Legislature is likely to reject hi= s=20 plan to buy the utilities' transmission lines -- a key element of his plan = to=20 pay back billions the utilities owe them.=20 If the plan goes through, the generators can get paid this year, Davis said= .=20 If it's killed, they'll probably have to wait three or four years to get=20 their money in Bankruptcy Court.=20 So far only Edison has agreed to sell its lines to the state. Senate=20 President Pro Tem John Burton, D-San Francisco, said Wednesday that the=20 Edison deal will be rejected unless the generators forgive some debts.=20 "I'm going to insist that they take at least a 30 percent haircut on the=20 monies that they're owed," Burton said earlier.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Bee Staff Writer Kevin Yamamura contributed to this report.=20 Bond-sale bill goes to Davis=20 (Published May 10, 2001)=20 The state Senate sent legislation to Gov. Gray Davis on Wednesday authorizi= ng=20 the largest revenue bond sale in U.S. history over continued Republican=20 opposition.=20 The bill, SB 31x, would allow California to sell $13.4 billion in bonds,=20 starting in August, to repay the state for past and future power purchases.= =20 Davis is expected to sign the bill today.=20 Because the bill failed to receive the two-thirds majority needed for an=20 urgency measure, however, the bonds can't be sold until 90 days after the e= nd=20 of the Legislature's special session.=20 Lawmakers are expected to end the session Monday, and most of the 200 pendi= ng=20 energy bills already introduced will be reborn in a second energy session,= =20 said Senate President Pro Tem John Burton, D-San Francisco.=20 SB 31x passed on a 23-12 vote, with most Democrats supporting the measure a= nd=20 all Republicans opposing it. Sen. Joe Dunn, D-Garden Grove, was the only=20 Democrat to vote against it.=20 Republicans proposed that the state use the surplus to write off $6 billion= =20 that California has spent on electricity since mid-January. But Democrats= =20 said the state needs to replenish those funds to support other state progra= ms=20 in education, transportation and health care.=20 Treasurer Phil Angelides had pursued a bridge loan of $4.13 billion to=20 bolster the state's budget and ensure that non-energy programs remain funde= d.=20 But when Assembly Republicans assailed the immediate bond sale, the=20 short-term loan was lost.=20 Zane Mann, editor of the California Municipal Bond Advisor, said the delay = in=20 the bond sale "casts a cloud" over the project but won't kill it. It will= =20 probably lead to a higher interest rate, which will add to the ratepayers'= =20 costs, he said.=20 -- Kevin Yamamura and Dale Kasler=20 State revenue outlook shrinks=20 By John Hill Bee Capitol Bureau (Published May 10, 2001)=20 Legislative Analyst Elizabeth Hill dropped a budget bombshell Wednesday,=20 reporting to legislators that state revenues will be $3.4 billion lower tha= n=20 Gov. Gray Davis predicted in his January budget proposal.=20 Instead of enjoying a $1.9 billion reserve, the Davis budget plan for the= =20 fiscal year beginning July 1 would now leave the state $1.5 billion in the= =20 hole, Hill wrote in a letter to legislators overseeing the budget.=20 Dwindling revenue from a faltering economy leaves Davis' plan in need of=20 major revisions. The new revenue estimates would require cuts in one-time= =20 expenditures that Davis proposed for programs such as clean beaches and=20 fiscal relief for local governments. Cuts also may have to be made in new= =20 spending contemplated for education, which got most of the new money in the= =20 $104.7 billion January budget proposal.=20 "The number is so deep that it's going to be hard for us not to contemplate= =20 cuts or make cuts," said Assemblyman Tony C?rdenas, D-Sylmar, vice chairman= =20 of the Joint Legislative Budget Committee. "We don't know where those cuts= =20 are going to come from."=20 Little will be immune, said Dan Howle, chief of staff for Sen. Steve Peace,= =20 D-El Cajon, chairman of the Joint Legislative Budget Committee.=20 "It's going to include programs the governor is very supportive of and woul= d=20 like to get done, but we're in a little bit of a cash crunch here, and you'= ve=20 got to do what you've got to do," he said.=20 "If anything's got a protective fence around it, it's education. But I stil= l=20 think it'll have to take a share of the cuts."=20 These grim budget figures don't take into account possible hits on the budg= et=20 caused by the state's breathtaking expenditures on electricity.=20 Those effects could be negligible if the state is able to sell bonds to pay= =20 for power and replenish the treasury. But considering recent events in the= =20 volatile energy crisis, no assumption is safe.=20 The budget crunch will likely highlight conflicting spending priorities and= =20 could lead to more polarization between Democrats and Republicans who have= =20 been squabbling over the energy crisis.=20 "A third of the Assembly has never done a budget," Howle said. "Another thi= rd=20 has never dealt with anything other than huge surpluses. Now you're saying= =20 we've got to go in and cut. This could be a long, hot summer."=20 The new revenue projections are a dramatic illustration of the state's=20 faltering economy. Revenues for the fiscal year that starts July 1 are now= =20 expected to be $4.8 billion less than anticipated in January, Hill wrote.= =20 That includes a decrease of $3.9 billion in income tax, $500 million in sal= es=20 tax and $600 million in bank and corporation taxes, offset by some moderate= =20 increases in insurance and estate taxes, said Brad Williams, chief economis= t=20 in the non-partisan Legislative Analyst's Office.=20 "It's deterioration in the stock market and implications for capital gains= =20 and stock options," Williams said, "and also the weakening outlook for the= =20 economy as a whole."=20 The $4.8 billion blow is softened somewhat by unexpectedly strong revenues= =20 from last year's tax returns, which helped boost revenues $1.4 billion high= er=20 than had been anticipated.=20 The net effect is $3.4 billion less for the fiscal year that begins July 1.= =20 If the Democratic governor's budget were approved as is, the deficit would= =20 reach almost $6 billion in the fiscal year that begins July 1, 2002, Hill= =20 wrote.=20 The governor is expected to release his revised budget Monday. The state=20 Department of Finance said Wednesday that it wouldn't comment on the new=20 revenue estimates until then.=20 One obvious target for budget cutters is one-time expenditures in the Janua= ry=20 proposal. This includes money for local governments, state building project= s,=20 housing initiatives, replacing diesel engines that contribute to air=20 pollution, cleaning up beaches, law enforcement technology grants, flood=20 control, parks along rivers and more.=20 Even if the state axed $2.5 billion for one-time expenditures that Davis=20 proposed, it would still have to cut an additional $1.7 billion proposed fo= r=20 ongoing programs.=20 Davis' budget -- which projected an $8 billion surplus -- includes at least= =20 $1.9 billion more for education than required under formulas approved by=20 voters in Proposition 98. But considering Davis' commitment to education,= =20 most believe it's unlikely the governor would balance the budget by=20 throttling back to the minimum funding level, which would require cuts to= =20 existing education programs.=20 C?rdenas said education, health care and transportation should be protected= =20 from cuts.=20 Assembly Republicans agree about education, but have different ideas about= =20 the rest.=20 On Wednesday, the Republicans released their plan for the revised budget. I= t=20 includes protecting schools and law enforcement, creating a $4 billion=20 reserve for future electricity purchases, and striking a proposed 1/4-cent= =20 sales tax increase.=20 The sales tax, which went into effect in the early 1990s, was removed this= =20 year, but Davis has proposed restoring it in 2002.=20 "All this does is put a new burden on the backs of Californians" already=20 coping with higher energy costs, said Assemblyman George Runner, R-Lancaste= r,=20 a member of the Assembly Budget Committee.=20 Republicans say an electricity reserve could avoid the need to do another= =20 bond sale for power purchases next year.=20 "This is the time to make sure we are putting money aside and that we're no= t=20 going to have to turn back to taxpayers or ratepayers and put an additional= =20 burden on them," Runner said.=20 The Bee's John Hill can be reached at (916) 326-5543 or jhill@sacbee.com.= =20 No blackouts despite dip in supplies=20 Stage 2 alert, power plant breakdown add to concerns By Jeff McDonald=20 UNION-TRIBUNE STAFF WRITER=20 May 10, 2001=20 In the nip-and-tuck world of meeting California's energy needs, a small=20 victory was notched yesterday in Folsom, where managers of the state power= =20 grid avoided blackout orders for the first time since the weekend.=20 But tensions nonetheless ran high among power industry officials, and=20 business leaders in San Diego County are growing increasingly alarmed at th= e=20 nagging energy crisis.=20 The number of available megawatts fluctuated throughout the day yesterday a= nd=20 a major power plant broke down, but engineers at the Independent System=20 Operator maintained service across the state.=20 Persistent shortages combined with unusually high temperatures prompted pow= er=20 alerts as early as 10:15 a.m., when grid officials warned that supplies had= =20 dipped within 7 percent of reserves.=20 With more than 12,000 megawatts of power unavailable from idled plants,=20 system operators issued a Stage 2 warning about 11:45 a.m. and asked large= =20 users to cut back consumption through the afternoon.=20 Two hours later, a boiler tube leak knocked out a 750-megawatt power plant = in=20 the Bay Area. Repairs will probably take several days.=20 "It wrecked my day," said Jim McIntosh, the Independent System Operator=20 director of grid operations. "It just changed the whole perspective of what= =20 was going on."=20 The loss of the 750 megawatts deepened concerns in Folsom, where ISO=20 engineers measured a peak afternoon demand that barely trailed supplies of= =20 almost 34,000 megawatts.=20 As late as 3 p.m., grid officials expected to be forced into cutting servic= e=20 to hundreds of thousands of homes and businesses. Cooling temperatures and= =20 conservation efforts helped kill the last threat, McIntosh said.=20 More blackouts could be ordered today, however, and tomorrow may be just as= =20 problematic.=20 "The next couple of days will certainly be impacted by the loss of that=20 unit," McIntosh said.=20 The latest breakdown added to some already high drama at utility companies,= =20 where officials braced through the day for orders to cut power to hundreds = of=20 thousands of customers.=20 Blackout orders never came. But executives at San Diego Gas and Electric Co= .=20 spent the day on heightened alert, calling critical-need residents and=20 businesses and informing them of potential service interruptions.=20 "This has become relatively commonplace," SDG&E spokesman Douglas Kline sai= d.=20 "We handle it as a matter in the course of business now, unfortunately. We'= ve=20 been on high alert all day."=20 Service was cut to more than 23,000 customers in several San Diego-area=20 neighborhoods Monday and Tuesday afternoons. More than 500,000 homes and=20 businesses across the state also lost power.=20 In a power interruption unrelated to the power problems across the state, a= =20 number of major businesses in downtown San Diego were cut off unexpectedly = in=20 midafternoon.=20 Customers between F Street and Harbor Drive lost power about 3:15 p.m. when= =20 something went wrong with an underground cable that serves, among others, t= he=20 Marriott Marina hotel, SDG&E said.=20 Service was restored within two hours, but not before convention meeting=20 rooms went dark and hotel restaurants closed.=20 The heat wave that has hung across California the past three days is expect= ed=20 to begin cooling today and tomorrow, the National Weather Service said. Tha= t=20 should reduce demand for air conditioning, one of the biggest power draws i= n=20 the state.=20 However, the constant uncertainty in the electricity industry is taking its= =20 toll on local businesses, which not only are seeing huge run-ups in utility= =20 costs but are girding for potential losses that even a few minutes of=20 interruptions can cause.=20 "From a business standpoint, it's not 15 minutes of downtime for many of ou= r=20 companies," said Julie Meier Wright, president of the San Diego Regional=20 Economic Development Corp. "For many of them, it means the loss of hours,= =20 days, weeks and even longer of work."=20 Biggest users face huge rate hikes under PUC plan=20 By Karen Gaudette ASSOCIATED PRESS=20 May 9, 2001=20 SAN FRANCISCO =01) Customers of California's two largest utilities who use = the=20 most electricity would pay much more to run canneries, tumble laundry and= =20 conduct other tasks under a tiered rate plan implementing record hikes=20 approved in March.=20 The rate plan proposed Wednesday by Loretta Lynch, president of the state= =20 Public Utilities Commission, suggests how the rate hikes should be allocate= d=20 among residential, industrial, commercial and agricultural customers.=20 Residential customers of Pacific Gas and Electric Co. and Southern Californ= ia=20 Edison Co. who use the most electricity would face average rate hikes of 35= =20 percent to 40 percent.=20 And industrial users, such as factories and food processors, could face hik= es=20 of 50 percent or more as the state desperately tries to start recouping the= =20 $5.2 billion it already has paid to buy power for customers of those=20 financially ailing utilities.=20 Still, under Lynch's plan, as many as half of the 9 million customers of PG= &E=20 and SoCal Edison would not see their bills rise at all.=20 Lynch's plan is the culmination of weeks of discussion among customers, sta= te=20 officials, consumer activists and the utilities about how best to allocate= =20 the record rate hikes approved in late March by the PUC.=20 Those rate hikes will affect all classes of customers, from small families = to=20 the huge Silicon Valley facilities powering the Internet, but not all will= =20 face the same magnitude of rate increases.=20 And, even within those classes, customers will pay more depending on when= =20 they use the electricity. Those who use power during times of highest deman= d=20 =01) generally, during daylight hours =01) will pay the most.=20 Lynch said her plan "recognizes that energy is expensive at every hour of= =20 every day by every customer," but penalizes those who do not cut back on=20 energy use or try to shift to different times of the day.=20 Under Lynch's proposal, agricultural customers could face rate hikes rangin= g=20 from 23-30 percent, with increases capped at 30 percent. Industrial users= =20 face average increases of 50 percent or more, and commercial users average = 34=20 percent to 45 percent hikes.=20 Her proposal, Lynch said, designs rates to encourage conservation and=20 provides $5 billion over the next year to help pay the state Department of= =20 Water Resources for the billions it has spent providing electricity for=20 customers of PG&E and Edison.=20 Lynch left the door open for future rate hikes, noting that the state=20 provides its electricity-buying expenses to the commission only on a monthl= y=20 basis, while wholesale electricity prices continue to soar.=20 Lynch's proposal, and a largely similar proposal from PUC administrative la= w=20 judge Christine Walwyn, will be reviewed in public hearings throughout the= =20 state the rest of this week.=20 Rate Hikes Up to 60% Proposed by PUC Chief=20 Power: Lynch says about half the residential customers of Edison, PG&E woul= d=20 escape increases. Her plan draws fire from all sides.=20 By TIM REITERMAN and NANCY RIVERA BROOKS, Times Staff Writers=20 ?????SAN FRANCISCO--About 4 million California residential electricity=20 customers will face increases in their monthly bills of up to about 60% und= er=20 a proposal unveiled Wednesday by the state's chief utility regulator.=20 Interest groups on all sides promptly condemned the plan as too hard on=20 either consumers or businesses. ?????The proposal by California Public Utilities Commission President Loret= ta=20 Lynch would increase the bills of roughly half of Southern California=20 Edison's residential customers, who consume medium to heavy amounts, by $8 = to=20 $93 a month. Pacific Gas & Electric Co. customers would be hit with hikes o= f=20 $6 to $87 a month. Elisabeth Charion is among about 70 people testifying at a PUC hearing=20 Wednesday in Fullerton, most venting their anger at elected officials and= =20 utility companies, whom they blame for the crisis. IRFAN KHAN / Los Angeles Times ?????About half of the residential customers of the state's two biggest=20 public utilities would see no increase under the proposal if they continued= =20 to consume energy at their current pace. ?????Lynch said she could not guarantee that more rate increases would not = be=20 necessary. "Even these astronomical average rates may prove inadequate," sh= e=20 said, noting that wholesale electricity prices are still high and=20 unpredictable. ?????The rate hike, Lynch said at a news conference, is necessary because= =20 "federal regulators have failed to follow federal laws to ensure just and= =20 reasonable prices." ?????The deepening energy crisis compelled Lynch to release her proposal=20 after public hearings on the rate increase already had begun. Lynch said th= at=20 she wished her proposal had been ready sooner, but that at least some of th= e=20 remaining public hearings will have the benefit of reviewing it. ?????PUC passage of the essential elements of Lynch's plan seems likely. ?????Along with two of her colleagues on the five-member commission, Lynch= =20 was appointed by Gov. Gray Davis, and they often vote as a bloc. Lynch said= ,=20 however, that testimony later this week from utilities, the public and othe= r=20 interested parties could prompt modifications. ?????Structuring the $5-billion rate increase is an important but political= ly=20 sensitive step in California's attempt to restore stability to the delivery= =20 of power to 9 million customers of two financially troubled utilities while= =20 protecting the state budget. ?????The PUC has tried to design rates that would encourage conservation=20 without damaging business. Competing interest groups, ranging from consumer= =20 advocates to large manufacturers, have been jockeying for advantage for wee= ks. ?????The PUC approved a rate increase of 3 cents per kilowatt-hour March 27= =20 to help pay the state's mounting power tab, which now exceeds $5 billion.= =20 This week, the commission is conducting statewide hearings on how the pain= =20 should be shared among millions of residents and businesses. On Monday the= =20 panel is set to vote on Lynch's plan and a similar one by a PUC=20 administrative law judge. ?????Neither proposal appeared to please anyone. ?????"The PUC says everyone should share the pain, but we think the fair=20 share of the pain for residential consumers should be zero," said Mindy=20 Spatt, spokeswoman for the Utility Reform Network, a San Francisco consumer= =20 group. "It should be paid by commercial and industrial customers who wanted= =20 and still want deregulation." ?????Consumer activist Harvey Rosenfield said regulators should go after=20 power generators and their hefty profits rather than ratepayers. ?????"Rate increases are not the answer, and this is not going to be the en= d=20 of them," said Rosenfield, president of the Foundation for Taxpayer and=20 Consumer Rights in Santa Monica. "This is like organized crime: The more yo= u=20 give them, the more they want." ?????Commercial and industrial customers would see increases of up to 50%,= =20 and agricultural interests would face increases of 23% to 30% under Lynch's= =20 proposal. ?????Business interests contend that the rate hikes hit them much harder th= an=20 residential users. ?????Calling the proposal "a death knell for the California economy," Jack = M.=20 Stewart of the California Manufacturers and Technology Assn. estimated that= =20 industrial customers would see their power rates increase an average of 53%= .=20 And the pain of the rate hikes will be compounded by blackouts this summer,= =20 which the group contends will cost California businesses $21.8 billion in= =20 lost productivity. ?????"For most large manufacturers, energy is a large piece of their=20 operating costs," Stewart said. "If you add 53% to that, it's going to=20 severely hamper their ability to do business." ?????Unlike residential customers, the business customers are not grouped= =20 into tiers based on their amount of usage. Lynch said there was insufficien= t=20 time to establish a tiering system for nonresidential customers by June 1,= =20 when the rate hikes will start showing up on bills. ?????An earlier proposal by Lynch had attempted to narrow the gap between= =20 residential rates and the lower rates paid by nonresidential customers. But= =20 the commission president said that goal could not be immediately achieved= =20 without seriously damaging the state's economy. ?????To protect the largest users from gigantic rate increases, Lynch's=20 proposal caps the maximum bill increase at 300% for most customers and 250%= =20 for agricultural customers. ?????"While we understand bill limiters may have some troubling conservatio= n=20 impacts, at some point, price signals are unbearable for customers. Bill=20 limiters will protect customers from unanticipated extraordinary bill=20 impacts," Lynch wrote. ?????In recent weeks, the commission has received about 20 plans for=20 structuring the rate increase, including one from Davis, who had proposed a= =20 slightly smaller overall rate increase. Lynch said her plan incorporates a= =20 number of features of the governor's plan, including a tiered structure tha= t=20 would punish heavy users and reward those who conserve. ?????Under state legislation, there is no rate increase for consumption up = to=20 130% of baseline, the amount deemed the minimum needed by a customer in a= =20 given area and noted on ratepayer bills. Also exempted are low-income=20 customers who already receive discounted electricity rates. ?????Edison and PG&E said they could not assess how the PUC proposals would= =20 affect their customers because the commission had not provided details to t= he=20 utilities as of late Wednesday. ?????But PG&E has disputed the commission's claim that half of customers=20 would not be affected by the increase, noting that only 32% of PG&E custome= rs=20 never exceeded 130% of baseline usage in the last year. ?????Industrial and commercial customers complained that the plan should no= t=20 exempt such a large group of residential customers, in any event. A rate=20 increase for these users--based on the PUC's estimate that the group will= =20 constitute about half of residential customers--could generate an extra $1= =20 billion. ?????If the PUC insists on exempting so many, the $1-billion shortfall shou= ld=20 be covered solely by other residential users, businesses say. ?????Under Lynch's plan the burden of paying that amount would be split=20 equally among commercial, industrial and nonexempt residential customers. ?????If covering the shortfall were not shared by the three groups, Lynch= =20 said, some residential customers would suffer a 100% increase in their bill= s. ?????The proposal calls for a pilot program, including one that would let= =20 federal agencies based in California "experiment with their own market rate= =20 policies." ?????Lynch challenged federal agencies to try to live with "real time," or= =20 hourly, prices in the volatile wholesale marketplace--a slap at officials o= f=20 the Federal Energy Regulatory Commission who favor a free wholesale market= =20 over price caps. Use of real-time pricing requires installing a special met= er. ?????"'It would be great if the federal users respond to price signals enou= gh=20 that prices come down," Lynch said, adding that she was skeptical that woul= d=20 happen in today's dysfunctional market. ?????A FERC spokeswoman declined to comment on Lynch's proposal. ?????During the third day of PUC hearings, about 200 people gathered at=20 Fullerton College. Seventy people testified, most venting their anger at=20 elected officials and utility companies, whom they blame for the state's=20 flawed deregulation plan. ?????"I am opposed to any rate increase for residences and small business,"= =20 testified Ruth Shapin, a Santa Ana attorney. "This crisis was created by=20 politicians. PG&E and SCE have transferred billions of dollars to their=20 parent companies. Let them bail themselves out, not the ratepayers." ?????Others said the baselines might be unfair because the commission had n= ot=20 taken into consideration home size, the number of occupants and the locatio= n. ?????"It's going to be hard for many people to stay below the 130% baseline= ,"=20 said Sylvia Hartman of Lakewood. "Some customers could easily go 400% over= =20 the baseline." ---=20 ?????Reiterman reported from San Francisco, Rivera Brooks from Los Angeles.= =20 Times staff writer Dan Weikel in Fullerton contributed to this story. Copyright 2001 Los Angeles Times=20 Bush Energy Stance Begins to Worry Some in GOP=20 By GREG MILLER and RICHARD SIMON, Times Staff Writers=20 ?????WASHINGTON--As power shortages and price spikes spread beyond=20 California, congressional Republicans are beginning to worry that the Bush= =20 administration's reluctance to offer much immediate relief could hurt the= =20 party in the 2002 elections. ?????A national energy plan to be unveiled by the White House next week wil= l=20 focus on long-term strategies. But with California and other states bracing= =20 for a summer of electricity turmoil and gasoline prices surging across the= =20 country, some GOP lawmakers are pressing for short-term solutions. U.S. Rep. Mary Bono, left, and Gov. Gray Davis discuss meeting with=20 executives of power-generating companies. Bono plans to seek $100 million t= o=20 help poor people pay energy bills. AP ?????"The White House has been taking a look at the big picture," said a GO= P=20 leadership aide in the House. "But they're going to be around in four years= .=20 We might not have members around in two years if we don't show we care." ?????That sentiment is being voiced by a rising number of GOP lawmakers.=20 "We're in a crisis situation, which is only going to get worse if we don't= =20 act very aggressively," Rep. Elton Gallegly (R-Simi Valley) said Wednesday.= =20 Gallegly is one of four congressional Republicans from California to break= =20 with the administration by supporting temporary price controls on wholesale= =20 electricity. ?????The rising anxiety, which has begun spreading beyond the California=20 delegation, underscores how much has changed since the state declared its= =20 first Stage 3 power emergency in December. At that time, Congress' response= =20 was largely: That's Gov. Gray Davis' problem. ?????Not anymore. ?????Thirty-nine Stage 3 alerts later, a House committee today will take up= a=20 GOP-drafted emergency bill that would, among other things, allow Davis to= =20 temporarily waive certain emission standards for power plants during an=20 emergency and provide federal aid to relieve a notorious bottleneck in the= =20 California power grid. ?????But some GOP lawmakers say the legislation doesn't go far enough, and= =20 plan to offer amendments containing their own ideas. Rep. Mary Bono (R-Palm= =20 Springs) plans to push for $100 million in energy assistance to low-income= =20 households and for a directive to federal facilities in the West to cut=20 energy use by 20%. ?????"House leaders recognize that they could lose the House in California = if=20 there's not an action plan that members can campaign on," said Scott Reed, = a=20 GOP strategist. ?????As lawmakers search for ways to provide immediate relief, the White=20 House continues to cite California's troubles as evidence of the need to=20 upgrade an aging, overburdened electricity transmission system. ?????Responding to reports that the administration would propose legislatio= n=20 to give the federal government eminent domain authority in siting power=20 lines, White House press secretary Ari Fleischer said Bush wants to ensure= =20 that the distribution infrastructure can move electricity from regions with= =20 surpluses to regions that need more power. ?????"That's one of the reasons that California is going through the=20 difficulties it's going through," Fleischer said. "There is energy availabl= e=20 in other parts of the country, but it can't be shipped to California as=20 easily as you would hope, because of infrastructure problems." ?????Fleischer took exception to a front-page story in The Times reporting= =20 that Bush, in a speech delivered Tuesday, "offered no hint of what his=20 administration might do" to help California avert a possible economic=20 downturn caused by power blackouts. ?????Though the president did not specifically mention possible actions in= =20 the speech, Fleischer said Bush last week "announced a series of steps,=20 including conservation," to help California get through an energy crisis th= is=20 summer. ?????He said that the Pentagon is reducing its energy needs within Californ= ia=20 by 10% and that all other federal agencies, at Bush's direction, are=20 reviewing their energy consumption patterns. ?????Environmentalists already have begun blasting the administration's=20 energy plan--even before its details are made public--for what they=20 characterize as a failure to emphasize energy efficiency and investments in= =20 renewable fuels. ?????Activists Say Crisis Isn't Real ?????At a Wednesday news briefing, a coalition of environmental advocates= =20 disagreed with the administration's assertion that the country is=20 experiencing an energy "crisis," and accused it of crafting a plan designed= =20 to boost the profits of key campaign contributors. ?????"We cannot drill our way out of this situation," said Dan Becker of th= e=20 Sierra Club. He and others argued that conserving fuel--with cars that use= =20 less gasoline and appliances that use less electricity, for example--is the= =20 best way to avoid energy shortages in the short term. ?????So far, it is not clear whether the energy crisis will work to either= =20 party's advantage. Many on Capitol Hill are bracing for an election year th= at=20 could be brutal for incumbents of both parties if voters who endure high=20 energy bills this summer vent their frustration in the voting booth next ye= ar. ?????Some House Republicans acknowledged that they have been pushing the=20 White House to appear more engaged in finding near-term solutions. ?????When House Republicans met with Cheney last week, "they urged him and= =20 all the administration to at least make it clear that a lot of effort is=20 going into finding a way to solve the problem," said Jim Specht, a spokesma= n=20 for Rep. Jerry Lewis (R-Redlands), leader of the California GOP delegation. ?????Though some Republicans have offered ideas to address the immediate=20 problem, it is not clear whether any will receive congressional approval. ?????Indeed, the emergency assistance bill being taken up today by the Hous= e=20 energy subcommittee faces trouble, although it was drafted by the panel's= =20 chairman, Rep. Joe Barton (R-Texas). ?????Barton stripped out a number of provisions opposed by environmentalist= s.=20 But Democrats plan to seek a vote on capping wholesale electricity prices, = a=20 proposal most Republicans oppose. Democrats also plan to introduce an=20 amendment to target natural gas prices. ?????House Minority Leader Richard Gephardt (D-Mo.) said the bill "fails=20 miserably" to address California's problems. "During the campaign, Presiden= t=20 Bush promised a sensible energy policy," Gephardt said. "In recent weeks,= =20 however, the president has responded to the gathering crisis by throwing up= =20 his hands and saying there's nothing we can do, there's no way to give peop= le=20 immediate relief from blackouts and sky-high increases of price of gasoline= =20 at the pump." ?????Lawmakers of both parties acknowledge that they are hearing a rising= =20 chorus of constituent complaints about the energy price spikes and supply= =20 shortages. ?????Rep. Chris Cox (R-Newport Beach) was caught in a blackout during a tou= r=20 of a computer chip factory in his district. "They said it cost them $1=20 million if the power goes off even for five minutes," said Cox, who=20 nonetheless opposes price controls. ?????Cox said he is worried about how the California electricity crisis mig= ht=20 affect the national economy. He said that when he asks business owners abou= t=20 expanding in California, "they just look at you like you're nuts. They don'= t=20 consider California an option because of this uncertainty." ?????"People come up to you and want you to help solve the problem," said= =20 Rep. George Radanovich (R-Mariposa). ?????He has explained that there is little the federal government can do in= =20 the short term. ?????"Californians want somebody to do something," said John J. Pitney Jr.,= =20 associate professor of government at Claremont McKenna College. "When peopl= e=20 are in a mood like that, politicians get nervous thinking that they're the= =20 ones who might get blamed." ?????Said Reed, the GOP strategist: "Every incumbent in California is=20 vulnerable in the next election, in both parties. This is an issue that is= =20 not ideological. It's about action and solving a short-term problem.=20 "Politics have taken over this issue, like it or not," he said. "They may= =20 have been raging in California for the last three or four months. It's now = a=20 national political issue."=20 ---=20 ?????Times staff writers James Gerstenzang, Edwin Chen, Elizabeth Shogren a= nd=20 Ricardo Alonso-Zaldivar contributed to this story. Copyright 2001 Los Angeles Times In Office Buildings, the Lights Are On, But Nobody's Home=20 Energy: Analysts say metering individual tenants could encourage=20 conservation.=20 By JERRY HIRSCH, Times Staff Writer=20 ?????Despite power outages and soaring energy prices, workers stream out of= =20 California's downtown and suburban offices each evening leaving lights=20 blazing and computers humming. And there has been scant incentive to=20 conserve, since commercial building leases typically include the cost of=20 energy. ?????Energy experts and other analysts say metering of individual office=20 tenants would encourage conservation by pushing companies to shut off light= s,=20 computer monitors, desk fans and other electrical devices at night, but sta= te=20 regulations and utility policies are in the way. ?????That conflict between policy and conservation efforts has drawn the=20 attention of state Sen. Debra Bowen (D-Marina del Rey), who chairs the Sena= te=20 Energy, Utilities and Communications Committee. On Tuesday, Bowen asked=20 California Public Utilities Chairwoman Loretta Lynch to review what Bowen= =20 called "archaic" regulations governing how electricity meters are used in= =20 office buildings. Bowen said she also plans to take up the issue in her=20 committee. ?????At issue is Rule 18, a regulation established by the commission two=20 decades ago that prohibits landlords from using submeters to assess energy= =20 charges to tenants. ?????"It is quite old and dates back to a different era of electricity=20 distribution in California," said Bowen, who was urged to take action by th= e=20 Building Owners and Managers Assn. "I asked Loretta Lynch to open a=20 proceeding to revise or eliminate that ban." ?????Lynch did not return calls for comment on the state's metering policie= s,=20 but PUC regulatory analyst William Gaffney said more metering "would be a= =20 boon to energy conservation" because "you could see what you are using." ?????"Direct metering would ultimately foster greater energy savings . . .= =20 more permanent savings, because it would encourage capital investments in= =20 more efficient equipment, windows, etc., etc.," said Evan Mills, a scientis= t=20 in the energy analysis department of the Lawrence Berkeley National=20 Laboratory in Berkeley. ?????Usually, the only tenants in office buildings with utility meters are= =20 retail and restaurant businesses, according to commercial real estate=20 experts. Most tenants in California office towers sign what are called "gro= ss=20 leases" that include power. When electricity usage or rates go up=20 unexpectedly, landlords can charge monthly or annual "escalation fees" to= =20 cover the extra cost. The fees typically are apportioned by the percentage = of=20 the building a tenant occupies. ?????This method of billing is counterproductive to energy savings, said=20 Willet Kempton, senior policy scientist at the University of Delaware's=20 Center for Energy and Environmental Policy. Energy hogs are subsidized by= =20 other tenants. Conversely, savings through conservation are only fractional= ly=20 shared. ?????Two key obstacles block metering of individual tenants in a building. ?????One is economics--high-rise buildings get a far better rate with one= =20 utility meter than if each floor is metered. ?????"We can sell a lot of energy on just one bill," said Randy Howard,=20 manager of commercial services at the Los Angeles Department of Water and= =20 Power. "If we had 200 meters there and had to do the billing and meter=20 reading for each of them, each tenant would pay a higher rate." ?????Moreover, utilities aren't anxious to send meter readers to every floo= r=20 of a building, going through private offices to find the meters. One=20 alternative--locating all the meters in a central area where the main=20 electrical line enters the building--would require massive rewiring of=20 existing office towers that could cost several hundred thousand dollars or= =20 more, depending on the size of the building, said Ali Sherafat, senior vice= =20 president of the Los Angeles office of Syska & Hennessy, a consulting=20 engineering firm. ?????A 1995 ruling by the PUC required that individual tenants in office=20 buildings be placed on meters operated by a public utility (as opposed to= =20 landlord-managed submeters), but relatively few have been installed because= =20 of exemptions. ?????For example, Southern California Edison Co. officials typically meet= =20 with developers at the start of a building project to determine how many=20 meters it might require, said Matt Deatherage, a planning support manager f= or=20 the utility. But because developers build office space so that its=20 configuration can change easily as tenants shift, the estimate is often=20 wrong. A building designed with three meters for three tenants might find= =20 itself with six tenants or more by the time it opens. ?????"We don't require them to go back and rewire the building if it turns= =20 out to be wrong, that would be too expensive," Deatherage said. ?????The second obstacle is Rule 18, the 1981 ban on submetering originally= =20 intended to protect utility monopolies and to prevent landlords from gettin= g=20 electricity at a discount price and selling it at a markup to tenants. ?????"When you resell electricity like that, you function as a utility and= =20 that's not allowed," said Deatherage. ?????Nonetheless, Bowen believes that deregulation may have superseded thos= e=20 issues and that current policy should emphasize conservation. ?????Although the leasing model used in California is common, it's not=20 universal, said Peter L. DiCapua, energy chairman of the Building Owners an= d=20 Managers Assn. International. ?????Many New York tenants have individual meters. Others are on landlord= =20 submeters, a system that allows them to tap into the lower, high-volume rat= es=20 paid by the building's operator but still pay for actual, rather than=20 estimated, energy use.=20 ?????Landlords would welcome a changed regulation to allow submetering for= =20 several reasons. There are the conservation benefits, said Dan Emmett, chie= f=20 executive of Douglas Emmett & Co., one of the largest building owners and= =20 managers in Los Angeles County. It also would reduce some of the inevitable= =20 arguments with tenants who claim they pay more than their fair share for=20 services at a building. ?????"I think submetering could be practical," Emmett said. "It is not that= =20 complicated and is fairly inexpensive." ?????Sherafat said it would cost about $2,000 per tenant for the submeter a= nd=20 the necessary software. Submeters could be installed at the electrical pane= l=20 level without expensive rewiring for utility meters, he said. Better yet, t= he=20 software allows data to be collected at a central point, eliminating the ne= ed=20 for meter readers. Such a system also could allow big buildings to use one= =20 master meter to get the best rate . ?????Though submetering would foster conservation, it still is not a panace= a,=20 said Kempton of the University of Delaware. When it comes to energy=20 conservation, changing the behavior of businesses and workers is notoriousl= y=20 tricky. ?????"Attorneys literally can't be bothered with the nuances of energy," sa= id=20 DiCapua, an executive at Atco Properties & Management in New York. "They ar= e=20 focused on things other than if the air conditioning was left on all night. ?????That is typical of professional services firms, because energy is just= a=20 small fraction of their expenses, Kempton said. ?????And individual metering sounds great in theory, Kempton added, but it = is=20 useless if the bill goes to a home office elsewhere or if the on-site manag= er=20 of the firm never sees it. ?????In any push to change the rules, however, people should remember that= =20 the current system was developed for sound reasons, often based on reducing= =20 the expense of constructing buildings and finding tenants the lowest prices= =20 for energy, Howard said.=20 ?????"Right now we are in a conservation mode, so everybody is talking abou= t=20 this," he said. "But that hasn't always been the case, so a single meter fo= r=20 a big building made sense." Copyright 2001 Los Angeles Times=20 Thursday, May 10, 2001=20 Power Shifts to Congress=20 ?????Wholesale electricity prices soared with the temperature this week,=20 jumping to eight times the peak of only three weeks ago. No one knows how= =20 high the price may go when high summer hits. Which makes it all the more=20 intriguing that one of the big power-generating companies is now calling fo= r=20 temporary price caps, which the Bush administration stubbornly opposes.=20 ?????Authority over wholesale power prices rests with the Federal Energy=20 Regulatory Commission, which is charged by Congress with maintaining "just= =20 and reasonable" rates. But FERC refuses to impose what California desperate= ly=20 needs, a broad temporary price cap that allows companies to recover their= =20 costs plus a reasonable profit. The state's last hope for rate caps now res= ts=20 with Congress.=20 ?????Sens. Dianne Feinstein (D-Calif.) and Gordon Smith (R-Ore.) are=20 sponsoring legislation that would require FERC to establish temporary maxim= um=20 rates. Rep. Henry Waxman (D-L.A.) is scheduled to propose amendments to a= =20 House bill today to do the same. The support of three Republican House=20 members from California, who are on the energy and air quality subcommittee= ,=20 is crucial. They are Christopher Cox of Newport Beach, Mary Bono of Palm=20 Springs and George Radanovich of Mariposa. The Waxman measure serves the be= st=20 interests of California. Concern about losing seats in Congress may also he= lp=20 the GOP members make the right choice.=20 ?????It was Feinstein who got a letter from Keith E. Bailey, chairman of=20 Williams Cos., an energy producer, in support of temporary price controls.= =20 Perhaps some generators are tired of being labeled gougers, pirates and=20 bloodsuckers, and they will settle for a reasonable profit through the rest= =20 of this crisis. But price caps would have to apply to all the producers.=20 Congress must act, starting today with the subcommittee vote on the Waxman= =20 measure. Copyright 2001 Los Angeles Times=20 Proud state forced to knees in power hunt=20 Robert Salladay, Chronicle Sacramento Bureau Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/10/MN40227.= DTL=20 California has turned into the trailer park next door, the cash-only,=20 deadbeat neighbor forced to beg for enough power to keep the swamp cooler= =20 running.=20 Yesterday in Folsom, home of the state's energy managers, was another study= =20 in high-tech, air-conditioned humiliation -- punctuated by a frantic scrapi= ng=20 and bowing for energy across the West.=20 Poor people with "secured" credit cards can relate to the scene at the=20 California Independent System Operator. This week began with Canada's BC=20 Hydro threatening to shut off power again until the state actually wired ca= sh=20 to its bank account.=20 "We got the money," an ISO engineer stood up and told another employee at t= he=20 agency's semi-secret Folsom headquarters yesterday. "Yeah, we're good for= =20 another $14 million. Burn it up, huh, Lloyd?"=20 Lloyd started burning it up, thanks to an OK from the Department of Water= =20 Resources and to several million California taxpayers' footing the bill.=20 California narrowly missed a third day in a row of blackouts yesterday. The= =20 situation was tight when a power plant in Pittsburg shut down because its= =20 boiler was leaking, but cooler weather and increased supply from other=20 generators helped keep the lights on.=20 All week at the ISO, engineers have been fretting about facilities and=20 finances.=20 BC Hydro shut off 2,000 megawatts of power to the state Monday while it=20 waited for a check from the water agency. The state has a line of credit wi= th=20 BC Hydro, but California is buying so much at such high prices that it was= =20 reaching the limit.=20 The company already is owed about $307 million from the state's insolvent= =20 utilities, so it is impatient.=20 "They wanted to make sure we were good for it before we could continue," sa= id=20 Oscar Hidalgo, a spokesman for the water agency, which is paying the bills.= =20 The power cutoff sent the ISO into a panic, since BC Hydro was providing=20 enough to power an estimated 2 million homes. Two hours later, the state=20 marched down to the bank and wired the money. Power was restored, and an=20 agreement was reached yesterday for daily payments.=20 The engineers in shirtsleeves at the ISO aren't used to this kind of=20 treatment. Since the energy crisis drained the bank accounts of the=20 utilities, it's been months of constant struggle to get power generators to= =20 fork over electrons.=20 "We have to go into higher begging mode for generators out of state," said= =20 Jim McIntosh, director of grid operations for the ISO. "It scares the hell= =20 out of these guys. They've never been put in that position. . . . From the= =20 electricity standpoint, we're operating like the Third World."=20 The ISO has no control over energy prices or even how the bills are paid. T= he=20 bills are the job of the water agency, which has been spending about $50=20 million a day since mid-January.=20 Not only have a near-record number of power plants been shut down for repai= rs=20 this month, the hot weather is breaking records and causing energy use to= =20 spike. The state would probably be near blackouts even without the shaky=20 financial situation.=20 But the final insult is that some of the bills are getting paid late, in pa= rt=20 because power generators are charging unprecedented rates on the daily ener= gy=20 market.=20 That causes the people who work at power companies to get snippy sometimes= =20 and threaten to withhold power. That also leads to the same things that poo= r=20 people face every day: higher prices, bad service and frustration.=20 "We pay more for gasoline. We pay more for natural gas. We pay more for=20 electricity than anywhere else in the country," said Larry Bellnap, shift= =20 manager at the ISO, a two-decade veteran in the power business. "I can't=20 think of a reason except we're California, and they are taking advantage of= =20 us."=20 Here's a conversation recorded a few months ago between an ISO engineer and= a=20 generating plant in El Segundo. At the time, the ISO needed the plant to go= =20 on line immediately to avoid blackouts.=20 "You need to get somebody that has the authority to tell me how I'm going t= o=20 get paid," the plant manager demands on the phone.=20 "I have the authority to order these plants on," the ISO manager says, and= =20 then gets this back a few minutes later:=20 "I still need clarification on how you're going to pay me if I get these=20 things on."=20 "OK. I can't give you that right now. That will have to wait until tomorrow= .=20 "=20 "No, I need that now," the plant manager says.=20 "That's unacceptable."=20 The conversation is contained in court records compiled when several out-of= -=20 state generators threatened to cut off power, despite their contracts, and= =20 the ISO sued. The state lost its case essentially, but federal regulators= =20 backed them up last week in a ruling.=20 McIntosh said he'd never in his 31 years working in the power industry had = to=20 get a lawyer on the phone to force a power generator to start up a plant to= =20 provide more power. But now they have two available if needed to remind=20 generators of their commitment.=20 GALLING POSITION The problem is especially irritating because power generators are charging= =20 the highest prices ever seen for power.=20 McIntosh and others said the situation was much smoother now that Californi= a=20 was the major creditor and was pumping billions of dollars into buying powe= r.=20 Most of the generators are confident enough they will get paid.=20 Hidalgo said the BC Hydro situation this week was isolated so far, but he= =20 offered one solution for the future:=20 "Maybe they shouldn't charge so much."=20 E-mail Robert Salladay at rsalladay@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Power bills set to skyrocket for heavy users=20 Graduated rate increase would take effect in June=20 David Lazarus, Chronicle Staff Writer Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/10/MN176943= .DTL=20 As state regulators outlined plans to raise residential electricity bills b= y=20 as much as 40 percent, the head of the Public Utilities Commission warned= =20 yesterday that power rates could soar even higher.=20 The PUC, which adopted an increase in March, is scheduled to approve detail= s=20 of the new rates in San Francisco on Monday. Consumers will see the higher= =20 rates in their June utility bills.=20 State regulators say nearly half of all consumers will see no change in the= ir=20 power bills. The remainder will experience rate increases ranging from 3=20 percent to more than 50 percent, depending on the type of customer and the= =20 amount of power used.=20 The increases would be added to an average 10 percent increase adopted in= =20 January.=20 PUC President Loretta Lynch suggested that rates could rise yet again if=20 wholesale electricity prices continue to surge this summer.=20 "If the sellers decide to turn up the heat and raise prices, we'll have to= =20 look again at the numbers," she said.=20 INCREASE WILL CONTRIBUTE LITTLE The proposed rate increase would bring in about $5 billion annually -- a=20 fraction of the estimated $65 billion California will spend this year=20 purchasing power on behalf of the state's cash-strapped utilities.=20 Lynch said she expects the remainder to be made up by issuing bonds. The=20 state Senate yesterday approved $13.4 billion in bonds to help cover=20 California's power costs.=20 However, those bonds would not be released until August, by which time=20 California's energy tab would be billions of dollars higher.=20 "There's huge cause for concern that this latest rate increase is a down=20 payment rather than anything close to a final installment," said Bob=20 Finkelstein, staff attorney for The Utility Reform Network in San Francisco= .=20 The PUC's Lynch stressed that while California's new rate structure would= =20 place a greater burden on the state's heaviest power users, the increases a= re=20 intended to spread the pain among all consumers.=20 "Energy is expensive for every hour of every day for every customer," she= =20 said.=20 LINING UP TO GET PAID That includes the state Department of Water Resources, which is spending=20 about $70 million a day to keep California's lights on.=20 While the PUC is moving to have more money collected from consumers to pay= =20 California's power bills, it has yet to address the thorny question of how= =20 the proceeds will be distributed among the various parties lined up for=20 compensation.=20 The Water Resources Department wants all rate-related revenues to first=20 replenish state coffers, while Pacific Gas and Electric Co. and Southern=20 California Edison Co. insist that they be paid as well for their own=20 expenses.=20 The utilities' costs include payments to small power generators that can no= =20 longer afford natural gas to run their plants. The recent closure of hundre= ds=20 of such facilities is a key reason California is experiencing blackouts thi= s=20 week.=20 Although PG&E said yesterday that most of the smaller generators with which= =20 it does business are now back online, it is not yet clear whether the utili= ty=20 will be able to keep paying for their power.=20 "It appears that everything (from the rate increase) is going to DWR (the= =20 Water Resources Department)," said John Nelson, a PG&E spokesman.=20 Lynch said the PUC will take up the matter of apportioning funds at an=20 unspecified future date.=20 CONSERVATIVE USE PAYS For the moment, state regulators have their hands full digesting two=20 competing -- and highly complex -- proposals for how rates should be=20 increased next week.=20 One proposal was submitted by an administrative law judge working with the= =20 PUC and the other by Lynch. Commissioners will choose between them on Monda= y.=20 The two proposals are largely identical. Under both, residential customers= =20 who can keep electricity usage within 130 percent of predetermined limits= =20 would experience no rate increase.=20 The "baseline usage" figure -- included near the bottom of PG&E bills --=20 represents the minimal amount of power consumers require. It includes a=20 number of variables, such as climate, time of year and type of fuel used.= =20 The PUC said about half of all utility customers statewide historically sta= y=20 within 130 percent of baseline limits.=20 Heavy residential users whose electricity usage tops 400 percent of baselin= e=20 figures would see power bills rise by as much as 40 percent. Heavy commerci= al=20 and industrial users would see bills rise by more than 50 percent.=20 The average increase for all PG&E residential customers would be about 16= =20 percent, the PUC said, although this number is skewed by the addition of al= l=20 those customers whose bills would remain unchanged.=20 Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights = in=20 Santa Monica, questioned whether these rate increases will be sufficient to= =20 motivate greater conservation among consumers and thus ease California's=20 energy woes.=20 He called instead for the state's political leaders to seize generating=20 plants from out-of-state power companies and impose a special tax on the=20 companies' "windfall" profits.=20 "Unless our elected officials take action, this is just the beginning of ou= r=20 rate increases," Rosenfield warned.=20 FEDERAL BUILDINGS IN SIGHTS One of the main differences between the two rate-increase proposals is=20 Lynch's inclusion of a "real-time pricing program" for federal agencies.=20 If enacted, she said, federal buildings in California would be fully expose= d=20 to the volatile wholesale power market and would pay whatever California pa= ys=20 to keep the lights on throughout the day.=20 Lynch denied that this is an effort on the part of California officials to= =20 drive home to federal authorities the impact of sky-high wholesale=20 electricity prices.=20 "It's just an experiment," she said.=20 While California officials have called on federal regulators and the Bush= =20 administration to assist the state by capping wholesale power prices,=20 Washington has provided only limited relief to date.=20 The Utility Reform Network's Finkelstein complained that the proposed rate= =20 increases place a severe burden on residential customers when commercial an= d=20 industrial users account for the greater percentage of power consumption.= =20 "It was the commercial and industrial customers who were clamoring for=20 deregulation," he said. "You didn't hear any calls for deregulation from=20 residential customers."=20 Lynch said she was aware that residential users are being asked to carry a= =20 high proportion of the load but said efforts to force industrial users to p= ay=20 higher rates ran into political opposition.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Developments in California's energy crisis=20 The Associated Press Thursday, May 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/10/s= tate0 948EDT0159.DTL&type=3Dnews=20 , , -- (05-10) 06:48 PDT Developments in California's energy crisis:=20 THURSDAY: -- Grid operators say cooler temperatures will help them meet California's= =20 electricity demands. Officials at the Independent System Operator say=20 supplies are tight, but they don't expect blackouts.=20 -- The PUC holds a public hearing on the proposed rate structure in=20 Sacramento.=20 -- Gov. Gray Davis is scheduled to sign a bill authorizing $13.4 billion in= =20 revenue bonds to pay for power for customers of the state's three largest= =20 utilities. The bonds will repay the state general fund for $6.7 billion=20 authorized for power buys since January and will finance future electricity= =20 purchases.=20 WEDNESDAY: -- After a difficult afternoon, grid operators are able to avoid blackouts= =20 after temperatures drop slightly.=20 -- The Public Utilities Commission releases recommendations for rate=20 increases, sparing about 9 million customers of Pacific Gas and Electric Co= .=20 and Southern California Edison, but socking residential customers who don't= =20 cut back with a 40 percent hike. PUC president Loretta Lynch says the plan = is=20 designed to encourage conservation and provides $5 billion more to help pay= =20 the state for the $6.7 billion it has spent so far providing electricity fo= r=20 the customers of PG&E and Edison.=20 -- The state Senate approves a bill authorizing $13.4 billion in bonds for= =20 power buys, sending the bill to the governor.=20 -- The governor meets with the CEOs of several major energy suppliers to=20 discuss the money they're owed by the state's two largest utilities, the=20 state's creditworthiness and how wholesalers can help the state during the= =20 energy crisis. Davis says he won't be discussing any of the investigations= =20 into price manipulation in the wholesale market.=20 -- A consortium of business interests releases a study saying continued=20 blackouts this summer could cost the state $21.8 billion in losses from=20 sales, wages and production.=20 -- PG&E says only eight of the 300 small power plants in its territory are= =20 still shut down for payment reasons. All eight are natural gas-fired plants= =20 that deliver a combined 109 megawatts of electricity, enough to power about= =20 80,000 homes. Owners of these plants say they haven't been fully paid for= =20 millions of dollars in past power deliveries and that they would operate at= a=20 loss if they resume full operations.=20 -- PG&E asks U.S. Bankruptcy Judge Dennis Montali to void the appointment o= f=20 a committee representing ratepayers. The utility says that such a committee= =20 isn't allowed under bankruptcy law and that the state attorney general can= =20 represent ratepayers in the bankruptcy process.=20 Montali also says PG&E can use hundreds of millions of dollars in payments= =20 from customers to buy gas, which the utility in turn sells to homes and=20 businesses. That came as other creditors wait to recoup billions of dollars= =20 from the bankrupt utility. Montali rules that creditors lining up to collec= t=20 from PG&E cannot use any money they secure to sue the utility's largest=20 creditor, The Bank of New York.=20 -- A major electricity generator starts an ad campaign that offers to sell= =20 power to the state for 2 cents per kilowatt hour -- as long as the state=20 provides the natural gas to produce the power. Reliant Energy says the ads= =20 are necessary because their offer is being ignored by power buyers. Another= =20 energy producer, Mirant, has also kicked off a media campaign.=20 WHAT'S NEXT: -- Davis' representatives continue negotiating with Sempra, the parent=20 company of San Diego Gas and Electric Co., to buy the utility's transmissio= n=20 lines.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Edison and PG&E say they've lost nearly $14 billion since June to high=20 wholesale prices the state's electricity deregulation law bars them from=20 passing on to consumers. PG&E, saying it hasn't received the help it needs= =20 from regulators or state lawmakers, filed for federal bankruptcy protection= =20 April 6.=20 Electricity and natural gas suppliers, scared off by the two companies' poo= r=20 credit ratings, are refusing to sell to them, leading the state in January = to=20 start buying power for the utilities' nearly 9 million residential and=20 business customers. The state is also buying power for a third investor-own= ed=20 utility, San Diego Gas & Electric, which is in better financial shape than= =20 much larger Edison and PG&E but also struggling with high wholesale power= =20 costs.=20 The Public Utilities Commission has approved rate increases of as much as 4= 6=20 percent on average to help finance the state's multibillion-dollar power=20 buys. The PUC is still determining how those increases will be spread among= =20 utility customers.=20 ,2001 Associated Press ?=20 PG&E says fewer small power plants offline=20 KAREN GAUDETTE, Associated Press Writer Thursday, May 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/10/s= tate0 343EDT0125.DTL&type=3Dnews=20 (05-10) 00:43 PDT SAN FRANCISCO (AP) -- Only eight of the 300 small power= =20 plants in Pacific Gas and Electric Co.'s territory remain shut down for=20 payment reasons, the struggling utility says. That means more vital megawat= ts=20 have come back online that could help prevent rolling blackouts.=20 But operators of those so-called qualifying facilities say that's because= =20 they're required to run their plants during periods of high demand to get= =20 paid, not because of a change of heart over millions of dollars owed to the= m=20 for past electricity deliveries.=20 ``What I believe will start happening is you will see QFs operate for a=20 minimal amount of time during peak times in order to get their capacity=20 payments,'' said Jan Smutney-Jones, executive director of the Independent= =20 Energy Producers. ``They won't be fully available to California.''=20 All eight of the plants in PG&E's territory are natural gas-fired plants th= at=20 deliver a combined 109 megawatts of electricity, enough to power about 80,0= 00=20 homes.=20 Lorie O'Donley, a spokeswoman with the Independent System Operator, which= =20 manages California's electric grid, said that more of so-called qualifying= =20 facilities had indeed come back online throughout the state.=20 ``Right now we have 1,400 megawatts offline statewide,'' O'Donley said,=20 though she didn't yet know how many QFs were offline in PG&E's territory an= d=20 in other territories.=20 QFs harness solar, biomass, geothermal or wind power, as well as natural ga= s,=20 to generate environmentally friendly electricity, and provide electricity t= o=20 the state's investor-owned utilities under contract.=20 QFs contribute about 6,000 megawatts to the state's power grid, O'Donley=20 said. A few weeks ago, around 3,000 megawatts were offline. Many plants wer= e=20 shut down in protest for not getting paid millions of dollars for past=20 electricity deliveries. That lack of power contributed to rolling blackouts= =20 which swept the state.=20 The past debt, as well as a new pricing system ordered by the Public=20 Utilities Commission, would force QFs to operate at a loss if they start=20 producing power at full capacity, said Smutney-Jones.=20 The new PUC price structure ties how much they can charge for their=20 electricity to the price of natural gas coming in at the Oregon border, whe= re=20 natural gas is cheaper. However, many plants can only ship and buy their ga= s=20 at the Topock border in the south, where prices are much higher.=20 ``I don't think we're anywhere near out of the woods with respect to the QF= =20 issue,'' Smutney-Jones said.=20 PG&E and Southern California Edison Co. have paid for QF electricity=20 delivered since April under order by the PUC. However, PG&E had made partia= l=20 payments on deliveries since last year, while SoCal Edison had paid nothing= .=20 San Diego Gas and Electric Co. says it never fell behind on its payments.= =20 www.pge.com=20 ,2001 Associated Press ?=20 A look at two rate designs before power regulators=20 The Associated Press Thursday, May 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/10/s= tate0 338EDT0123.DTL&type=3Dnews=20 , , -- (05-10) 00:38 PDT=20 Key components of rate design proposals introduced Wednesday by Loretta=20 Lynch, state Public Utilities Commission president, and Christine Walwyn, a= =20 PUC Administrative Law Judge. Both proposals suggest how to implement recor= d=20 rate increases passed by the PUC on March 27. Both rate plans use baseline = --=20 an average amount of power used based on a customer's climate, geography an= d=20 the time of year -- to help determine how much to charge customers.=20 President Loretta Lynch's proposal:=20 --Divides residential groups into five tiers=20 Tiers 1 and 2 include low-income customers exempt from rate hikes and power= =20 use up to 130 percent of baseline.=20 Tier 3 covers power use from 130 percent to 200 percent of baseline. Rate= =20 increase percentage was not released Wednesday.=20 Tier 4 covers power use from 200 percent to 300 percent of baseline. Rate= =20 increase percentage was not released Wednesday.=20 Tier 5 covers power use beyond 300 percent of baseline. Lynch said power us= ed=20 within these limits would receive an average 48 percent rate increase. Paul= =20 Clanon, head of the PUC's energy division, says that number is closer to=20 35-40 percent on average.=20 --Commericial customers of PG&E would receive an average 37.5 percent=20 increase on all electricity used.=20 --Industrial customers of PG&E would receive an average 52 percent increase= =20 on all electricity used, depending what time of day they used it.=20 --Agricultural customers of PG&E would receive an average 21 to 30 percent= =20 rate increase on all electricity used, depending what time of day they used= =20 it. Rates are capped at 30 percent.=20 --Would adopt a pilot program to introduce real-time pricing to federal=20 electric customers. Real-time pricing charges customers the full cost of=20 electricity. Therefore, proponents say, customers should shift their electr= ic=20 use away from times of high demand and higher prices, thus lowering demand= =20 and eventually lowering wholesale prices.=20 Administrative Law Judge Christine Walwyn's proposal:=20 --Divides residential groups into four tiers=20 Tier 1 includes low-income customers exempt from rate hikes and power use u= p=20 to 130 percent of baseline.=20 Tier 2 covers power use between 130 percent to 200 percent of baseline. Pow= er=20 used within these limits would receive an average 3 percent increase.=20 Tier 3 covers power use betwen 200 percent to 300 percent of baseline. Powe= r=20 used within these limits would receive an average 10 percent increase.=20 Tier 4 covers power use over 300 percent of baseline. This use would receiv= e=20 an average 34 percent increase.=20 --Exact information on other classes was not provided.=20 Source: Public Utilities Commission, Energy Division=20 ,2001 Associated Press ?=20 Lights stay on despite failure of big plant=20 John Wildermuth, Joe Garofoli, Chronicle Staff Writers Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /10/M N173855.DTL&type=3Dnews=20 With temperatures still high and generating plants running full out, state= =20 power officials managed by the smallest of margins to prevent a third=20 straight day of rolling blackouts yesterday.=20 "It's been a roller-coaster of an afternoon," said a weary Stephanie=20 McCorkle, spokeswoman for the California Independent System Operator.=20 Demand was running slightly ahead of estimates early in the day, but the=20 situation improved when the ISO asked its interruptible power users to cut= =20 their loads shortly after noon, McCorkle said.=20 Those users, who agree to temporarily limit their power use when asked in= =20 return for lower rates, gave the system an additional 800 megawatts to work= =20 with.=20 Temperatures again soared inland, but by 2 p.m. a slight break in the weath= er=20 raised hopes that the emergency could be easing.=20 Then, a 750-megawatt plant in Pittsburg broke down.=20 "That wrecked my day," said Jim McIntosh, the ISO's operations director.=20 While the ISO managed to beg, borrow and buy enough extra power to replace= =20 the Pittsburg plant for the afternoon, the generator's loss is another=20 headache for a system already stretched to the maximum.=20 The Pittsburg plant will be shut down for a minimum of 60 hours while crews= =20 repair a boiler tube leak, said a spokesman for Mirant Corp., the plant's= =20 owner.=20 "I stress 'minimum' here, because that's usually the least amount of time i= t=20 takes to fix one of these things," said Chuck Griffin, a company spokesman.= =20 The Pittsburg plant is the largest gas-fired generator in the state's power= =20 grid, McIntosh said.=20 California already has plants that normally produce 12,000 megawatts of pow= er=20 out for maintenance and repair.=20 "We knew May was going to be a tough month," McIntosh said.=20 E-mail the writers at jgarofoli@sfchronicle.com and=20 jwildermuth@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 12=20 PG&E fights consumer committee=20 Obstruction feared in bankruptcy case=20 Bob Egelko, Chronicle Staff Writer Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /10/M N150518.DTL&type=3Dnews=20 Pacific Gas and Electric Co. asked a judge yesterday to dissolve a committe= e=20 appointed to represent consumers in the utility's bankruptcy case, calling= =20 its members "special interest groups" who could obstruct the proceedings.= =20 The nine-member committee, with representatives from businesses, government= =20 agencies and consumer organizations, was named last week by the Justice=20 Department's bankruptcy trustee for Northern California and Nevada. Trustee= =20 Linda Ekstrom Stanley said her action was needed to give the public a voice= =20 because the state had declined to take part in the case.=20 The appointment was significant because the committee can participate fully= =20 in the high-stakes case, conduct investigations, comment on PG&E's plan to= =20 settle its debts and propose an alternative plan. No past utility bankruptc= y=20 case has included a consumer committee.=20 In papers filed late yesterday, PG&E said the committee was unauthorized by= =20 bankruptcy law and was potentially harmful.=20 The law allows only unsecured creditors and equity security holders to be= =20 appointed to official committees, and consumers do not fit those categories= ,=20 PG&E attorneys argued.=20 A committee of the largest unsecured creditors, including banks and power= =20 generators, was appointed earlier. That committee has also opposed the=20 appointment of the consumers' committee but has not filed legal objections.= =20 Even if individual customers qualified for appointment, "none of the specia= l=20 interest groups can claim a mandate to represent the interests of PG&E=20 ratepayers generally," the utility said.=20 PG&E said the two consumer organizations on the committee, The Utility Refo= rm=20 Network and Consumers Union, have "well-known political and policy agendas= =20 that have nothing to do with the reorganization principles of the Bankruptc= y=20 Code" and "a demonstrated history of aggressive lobbying and litigation."= =20 Noting that the consumers' committee would be funded by PG&E, the utility= =20 said the consumer groups' "proclivities could substantially retard the=20 progress of this case and seriously prejudice its outcome."=20 U.S. Bankruptcy Judge Dennis Montali has scheduled a May 18 hearing on PG&E= 's=20 challenge. Stanley said she had met last week with PG&E representatives and= =20 lawyers, concluding "after significant research" that her action was both= =20 legal and necessary.=20 "The public's interest is not being protected in the bankruptcy case," she= =20 said, noting that the state government was keeping out of the proceedings i= n=20 order to avoid exposure to PG&E lawsuits.=20 "The ratepayers are claimants here," Stanley said. "They have a right to=20 expect performance from this utility. They have a right to be heard here."= =20 Committee member Nettie Hoge, executive director of The Utility Reform=20 Network, said she was confident in Stanley's judgment. "You've got a monopo= ly=20 utility and customers who are forced to pay rates for an essential service,= "=20 Hoge said. "You've got to have customers involved in the discussions.=20 "The trustee has done an admirable job, choosing a committee that is very= =20 diverse, folks who have a stake in every aspect of the economy."=20 E-mail Bob Egelko at begelko@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 Generators silent on Davis plan=20 He offers lower compensation to stave off Edison bankruptcy=20 Lynda Gledhill, Chronicle Sacramento Bureau Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /10/M N128963.DTL&type=3Dnews=20 Sacramento -- Gov. Gray Davis, who has portrayed power generators as greedy= =20 villains in the state's power crisis, met face-to-face with industry=20 officials yesterday, calling on them to forgive some of the debt racked up = by=20 an insolvent utility.=20 In a three-hour meeting described as "businesslike," Davis said generators= =20 will have to accept 70 cents on the dollar of past debt as part of a soluti= on=20 designed to prevent Southern California Edison Co. from going bankrupt.=20 At least one of the companies flatly rejected the idea after the meeting,= =20 putting the deal in jeopardy.=20 If the two sides are not able to reach an agreement, Southern California=20 Edison would probably follow Pacific Gas & Electric Co. into bankruptcy=20 court, where creditors face a lengthy and uncertain resolution to recoverin= g=20 debts.=20 Davis has run into legislative opposition to the original terms of the=20 agreement he brokered with Southern California Edison, which includes the= =20 state's purchase of the utility's transmission lines as a way to help it=20 regain financial stability.=20 But the governor said he now believes that the deal can win passage in the= =20 Legislature if the generators "take a haircut."=20 "I indicated that passage of the (agreement) that we signed with Edison wou= ld=20 only work if they agreed to reduce the amount of money they claim the=20 utilities owe them," he said.=20 Edison owes generators, including municipal utilities, between $1.1 billion= =20 and $1.2 billion, Davis said. He said he agreed that talks would also take= =20 place with municipal utilities about taking less money on the dollar.=20 Most of the generators refused to comment on the proposal, but a=20 representative of Reliant Energy dismissed the suggestion.=20 "That's simply an unreasonable number to start with," said John Stout, seni= or=20 vice president of Reliant, who said that 67 cents on every dollar the compa= ny=20 receives goes to pay the fuel bill, which doesn't include personnel and=20 maintenance of facilities.=20 "It doesn't get any supply built," Stout said of the idea. "I would much=20 rather get that 100 cents on the dollar" to invest in new generation.=20 The generators, who have reaped huge profits in the past year, said the mai= n=20 thrust of the meeting was on short-term issues, such as lining up more powe= r=20 for the summer.=20 Davis asked which companies were not yet selling to the state and said he= =20 would work to get the Department of Water Resources to sign agreements with= =20 them.=20 He also asked the generators to support the Edison deal, reportedly asking= =20 them to try to win GOP support for it.=20 Davis agreed to a proposal from the companies to form permanent working=20 groups to deal with the crisis.=20 A handful of protesters led by former Senate candidate Medea Benjamin=20 condemned Davis for meeting with the companies. Dressed as pigs, with the= =20 names of the companies on their masks, the five protesters brought a small= =20 live pig into the Capitol, where it proceeded to defecate outside the=20 governor's office before the group was escorted out of the building.=20 Lawmakers have insisted that the generators must take a cut in the money th= ey=20 are owed as part of any deal ending the energy crisis.=20 Senate President Pro Tem John Burton, D-San Francisco, said earlier in the= =20 day that at least a 30 percent "haircut" would be necessary before he would= =20 allow any deal to be approved.=20 "What we have here is a problem caused by the unfettered greed of generator= s=20 that has brought capitalism to a new low," Burton said.=20 He said if the generators don't agree to some kind of cut, they will find= =20 themselves in bankruptcy court.=20 Earlier in the day, the Senate approved a bill that allows the state=20 treasurer to issue $13.4 billion in bonds. The money, which will eventually= =20 be repaid by ratepayers, will be used to replace the funds that have draine= d=20 out of the state's general fund since January to buy electricity and pay fo= r=20 future power purchases.=20 The state has spent about $6 billion so far -- money, Democrats argue, that= =20 has to be replaced in order to fund other state services.=20 "Where do those revenues go?" asked Sen. Sheila Kuehl, D-Santa Monica, duri= ng=20 the floor debate. "They create child care slots, pay in-home support servic= es=20 and provide medical benefits for the poor."=20 But Republicans said the state's budget should take some of the hit, instea= d=20 of pushing it all off on ratepayers.=20 Sen. Tom McClintock, R-Northridge, said the average ratepayer will see a $2= ,=20 000 increase on their utilities bills over the next 15 years to pay for the= =20 bond.=20 The final vote was 23 to 15. Because not enough Republicans supported the= =20 measure in either the Assembly or Senate to make the bill an urgency measur= e,=20 the law will not take effect until 90 days after the end of the special=20 session. Davis will sign the bill today.=20 Chronicle staff writer Greg Lucas contributed to this report.=20 E-mail Lynda Gledhill at lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 Rate plans shield most households=20 Posted at 11:05 p.m. PDT Wednesday, May 9, 2001=20 MICHAEL=20 BAZELEY=20 Mercury News=20 State regulators on Wednesday painted the clearest picture yet of who will= =20 bear the brunt of the biggest electrical rate hike in 20 years: Commercial,= =20 industrial and agricultural users will be socked with power bills that coul= d=20 soar by 50 percent or more.=20 But most residential customers will be shielded from huge rate increases,= =20 regulators said. In two proposals unveiled Wednesday by the California Publ= ic=20 Utilities Commission and to be voted on Monday, only the heaviest residenti= al=20 users get hit with big hikes, potentially doubling their rates in an effort= =20 to push them toward conservation.=20 ``The moderate users will be largely protected,'' said PUC chairwoman Loret= ta=20 Lynch.=20 The PUC has been grappling with designing a rate plan for customers since= =20 March, when it announced an across-the-board rate hike of 3 cents per=20 kilowatt-hour. The PUC announced the increase -- designed to help the state= =20 climb out of its ongoing power crisis -- before deciding how the rate=20 structure would work and considered at least 20 plans.=20 Details of the proposals were criticized Wednesday by energy experts who sa= id=20 residential customers are not being charged enough to encourage conservatio= n,=20 and by business representatives who said business and commercial users are= =20 being unfairly targeted.=20 ``This is not a real rate increase for the residential class and we need=20 one,'' said Severin Borenstein, director of the University of California=20 Energy Institute. ``This is ridiculous. This is not a way to respond. This= =20 will send no price signal to people at all.''=20 Both proposals create a five-tier billing system for residential customers,= =20 with heavy users -- nearly 10 percent of all households -- seeing their rat= es=20 possibly double. Energy misers and moderate users -- the other 7.3 million= =20 households -- would either see no change at all in their bills or only mode= st=20 increases of up to about $12 month.=20 The consumer group the Utility Reform Network said it was generally satisfi= ed=20 with the rate plans and how they spread the increase across all customer=20 groups.=20 ``Yes, they've done a reasonable job of allocating the pain equitably,'' sa= id=20 Bob Finkelstein, a staff attorney with the organization. ``But we shouldn't= =20 be in this position in the first place. I think it's a shame we're even goi= ng=20 to see a rate increase.''=20 Covering state's costs=20 Lynch said this rate increase, along with a statewide bond recently approve= d=20 by lawmakers, should cover the state's costs in purchasing power.=20 But she left the door open for further rate increases, especially if energy= =20 suppliers raise the price of electricity.=20 ``If the sellers decide to turn up the heat and raise rates,'' she said,=20 ``we'll have to look at those numbers again.''=20 Lynch and an administrative law judge both submitted similar plans. Because= =20 Lynch is the commission president, her proposal would appear to be the most= =20 likely to gain the support of fellow commissioners.=20 Industrial users appear to take the biggest hit under Lynch's plan. Those= =20 equipped with special meters could see their rates double or more for power= =20 they consume during peak demand periods. Small commercial users would pay= =20 about 45 percent more for their ``on-peak'' electricity, Lynch said.=20 Lynch said she intentionally ``weighted'' the on-peak rates higher as a way= =20 to encourage conservation.=20 ``By promoting energy conservation during summer peak hours,'' she said in= =20 her proposal, ``we attempt to limit blackouts and service interruptions in= =20 order to preserve public health and safety.''=20 But industry representatives cried foul.=20 ``These costs make it impossible to operate at a profit,'' said Jack Stewar= t,=20 president of the California Manufacturers and Technology Association. ``You= =20 can't add these kinds of prices to the product and try to sell it. This loo= ks=20 like the beginning of the ringing of the death knell for the economy.''=20 Agriculture caps=20 For agricultural users, the proposals are a mixed bag. Agricultural groups= =20 were hoping the PUC would endorse a recommendation by Gov. Gray Davis to ca= p=20 their rate increases at 5 to 15 percent. Agriculture groups did get caps, b= ut=20 they are higher than the governor's, ranging from 23 to 30 percent in both= =20 plans.=20 Even before the rate increase, farmers and other agricultural businesses we= re=20 bracing for a rough summer. Because of a statewide water shortage, farmers= =20 will need to rely more on groundwater pumps, significantly driving up their= =20 energy use.=20 ``We are definitely going to be impacted significantly,'' said Michael=20 Boccadoro, executive director of the Agricultural Energy Consumers=20 Association.=20 Federal buildings=20 Lynch also slung an arrow at the federal government, proposing that federal= =20 buildings in California be forced to pay market rates for electricity. Her= =20 proposal that federal buildings be given real-time meters could drive up=20 federal government energy rates by 10 times or more.=20 Lynch is angry with the federal government's hands-off attitude toward the= =20 state's power crisis and its insistence that Californians pay market rates= =20 for electricity.=20 Lynch's idea -- which she said would be studied in the coming weeks -- was= =20 derided by several critics.=20 ``This is something you do in kindergarten,'' said fellow Commissioner=20 Richard Bilas. ``All it's going to do is make matters worse'' with the=20 federal government.=20 The PUC considered rate proposals from utility companies, consumer groups a= nd=20 the governor. Gov. Davis' proposal was perhaps the most closely watched=20 because three of the PUC commissioners are Davis appointees.=20 Davis proposed a slightly smaller across-the-board rate increase, an idea= =20 that was rejected by both Lynch and the judge. But Lynch, a Davis appointee= ,=20 stressed that the two plans embrace other aspects of the governor's proposa= l,=20 such as the caps on agricultural rates.=20 Contact Michael Bazeley at mbazeley@sjmercury.com or (415) 434-1018.=20 Energy bond plan gets final legislative OK, faces delay=20 Posted at 8:28 p.m. PDT Wednesday, May 9, 2001=20 BY DION NISSENBAUM=20 Mercury News Sacramento Bureau=20 SACRAMENTO -- Amid rising partisan attacks, state Democrats gave final=20 approval Wednesday to a record $13.4 billion energy crisis bond plan to=20 replenish the drained California budget and buy critical power for the=20 state's impoverished utilities.=20 Democrats blasted Republicans for their steadfast refusal to support the pl= an=20 -- opposition that will force the state to continue to use its already=20 strained budget to buy power through the summer.=20 ``I think the Republicans are playing a perilous game with dire=20 consequences,'' said Assemblywoman Carole Migden, D-San Francisco, after th= e=20 Senate approved the bill on a 22-15 vote. Gov. Gray Davis plans to sign the= =20 bill today.=20 Without two-thirds support in both houses, the bonds cannot be sold=20 immediately, and the state will lose the chance to line up about $4 billion= =20 in short-term loans.=20 Because Democrats could pass the bond plan by only majority votes, the=20 Legislature will have to shut down its special energy crisis session Monday= .=20 Without the two-thirds support, the bond measure cannot become law until 90= =20 days after the session comes to a close.=20 Closing the session would force state lawmakers to reintroduce hundreds of= =20 other energy crisis bills when Davis, as expected, launches a second energy= =20 crisis special session.=20 Zane Mann, publisher of the monthly California Bond Advisor newsletter,=20 blasted Republicans for not throwing their support behind the bonds.=20 ``I can't understand why the Republicans did what they did,'' Mann said. ``= I=20 find it totally obstructionist. They're willing to sell out the state in=20 order to blame Davis.''=20 During Wednesday's floor debate, Sen. Tom McClintock, R-Thousand Oaks, said= =20 bonds would saddle each Californian with an extra $2,000 on their energy=20 bills.=20 ``This expense was incurred because of some very bad decisions by elected= =20 officials of California,'' he said.=20 The state has just about used up its $6.6 billion budget surplus buying pow= er=20 for the state's cash-strapped utilities and will have to tap unused cash fr= om=20 state programs to continue to buy power this summer.=20 There is still concern that the state will be unable to find buyers for the= =20 largest bond measure in U.S. history.=20 Mann, as well as the bank behind the bonds, J.P. Morgan, insist there's a= =20 market for them. Mann said the state's two largest mutual funds are waiting= =20 to buy the bonds -- if they have a high interest rate.=20 If not, he said, ``they'll go out the window.''=20 Mercury News Staff Writer Jennifer Bjorhus contributed to this report.=20 Fusion research gets a boost=20 Published Thursday, May 10, 2001, in the San Jose Mercury News=20 BY JIM PUZZANGHERA=20 Mercury News Washington Bureau=20 WASHINGTON -- With California and the nation facing energy troubles, Rep. Z= oe=20 Lofgren introduced bipartisan legislation Wednesday to accelerate research= =20 into fusion power, a potential long-term solution that promises cheap,=20 environmentally friendly power if major scientific hurdles can be overcome.= =20 Fusion is the way the sun and stars produce their energy. Unlike nuclear=20 power, which is a product of fission, or the splitting of atoms, fusion=20 produces energy by fusing atoms together -- with no high-level radioactive= =20 waste. If it works, 50 cups of seawater could produce as much energy as two= =20 tons of coal, advocates said.=20 Fusion energy has been proven possible in laboratories, but a power plant= =20 using the technology is still decades away, experts said. The Department of= =20 Energy is spending $248 million on fusion research this year, with the=20 Lawrence Livermore National Laboratory one of several facilities around the= =20 country receiving funding.=20 Fusion research funds, however, have decreased about 40 percent in the past= =20 decade, and Lofgren wants to reverse that. Her legislation, the Fusion Ener= gy=20 Sciences Act of 2001, seeks an increase of $72 million over the next two=20 years. It would also require the energy secretary to submit a plan by July= =20 2004 for the next major step in fusion energy, a burning-plasma experiment.= =20 ``It is time for this country to move beyond caveman technology to the=20 technology of the future -- fusion technology,'' said Lofgren, D-San Jose, = as=20 she announced the legislation in front of the Capitol Hill Power Plant, whi= ch=20 burns coal, oil and natural gas to power congressional offices. She was=20 joined by Reps. Mike Honda, D-San Jose, Randy Cunningham, R-Escondido, and= =20 Rush Holt, D-N.J., a physicist. The bill also is co-sponsored by Reps. Elle= n=20 Tauscher, D-Walnut Creek, and Barbara Lee, D-Oakland.=20 Fusion requires intense heat and pressure. Under the proper conditions, lik= e=20 those inside the sun, the nuclei of two hydrogen atoms can be forced togeth= er=20 so tightly that they fuse, forming a helium nucleus and releasing large=20 amounts of energy that could be harnessed for electricity.=20 The major source of fusion fuel is deuterium (heavy water), which is readil= y=20 extracted from water. The other fuel source, tritium, is widely available= =20 from seawater and land deposits.=20 Fusion is not to be confused with so-called ``cold fusion,'' a disputed=20 theory that few scientists believe is achievable. In 1989 two Utah scientis= ts=20 reported cold-fusion success in the laboratory by immersing metal electrode= s=20 in a jar of heavy water. Their results were later discredited, but some=20 scientists continue to experiment with cold fusion.=20 Although research on ``hot'' fusion has been moving forward, it still has= =20 many scientific hurdles to overcome, said Robert Park, a physics professor = at=20 the University of Maryland.=20 ``We're still a long way away. Thirty years ago they used to say it would b= e=20 30 years, and they're still saying the same thing,'' he said. ``We can fuse= =20 atoms every day, but the trick is when you produce more energy than it take= s=20 to get there.''=20 The head of one of the leading fusion research facilities in the country=20 agreed that it will probably be the middle of this century before a=20 functioning fusion power plant is operating, but he said the scientific=20 advances ``have really been fantastic.''=20 Robert Goldston, director of the Plasma Physics Laboratory at Princeton=20 University, said that as a graduate student there in 1974 he and other=20 researchers were thrilled to produce one-tenth of a watt of electricity for= =20 one-hundredth of a second using fusion. In 1997, they produced 10 million= =20 watts of electricity for about a second -- a degree of advance that outstri= ps=20 the phenomenal increases in computing power.=20 ``The trick now is to make fusion as practical as computers are,'' he said.= =20 ``It's a grand scientific challenge.'' Power is money=20 PUC details plan to raise Edison rates up to 34%. Half of users to see no= =20 hike.=20 May 10, 2001=20 By KATE BERRY The Orange County Register=20 JOHN MEE of Fullerton is focused at a PUC hearing Wednesday at Fullerton=20 College. Photo: Daniel A. Anderson / The Register ? ? Customers of Southern California Edison would see their electricity bills= =20 jump as much as 34 percent under rate proposals unveiled Wednesday by the= =20 state's top energy regulator.=20 The Public Utilities Commission designed two rate plans to encourage energy= =20 conservation and repay the state of California for wholesale power purchase= s.=20 Though many customers would pay higher rates, half of all residential=20 customers, or 4 million households, would not be subject to any rate increa= se=20 at all. In January, the Legislature blocked rate hikes for customers who us= e=20 relatively little electricity or have low incomes.=20 Loretta Lynch, president of the PUC, blamed "unbounded and exorbitant=20 wholesale electricity prices" for the proposed increases, which she disclos= ed=20 at a news conference in San Francisco. "We all have to share the pain of=20 that," she said.=20 If either of the proposed plans is approved Monday by the commission, the= =20 higher rates will appear on electricity bills beginning June 1.=20 The rate increase won't apply to customers of San Diego Gas & Electric or= =20 Anaheim Public Utilities.=20 The burden of higher rates would fall primarily on the 2 million households= =20 that consume the most electricity.=20 A household that pays $114 a month would, on average, pay $12 more. Bigger= =20 users with monthly bills of $213 would pay an additional $73 - a 34 percent= =20 increase.=20 The hikes would come on top of a 9 percent increase approved by the PUC in= =20 January.=20 Economic crisis in forecast=20 May 10, 2001=20 By ANNE C. MULKERN The Orange County Register=20 Rolling blackouts this summer could cost California $26.4 billion in lost= =20 production and income, a business report released Wednesday forecasts.=20 "This isn't an energy crisis, it's an economic crisis,'' said Nancy=20 Heffernan, spokeswoman for the group of retailers, manufacturers and other= =20 business groups that funded the $25,000 study.=20 The report came as Orange County and California escaped a third consecutive= =20 day of rolling blackouts. Energy demand fell when the weather cooled.=20 The report was released to coincide with a state Public Utilities Commissio= n=20 announcement on higher electricity rates. The highest rate hikes - up to 50= =20 percent - will hit industrial customers.=20 Although economists previously have said the energy crisis is unlikely to= =20 cause a recession, the report said blackouts could cut state productivity= =20 growth from current projections of 2.3 percent to less than 1 percent.=20 If the energy crunch is more severe, economic growth could stop, the report= =20 said.=20 The study, by New Jersey-based research AUS Consultants, is based on=20 interviews with 34 businesses in 25 different industries.=20 It assumes 110 hours of blackouts will darken businesses and homes this=20 summer and that the average customer will experience about 20 hours of=20 blackouts.=20 Based on the state's so-far limited experience with rolling blackouts, that= =20 prediction may be overly severe.=20 The report assumes statewide blackouts, but not every customer is blacked o= ut=20 during any given outage. On March 19, for example, when the most severe=20 blackouts so far hit the state, only 14 percent of Orange County was affect= ed. GOP stalls sale of bonds with vote=20 The $13.4 billion measure is approved, but it lacks two-thirds support for= =20 immediate implementation.=20 May 10, 2001=20 By JOHN HOWARD The Orange County Register=20 For Gov. Gray Davis, the bond sale and the new state budget for the 2001-02= =20 fiscal year beginning July 1 were linked.=20 The governor had hoped to win Republican support for the bonds, and thus a= =20 two-thirds majority in both houses, which would have allowed the legislatio= n=20 to take effect immediately and the bonds to be marketed as early as this=20 month.=20 But Republican opposition meant the legislation was approved by only a simp= le=20 majority, forcing a 90-day wait.=20 "We think we're probably biting off more financing than we can chew," said= =20 Jaime Fis Fis, spokesman for Assembly Republican Leader Dave Cox.=20 That means the bond-sale proceeds won't be contained in the state's spendin= g=20 plan until weeks after the new fiscal year begins, and if the market sours= =20 for such a large bond issue the state could be affected.=20 "This greatly complicates the budget process," Davis said.=20 Earlier in the day, the Legislature's financial expert said a slowing econo= my=20 was causing a drop in incoming revenue that could force some $3.4 billion i= n=20 cuts from the plan Davis proposed in January.=20 The administration is going to announce its own view of the budget on Monda= y,=20 but Davis signaled that the worsening economy would affect his spending pla= n.=20 "I suspect it will have an impact," he said.=20 The sole Democratic dissenter in Wednesday's 23-15 Senate vote was Sen. Joe= =20 Dunn, D-Santa Ana.=20 He did not address the bond bill on the Senate floor, but earlier said he= =20 opposed the bond plan because it was not tied to aggressive action targetin= g=20 profiteering power generators.=20 Electricity notebook=20 Davis asks power suppliers to accept 30% less than owed=20 May 10, 2001=20 From Register news services=20 SACRAMENTO Gov. Gray Davis asked generators to accept 30 percent less than= =20 they are owed for electricity sold to the state, saying the discount is the= =20 price of keeping Edison International solvent.=20 Davis said power suppliers must accept less than they are owed in order to= =20 win legislative approval for a financial-rescue package designed to keep=20 Edison, owner of the state's No. 2 utility, Southern California Edison, out= =20 of bankruptcy. PG&E Corp.'s Pacific Gas & Electric declared bankruptcy Apri= l=20 6.=20 "I suggested that 70 percent now was better than anything they could get in= =20 bankruptcy three to four years down the line," the governor said during a= =20 press conference in Sacramento.=20 Davis made his pitch during a meeting with executives from 12 of the larges= t=20 U.S. energy producers.=20 Air pollution rules to be modified for power plants=20 DIAMOND BAR Southern California air regulators are close to slashing their= =20 market-based system for controlling power plant pollution, which for years= =20 has allowed plant operators to avoid installing emission controls.=20 The move is designed to allow large power plants to operate at full capacit= y=20 without facing stiff fines as they try to meet the demand for electricity.= =20 The change was prompted by an executive order from Gov. Gray Davis requirin= g=20 air districts to let large generators run at the greatest capacity.=20 Rules expected to be considered Friday by the South Coast Air Quality=20 Management District Governing Board would curtail a program known as RECLAI= M,=20 which has allowed power plants to buy and sell unused emission "credits"=20 controlled by other polluters.=20 Edison, PG&E allege El Paso withheld natural gas supply=20 SAN FRANCISCO California's two largest utilities have filed testimony with= =20 federal regulators alleging El Paso Corp. withheld natural gas from the=20 state, leading to an overcharge of some $3.7 billion in energy costs over t= he=20 past year and worsening the state's power crisis.=20 "We believe El Paso has withheld significant amounts of natural gas from=20 California and manipulated gas prices to the tune of $3.7 billion. ... PG&E= =20 also supports these findings," said Kevin Lipson, lead attorney for Edison= =20 International unit Southern California Edison, the state's No. 2=20 investor-owned utility.=20 A spokesman for PG&E Corp. unit Pacific Gas & Electric, the state's No. 1= =20 utility, confirmed Wednesday that it made a filing late Tuesday with federa= l=20 energy regulators alleging that El Paso Corp. "clearly possessed the abilit= y=20 and incentive to raise (gas) prices."=20 Natural-gas prices in California, the highest in the U.S. over the past yea= r,=20 have been a key reason for the surge in power prices in the state because= =20 gas-fired turbines are the single biggest source of electricity in=20 California, providing more than a third of the power used by the state's 34= =20 million residents.=20 Regulator says more electricity rate hikes are likely=20 PUC member tells a Fullerton audience that more increases may be necessary.= =20 May 10, 2001=20 By KATE BERRY The Orange County Register=20 FULLERTON COLLEGE economics professor Arienne Turner brought students to=20 Wednesday's PUC hearing on power-rate increases. Photo: Daniel A. Anderson / The Register ? ? A California energy official said consumers can expect more electricity rat= e=20 increases beyond the proposals unveiled Wednesday.=20 Carl Wood, one of five commissioners on the state's Public Utilities=20 Commission, said at a public hearing at Fullerton College on Wednesday that= =20 raising electricity rates was a "hateful choice," but one the commission ma= y=20 have to revisit.=20 "This may not be the end of the rate increases," Wood told about 250 people= =20 at the hearing, one of nine held by the PUC throughout California this week= .=20 The hearings were scheduled to allow consumers a voice on how the rate=20 increase should be divvied up among different classes of customers.=20 PUC President Loretta Lynch unveiled two rate proposals Wednesday. Under=20 those plans, rate increases of as much as 34 percent would show up on the= =20 bills of customers of Southern California Edison and Pacific Gas & Electric= =20 starting in June. The increases would be retroactive to March 27.=20 Consumers expressed anger and frustration at the hearing in Fullerton befor= e=20 Wood and Administrative Law Judge Michael Galvin.=20 "Consumers did not create this mess, and we should not have to pay for it,"= =20 said Ruth Shapin, a Santa Ana lawyer.=20 Darrell Nolta, a systems engineer in Westminster, held up copies of the 199= 6=20 law that deregulated the electricity industry, which promised consumers a 2= 0=20 percent reduction in retail electricity rates by 2002.=20 "I want a refund of my money," Nolta said, referring to the roughly $19=20 billion in so-called "stranded costs" that the state's three largest=20 utilities have collected in the past four years and transferred, in part, t= o=20 their parent corporations. "I want to be able to sue the state of Californi= a=20 and the PUC for this."=20 The money transfers and salaries paid to executives at Edison and PG&E were= =20 the subject of most of the consumer vitriol.=20 The PUC is investigating the utilities' connections with their parent=20 companies. The utilities say their actions have been legal.=20 Tom Martin, a representative of the Small Manufacturers Association of=20 California, said the rate increases will cripple the state's economy.=20 "Some people believe businesses can just raise prices to make up the=20 difference," he said. "But they cannot."=20 Under the proposals released Wednesday, nearly half of all consumers would= =20 pay no rate increase. The 2 million heaviest residential users would pay 10= =20 percent to 34 percent more, or an extra $12 to $73 a month. The 2 million= =20 households that are medium users would pay just $2 more a month, a 3 percen= t=20 increase.=20 Small and medium-sized businesses, which pay lower rates than consumers, ca= n=20 expect a 35 percent increase, while farmers will pay 23 percent more.=20 Industrial users face a 50 percent rate hike.=20 The rates would be partly used to pay back up to $13.4 billion in bonds the= =20 state Senate approved Wednesday to recover state expenditures on power sinc= e=20 January and future purchases. In just four months, the state has spent abou= t=20 $6 billion buying power for Edison, PG&E and San Diego Gas & Electric Co.= =20 customers. Lynch, the PUC president, said the rate proposals would raise $5= =20 billion statewide this year.=20 Under deregulation, consumers' rates were frozen at artificially high level= s=20 to allow the utilities to collect "stranded costs," mostly investments in= =20 nuclear power plants and contracts with small energy producers. The utiliti= es=20 thought those investments would be unprofitable in a deregulated environmen= t.=20 Starting a year ago, when wholesale electricity prices rose above the level= =20 of frozen retail rates, the utilities were stuck with losses on their power= =20 purchases. The losses amounted to more than $14billion for Edison and PG&E= =20 through January.=20 "Most of the money in this crisis went to the power cartel," said Wood,=20 referring to private power generators that purchased power plants from Edis= on=20 and PG&E under deregulation. "In the long run, we have to move back to a=20 regulated system because this is an essential commodity."=20 PG&E declared bankruptcy April 6, saying it could no longer shoulder its=20 debt.=20 Starting all over again=20 The Legislature's special sesion on the power crisis ends today -- with mor= e=20 work to do at an added cost.=20 May 10, 2001=20 By HANH KIM QUACH The Orange County Register=20 SACRAMENTO The state will have to restart a $3.2 million legislative proces= s=20 after lawmakers today adjourn the special session devoted to fixing the=20 energy market.=20 The energy crisis is by no means solved, but because of the rules of the=20 Legislature, the special session must be gav eled to a close to ensure that= =20 the $13.4 billion revenue bond bill passed by the Senate on Wednesday can b= e=20 enacted 91 days after Gov. Gray Davis signs it.=20 But by abruptly ending the session, about 200 energy-related bills that=20 lawmakers have been hashing out will die, said Jon Waldie, chief consultant= =20 for the Assembly Rules Committee.=20 Lawmakers would have to reintroduce them in a new special session with a ne= w=20 bill number, he said. The non-partisan Legislative Analyst's Office estimat= es=20 that it costs an average of $15,900 for each bill that moves through the=20 legislative process. That accounts for printing and staff hours.=20 Democrats are trying to make sure bills don't have to go through the troubl= e=20 of being rescheduled for hearings and re-debated in committees, both=20 time-consuming efforts, said an aide for Assembly Speaker Bob Hertzberg.=20 But restarting the process has Republicans worried.=20 "It's going to delay the process,'' said Assemblyman Tony Strickland,=20 R-Ventura. "How can the process be delayed when people are going through=20 rolling blackouts?"=20 It's also more work for staff members who have spent countless hours drafti= ng=20 ideas into legalese.=20 Bion Gregory, lead attorney for the Legislative Counsel's Office, said the= =20 attorneys need to recreate bills each time they're amended to show how the= =20 proposal would change from existing law.=20 "It's not a matter of taking language and reproducing it,'' he said.=20 The special session mechanism allows lawmakers to pass and enact bills more= =20 quickly than in the regular session. In special session, bills that pass wi= th=20 a simple majority vote take effect 90 days after the session adjourns, rath= er=20 than the following Jan. 1, as with regular-session bills.=20 Bills passed with a two-thirds majority in special session can be enacted= =20 immediately after the governor signs them. In regular session, such bills= =20 don't become effective until 90 days after signed.=20 Having a second session on the same topic didn't concern Ron Roach of the= =20 California Taxpayers Association as much. He said the second session might= =20 even be more efficient because lawmakers will be more aware of each other's= =20 bills and not introduce similar ones. In fact, the second time around might= =20 streamline the process, he said.=20 In addition, some of bills that have been largely passed over as legislativ= e=20 leaders search for more immediate fixes to the energy problem are probably= =20 not going to make it far anyway.=20 "If they didn't get a hearing (and voted on by now) they never will - what'= s=20 the point?'' Roach said.=20 Davis is set to sign a $13.4 billion bond-issue measure today to cover=20 electricity costs=20 May 10, 2001=20 By JOHN HOWARD The Orange County Register=20 SACRAMENTO Gov. Gray Davis is prepared to sign off on the biggest state loa= n=20 in history today - a $13.4 billion bond sale to buy emergency electricity f= or=20 California's beleaguered utilities and replenish a state treasury sapped by= =20 the energy crisis.=20 The average residential utility ratepayer would pay $2.50 to $3 per month f= or=20 up to 15 years to retire the debt. Some critics placed the figure at $10.55= =20 per month for ratepayers of all sizes.=20 The Democrat-ruled state Senate, like the Assembly earlier in the week,=20 approved the bond-sale legislation along partisan lines Wednesday.=20 The bill authorizes the state to borrow up to $13.4 billion by selling=20 revenue bonds beginning in August. The money will be used to pay back the= =20 state for more than $6 billion worth of electricity it has bought since=20 January on behalf of the utilities and to finance the purchase of new power= =20 in long-term contracts.=20 Davis said he plans to use about $12.5 billion of the bond and keep the res= t=20 in an emergency reserve.=20 Democratic supporters said the borrowing protected the state budget as=20 California faces an economic downturn and dwindling revenue, and protected= =20 potentially threatened programs. Republican critics said the bonds would=20 burden ratepayers for years.=20 "If we don't pass this bill today, we're going to have to wipe out programs= ,"=20 said Sen. Tom Torlakson, D-Antioch, although he did not say which programs= =20 could be affected.=20 But Republicans in both houses said the bonds were too high, and urged the= =20 governor and legislative leaders to strike a compromise.=20 Thursday, May 10, 2001=20 Papering over state electricity problems=20 Crisis management and recovery plans are the way to solve a crisis, not=20 piecemeal programs and gimmicks. But even as new blackouts roll across the= =20 state, piecemeal is about all we're getting in the way of solutions from Go= v.=20 Gray Davis and the California Legislature.=20 The latest one came Monday when the Assembly voted for a $13.4 billion=20 revenue bond to pay for this year's high electricity bills. (Revenue bonds= =20 are paid by a service's users, in this case ratepayers.) The Senate is=20 expected to pass the bill, Senate Bill 31X, today or Thursday.=20 Because the two-thirds threshold was not met in the Assembly, the bonds cou= ld=20 not be issued immediately, but instead will be issued in 90 days, in August= .=20 In the 49-29 vote, only Republican Assemblyman Anthony Pescetti of Rancho= =20 Cordova sided with the Democratic majority. The bonds will repay the state general fund for electricity purchases which= ,=20 so far in the crisis, amount to at least $5 billion and will rise much high= er=20 later this year. Bonds will be repaid over 15 years.=20 In a conference call Gov. Davis held with us and several other newspapers= =20 Monday, he explained that he hoped for bipartisan support for the bonds=20 because the delay "would greatly complicate the budget process and could=20 damage the economy. It's my hope that both parties can be part of the=20 solution, not part of the problem. People elected us to be problem solvers.= " The Republicans' beliefs were summarized by Assemblyman Tony Strickland of= =20 Thousand Oaks. "Let me tell you what our caucus' philosophy is," he told th= e=20 San Diego Union-Tribune. "If you have money today, you don't borrow against= =20 your children and grandchildren's future." The Republicans favor using the= =20 state budget surplus to pay for the state electricity purchases. Indeed, the bond sale will create more problems than it solves. "It's not= =20 needed," Adrian Moore, director of economic studies at the Reason Public=20 Policy Institute, told us. "It helps cover up the costs of what Davis's=20 overall policies are bringing about. It just stretches it out so it's not= =20 paid this budget cycle. Plus it adds interest [costs]." What's really needed, Mr. Moore said, is to "get back to a market-based=20 solution." Retail prices to ratepayers, now capped, should be further freed= .=20 Higher retail prices then would bring about more conservation and power pla= nt=20 investment and, as less electricity is used, wholesale and retail prices=20 would moderate.=20 And, the governor and Legislature should stop attacking power producers wit= h=20 threats of seizures and taxes, especially given the intermittant price caps= =20 instituted by federal energy regulators. Leaders should instead encourage= =20 producers to build here. The longer California's leaders paper over the dimensions of the crisis, th= e=20 longer it will persist and the more expensive it will become.=20 Task Force To Propose Legislation By SCOTT LINDLAW Associated Press Writer WASHINGTON (AP) via NewsEdge Corporation - President Bush's energy task force plans to propose legislation allowing the seizure of private property to accelerate the construction of electrical power lines, three administration officials said Tuesday. The recommendation is contained in the final draft of a broad energy blueprint to be unveiled by President Bush next week, the officials said. The ``eminent domain'' authority allows the government to appropriate private property for public use; the property owners are usually compensated. The Federal Energy Regulatory Commission already has eminent domain authority over the siting of natural gas pipelines, but has no such power over long-distance electricity transmission lines. The lack of authority often requires electrical companies to get approval from several states and numerous local jurisdictions. Federal authority to locate transmission lines would quicken the approval process, supporters of the provision contend. The shortage of transmission lines has been cited by officials as one reason for bottlenecks in the electric grids and a shortage of power in areas of high demand. New lines also are needed to connect new power plants to the grid. Vice President Dick Cheney said on CNN Tuesday that the energy task force he heads will include a recommendation on eminent domain for power lines. ``The issue is whether or not we should have the same authority on electrical transmission lines'' as the government has on gas lines, Cheney said. ``That's never been granted previously.'' He did not say what the recommendation would be. But the administration officials, speaking on condition of anonymity, said the report would ask Energy Secretary Spencer Abraham to draw up legislation allowing utilities to obtain rights of way for transmission lines, presumably through FERC. The energy strategy report is going to the printers in stages this week. Officials said there was no talk of taking out the eminent domain provision, though they could not rule out that remote possibility. Utilities, not the government, would own the property, one official said. Earlier this year, a draft of a Republican energy bill in the Senate had included giving FERC eminent domain authority for power lines. But that provision later was deleted when it was introduced by Sen. Frank Murkowski, R-Alaska. The electric utility industry for some time has been lobbying for a federal role in siting electric power lines, which now must go through a maze of overlapping local jurisdictions and state agencies for approval. ``If FERC has the eminent siting authority, that will help facilitate siting of electric power transmission lines,'' said Jim Owen, a spokesman for the Edison Electric Institute, which represents investor-owned utilities. It especially would help in getting interstate transmission rights of way approved, he said. ``But it's still not a silver bullet because ... it can still be a cumbersome process,'' said Owen. Some natural gas pipeline cases before FERC have taken years to resolve, he said. Critics have questioned whether Cheney's task force will emphasize power production and transmission over conservation. Cheney said the report would use tax breaks to encourage conservation. ``Most of the financial incentives that we recommend in the report go for conservation or renewables, for increased efficiencies,'' Cheney said. The task force will likely recommend tax incentives for purchase of ``hybrid,'' ultra-efficient automobiles that run on gasoline and electricity, one administration official said. A similar provision was included in the budget Bush sent to Congress earlier this year. The report will also call for a new tax credit for builders of certain new power plants. Cheney outlined the energy plan at the weekly Senate GOP conference Tuesday. According to one Republican who was present, the vice president said that while he supported energy price controls when President Nixon used them three decades ago, he wouldn't advocate them now. Caps that are too high cause voters to blame politicians rather than the utilities, Cheney said, according to the Republican. Excessively low caps undermine the incentives for developing new power sources, Cheney said. After Cheney spoke, Sen. Gordon Smith, R-Ore., rebutted, saying he came from a state where energy prices have risen enormously in the past year, and he favors price caps. Stage 2 Electrical Emergency Declaration; SCE to Curtail 'Load' for Some=20 Customers ROSEMEAD, Calif., May 9 /PRNewswire/ via NewsEdge Corporation - The California Independent System Operator (Cal-ISO) again declared a Stage 2 Emergency this afternoon, due t= o low power reserves and increased demand for power because of high temperatures. The agency called upon Southern California Edison and other investor-owned utilities to begin voluntary "load" curtailment programs for certain customers within their service areas. Cal-ISO said the Stage 2 Emergency would be in effect from 11:45 a.m. through midnight. Cal-ISO and SCE are making urgent appeals for all custom= ers to immediately reduce their electricity consumption so that reserve levels = do not deteriorate further. To achieve this load reduction during Stage 2, SCE is required to activate its voluntary load curtailment program, under which large industrial, commercial, and agricultural customers have agreed to temporarily curtail electricity usage during an electrical emergency in exchange for reduced rates. Should the situation worsen for any reason, and power reserves drop below 1.5%, Cal-ISO could declare a Stage 3 Emergency, the most critical status. Cal-ISO could direct utilities to "drop load," necessitating involuntary rolling blackouts for groups of customers across their service areas until sufficient reserve levels are achieved. SCE customers are asked to reduce power consumption by turning off any unneeded electrical appliances and lights, especially during the state's da= ily peak consumption period -- noon to 6 p.m. Following are some effective ways customers can reduce their power use and not be greatly inconvenienced: LARGE ENERGY USERS -- turn off all auxiliary or redundant machinery where possible; -- consider shifting or staggering operations outside the hours of highest electrical demand, typically noon to 6 p.m.; AIR CONDITIONERS -- set thermostats no lower than 78 degrees (F); -- use electric fans instead of air conditioning if practical; -- avoid using evaporative coolers or humidifiers at the same time an air conditioner is running; -- avoid cooling unoccupied rooms; -- open windows during evening hours to take advantage of cool breezes; APPLIANCES AND TOOLS -- delay until evening hours the optional use of appliances (dishwashers, clothes washers and dryers), chargers, power tools, and electrical equipment; REFRIGERATORS AND FREEZERS -- avoid unnecessarily opening refrigerators; -- keep your refrigerator or freezer set at the proper temperature; -- be sure to use the "power-saver" switch if your refrigerator has one; -- keep the condenser coils behind or beneath your refrigerator/freezer clean (refrigerators represent approximately 25% of the electric bill for a typical residence); ADDITIONAL TIPS -- run swimming pool equipment during early morning and evening hours; -- limit the reopening of a refrigerator, which is a major user of electricity in most homes; -- use drapes and blinds to keep out direct sunlight; -- replace incandescent light bulbs with ENERGY Star(R) qualified compact fluorescent bulbs; -- always wash a full load of clothes or use the variable water level adjustment for smaller loads; and -- be sure your home has adequate insulation. For more information about electricity conservation and SCE's energy efficiency programs, go to www.sce.com. An Edison International (NYSE: EIX) company, Southern California Edison is one of the nation's largest electric utilities, serving a population of mor= e than 11 million via 4.3 million customer accounts in a 50,000-square-mile service area within central, coastal and Southern California. SOURCE Southern California Edison CONTACT: Corporate Communications of Southern California Edison, 626-302-2255 Web site: http://www.edisonnews.com Web site: http://www.sce.com (EIX) B] FULL/ Pacific Gas & Electric restores all Qualifying Facilities --Pacifi= c=20 Gas & Electric says 8 of 300 QFs still shut down=20 May 10, 2001=20 New York, May 9 (BridgeNews) - Pacific Gas & Electric Co. restored nearly a= ll=20 of the Qualifying Facilities that had been shut down earlier in the year du= e=20 to financial reasons. The company now has only eight of the more than 300= =20 Qualifying Facilities under contract to it still shut down for=20 payment-related reasons.=20 --Adrian Viegas, BridgeNews=20 * * * The following is the text of today's announcement, with emphasis added by= =20 BridgeNews. BridgeStation users will find links to company data at the end:= =20 Most of PG&E's Qualifying Facilities are Back On Line; Only 3% Still Shut= =20 Down for Payment-Related Reasons=20 SAN FRANCISCO----May 9, 2001--PACIFIC GAS AND ELECTRIC COMPANY ANNOUNCED=20 TODAY THAT NEARLY ALL OF THE QUALIFYING FACILITIES (QFS) THAT HAD SHUT DOWN= =20 EARLIER THIS YEAR FOR FINANCIAL REASONS HAVE RETURNED TO SERVICE, AND ARE= =20 AGAIN GENERATING POWER FOR PG&E'S ELECTRIC CUSTOMERS.=20 ONLY EIGHT OF THE MORE THAN 300 QFS UNDER CONTRACT TO PG&E ARE STILL SHUT= =20 DOWN FOR PAYMENT-RELATED REASONS. THESE EIGHT REMAINING GENERATORS TYPICALL= Y=20 DELIVER ABOUT 109 MW OF POWER, OUT OF THE ROUGHLY 2,500 MW TOTAL TYPICALLY= =20 DELIVERED BY ALL PG&E-CONTRACTED QF GENERATORS COMBINED. ALL EIGHT FACILITI= ES=20 ARE GAS-FIRED GENERATORS.=20 "We remain optimistic that these last few generators will come back on line= =20 in the next few days, and we are working with them to help make that happen= ,"=20 said Gordon R. Smith, president and CEO of Pacific Gas and Electric Company= .=20 "Ironically, our Chapter 11 filing has provided additional financial=20 certainty to many QFs, since we are now able to pay them in full for power= =20 they are delivering, and since rates currently cover their costs. We will= =20 continue to work with the QF producers to assure that all of the power they= =20 are supposed to deliver will be available for our customers."=20 The QFs under contract to Pacific Gas and Electric Company have been paid i= n=20 full since early April, and received partial payments for prior deliveries.= =20 In addition to the facilities shut down for nonpayment, another 13 faciliti= es=20 that would ordinarily be delivering an average of 82 mw are out for schedul= ed=20 maintenance or unplanned outages. This amount is fairly typical and not=20 unusual for this time of year.=20 For energy saving tips, please visit our website at www.pge.com/123 or=20 contact the Smarter Energy Line at 1-800-933-9555.=20 CONTACT: Pacific Gas and Electric Company=20 News Department, 415/973-5930 End=20

dasovich-j/all_documents/12246.

dasovich-j

Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/12246. ===================================== Please see the following articles: Sac Bee, Thurs, 5/10: "PUC sweats $4.8 billion rate raise" Sac Bee, Thurs, 5/10: "PG&E wants panel to get boot" Sac Bee, Thurs, 5/10: "Major job losses predicted; governor presses=20 generators" Sac Bee, Thurs, 5/10: "Bond-sale bill goes to Davis " Sac Bee, Thurs, 5/10: "State revenue outlook shrinks " SD Union, Thurs, 5/10: "No blackouts despite dip in supplies" SD Union (AP), Wed, 5/9: "Biggest users face huge rate hikes under PUC pla= n" LA Times, Thurs, 5/10: "Rate Hikes Up to 60" Proposed by PUC Chief" LA Times, Thurs, 5/10: "Bush Energy Stance Begins to Worry Some in GOP" LA Times, Thurs, 5/10: "In Office Buildings, the Lights Are On, But Nobody= 's=20 Home" LA Times, Thurs, 5/10: "Power Shifts to Congress" (Commentary) SF Chron, Thurs, 5/10: "Proud state forced to knees in power hunt"=20 SF Chron, Thurs, 5/10: "Power bills set to skyrocket for heavy users=20 Graduated rate increase would take effect in June " SF Chron (AP), Thurs, 5/10: "Developments in California's energy crisis " SF Chron (AP), Thurs, 5/10: "PG&E says fewer small power plants offline " SF Chron (AP), Thurs, 5/10: "A look at two rate designs before power=20 regulators" SF Chron, Thurs, 5/10: "Lights stay on despite failure of big plant"=20 SF Chron, Thurs, 5/10: "PG&E fights consumer committee=20 Obstruction feared in bankruptcy case " SF Chron, Thurs, 5/10: "Generators silent on Davis plan=20 He offers lower compensation to stave off Edison bankruptcy " Mercury News, Thurs, 5/10: "Rate plans shield most households" Mercury News, Thurs, 5/10: "Energy bond plan gets final legislative OK,=20 faces delay" Mercury News, Thurs, 5/10: "Fusion research gets a boost" OC Register, Thurs, 5/10: "Power is Money PUC details plan to raise Edison rates up to 34%. Half of users to see no= =20 hike" OC Register, Thurs, 5/10: "Economic crisis in forecast" OC Register, Thurs, 5/10: "GOP stalls sale of bonds with vote" OC Register, Thurs, 5/10: "Electricity notebook Davis asks power suppliers to accept 30% less than owed" OC Register, Thurs, 5/10: "Regulators says more electricity rate hikes are= =20 likely" OC Register, Thurs, 5/10: "Starting all over again The Legislature's special session on the power crisis ends today -- with mo= re work to do at an added cost" OC Register, Thurs, 5/10: "Davis is set to sign a $13.4 billion bond-issue= =20 measure today to cover electricity costs" OC Register, Thurs, 5/10: "Papering over state electricity problems" Individual.com (AP), Thurs, 5/10: "Task Force To Propose Legislation" Individual.com (AP), Thurs, 5/10: "Stage 2 Electrical Emergency Declaratio= n; SCE to Curtail 'Load' for Some Customers" Individual.com (Bridgenews), Thurs, 5/10: "[B] FULL/ Pacific Gas & Electri= c=20 restores all Qualifying=20 Facilities --Pacific Gas & Electric says 8 of 300 QFs still shut down"=20 ---------------------------------------------------------------------------= --- ------------------------------------- PUC sweats $4.8 billion rate raise By Carrie Peyton Bee Staff Writer (Published May 10, 2001)=20 Big industries' electric bills would leap 50 percent or more and household= =20 bills would rise an average of 11 percent to 17 percent under two proposals= =20 outlined by state regulators Wednesday for revamping electric rates.=20 The twin proposals are efforts by Loretta Lynch, president of the state=20 Public Utilities Commission, and Christine Walwyn, a PUC administrative=20 judge, to decide how to divide the burden of a $4.8 billion rate hike.=20 "Both of them are just going to be very, very hard on business," said Bill= =20 Booth, an attorney for the California Large Energy Consumers Association. H= e=20 said it appeared that some cement and steel makers could face 90 percent ra= te=20 hikes.=20 But small consumers were equally dismayed.=20 "This never should have happened in the first place," said Bob Finkelstein,= =20 an attorney with The Utility Reform Network, placing the blame for soaring= =20 rates on electric deregulation.=20 "In terms of allocating the fallout from the failed experiment, they seemed= =20 to do a reasonable job. But it assumes that the fallout should be allocated= =20 in the first place, and that just sticks in our craw," he said.=20 Several PUC commissioners have said they want to select a new rate design a= t=20 a special meeting Monday, so the higher electric bills can begin going out= =20 June 1 to customers of Pacific Gas and Electric Co. and Southern California= =20 Edison.=20 One version before the PUC would include Lynch's call to begin looking for= =20 ways to charge federal installations power rates that are tied to wildly=20 gyrating wholesale costs.=20 Reportedly first floated as a joke, the idea quickly took hold within the= =20 PUC. Lynch said she wants to set it up as "pilot program," perhaps beginnin= g=20 in mid-summer, so the federal government can test its own theories about=20 unfettered market prices being good for consumers.=20 "I don't believe it's a dig at the FERC (Federal Energy Regulatory=20 Commission)," she said during a news conference.=20 But she repeated her attack on federal regulators, saying electric rates ar= e=20 rising in California only because the FERC has refused to cap runaway=20 wholesale electric prices.=20 Commissioner Richard Bilas later called a special federal rate "silly" and= =20 "kindergartenish," and said the proposal was clearly intended "just to get= =20 back at the federal government."=20 Any of the five appointed commissioners can offer an alternate version of t= he=20 rate design, as Lynch did. The alternates will be considered alongside the= =20 proposal by Walwyn, the judge who presided over lengthy hearings on how the= =20 new rates should be crafted.=20 She recommended increases that would fall slightly more softly on residenti= al=20 customers -- averaging 11 percent for Edison and 15 percent for PG&E -- and= =20 more heavily on large industrial users, averaging 52 percent for Edison and= =20 55 percent for PG&E.=20 But within those averages could be much higher individual increases, and=20 advocates for everyone from farmers to manufacturers waited anxiously=20 throughout the day for detailed tables that would list rates for dozens of= =20 customer categories.=20 "I have got my expert economist standing by to look at the numbers when the= y=20 come out," said Ron Liebert, associate counsel for the California Farm Bure= au=20 Federation.=20 The release of the rate proposal has been delayed repeatedly as the PUC tri= ed=20 to cram work that usually takes months into just a few weeks, and many of i= ts=20 details remained obscure late Wednesday, dismaying those who are still=20 arguing for changes.=20 "We have to file comments on this by Friday. What they're doing is, they're= =20 shutting down the comment period," said Jack Stewart, president of the=20 California Manufacturers & Technology Association.=20 He said it appears that some rates could nearly double, and "that's just a= =20 death knell for many California manufacturers."=20 Lynch provided only sketchy summaries of her ideas, saying she wanted to=20 raise residential rates 16 percent for Edison and 17 percent for PG&E on=20 average, raise industrial rates 50 percent to 52 percent and cap agricultur= al=20 rate increases on a sliding scale from 23 percent to 30 percent, partly at= =20 Gov. Gray Davis' urging.=20 She said that about half of households statewide would see no increase unde= r=20 a state law that protects those who use less than 130 percent of a "baselin= e"=20 amount. However, PG&E has calculated that far more households -- 69 percent= =20 -- use more than the baseline at some point during the year.=20 PG&E's baseline varies by region and season but generally runs between 300= =20 and 400 kilowatt-hours, or about 50 percent to 60 percent of average=20 electricity use per household. It was created to give people access to a=20 minimal amount of power at a lower rate.=20 The heaviest household users still would see no increase on their first few= =20 hundred kilowatt-hours, but after that prices would rise sharply, in tiers,= =20 so that some households could see their overall bills rise 34 percent or=20 more.=20 Lynch and Walwyn also have proposed "bill limiters" so that businesses with= =20 unusual usage patterns won't get hammered by unintended rate spikes.=20 The increases will not affect customers of the Sacramento Municipal Utility= =20 District, which recently approved its own hikes, averaging 22 percent, and= =20 other ratepayer-owned utilities.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com.=20 PG&E wants panel to get boot By Claire Cooper Bee Legal Affairs Writer (Published May 10, 2001)=20 SAN FRANCISCO -- Pacific Gas and Electric Co. on Wednesday asked a judge to= =20 disband an unprecedented committee of ratepayers appointed last week to=20 represent consumers in the utility's bankruptcy case, saying that some in t= he=20 group were politically biased.=20 The utility filed a motion arguing that U.S. Bankruptcy trustee Linda Ekstr= om=20 Stanley exceeded her legal authority by designating a consumers committee= =20 armed with broad powers to investigate and negotiate alongside the utility= =20 and its creditors.=20 The utility denounced the committee as a collection of "special interest"= =20 groups with "well-known political and policy agendas" and a "history of=20 aggressive lobbying and litigation."=20 The PG&E motion, which was set for a hearing May 18 before Bankruptcy Judge= =20 Dennis Montali, warned that turning the consumer committee loose could=20 "substantially retard the progress of this case and seriously prejudice its= =20 outcome."=20 On Friday, PG&E singled out Consumers Union and The Utility Reform Network = as=20 "well-organized lobbyists and political operatives."=20 Consumers Union regional chief Harry Snyder, a committee member, said he=20 would have no comment. TURN's representative to the committee, Nettie Hoge,= =20 did not respond to a request for comment.=20 In appointing the ratepayers committee last week, Stanley, who is=20 administering the bankruptcy proceedings, said she was bringing it into the= =20 case because the state, which ordinarily would represent the public, has=20 chosen to stay out.=20 Stanley chose the nine committee members to represent a mix of energy=20 consumers -- households, businesses, farms and government. In addition to= =20 Consumers Union and TURN, the groups include the California Farm Bureau, th= e=20 California School Boards Association and the California Manufacturers &=20 Technology Association.=20 If Montali upholds Stanley's action, PG&E must pay for the committee's=20 lawyers, accountants and other consultants to analyze data and present=20 arguments in the bankruptcy proceedings from the consumer's perspective.=20 "They (will) have all of the information that's going on," said Judy Beckne= r=20 Sloan, a bankruptcy expert at Southwestern Law School, who speculated that= =20 PG&E was balking at the committee's potential power and its costs to the=20 bankruptcy estate.=20 "The creditors and PG&E are opposed to their presence because to the extent= =20 the judge heeds the consumers' concerns, he's going to be less aggressive= =20 about raising rates," said Jesse Fried, a law professor at the University o= f=20 California, Berkeley.=20 While Fried said Stanley's decision was defensible because the judge "is=20 supposed to take into account the wider interests of society," Los Angeles= =20 bankruptcy lawyer Richard Levin sided with PG&E. Only the state should have= =20 been allowed to represent consumers, Levin said, and its decision not to do= =20 so should be final.=20 The Bee's Claire Cooper can be reached at (415) 551-7701 or=20 ccooper@sacbee.com.=20 Major job losses predicted; governor presses generators By Dale Kasler, Ed Fletcher and Emily Bazar By Dale Kasler, Ed Fletcher and Emily Bazar (Published May 10, 2001)=20 As a private consultant predicted the state will lose 135,000 jobs from a= =20 summer of blackouts, Gov. Gray Davis on Wednesday pressed power generators = to=20 forgo 30 percent of their California earnings to help pull the state out of= =20 the energy crisis.=20 Summoning executives of the companies he has repeatedly accused of price=20 gouging, Davis said the generators probably would have to forgive a portion= =20 of the debt they're owed by California's two destitute utilities to win the= =20 Legislature's approval for his controversial plan to repay the debts and=20 rescue the utilities.=20 "I suggest that they should look to (accept) 70 percent of what they claim= =20 they were owed," Davis said after a four-hour meeting in the Capitol. "I fe= lt=20 the Legislature will insist on a reduction."=20 Although Davis said, "I believe they are willing to take some reduction," a= t=20 least one generator, Reliant Energy Inc., immediately dismissed the=20 governor's proposal.=20 The meeting capped a roller-coaster day in which anti-generator protesters= =20 brought a pig to the Capitol and the state narrowly averted a third straigh= t=20 day of rolling blackouts. But while enough megawatts were found to scrape b= y=20 for a day, the state is surely facing a summer of severe shortages.=20 A study, commissioned by some of the state's most influential business=20 lobbyists and partly funded by Intel Corp., predicted chronic blackouts wil= l=20 mean significant economic harm to California.=20 The study by John Urbanchuck of New Jersey-based AUS Consultants said the= =20 blackouts would erase 135,000 jobs and cause $26 billion in economic=20 devastation.=20 Several California economists said the prediction was overblown, but none= =20 doubted the electricity crisis could significantly harm the state's busines= s=20 climate.=20 "It really depends on how severe the blackouts are," said UCLA economist=20 Chris Thornberg. "If we have 30 straight days of blackouts in June ... you'= re=20 going to end up with a mess."=20 Everything else being equal, the loss of 135,000 jobs would raise=20 California's unemployment rate by 0.7 percent, to 5.4 percent, based on the= =20 latest numbers from the Employment Development Department.=20 Ted Gibson, chief economist with the state Department of Finance, said AUS'= =20 estimates seem high.=20 "It'd be hard for me to think those relatively limited, one-hour-at-a-time= =20 (blackouts) would have such an impact," Gibson said.=20 As it is, the blackouts have struck some of California's most important=20 employers, such as Sun Microsystems Inc. and Advanced Micro Devices.=20 Tuesday's blackout hit Apple Computer Inc.'s lone U.S. factory, in Elk Grov= e.=20 Economic development agencies from other states have stepped up recruiting= =20 efforts in California, hoping to capitalize on the state's misfortunes. A f= ew=20 glass manufacturers have moved production, said Jack Stewart, president of= =20 the California Manufacturers & Technology Association.=20 It could get worse. For example, a leading Silicon Valley electronics=20 manufacturer, Solectron Corp. of Milpitas, said it is seriously considering= =20 pulling some of its operations out of California.=20 "The blackouts and the lack of reliable power are our biggest concerns," sa= id=20 Solectron spokesman Bob Kula. "We have the ability to move (production)=20 quickly."=20 Solectron, whose factories were hit with blackouts in January and March,=20 employs 4,000 workers in Northern California.=20 A top state official said business leaders around the country look at the= =20 electricity crisis as emblematic of a state that's becoming iffy as a place= =20 to do business.=20 "The whole question of how did the state allow it to get this far -- I keep= =20 hearing that from Wall Street, I keep hearing that from the business=20 community," said the official, who asked to remain anonymous. "The last yea= r=20 has demonstrated that the risks of doing business in California are much=20 higher than anywhere else in the United States."=20 The state was spared a third day of blackouts Wednesday when cooler, windie= r=20 weather in the late afternoon produced a spurt of wind-generated electricit= y=20 and a much-needed drop in demand. Throw in an unexpected power purchase fro= m=20 the Pacific Northwest, and the state's fragile power grid suddenly had 1,40= 0=20 megawatts it wasn't expecting, more than enough to compensate for a breakdo= wn=20 of a major Bay Area power plant in early afternoon.=20 Another boost: Pacific Gas and Electric Co. said all but a handful of its= =20 alternative-energy suppliers have resumed production. These suppliers,=20 responsible for a fourth of the state's energy supply, have been closed for= =20 weeks because of nonpayment by PG&E and Southern California Edison. The two= =20 stricken utilities are paying them again.=20 But while blackouts were unlikely today, there were no guarantees.=20 "We're not swimming in megawatts," said spokeswoman Stephanie McCorkle of t= he=20 Independent System Operator, which runs the state's power grid.=20 Representatives from a dozen wholesale power generators -- 10 in person and= =20 two by phone -- attended the Capitol summit.=20 Despite months of verbal potshots between Davis and the generators, the=20 meeting was described as cordial by John Stout, senior vice president of=20 Houston-based Reliant.=20 But Davis also said he told the executives that unless they accept a=20 reduction in payment for back debts, the Legislature is likely to reject hi= s=20 plan to buy the utilities' transmission lines -- a key element of his plan = to=20 pay back billions the utilities owe them.=20 If the plan goes through, the generators can get paid this year, Davis said= .=20 If it's killed, they'll probably have to wait three or four years to get=20 their money in Bankruptcy Court.=20 So far only Edison has agreed to sell its lines to the state. Senate=20 President Pro Tem John Burton, D-San Francisco, said Wednesday that the=20 Edison deal will be rejected unless the generators forgive some debts.=20 "I'm going to insist that they take at least a 30 percent haircut on the=20 monies that they're owed," Burton said earlier.=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m.=20 Bee Staff Writer Kevin Yamamura contributed to this report.=20 Bond-sale bill goes to Davis=20 (Published May 10, 2001)=20 The state Senate sent legislation to Gov. Gray Davis on Wednesday authorizi= ng=20 the largest revenue bond sale in U.S. history over continued Republican=20 opposition.=20 The bill, SB 31x, would allow California to sell $13.4 billion in bonds,=20 starting in August, to repay the state for past and future power purchases.= =20 Davis is expected to sign the bill today.=20 Because the bill failed to receive the two-thirds majority needed for an=20 urgency measure, however, the bonds can't be sold until 90 days after the e= nd=20 of the Legislature's special session.=20 Lawmakers are expected to end the session Monday, and most of the 200 pendi= ng=20 energy bills already introduced will be reborn in a second energy session,= =20 said Senate President Pro Tem John Burton, D-San Francisco.=20 SB 31x passed on a 23-12 vote, with most Democrats supporting the measure a= nd=20 all Republicans opposing it. Sen. Joe Dunn, D-Garden Grove, was the only=20 Democrat to vote against it.=20 Republicans proposed that the state use the surplus to write off $6 billion= =20 that California has spent on electricity since mid-January. But Democrats= =20 said the state needs to replenish those funds to support other state progra= ms=20 in education, transportation and health care.=20 Treasurer Phil Angelides had pursued a bridge loan of $4.13 billion to=20 bolster the state's budget and ensure that non-energy programs remain funde= d.=20 But when Assembly Republicans assailed the immediate bond sale, the=20 short-term loan was lost.=20 Zane Mann, editor of the California Municipal Bond Advisor, said the delay = in=20 the bond sale "casts a cloud" over the project but won't kill it. It will= =20 probably lead to a higher interest rate, which will add to the ratepayers'= =20 costs, he said.=20 -- Kevin Yamamura and Dale Kasler=20 State revenue outlook shrinks=20 By John Hill Bee Capitol Bureau (Published May 10, 2001)=20 Legislative Analyst Elizabeth Hill dropped a budget bombshell Wednesday,=20 reporting to legislators that state revenues will be $3.4 billion lower tha= n=20 Gov. Gray Davis predicted in his January budget proposal.=20 Instead of enjoying a $1.9 billion reserve, the Davis budget plan for the= =20 fiscal year beginning July 1 would now leave the state $1.5 billion in the= =20 hole, Hill wrote in a letter to legislators overseeing the budget.=20 Dwindling revenue from a faltering economy leaves Davis' plan in need of=20 major revisions. The new revenue estimates would require cuts in one-time= =20 expenditures that Davis proposed for programs such as clean beaches and=20 fiscal relief for local governments. Cuts also may have to be made in new= =20 spending contemplated for education, which got most of the new money in the= =20 $104.7 billion January budget proposal.=20 "The number is so deep that it's going to be hard for us not to contemplate= =20 cuts or make cuts," said Assemblyman Tony C?rdenas, D-Sylmar, vice chairman= =20 of the Joint Legislative Budget Committee. "We don't know where those cuts= =20 are going to come from."=20 Little will be immune, said Dan Howle, chief of staff for Sen. Steve Peace,= =20 D-El Cajon, chairman of the Joint Legislative Budget Committee.=20 "It's going to include programs the governor is very supportive of and woul= d=20 like to get done, but we're in a little bit of a cash crunch here, and you'= ve=20 got to do what you've got to do," he said.=20 "If anything's got a protective fence around it, it's education. But I stil= l=20 think it'll have to take a share of the cuts."=20 These grim budget figures don't take into account possible hits on the budg= et=20 caused by the state's breathtaking expenditures on electricity.=20 Those effects could be negligible if the state is able to sell bonds to pay= =20 for power and replenish the treasury. But considering recent events in the= =20 volatile energy crisis, no assumption is safe.=20 The budget crunch will likely highlight conflicting spending priorities and= =20 could lead to more polarization between Democrats and Republicans who have= =20 been squabbling over the energy crisis.=20 "A third of the Assembly has never done a budget," Howle said. "Another thi= rd=20 has never dealt with anything other than huge surpluses. Now you're saying= =20 we've got to go in and cut. This could be a long, hot summer."=20 The new revenue projections are a dramatic illustration of the state's=20 faltering economy. Revenues for the fiscal year that starts July 1 are now= =20 expected to be $4.8 billion less than anticipated in January, Hill wrote.= =20 That includes a decrease of $3.9 billion in income tax, $500 million in sal= es=20 tax and $600 million in bank and corporation taxes, offset by some moderate= =20 increases in insurance and estate taxes, said Brad Williams, chief economis= t=20 in the non-partisan Legislative Analyst's Office.=20 "It's deterioration in the stock market and implications for capital gains= =20 and stock options," Williams said, "and also the weakening outlook for the= =20 economy as a whole."=20 The $4.8 billion blow is softened somewhat by unexpectedly strong revenues= =20 from last year's tax returns, which helped boost revenues $1.4 billion high= er=20 than had been anticipated.=20 The net effect is $3.4 billion less for the fiscal year that begins July 1.= =20 If the Democratic governor's budget were approved as is, the deficit would= =20 reach almost $6 billion in the fiscal year that begins July 1, 2002, Hill= =20 wrote.=20 The governor is expected to release his revised budget Monday. The state=20 Department of Finance said Wednesday that it wouldn't comment on the new=20 revenue estimates until then.=20 One obvious target for budget cutters is one-time expenditures in the Janua= ry=20 proposal. This includes money for local governments, state building project= s,=20 housing initiatives, replacing diesel engines that contribute to air=20 pollution, cleaning up beaches, law enforcement technology grants, flood=20 control, parks along rivers and more.=20 Even if the state axed $2.5 billion for one-time expenditures that Davis=20 proposed, it would still have to cut an additional $1.7 billion proposed fo= r=20 ongoing programs.=20 Davis' budget -- which projected an $8 billion surplus -- includes at least= =20 $1.9 billion more for education than required under formulas approved by=20 voters in Proposition 98. But considering Davis' commitment to education,= =20 most believe it's unlikely the governor would balance the budget by=20 throttling back to the minimum funding level, which would require cuts to= =20 existing education programs.=20 C?rdenas said education, health care and transportation should be protected= =20 from cuts.=20 Assembly Republicans agree about education, but have different ideas about= =20 the rest.=20 On Wednesday, the Republicans released their plan for the revised budget. I= t=20 includes protecting schools and law enforcement, creating a $4 billion=20 reserve for future electricity purchases, and striking a proposed 1/4-cent= =20 sales tax increase.=20 The sales tax, which went into effect in the early 1990s, was removed this= =20 year, but Davis has proposed restoring it in 2002.=20 "All this does is put a new burden on the backs of Californians" already=20 coping with higher energy costs, said Assemblyman George Runner, R-Lancaste= r,=20 a member of the Assembly Budget Committee.=20 Republicans say an electricity reserve could avoid the need to do another= =20 bond sale for power purchases next year.=20 "This is the time to make sure we are putting money aside and that we're no= t=20 going to have to turn back to taxpayers or ratepayers and put an additional= =20 burden on them," Runner said.=20 The Bee's John Hill can be reached at (916) 326-5543 or jhill@sacbee.com.= =20 No blackouts despite dip in supplies=20 Stage 2 alert, power plant breakdown add to concerns By Jeff McDonald=20 UNION-TRIBUNE STAFF WRITER=20 May 10, 2001=20 In the nip-and-tuck world of meeting California's energy needs, a small=20 victory was notched yesterday in Folsom, where managers of the state power= =20 grid avoided blackout orders for the first time since the weekend.=20 But tensions nonetheless ran high among power industry officials, and=20 business leaders in San Diego County are growing increasingly alarmed at th= e=20 nagging energy crisis.=20 The number of available megawatts fluctuated throughout the day yesterday a= nd=20 a major power plant broke down, but engineers at the Independent System=20 Operator maintained service across the state.=20 Persistent shortages combined with unusually high temperatures prompted pow= er=20 alerts as early as 10:15 a.m., when grid officials warned that supplies had= =20 dipped within 7 percent of reserves.=20 With more than 12,000 megawatts of power unavailable from idled plants,=20 system operators issued a Stage 2 warning about 11:45 a.m. and asked large= =20 users to cut back consumption through the afternoon.=20 Two hours later, a boiler tube leak knocked out a 750-megawatt power plant = in=20 the Bay Area. Repairs will probably take several days.=20 "It wrecked my day," said Jim McIntosh, the Independent System Operator=20 director of grid operations. "It just changed the whole perspective of what= =20 was going on."=20 The loss of the 750 megawatts deepened concerns in Folsom, where ISO=20 engineers measured a peak afternoon demand that barely trailed supplies of= =20 almost 34,000 megawatts.=20 As late as 3 p.m., grid officials expected to be forced into cutting servic= e=20 to hundreds of thousands of homes and businesses. Cooling temperatures and= =20 conservation efforts helped kill the last threat, McIntosh said.=20 More blackouts could be ordered today, however, and tomorrow may be just as= =20 problematic.=20 "The next couple of days will certainly be impacted by the loss of that=20 unit," McIntosh said.=20 The latest breakdown added to some already high drama at utility companies,= =20 where officials braced through the day for orders to cut power to hundreds = of=20 thousands of customers.=20 Blackout orders never came. But executives at San Diego Gas and Electric Co= .=20 spent the day on heightened alert, calling critical-need residents and=20 businesses and informing them of potential service interruptions.=20 "This has become relatively commonplace," SDG&E spokesman Douglas Kline sai= d.=20 "We handle it as a matter in the course of business now, unfortunately. We'= ve=20 been on high alert all day."=20 Service was cut to more than 23,000 customers in several San Diego-area=20 neighborhoods Monday and Tuesday afternoons. More than 500,000 homes and=20 businesses across the state also lost power.=20 In a power interruption unrelated to the power problems across the state, a= =20 number of major businesses in downtown San Diego were cut off unexpectedly = in=20 midafternoon.=20 Customers between F Street and Harbor Drive lost power about 3:15 p.m. when= =20 something went wrong with an underground cable that serves, among others, t= he=20 Marriott Marina hotel, SDG&E said.=20 Service was restored within two hours, but not before convention meeting=20 rooms went dark and hotel restaurants closed.=20 The heat wave that has hung across California the past three days is expect= ed=20 to begin cooling today and tomorrow, the National Weather Service said. Tha= t=20 should reduce demand for air conditioning, one of the biggest power draws i= n=20 the state.=20 However, the constant uncertainty in the electricity industry is taking its= =20 toll on local businesses, which not only are seeing huge run-ups in utility= =20 costs but are girding for potential losses that even a few minutes of=20 interruptions can cause.=20 "From a business standpoint, it's not 15 minutes of downtime for many of ou= r=20 companies," said Julie Meier Wright, president of the San Diego Regional=20 Economic Development Corp. "For many of them, it means the loss of hours,= =20 days, weeks and even longer of work."=20 Biggest users face huge rate hikes under PUC plan=20 By Karen Gaudette ASSOCIATED PRESS=20 May 9, 2001=20 SAN FRANCISCO =01) Customers of California's two largest utilities who use = the=20 most electricity would pay much more to run canneries, tumble laundry and= =20 conduct other tasks under a tiered rate plan implementing record hikes=20 approved in March.=20 The rate plan proposed Wednesday by Loretta Lynch, president of the state= =20 Public Utilities Commission, suggests how the rate hikes should be allocate= d=20 among residential, industrial, commercial and agricultural customers.=20 Residential customers of Pacific Gas and Electric Co. and Southern Californ= ia=20 Edison Co. who use the most electricity would face average rate hikes of 35= =20 percent to 40 percent.=20 And industrial users, such as factories and food processors, could face hik= es=20 of 50 percent or more as the state desperately tries to start recouping the= =20 $5.2 billion it already has paid to buy power for customers of those=20 financially ailing utilities.=20 Still, under Lynch's plan, as many as half of the 9 million customers of PG= &E=20 and SoCal Edison would not see their bills rise at all.=20 Lynch's plan is the culmination of weeks of discussion among customers, sta= te=20 officials, consumer activists and the utilities about how best to allocate= =20 the record rate hikes approved in late March by the PUC.=20 Those rate hikes will affect all classes of customers, from small families = to=20 the huge Silicon Valley facilities powering the Internet, but not all will= =20 face the same magnitude of rate increases.=20 And, even within those classes, customers will pay more depending on when= =20 they use the electricity. Those who use power during times of highest deman= d=20 =01) generally, during daylight hours =01) will pay the most.=20 Lynch said her plan "recognizes that energy is expensive at every hour of= =20 every day by every customer," but penalizes those who do not cut back on=20 energy use or try to shift to different times of the day.=20 Under Lynch's proposal, agricultural customers could face rate hikes rangin= g=20 from 23-30 percent, with increases capped at 30 percent. Industrial users= =20 face average increases of 50 percent or more, and commercial users average = 34=20 percent to 45 percent hikes.=20 Her proposal, Lynch said, designs rates to encourage conservation and=20 provides $5 billion over the next year to help pay the state Department of= =20 Water Resources for the billions it has spent providing electricity for=20 customers of PG&E and Edison.=20 Lynch left the door open for future rate hikes, noting that the state=20 provides its electricity-buying expenses to the commission only on a monthl= y=20 basis, while wholesale electricity prices continue to soar.=20 Lynch's proposal, and a largely similar proposal from PUC administrative la= w=20 judge Christine Walwyn, will be reviewed in public hearings throughout the= =20 state the rest of this week.=20 Rate Hikes Up to 60% Proposed by PUC Chief=20 Power: Lynch says about half the residential customers of Edison, PG&E woul= d=20 escape increases. Her plan draws fire from all sides.=20 By TIM REITERMAN and NANCY RIVERA BROOKS, Times Staff Writers=20 ?????SAN FRANCISCO--About 4 million California residential electricity=20 customers will face increases in their monthly bills of up to about 60% und= er=20 a proposal unveiled Wednesday by the state's chief utility regulator.=20 Interest groups on all sides promptly condemned the plan as too hard on=20 either consumers or businesses. ?????The proposal by California Public Utilities Commission President Loret= ta=20 Lynch would increase the bills of roughly half of Southern California=20 Edison's residential customers, who consume medium to heavy amounts, by $8 = to=20 $93 a month. Pacific Gas & Electric Co. customers would be hit with hikes o= f=20 $6 to $87 a month. Elisabeth Charion is among about 70 people testifying at a PUC hearing=20 Wednesday in Fullerton, most venting their anger at elected officials and= =20 utility companies, whom they blame for the crisis. IRFAN KHAN / Los Angeles Times ?????About half of the residential customers of the state's two biggest=20 public utilities would see no increase under the proposal if they continued= =20 to consume energy at their current pace. ?????Lynch said she could not guarantee that more rate increases would not = be=20 necessary. "Even these astronomical average rates may prove inadequate," sh= e=20 said, noting that wholesale electricity prices are still high and=20 unpredictable. ?????The rate hike, Lynch said at a news conference, is necessary because= =20 "federal regulators have failed to follow federal laws to ensure just and= =20 reasonable prices." ?????The deepening energy crisis compelled Lynch to release her proposal=20 after public hearings on the rate increase already had begun. Lynch said th= at=20 she wished her proposal had been ready sooner, but that at least some of th= e=20 remaining public hearings will have the benefit of reviewing it. ?????PUC passage of the essential elements of Lynch's plan seems likely. ?????Along with two of her colleagues on the five-member commission, Lynch= =20 was appointed by Gov. Gray Davis, and they often vote as a bloc. Lynch said= ,=20 however, that testimony later this week from utilities, the public and othe= r=20 interested parties could prompt modifications. ?????Structuring the $5-billion rate increase is an important but political= ly=20 sensitive step in California's attempt to restore stability to the delivery= =20 of power to 9 million customers of two financially troubled utilities while= =20 protecting the state budget. ?????The PUC has tried to design rates that would encourage conservation=20 without damaging business. Competing interest groups, ranging from consumer= =20 advocates to large manufacturers, have been jockeying for advantage for wee= ks. ?????The PUC approved a rate increase of 3 cents per kilowatt-hour March 27= =20 to help pay the state's mounting power tab, which now exceeds $5 billion.= =20 This week, the commission is conducting statewide hearings on how the pain= =20 should be shared among millions of residents and businesses. On Monday the= =20 panel is set to vote on Lynch's plan and a similar one by a PUC=20 administrative law judge. ?????Neither proposal appeared to please anyone. ?????"The PUC says everyone should share the pain, but we think the fair=20 share of the pain for residential consumers should be zero," said Mindy=20 Spatt, spokeswoman for the Utility Reform Network, a San Francisco consumer= =20 group. "It should be paid by commercial and industrial customers who wanted= =20 and still want deregulation." ?????Consumer activist Harvey Rosenfield said regulators should go after=20 power generators and their hefty profits rather than ratepayers. ?????"Rate increases are not the answer, and this is not going to be the en= d=20 of them," said Rosenfield, president of the Foundation for Taxpayer and=20 Consumer Rights in Santa Monica. "This is like organized crime: The more yo= u=20 give them, the more they want." ?????Commercial and industrial customers would see increases of up to 50%,= =20 and agricultural interests would face increases of 23% to 30% under Lynch's= =20 proposal. ?????Business interests contend that the rate hikes hit them much harder th= an=20 residential users. ?????Calling the proposal "a death knell for the California economy," Jack = M.=20 Stewart of the California Manufacturers and Technology Assn. estimated that= =20 industrial customers would see their power rates increase an average of 53%= .=20 And the pain of the rate hikes will be compounded by blackouts this summer,= =20 which the group contends will cost California businesses $21.8 billion in= =20 lost productivity. ?????"For most large manufacturers, energy is a large piece of their=20 operating costs," Stewart said. "If you add 53% to that, it's going to=20 severely hamper their ability to do business." ?????Unlike residential customers, the business customers are not grouped= =20 into tiers based on their amount of usage. Lynch said there was insufficien= t=20 time to establish a tiering system for nonresidential customers by June 1,= =20 when the rate hikes will start showing up on bills. ?????An earlier proposal by Lynch had attempted to narrow the gap between= =20 residential rates and the lower rates paid by nonresidential customers. But= =20 the commission president said that goal could not be immediately achieved= =20 without seriously damaging the state's economy. ?????To protect the largest users from gigantic rate increases, Lynch's=20 proposal caps the maximum bill increase at 300% for most customers and 250%= =20 for agricultural customers. ?????"While we understand bill limiters may have some troubling conservatio= n=20 impacts, at some point, price signals are unbearable for customers. Bill=20 limiters will protect customers from unanticipated extraordinary bill=20 impacts," Lynch wrote. ?????In recent weeks, the commission has received about 20 plans for=20 structuring the rate increase, including one from Davis, who had proposed a= =20 slightly smaller overall rate increase. Lynch said her plan incorporates a= =20 number of features of the governor's plan, including a tiered structure tha= t=20 would punish heavy users and reward those who conserve. ?????Under state legislation, there is no rate increase for consumption up = to=20 130% of baseline, the amount deemed the minimum needed by a customer in a= =20 given area and noted on ratepayer bills. Also exempted are low-income=20 customers who already receive discounted electricity rates. ?????Edison and PG&E said they could not assess how the PUC proposals would= =20 affect their customers because the commission had not provided details to t= he=20 utilities as of late Wednesday. ?????But PG&E has disputed the commission's claim that half of customers=20 would not be affected by the increase, noting that only 32% of PG&E custome= rs=20 never exceeded 130% of baseline usage in the last year. ?????Industrial and commercial customers complained that the plan should no= t=20 exempt such a large group of residential customers, in any event. A rate=20 increase for these users--based on the PUC's estimate that the group will= =20 constitute about half of residential customers--could generate an extra $1= =20 billion. ?????If the PUC insists on exempting so many, the $1-billion shortfall shou= ld=20 be covered solely by other residential users, businesses say. ?????Under Lynch's plan the burden of paying that amount would be split=20 equally among commercial, industrial and nonexempt residential customers. ?????If covering the shortfall were not shared by the three groups, Lynch= =20 said, some residential customers would suffer a 100% increase in their bill= s. ?????The proposal calls for a pilot program, including one that would let= =20 federal agencies based in California "experiment with their own market rate= =20 policies." ?????Lynch challenged federal agencies to try to live with "real time," or= =20 hourly, prices in the volatile wholesale marketplace--a slap at officials o= f=20 the Federal Energy Regulatory Commission who favor a free wholesale market= =20 over price caps. Use of real-time pricing requires installing a special met= er. ?????"'It would be great if the federal users respond to price signals enou= gh=20 that prices come down," Lynch said, adding that she was skeptical that woul= d=20 happen in today's dysfunctional market. ?????A FERC spokeswoman declined to comment on Lynch's proposal. ?????During the third day of PUC hearings, about 200 people gathered at=20 Fullerton College. Seventy people testified, most venting their anger at=20 elected officials and utility companies, whom they blame for the state's=20 flawed deregulation plan. ?????"I am opposed to any rate increase for residences and small business,"= =20 testified Ruth Shapin, a Santa Ana attorney. "This crisis was created by=20 politicians. PG&E and SCE have transferred billions of dollars to their=20 parent companies. Let them bail themselves out, not the ratepayers." ?????Others said the baselines might be unfair because the commission had n= ot=20 taken into consideration home size, the number of occupants and the locatio= n. ?????"It's going to be hard for many people to stay below the 130% baseline= ,"=20 said Sylvia Hartman of Lakewood. "Some customers could easily go 400% over= =20 the baseline." ---=20 ?????Reiterman reported from San Francisco, Rivera Brooks from Los Angeles.= =20 Times staff writer Dan Weikel in Fullerton contributed to this story. Copyright 2001 Los Angeles Times=20 Bush Energy Stance Begins to Worry Some in GOP=20 By GREG MILLER and RICHARD SIMON, Times Staff Writers=20 ?????WASHINGTON--As power shortages and price spikes spread beyond=20 California, congressional Republicans are beginning to worry that the Bush= =20 administration's reluctance to offer much immediate relief could hurt the= =20 party in the 2002 elections. ?????A national energy plan to be unveiled by the White House next week wil= l=20 focus on long-term strategies. But with California and other states bracing= =20 for a summer of electricity turmoil and gasoline prices surging across the= =20 country, some GOP lawmakers are pressing for short-term solutions. U.S. Rep. Mary Bono, left, and Gov. Gray Davis discuss meeting with=20 executives of power-generating companies. Bono plans to seek $100 million t= o=20 help poor people pay energy bills. AP ?????"The White House has been taking a look at the big picture," said a GO= P=20 leadership aide in the House. "But they're going to be around in four years= .=20 We might not have members around in two years if we don't show we care." ?????That sentiment is being voiced by a rising number of GOP lawmakers.=20 "We're in a crisis situation, which is only going to get worse if we don't= =20 act very aggressively," Rep. Elton Gallegly (R-Simi Valley) said Wednesday.= =20 Gallegly is one of four congressional Republicans from California to break= =20 with the administration by supporting temporary price controls on wholesale= =20 electricity. ?????The rising anxiety, which has begun spreading beyond the California=20 delegation, underscores how much has changed since the state declared its= =20 first Stage 3 power emergency in December. At that time, Congress' response= =20 was largely: That's Gov. Gray Davis' problem. ?????Not anymore. ?????Thirty-nine Stage 3 alerts later, a House committee today will take up= a=20 GOP-drafted emergency bill that would, among other things, allow Davis to= =20 temporarily waive certain emission standards for power plants during an=20 emergency and provide federal aid to relieve a notorious bottleneck in the= =20 California power grid. ?????But some GOP lawmakers say the legislation doesn't go far enough, and= =20 plan to offer amendments containing their own ideas. Rep. Mary Bono (R-Palm= =20 Springs) plans to push for $100 million in energy assistance to low-income= =20 households and for a directive to federal facilities in the West to cut=20 energy use by 20%. ?????"House leaders recognize that they could lose the House in California = if=20 there's not an action plan that members can campaign on," said Scott Reed, = a=20 GOP strategist. ?????As lawmakers search for ways to provide immediate relief, the White=20 House continues to cite California's troubles as evidence of the need to=20 upgrade an aging, overburdened electricity transmission system. ?????Responding to reports that the administration would propose legislatio= n=20 to give the federal government eminent domain authority in siting power=20 lines, White House press secretary Ari Fleischer said Bush wants to ensure= =20 that the distribution infrastructure can move electricity from regions with= =20 surpluses to regions that need more power. ?????"That's one of the reasons that California is going through the=20 difficulties it's going through," Fleischer said. "There is energy availabl= e=20 in other parts of the country, but it can't be shipped to California as=20 easily as you would hope, because of infrastructure problems." ?????Fleischer took exception to a front-page story in The Times reporting= =20 that Bush, in a speech delivered Tuesday, "offered no hint of what his=20 administration might do" to help California avert a possible economic=20 downturn caused by power blackouts. ?????Though the president did not specifically mention possible actions in= =20 the speech, Fleischer said Bush last week "announced a series of steps,=20 including conservation," to help California get through an energy crisis th= is=20 summer. ?????He said that the Pentagon is reducing its energy needs within Californ= ia=20 by 10% and that all other federal agencies, at Bush's direction, are=20 reviewing their energy consumption patterns. ?????Environmentalists already have begun blasting the administration's=20 energy plan--even before its details are made public--for what they=20 characterize as a failure to emphasize energy efficiency and investments in= =20 renewable fuels. ?????Activists Say Crisis Isn't Real ?????At a Wednesday news briefing, a coalition of environmental advocates= =20 disagreed with the administration's assertion that the country is=20 experiencing an energy "crisis," and accused it of crafting a plan designed= =20 to boost the profits of key campaign contributors. ?????"We cannot drill our way out of this situation," said Dan Becker of th= e=20 Sierra Club. He and others argued that conserving fuel--with cars that use= =20 less gasoline and appliances that use less electricity, for example--is the= =20 best way to avoid energy shortages in the short term. ?????So far, it is not clear whether the energy crisis will work to either= =20 party's advantage. Many on Capitol Hill are bracing for an election year th= at=20 could be brutal for incumbents of both parties if voters who endure high=20 energy bills this summer vent their frustration in the voting booth next ye= ar. ?????Some House Republicans acknowledged that they have been pushing the=20 White House to appear more engaged in finding near-term solutions. ?????When House Republicans met with Cheney last week, "they urged him and= =20 all the administration to at least make it clear that a lot of effort is=20 going into finding a way to solve the problem," said Jim Specht, a spokesma= n=20 for Rep. Jerry Lewis (R-Redlands), leader of the California GOP delegation. ?????Though some Republicans have offered ideas to address the immediate=20 problem, it is not clear whether any will receive congressional approval. ?????Indeed, the emergency assistance bill being taken up today by the Hous= e=20 energy subcommittee faces trouble, although it was drafted by the panel's= =20 chairman, Rep. Joe Barton (R-Texas). ?????Barton stripped out a number of provisions opposed by environmentalist= s.=20 But Democrats plan to seek a vote on capping wholesale electricity prices, = a=20 proposal most Republicans oppose. Democrats also plan to introduce an=20 amendment to target natural gas prices. ?????House Minority Leader Richard Gephardt (D-Mo.) said the bill "fails=20 miserably" to address California's problems. "During the campaign, Presiden= t=20 Bush promised a sensible energy policy," Gephardt said. "In recent weeks,= =20 however, the president has responded to the gathering crisis by throwing up= =20 his hands and saying there's nothing we can do, there's no way to give peop= le=20 immediate relief from blackouts and sky-high increases of price of gasoline= =20 at the pump." ?????Lawmakers of both parties acknowledge that they are hearing a rising= =20 chorus of constituent complaints about the energy price spikes and supply= =20 shortages. ?????Rep. Chris Cox (R-Newport Beach) was caught in a blackout during a tou= r=20 of a computer chip factory in his district. "They said it cost them $1=20 million if the power goes off even for five minutes," said Cox, who=20 nonetheless opposes price controls. ?????Cox said he is worried about how the California electricity crisis mig= ht=20 affect the national economy. He said that when he asks business owners abou= t=20 expanding in California, "they just look at you like you're nuts. They don'= t=20 consider California an option because of this uncertainty." ?????"People come up to you and want you to help solve the problem," said= =20 Rep. George Radanovich (R-Mariposa). ?????He has explained that there is little the federal government can do in= =20 the short term. ?????"Californians want somebody to do something," said John J. Pitney Jr.,= =20 associate professor of government at Claremont McKenna College. "When peopl= e=20 are in a mood like that, politicians get nervous thinking that they're the= =20 ones who might get blamed." ?????Said Reed, the GOP strategist: "Every incumbent in California is=20 vulnerable in the next election, in both parties. This is an issue that is= =20 not ideological. It's about action and solving a short-term problem.=20 "Politics have taken over this issue, like it or not," he said. "They may= =20 have been raging in California for the last three or four months. It's now = a=20 national political issue."=20 ---=20 ?????Times staff writers James Gerstenzang, Edwin Chen, Elizabeth Shogren a= nd=20 Ricardo Alonso-Zaldivar contributed to this story. Copyright 2001 Los Angeles Times In Office Buildings, the Lights Are On, But Nobody's Home=20 Energy: Analysts say metering individual tenants could encourage=20 conservation.=20 By JERRY HIRSCH, Times Staff Writer=20 ?????Despite power outages and soaring energy prices, workers stream out of= =20 California's downtown and suburban offices each evening leaving lights=20 blazing and computers humming. And there has been scant incentive to=20 conserve, since commercial building leases typically include the cost of=20 energy. ?????Energy experts and other analysts say metering of individual office=20 tenants would encourage conservation by pushing companies to shut off light= s,=20 computer monitors, desk fans and other electrical devices at night, but sta= te=20 regulations and utility policies are in the way. ?????That conflict between policy and conservation efforts has drawn the=20 attention of state Sen. Debra Bowen (D-Marina del Rey), who chairs the Sena= te=20 Energy, Utilities and Communications Committee. On Tuesday, Bowen asked=20 California Public Utilities Chairwoman Loretta Lynch to review what Bowen= =20 called "archaic" regulations governing how electricity meters are used in= =20 office buildings. Bowen said she also plans to take up the issue in her=20 committee. ?????At issue is Rule 18, a regulation established by the commission two=20 decades ago that prohibits landlords from using submeters to assess energy= =20 charges to tenants. ?????"It is quite old and dates back to a different era of electricity=20 distribution in California," said Bowen, who was urged to take action by th= e=20 Building Owners and Managers Assn. "I asked Loretta Lynch to open a=20 proceeding to revise or eliminate that ban." ?????Lynch did not return calls for comment on the state's metering policie= s,=20 but PUC regulatory analyst William Gaffney said more metering "would be a= =20 boon to energy conservation" because "you could see what you are using." ?????"Direct metering would ultimately foster greater energy savings . . .= =20 more permanent savings, because it would encourage capital investments in= =20 more efficient equipment, windows, etc., etc.," said Evan Mills, a scientis= t=20 in the energy analysis department of the Lawrence Berkeley National=20 Laboratory in Berkeley. ?????Usually, the only tenants in office buildings with utility meters are= =20 retail and restaurant businesses, according to commercial real estate=20 experts. Most tenants in California office towers sign what are called "gro= ss=20 leases" that include power. When electricity usage or rates go up=20 unexpectedly, landlords can charge monthly or annual "escalation fees" to= =20 cover the extra cost. The fees typically are apportioned by the percentage = of=20 the building a tenant occupies. ?????This method of billing is counterproductive to energy savings, said=20 Willet Kempton, senior policy scientist at the University of Delaware's=20 Center for Energy and Environmental Policy. Energy hogs are subsidized by= =20 other tenants. Conversely, savings through conservation are only fractional= ly=20 shared. ?????Two key obstacles block metering of individual tenants in a building. ?????One is economics--high-rise buildings get a far better rate with one= =20 utility meter than if each floor is metered. ?????"We can sell a lot of energy on just one bill," said Randy Howard,=20 manager of commercial services at the Los Angeles Department of Water and= =20 Power. "If we had 200 meters there and had to do the billing and meter=20 reading for each of them, each tenant would pay a higher rate." ?????Moreover, utilities aren't anxious to send meter readers to every floo= r=20 of a building, going through private offices to find the meters. One=20 alternative--locating all the meters in a central area where the main=20 electrical line enters the building--would require massive rewiring of=20 existing office towers that could cost several hundred thousand dollars or= =20 more, depending on the size of the building, said Ali Sherafat, senior vice= =20 president of the Los Angeles office of Syska & Hennessy, a consulting=20 engineering firm. ?????A 1995 ruling by the PUC required that individual tenants in office=20 buildings be placed on meters operated by a public utility (as opposed to= =20 landlord-managed submeters), but relatively few have been installed because= =20 of exemptions. ?????For example, Southern California Edison Co. officials typically meet= =20 with developers at the start of a building project to determine how many=20 meters it might require, said Matt Deatherage, a planning support manager f= or=20 the utility. But because developers build office space so that its=20 configuration can change easily as tenants shift, the estimate is often=20 wrong. A building designed with three meters for three tenants might find= =20 itself with six tenants or more by the time it opens. ?????"We don't require them to go back and rewire the building if it turns= =20 out to be wrong, that would be too expensive," Deatherage said. ?????The second obstacle is Rule 18, the 1981 ban on submetering originally= =20 intended to protect utility monopolies and to prevent landlords from gettin= g=20 electricity at a discount price and selling it at a markup to tenants. ?????"When you resell electricity like that, you function as a utility and= =20 that's not allowed," said Deatherage. ?????Nonetheless, Bowen believes that deregulation may have superseded thos= e=20 issues and that current policy should emphasize conservation. ?????Although the leasing model used in California is common, it's not=20 universal, said Peter L. DiCapua, energy chairman of the Building Owners an= d=20 Managers Assn. International. ?????Many New York tenants have individual meters. Others are on landlord= =20 submeters, a system that allows them to tap into the lower, high-volume rat= es=20 paid by the building's operator but still pay for actual, rather than=20 estimated, energy use.=20 ?????Landlords would welcome a changed regulation to allow submetering for= =20 several reasons. There are the conservation benefits, said Dan Emmett, chie= f=20 executive of Douglas Emmett & Co., one of the largest building owners and= =20 managers in Los Angeles County. It also would reduce some of the inevitable= =20 arguments with tenants who claim they pay more than their fair share for=20 services at a building. ?????"I think submetering could be practical," Emmett said. "It is not that= =20 complicated and is fairly inexpensive." ?????Sherafat said it would cost about $2,000 per tenant for the submeter a= nd=20 the necessary software. Submeters could be installed at the electrical pane= l=20 level without expensive rewiring for utility meters, he said. Better yet, t= he=20 software allows data to be collected at a central point, eliminating the ne= ed=20 for meter readers. Such a system also could allow big buildings to use one= =20 master meter to get the best rate . ?????Though submetering would foster conservation, it still is not a panace= a,=20 said Kempton of the University of Delaware. When it comes to energy=20 conservation, changing the behavior of businesses and workers is notoriousl= y=20 tricky. ?????"Attorneys literally can't be bothered with the nuances of energy," sa= id=20 DiCapua, an executive at Atco Properties & Management in New York. "They ar= e=20 focused on things other than if the air conditioning was left on all night. ?????That is typical of professional services firms, because energy is just= a=20 small fraction of their expenses, Kempton said. ?????And individual metering sounds great in theory, Kempton added, but it = is=20 useless if the bill goes to a home office elsewhere or if the on-site manag= er=20 of the firm never sees it. ?????In any push to change the rules, however, people should remember that= =20 the current system was developed for sound reasons, often based on reducing= =20 the expense of constructing buildings and finding tenants the lowest prices= =20 for energy, Howard said.=20 ?????"Right now we are in a conservation mode, so everybody is talking abou= t=20 this," he said. "But that hasn't always been the case, so a single meter fo= r=20 a big building made sense." Copyright 2001 Los Angeles Times=20 Thursday, May 10, 2001=20 Power Shifts to Congress=20 ?????Wholesale electricity prices soared with the temperature this week,=20 jumping to eight times the peak of only three weeks ago. No one knows how= =20 high the price may go when high summer hits. Which makes it all the more=20 intriguing that one of the big power-generating companies is now calling fo= r=20 temporary price caps, which the Bush administration stubbornly opposes.=20 ?????Authority over wholesale power prices rests with the Federal Energy=20 Regulatory Commission, which is charged by Congress with maintaining "just= =20 and reasonable" rates. But FERC refuses to impose what California desperate= ly=20 needs, a broad temporary price cap that allows companies to recover their= =20 costs plus a reasonable profit. The state's last hope for rate caps now res= ts=20 with Congress.=20 ?????Sens. Dianne Feinstein (D-Calif.) and Gordon Smith (R-Ore.) are=20 sponsoring legislation that would require FERC to establish temporary maxim= um=20 rates. Rep. Henry Waxman (D-L.A.) is scheduled to propose amendments to a= =20 House bill today to do the same. The support of three Republican House=20 members from California, who are on the energy and air quality subcommittee= ,=20 is crucial. They are Christopher Cox of Newport Beach, Mary Bono of Palm=20 Springs and George Radanovich of Mariposa. The Waxman measure serves the be= st=20 interests of California. Concern about losing seats in Congress may also he= lp=20 the GOP members make the right choice.=20 ?????It was Feinstein who got a letter from Keith E. Bailey, chairman of=20 Williams Cos., an energy producer, in support of temporary price controls.= =20 Perhaps some generators are tired of being labeled gougers, pirates and=20 bloodsuckers, and they will settle for a reasonable profit through the rest= =20 of this crisis. But price caps would have to apply to all the producers.=20 Congress must act, starting today with the subcommittee vote on the Waxman= =20 measure. Copyright 2001 Los Angeles Times=20 Proud state forced to knees in power hunt=20 Robert Salladay, Chronicle Sacramento Bureau Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/10/MN40227.= DTL=20 California has turned into the trailer park next door, the cash-only,=20 deadbeat neighbor forced to beg for enough power to keep the swamp cooler= =20 running.=20 Yesterday in Folsom, home of the state's energy managers, was another study= =20 in high-tech, air-conditioned humiliation -- punctuated by a frantic scrapi= ng=20 and bowing for energy across the West.=20 Poor people with "secured" credit cards can relate to the scene at the=20 California Independent System Operator. This week began with Canada's BC=20 Hydro threatening to shut off power again until the state actually wired ca= sh=20 to its bank account.=20 "We got the money," an ISO engineer stood up and told another employee at t= he=20 agency's semi-secret Folsom headquarters yesterday. "Yeah, we're good for= =20 another $14 million. Burn it up, huh, Lloyd?"=20 Lloyd started burning it up, thanks to an OK from the Department of Water= =20 Resources and to several million California taxpayers' footing the bill.=20 California narrowly missed a third day in a row of blackouts yesterday. The= =20 situation was tight when a power plant in Pittsburg shut down because its= =20 boiler was leaking, but cooler weather and increased supply from other=20 generators helped keep the lights on.=20 All week at the ISO, engineers have been fretting about facilities and=20 finances.=20 BC Hydro shut off 2,000 megawatts of power to the state Monday while it=20 waited for a check from the water agency. The state has a line of credit wi= th=20 BC Hydro, but California is buying so much at such high prices that it was= =20 reaching the limit.=20 The company already is owed about $307 million from the state's insolvent= =20 utilities, so it is impatient.=20 "They wanted to make sure we were good for it before we could continue," sa= id=20 Oscar Hidalgo, a spokesman for the water agency, which is paying the bills.= =20 The power cutoff sent the ISO into a panic, since BC Hydro was providing=20 enough to power an estimated 2 million homes. Two hours later, the state=20 marched down to the bank and wired the money. Power was restored, and an=20 agreement was reached yesterday for daily payments.=20 The engineers in shirtsleeves at the ISO aren't used to this kind of=20 treatment. Since the energy crisis drained the bank accounts of the=20 utilities, it's been months of constant struggle to get power generators to= =20 fork over electrons.=20 "We have to go into higher begging mode for generators out of state," said= =20 Jim McIntosh, director of grid operations for the ISO. "It scares the hell= =20 out of these guys. They've never been put in that position. . . . From the= =20 electricity standpoint, we're operating like the Third World."=20 The ISO has no control over energy prices or even how the bills are paid. T= he=20 bills are the job of the water agency, which has been spending about $50=20 million a day since mid-January.=20 Not only have a near-record number of power plants been shut down for repai= rs=20 this month, the hot weather is breaking records and causing energy use to= =20 spike. The state would probably be near blackouts even without the shaky=20 financial situation.=20 But the final insult is that some of the bills are getting paid late, in pa= rt=20 because power generators are charging unprecedented rates on the daily ener= gy=20 market.=20 That causes the people who work at power companies to get snippy sometimes= =20 and threaten to withhold power. That also leads to the same things that poo= r=20 people face every day: higher prices, bad service and frustration.=20 "We pay more for gasoline. We pay more for natural gas. We pay more for=20 electricity than anywhere else in the country," said Larry Bellnap, shift= =20 manager at the ISO, a two-decade veteran in the power business. "I can't=20 think of a reason except we're California, and they are taking advantage of= =20 us."=20 Here's a conversation recorded a few months ago between an ISO engineer and= a=20 generating plant in El Segundo. At the time, the ISO needed the plant to go= =20 on line immediately to avoid blackouts.=20 "You need to get somebody that has the authority to tell me how I'm going t= o=20 get paid," the plant manager demands on the phone.=20 "I have the authority to order these plants on," the ISO manager says, and= =20 then gets this back a few minutes later:=20 "I still need clarification on how you're going to pay me if I get these=20 things on."=20 "OK. I can't give you that right now. That will have to wait until tomorrow= .=20 "=20 "No, I need that now," the plant manager says.=20 "That's unacceptable."=20 The conversation is contained in court records compiled when several out-of= -=20 state generators threatened to cut off power, despite their contracts, and= =20 the ISO sued. The state lost its case essentially, but federal regulators= =20 backed them up last week in a ruling.=20 McIntosh said he'd never in his 31 years working in the power industry had = to=20 get a lawyer on the phone to force a power generator to start up a plant to= =20 provide more power. But now they have two available if needed to remind=20 generators of their commitment.=20 GALLING POSITION The problem is especially irritating because power generators are charging= =20 the highest prices ever seen for power.=20 McIntosh and others said the situation was much smoother now that Californi= a=20 was the major creditor and was pumping billions of dollars into buying powe= r.=20 Most of the generators are confident enough they will get paid.=20 Hidalgo said the BC Hydro situation this week was isolated so far, but he= =20 offered one solution for the future:=20 "Maybe they shouldn't charge so much."=20 E-mail Robert Salladay at rsalladay@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Power bills set to skyrocket for heavy users=20 Graduated rate increase would take effect in June=20 David Lazarus, Chronicle Staff Writer Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/10/MN176943= .DTL=20 As state regulators outlined plans to raise residential electricity bills b= y=20 as much as 40 percent, the head of the Public Utilities Commission warned= =20 yesterday that power rates could soar even higher.=20 The PUC, which adopted an increase in March, is scheduled to approve detail= s=20 of the new rates in San Francisco on Monday. Consumers will see the higher= =20 rates in their June utility bills.=20 State regulators say nearly half of all consumers will see no change in the= ir=20 power bills. The remainder will experience rate increases ranging from 3=20 percent to more than 50 percent, depending on the type of customer and the= =20 amount of power used.=20 The increases would be added to an average 10 percent increase adopted in= =20 January.=20 PUC President Loretta Lynch suggested that rates could rise yet again if=20 wholesale electricity prices continue to surge this summer.=20 "If the sellers decide to turn up the heat and raise prices, we'll have to= =20 look again at the numbers," she said.=20 INCREASE WILL CONTRIBUTE LITTLE The proposed rate increase would bring in about $5 billion annually -- a=20 fraction of the estimated $65 billion California will spend this year=20 purchasing power on behalf of the state's cash-strapped utilities.=20 Lynch said she expects the remainder to be made up by issuing bonds. The=20 state Senate yesterday approved $13.4 billion in bonds to help cover=20 California's power costs.=20 However, those bonds would not be released until August, by which time=20 California's energy tab would be billions of dollars higher.=20 "There's huge cause for concern that this latest rate increase is a down=20 payment rather than anything close to a final installment," said Bob=20 Finkelstein, staff attorney for The Utility Reform Network in San Francisco= .=20 The PUC's Lynch stressed that while California's new rate structure would= =20 place a greater burden on the state's heaviest power users, the increases a= re=20 intended to spread the pain among all consumers.=20 "Energy is expensive for every hour of every day for every customer," she= =20 said.=20 LINING UP TO GET PAID That includes the state Department of Water Resources, which is spending=20 about $70 million a day to keep California's lights on.=20 While the PUC is moving to have more money collected from consumers to pay= =20 California's power bills, it has yet to address the thorny question of how= =20 the proceeds will be distributed among the various parties lined up for=20 compensation.=20 The Water Resources Department wants all rate-related revenues to first=20 replenish state coffers, while Pacific Gas and Electric Co. and Southern=20 California Edison Co. insist that they be paid as well for their own=20 expenses.=20 The utilities' costs include payments to small power generators that can no= =20 longer afford natural gas to run their plants. The recent closure of hundre= ds=20 of such facilities is a key reason California is experiencing blackouts thi= s=20 week.=20 Although PG&E said yesterday that most of the smaller generators with which= =20 it does business are now back online, it is not yet clear whether the utili= ty=20 will be able to keep paying for their power.=20 "It appears that everything (from the rate increase) is going to DWR (the= =20 Water Resources Department)," said John Nelson, a PG&E spokesman.=20 Lynch said the PUC will take up the matter of apportioning funds at an=20 unspecified future date.=20 CONSERVATIVE USE PAYS For the moment, state regulators have their hands full digesting two=20 competing -- and highly complex -- proposals for how rates should be=20 increased next week.=20 One proposal was submitted by an administrative law judge working with the= =20 PUC and the other by Lynch. Commissioners will choose between them on Monda= y.=20 The two proposals are largely identical. Under both, residential customers= =20 who can keep electricity usage within 130 percent of predetermined limits= =20 would experience no rate increase.=20 The "baseline usage" figure -- included near the bottom of PG&E bills --=20 represents the minimal amount of power consumers require. It includes a=20 number of variables, such as climate, time of year and type of fuel used.= =20 The PUC said about half of all utility customers statewide historically sta= y=20 within 130 percent of baseline limits.=20 Heavy residential users whose electricity usage tops 400 percent of baselin= e=20 figures would see power bills rise by as much as 40 percent. Heavy commerci= al=20 and industrial users would see bills rise by more than 50 percent.=20 The average increase for all PG&E residential customers would be about 16= =20 percent, the PUC said, although this number is skewed by the addition of al= l=20 those customers whose bills would remain unchanged.=20 Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights = in=20 Santa Monica, questioned whether these rate increases will be sufficient to= =20 motivate greater conservation among consumers and thus ease California's=20 energy woes.=20 He called instead for the state's political leaders to seize generating=20 plants from out-of-state power companies and impose a special tax on the=20 companies' "windfall" profits.=20 "Unless our elected officials take action, this is just the beginning of ou= r=20 rate increases," Rosenfield warned.=20 FEDERAL BUILDINGS IN SIGHTS One of the main differences between the two rate-increase proposals is=20 Lynch's inclusion of a "real-time pricing program" for federal agencies.=20 If enacted, she said, federal buildings in California would be fully expose= d=20 to the volatile wholesale power market and would pay whatever California pa= ys=20 to keep the lights on throughout the day.=20 Lynch denied that this is an effort on the part of California officials to= =20 drive home to federal authorities the impact of sky-high wholesale=20 electricity prices.=20 "It's just an experiment," she said.=20 While California officials have called on federal regulators and the Bush= =20 administration to assist the state by capping wholesale power prices,=20 Washington has provided only limited relief to date.=20 The Utility Reform Network's Finkelstein complained that the proposed rate= =20 increases place a severe burden on residential customers when commercial an= d=20 industrial users account for the greater percentage of power consumption.= =20 "It was the commercial and industrial customers who were clamoring for=20 deregulation," he said. "You didn't hear any calls for deregulation from=20 residential customers."=20 Lynch said she was aware that residential users are being asked to carry a= =20 high proportion of the load but said efforts to force industrial users to p= ay=20 higher rates ran into political opposition.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Developments in California's energy crisis=20 The Associated Press Thursday, May 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/10/s= tate0 948EDT0159.DTL&type=3Dnews=20 , , -- (05-10) 06:48 PDT Developments in California's energy crisis:=20 THURSDAY: -- Grid operators say cooler temperatures will help them meet California's= =20 electricity demands. Officials at the Independent System Operator say=20 supplies are tight, but they don't expect blackouts.=20 -- The PUC holds a public hearing on the proposed rate structure in=20 Sacramento.=20 -- Gov. Gray Davis is scheduled to sign a bill authorizing $13.4 billion in= =20 revenue bonds to pay for power for customers of the state's three largest= =20 utilities. The bonds will repay the state general fund for $6.7 billion=20 authorized for power buys since January and will finance future electricity= =20 purchases.=20 WEDNESDAY: -- After a difficult afternoon, grid operators are able to avoid blackouts= =20 after temperatures drop slightly.=20 -- The Public Utilities Commission releases recommendations for rate=20 increases, sparing about 9 million customers of Pacific Gas and Electric Co= .=20 and Southern California Edison, but socking residential customers who don't= =20 cut back with a 40 percent hike. PUC president Loretta Lynch says the plan = is=20 designed to encourage conservation and provides $5 billion more to help pay= =20 the state for the $6.7 billion it has spent so far providing electricity fo= r=20 the customers of PG&E and Edison.=20 -- The state Senate approves a bill authorizing $13.4 billion in bonds for= =20 power buys, sending the bill to the governor.=20 -- The governor meets with the CEOs of several major energy suppliers to=20 discuss the money they're owed by the state's two largest utilities, the=20 state's creditworthiness and how wholesalers can help the state during the= =20 energy crisis. Davis says he won't be discussing any of the investigations= =20 into price manipulation in the wholesale market.=20 -- A consortium of business interests releases a study saying continued=20 blackouts this summer could cost the state $21.8 billion in losses from=20 sales, wages and production.=20 -- PG&E says only eight of the 300 small power plants in its territory are= =20 still shut down for payment reasons. All eight are natural gas-fired plants= =20 that deliver a combined 109 megawatts of electricity, enough to power about= =20 80,000 homes. Owners of these plants say they haven't been fully paid for= =20 millions of dollars in past power deliveries and that they would operate at= a=20 loss if they resume full operations.=20 -- PG&E asks U.S. Bankruptcy Judge Dennis Montali to void the appointment o= f=20 a committee representing ratepayers. The utility says that such a committee= =20 isn't allowed under bankruptcy law and that the state attorney general can= =20 represent ratepayers in the bankruptcy process.=20 Montali also says PG&E can use hundreds of millions of dollars in payments= =20 from customers to buy gas, which the utility in turn sells to homes and=20 businesses. That came as other creditors wait to recoup billions of dollars= =20 from the bankrupt utility. Montali rules that creditors lining up to collec= t=20 from PG&E cannot use any money they secure to sue the utility's largest=20 creditor, The Bank of New York.=20 -- A major electricity generator starts an ad campaign that offers to sell= =20 power to the state for 2 cents per kilowatt hour -- as long as the state=20 provides the natural gas to produce the power. Reliant Energy says the ads= =20 are necessary because their offer is being ignored by power buyers. Another= =20 energy producer, Mirant, has also kicked off a media campaign.=20 WHAT'S NEXT: -- Davis' representatives continue negotiating with Sempra, the parent=20 company of San Diego Gas and Electric Co., to buy the utility's transmissio= n=20 lines.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Edison and PG&E say they've lost nearly $14 billion since June to high=20 wholesale prices the state's electricity deregulation law bars them from=20 passing on to consumers. PG&E, saying it hasn't received the help it needs= =20 from regulators or state lawmakers, filed for federal bankruptcy protection= =20 April 6.=20 Electricity and natural gas suppliers, scared off by the two companies' poo= r=20 credit ratings, are refusing to sell to them, leading the state in January = to=20 start buying power for the utilities' nearly 9 million residential and=20 business customers. The state is also buying power for a third investor-own= ed=20 utility, San Diego Gas & Electric, which is in better financial shape than= =20 much larger Edison and PG&E but also struggling with high wholesale power= =20 costs.=20 The Public Utilities Commission has approved rate increases of as much as 4= 6=20 percent on average to help finance the state's multibillion-dollar power=20 buys. The PUC is still determining how those increases will be spread among= =20 utility customers.=20 ,2001 Associated Press ?=20 PG&E says fewer small power plants offline=20 KAREN GAUDETTE, Associated Press Writer Thursday, May 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/10/s= tate0 343EDT0125.DTL&type=3Dnews=20 (05-10) 00:43 PDT SAN FRANCISCO (AP) -- Only eight of the 300 small power= =20 plants in Pacific Gas and Electric Co.'s territory remain shut down for=20 payment reasons, the struggling utility says. That means more vital megawat= ts=20 have come back online that could help prevent rolling blackouts.=20 But operators of those so-called qualifying facilities say that's because= =20 they're required to run their plants during periods of high demand to get= =20 paid, not because of a change of heart over millions of dollars owed to the= m=20 for past electricity deliveries.=20 ``What I believe will start happening is you will see QFs operate for a=20 minimal amount of time during peak times in order to get their capacity=20 payments,'' said Jan Smutney-Jones, executive director of the Independent= =20 Energy Producers. ``They won't be fully available to California.''=20 All eight of the plants in PG&E's territory are natural gas-fired plants th= at=20 deliver a combined 109 megawatts of electricity, enough to power about 80,0= 00=20 homes.=20 Lorie O'Donley, a spokeswoman with the Independent System Operator, which= =20 manages California's electric grid, said that more of so-called qualifying= =20 facilities had indeed come back online throughout the state.=20 ``Right now we have 1,400 megawatts offline statewide,'' O'Donley said,=20 though she didn't yet know how many QFs were offline in PG&E's territory an= d=20 in other territories.=20 QFs harness solar, biomass, geothermal or wind power, as well as natural ga= s,=20 to generate environmentally friendly electricity, and provide electricity t= o=20 the state's investor-owned utilities under contract.=20 QFs contribute about 6,000 megawatts to the state's power grid, O'Donley=20 said. A few weeks ago, around 3,000 megawatts were offline. Many plants wer= e=20 shut down in protest for not getting paid millions of dollars for past=20 electricity deliveries. That lack of power contributed to rolling blackouts= =20 which swept the state.=20 The past debt, as well as a new pricing system ordered by the Public=20 Utilities Commission, would force QFs to operate at a loss if they start=20 producing power at full capacity, said Smutney-Jones.=20 The new PUC price structure ties how much they can charge for their=20 electricity to the price of natural gas coming in at the Oregon border, whe= re=20 natural gas is cheaper. However, many plants can only ship and buy their ga= s=20 at the Topock border in the south, where prices are much higher.=20 ``I don't think we're anywhere near out of the woods with respect to the QF= =20 issue,'' Smutney-Jones said.=20 PG&E and Southern California Edison Co. have paid for QF electricity=20 delivered since April under order by the PUC. However, PG&E had made partia= l=20 payments on deliveries since last year, while SoCal Edison had paid nothing= .=20 San Diego Gas and Electric Co. says it never fell behind on its payments.= =20 www.pge.com=20 ,2001 Associated Press ?=20 A look at two rate designs before power regulators=20 The Associated Press Thursday, May 10, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/10/s= tate0 338EDT0123.DTL&type=3Dnews=20 , , -- (05-10) 00:38 PDT=20 Key components of rate design proposals introduced Wednesday by Loretta=20 Lynch, state Public Utilities Commission president, and Christine Walwyn, a= =20 PUC Administrative Law Judge. Both proposals suggest how to implement recor= d=20 rate increases passed by the PUC on March 27. Both rate plans use baseline = --=20 an average amount of power used based on a customer's climate, geography an= d=20 the time of year -- to help determine how much to charge customers.=20 President Loretta Lynch's proposal:=20 --Divides residential groups into five tiers=20 Tiers 1 and 2 include low-income customers exempt from rate hikes and power= =20 use up to 130 percent of baseline.=20 Tier 3 covers power use from 130 percent to 200 percent of baseline. Rate= =20 increase percentage was not released Wednesday.=20 Tier 4 covers power use from 200 percent to 300 percent of baseline. Rate= =20 increase percentage was not released Wednesday.=20 Tier 5 covers power use beyond 300 percent of baseline. Lynch said power us= ed=20 within these limits would receive an average 48 percent rate increase. Paul= =20 Clanon, head of the PUC's energy division, says that number is closer to=20 35-40 percent on average.=20 --Commericial customers of PG&E would receive an average 37.5 percent=20 increase on all electricity used.=20 --Industrial customers of PG&E would receive an average 52 percent increase= =20 on all electricity used, depending what time of day they used it.=20 --Agricultural customers of PG&E would receive an average 21 to 30 percent= =20 rate increase on all electricity used, depending what time of day they used= =20 it. Rates are capped at 30 percent.=20 --Would adopt a pilot program to introduce real-time pricing to federal=20 electric customers. Real-time pricing charges customers the full cost of=20 electricity. Therefore, proponents say, customers should shift their electr= ic=20 use away from times of high demand and higher prices, thus lowering demand= =20 and eventually lowering wholesale prices.=20 Administrative Law Judge Christine Walwyn's proposal:=20 --Divides residential groups into four tiers=20 Tier 1 includes low-income customers exempt from rate hikes and power use u= p=20 to 130 percent of baseline.=20 Tier 2 covers power use between 130 percent to 200 percent of baseline. Pow= er=20 used within these limits would receive an average 3 percent increase.=20 Tier 3 covers power use betwen 200 percent to 300 percent of baseline. Powe= r=20 used within these limits would receive an average 10 percent increase.=20 Tier 4 covers power use over 300 percent of baseline. This use would receiv= e=20 an average 34 percent increase.=20 --Exact information on other classes was not provided.=20 Source: Public Utilities Commission, Energy Division=20 ,2001 Associated Press ?=20 Lights stay on despite failure of big plant=20 John Wildermuth, Joe Garofoli, Chronicle Staff Writers Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /10/M N173855.DTL&type=3Dnews=20 With temperatures still high and generating plants running full out, state= =20 power officials managed by the smallest of margins to prevent a third=20 straight day of rolling blackouts yesterday.=20 "It's been a roller-coaster of an afternoon," said a weary Stephanie=20 McCorkle, spokeswoman for the California Independent System Operator.=20 Demand was running slightly ahead of estimates early in the day, but the=20 situation improved when the ISO asked its interruptible power users to cut= =20 their loads shortly after noon, McCorkle said.=20 Those users, who agree to temporarily limit their power use when asked in= =20 return for lower rates, gave the system an additional 800 megawatts to work= =20 with.=20 Temperatures again soared inland, but by 2 p.m. a slight break in the weath= er=20 raised hopes that the emergency could be easing.=20 Then, a 750-megawatt plant in Pittsburg broke down.=20 "That wrecked my day," said Jim McIntosh, the ISO's operations director.=20 While the ISO managed to beg, borrow and buy enough extra power to replace= =20 the Pittsburg plant for the afternoon, the generator's loss is another=20 headache for a system already stretched to the maximum.=20 The Pittsburg plant will be shut down for a minimum of 60 hours while crews= =20 repair a boiler tube leak, said a spokesman for Mirant Corp., the plant's= =20 owner.=20 "I stress 'minimum' here, because that's usually the least amount of time i= t=20 takes to fix one of these things," said Chuck Griffin, a company spokesman.= =20 The Pittsburg plant is the largest gas-fired generator in the state's power= =20 grid, McIntosh said.=20 California already has plants that normally produce 12,000 megawatts of pow= er=20 out for maintenance and repair.=20 "We knew May was going to be a tough month," McIntosh said.=20 E-mail the writers at jgarofoli@sfchronicle.com and=20 jwildermuth@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 12=20 PG&E fights consumer committee=20 Obstruction feared in bankruptcy case=20 Bob Egelko, Chronicle Staff Writer Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /10/M N150518.DTL&type=3Dnews=20 Pacific Gas and Electric Co. asked a judge yesterday to dissolve a committe= e=20 appointed to represent consumers in the utility's bankruptcy case, calling= =20 its members "special interest groups" who could obstruct the proceedings.= =20 The nine-member committee, with representatives from businesses, government= =20 agencies and consumer organizations, was named last week by the Justice=20 Department's bankruptcy trustee for Northern California and Nevada. Trustee= =20 Linda Ekstrom Stanley said her action was needed to give the public a voice= =20 because the state had declined to take part in the case.=20 The appointment was significant because the committee can participate fully= =20 in the high-stakes case, conduct investigations, comment on PG&E's plan to= =20 settle its debts and propose an alternative plan. No past utility bankruptc= y=20 case has included a consumer committee.=20 In papers filed late yesterday, PG&E said the committee was unauthorized by= =20 bankruptcy law and was potentially harmful.=20 The law allows only unsecured creditors and equity security holders to be= =20 appointed to official committees, and consumers do not fit those categories= ,=20 PG&E attorneys argued.=20 A committee of the largest unsecured creditors, including banks and power= =20 generators, was appointed earlier. That committee has also opposed the=20 appointment of the consumers' committee but has not filed legal objections.= =20 Even if individual customers qualified for appointment, "none of the specia= l=20 interest groups can claim a mandate to represent the interests of PG&E=20 ratepayers generally," the utility said.=20 PG&E said the two consumer organizations on the committee, The Utility Refo= rm=20 Network and Consumers Union, have "well-known political and policy agendas= =20 that have nothing to do with the reorganization principles of the Bankruptc= y=20 Code" and "a demonstrated history of aggressive lobbying and litigation."= =20 Noting that the consumers' committee would be funded by PG&E, the utility= =20 said the consumer groups' "proclivities could substantially retard the=20 progress of this case and seriously prejudice its outcome."=20 U.S. Bankruptcy Judge Dennis Montali has scheduled a May 18 hearing on PG&E= 's=20 challenge. Stanley said she had met last week with PG&E representatives and= =20 lawyers, concluding "after significant research" that her action was both= =20 legal and necessary.=20 "The public's interest is not being protected in the bankruptcy case," she= =20 said, noting that the state government was keeping out of the proceedings i= n=20 order to avoid exposure to PG&E lawsuits.=20 "The ratepayers are claimants here," Stanley said. "They have a right to=20 expect performance from this utility. They have a right to be heard here."= =20 Committee member Nettie Hoge, executive director of The Utility Reform=20 Network, said she was confident in Stanley's judgment. "You've got a monopo= ly=20 utility and customers who are forced to pay rates for an essential service,= "=20 Hoge said. "You've got to have customers involved in the discussions.=20 "The trustee has done an admirable job, choosing a committee that is very= =20 diverse, folks who have a stake in every aspect of the economy."=20 E-mail Bob Egelko at begelko@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 Generators silent on Davis plan=20 He offers lower compensation to stave off Edison bankruptcy=20 Lynda Gledhill, Chronicle Sacramento Bureau Thursday, May 10, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /10/M N128963.DTL&type=3Dnews=20 Sacramento -- Gov. Gray Davis, who has portrayed power generators as greedy= =20 villains in the state's power crisis, met face-to-face with industry=20 officials yesterday, calling on them to forgive some of the debt racked up = by=20 an insolvent utility.=20 In a three-hour meeting described as "businesslike," Davis said generators= =20 will have to accept 70 cents on the dollar of past debt as part of a soluti= on=20 designed to prevent Southern California Edison Co. from going bankrupt.=20 At least one of the companies flatly rejected the idea after the meeting,= =20 putting the deal in jeopardy.=20 If the two sides are not able to reach an agreement, Southern California=20 Edison would probably follow Pacific Gas & Electric Co. into bankruptcy=20 court, where creditors face a lengthy and uncertain resolution to recoverin= g=20 debts.=20 Davis has run into legislative opposition to the original terms of the=20 agreement he brokered with Southern California Edison, which includes the= =20 state's purchase of the utility's transmission lines as a way to help it=20 regain financial stability.=20 But the governor said he now believes that the deal can win passage in the= =20 Legislature if the generators "take a haircut."=20 "I indicated that passage of the (agreement) that we signed with Edison wou= ld=20 only work if they agreed to reduce the amount of money they claim the=20 utilities owe them," he said.=20 Edison owes generators, including municipal utilities, between $1.1 billion= =20 and $1.2 billion, Davis said. He said he agreed that talks would also take= =20 place with municipal utilities about taking less money on the dollar.=20 Most of the generators refused to comment on the proposal, but a=20 representative of Reliant Energy dismissed the suggestion.=20 "That's simply an unreasonable number to start with," said John Stout, seni= or=20 vice president of Reliant, who said that 67 cents on every dollar the compa= ny=20 receives goes to pay the fuel bill, which doesn't include personnel and=20 maintenance of facilities.=20 "It doesn't get any supply built," Stout said of the idea. "I would much=20 rather get that 100 cents on the dollar" to invest in new generation.=20 The generators, who have reaped huge profits in the past year, said the mai= n=20 thrust of the meeting was on short-term issues, such as lining up more powe= r=20 for the summer.=20 Davis asked which companies were not yet selling to the state and said he= =20 would work to get the Department of Water Resources to sign agreements with= =20 them.=20 He also asked the generators to support the Edison deal, reportedly asking= =20 them to try to win GOP support for it.=20 Davis agreed to a proposal from the companies to form permanent working=20 groups to deal with the crisis.=20 A handful of protesters led by former Senate candidate Medea Benjamin=20 condemned Davis for meeting with the companies. Dressed as pigs, with the= =20 names of the companies on their masks, the five protesters brought a small= =20 live pig into the Capitol, where it proceeded to defecate outside the=20 governor's office before the group was escorted out of the building.=20 Lawmakers have insisted that the generators must take a cut in the money th= ey=20 are owed as part of any deal ending the energy crisis.=20 Senate President Pro Tem John Burton, D-San Francisco, said earlier in the= =20 day that at least a 30 percent "haircut" would be necessary before he would= =20 allow any deal to be approved.=20 "What we have here is a problem caused by the unfettered greed of generator= s=20 that has brought capitalism to a new low," Burton said.=20 He said if the generators don't agree to some kind of cut, they will find= =20 themselves in bankruptcy court.=20 Earlier in the day, the Senate approved a bill that allows the state=20 treasurer to issue $13.4 billion in bonds. The money, which will eventually= =20 be repaid by ratepayers, will be used to replace the funds that have draine= d=20 out of the state's general fund since January to buy electricity and pay fo= r=20 future power purchases.=20 The state has spent about $6 billion so far -- money, Democrats argue, that= =20 has to be replaced in order to fund other state services.=20 "Where do those revenues go?" asked Sen. Sheila Kuehl, D-Santa Monica, duri= ng=20 the floor debate. "They create child care slots, pay in-home support servic= es=20 and provide medical benefits for the poor."=20 But Republicans said the state's budget should take some of the hit, instea= d=20 of pushing it all off on ratepayers.=20 Sen. Tom McClintock, R-Northridge, said the average ratepayer will see a $2= ,=20 000 increase on their utilities bills over the next 15 years to pay for the= =20 bond.=20 The final vote was 23 to 15. Because not enough Republicans supported the= =20 measure in either the Assembly or Senate to make the bill an urgency measur= e,=20 the law will not take effect until 90 days after the end of the special=20 session. Davis will sign the bill today.=20 Chronicle staff writer Greg Lucas contributed to this report.=20 E-mail Lynda Gledhill at lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 10=20 Rate plans shield most households=20 Posted at 11:05 p.m. PDT Wednesday, May 9, 2001=20 MICHAEL=20 BAZELEY=20 Mercury News=20 State regulators on Wednesday painted the clearest picture yet of who will= =20 bear the brunt of the biggest electrical rate hike in 20 years: Commercial,= =20 industrial and agricultural users will be socked with power bills that coul= d=20 soar by 50 percent or more.=20 But most residential customers will be shielded from huge rate increases,= =20 regulators said. In two proposals unveiled Wednesday by the California Publ= ic=20 Utilities Commission and to be voted on Monday, only the heaviest residenti= al=20 users get hit with big hikes, potentially doubling their rates in an effort= =20 to push them toward conservation.=20 ``The moderate users will be largely protected,'' said PUC chairwoman Loret= ta=20 Lynch.=20 The PUC has been grappling with designing a rate plan for customers since= =20 March, when it announced an across-the-board rate hike of 3 cents per=20 kilowatt-hour. The PUC announced the increase -- designed to help the state= =20 climb out of its ongoing power crisis -- before deciding how the rate=20 structure would work and considered at least 20 plans.=20 Details of the proposals were criticized Wednesday by energy experts who sa= id=20 residential customers are not being charged enough to encourage conservatio= n,=20 and by business representatives who said business and commercial users are= =20 being unfairly targeted.=20 ``This is not a real rate increase for the residential class and we need=20 one,'' said Severin Borenstein, director of the University of California=20 Energy Institute. ``This is ridiculous. This is not a way to respond. This= =20 will send no price signal to people at all.''=20 Both proposals create a five-tier billing system for residential customers,= =20 with heavy users -- nearly 10 percent of all households -- seeing their rat= es=20 possibly double. Energy misers and moderate users -- the other 7.3 million= =20 households -- would either see no change at all in their bills or only mode= st=20 increases of up to about $12 month.=20 The consumer group the Utility Reform Network said it was generally satisfi= ed=20 with the rate plans and how they spread the increase across all customer=20 groups.=20 ``Yes, they've done a reasonable job of allocating the pain equitably,'' sa= id=20 Bob Finkelstein, a staff attorney with the organization. ``But we shouldn't= =20 be in this position in the first place. I think it's a shame we're even goi= ng=20 to see a rate increase.''=20 Covering state's costs=20 Lynch said this rate increase, along with a statewide bond recently approve= d=20 by lawmakers, should cover the state's costs in purchasing power.=20 But she left the door open for further rate increases, especially if energy= =20 suppliers raise the price of electricity.=20 ``If the sellers decide to turn up the heat and raise rates,'' she said,=20 ``we'll have to look at those numbers again.''=20 Lynch and an administrative law judge both submitted similar plans. Because= =20 Lynch is the commission president, her proposal would appear to be the most= =20 likely to gain the support of fellow commissioners.=20 Industrial users appear to take the biggest hit under Lynch's plan. Those= =20 equipped with special meters could see their rates double or more for power= =20 they consume during peak demand periods. Small commercial users would pay= =20 about 45 percent more for their ``on-peak'' electricity, Lynch said.=20 Lynch said she intentionally ``weighted'' the on-peak rates higher as a way= =20 to encourage conservation.=20 ``By promoting energy conservation during summer peak hours,'' she said in= =20 her proposal, ``we attempt to limit blackouts and service interruptions in= =20 order to preserve public health and safety.''=20 But industry representatives cried foul.=20 ``These costs make it impossible to operate at a profit,'' said Jack Stewar= t,=20 president of the California Manufacturers and Technology Association. ``You= =20 can't add these kinds of prices to the product and try to sell it. This loo= ks=20 like the beginning of the ringing of the death knell for the economy.''=20 Agriculture caps=20 For agricultural users, the proposals are a mixed bag. Agricultural groups= =20 were hoping the PUC would endorse a recommendation by Gov. Gray Davis to ca= p=20 their rate increases at 5 to 15 percent. Agriculture groups did get caps, b= ut=20 they are higher than the governor's, ranging from 23 to 30 percent in both= =20 plans.=20 Even before the rate increase, farmers and other agricultural businesses we= re=20 bracing for a rough summer. Because of a statewide water shortage, farmers= =20 will need to rely more on groundwater pumps, significantly driving up their= =20 energy use.=20 ``We are definitely going to be impacted significantly,'' said Michael=20 Boccadoro, executive director of the Agricultural Energy Consumers=20 Association.=20 Federal buildings=20 Lynch also slung an arrow at the federal government, proposing that federal= =20 buildings in California be forced to pay market rates for electricity. Her= =20 proposal that federal buildings be given real-time meters could drive up=20 federal government energy rates by 10 times or more.=20 Lynch is angry with the federal government's hands-off attitude toward the= =20 state's power crisis and its insistence that Californians pay market rates= =20 for electricity.=20 Lynch's idea -- which she said would be studied in the coming weeks -- was= =20 derided by several critics.=20 ``This is something you do in kindergarten,'' said fellow Commissioner=20 Richard Bilas. ``All it's going to do is make matters worse'' with the=20 federal government.=20 The PUC considered rate proposals from utility companies, consumer groups a= nd=20 the governor. Gov. Davis' proposal was perhaps the most closely watched=20 because three of the PUC commissioners are Davis appointees.=20 Davis proposed a slightly smaller across-the-board rate increase, an idea= =20 that was rejected by both Lynch and the judge. But Lynch, a Davis appointee= ,=20 stressed that the two plans embrace other aspects of the governor's proposa= l,=20 such as the caps on agricultural rates.=20 Contact Michael Bazeley at mbazeley@sjmercury.com or (415) 434-1018.=20 Energy bond plan gets final legislative OK, faces delay=20 Posted at 8:28 p.m. PDT Wednesday, May 9, 2001=20 BY DION NISSENBAUM=20 Mercury News Sacramento Bureau=20 SACRAMENTO -- Amid rising partisan attacks, state Democrats gave final=20 approval Wednesday to a record $13.4 billion energy crisis bond plan to=20 replenish the drained California budget and buy critical power for the=20 state's impoverished utilities.=20 Democrats blasted Republicans for their steadfast refusal to support the pl= an=20 -- opposition that will force the state to continue to use its already=20 strained budget to buy power through the summer.=20 ``I think the Republicans are playing a perilous game with dire=20 consequences,'' said Assemblywoman Carole Migden, D-San Francisco, after th= e=20 Senate approved the bill on a 22-15 vote. Gov. Gray Davis plans to sign the= =20 bill today.=20 Without two-thirds support in both houses, the bonds cannot be sold=20 immediately, and the state will lose the chance to line up about $4 billion= =20 in short-term loans.=20 Because Democrats could pass the bond plan by only majority votes, the=20 Legislature will have to shut down its special energy crisis session Monday= .=20 Without the two-thirds support, the bond measure cannot become law until 90= =20 days after the session comes to a close.=20 Closing the session would force state lawmakers to reintroduce hundreds of= =20 other energy crisis bills when Davis, as expected, launches a second energy= =20 crisis special session.=20 Zane Mann, publisher of the monthly California Bond Advisor newsletter,=20 blasted Republicans for not throwing their support behind the bonds.=20 ``I can't understand why the Republicans did what they did,'' Mann said. ``= I=20 find it totally obstructionist. They're willing to sell out the state in=20 order to blame Davis.''=20 During Wednesday's floor debate, Sen. Tom McClintock, R-Thousand Oaks, said= =20 bonds would saddle each Californian with an extra $2,000 on their energy=20 bills.=20 ``This expense was incurred because of some very bad decisions by elected= =20 officials of California,'' he said.=20 The state has just about used up its $6.6 billion budget surplus buying pow= er=20 for the state's cash-strapped utilities and will have to tap unused cash fr= om=20 state programs to continue to buy power this summer.=20 There is still concern that the state will be unable to find buyers for the= =20 largest bond measure in U.S. history.=20 Mann, as well as the bank behind the bonds, J.P. Morgan, insist there's a= =20 market for them. Mann said the state's two largest mutual funds are waiting= =20 to buy the bonds -- if they have a high interest rate.=20 If not, he said, ``they'll go out the window.''=20 Mercury News Staff Writer Jennifer Bjorhus contributed to this report.=20 Fusion research gets a boost=20 Published Thursday, May 10, 2001, in the San Jose Mercury News=20 BY JIM PUZZANGHERA=20 Mercury News Washington Bureau=20 WASHINGTON -- With California and the nation facing energy troubles, Rep. Z= oe=20 Lofgren introduced bipartisan legislation Wednesday to accelerate research= =20 into fusion power, a potential long-term solution that promises cheap,=20 environmentally friendly power if major scientific hurdles can be overcome.= =20 Fusion is the way the sun and stars produce their energy. Unlike nuclear=20 power, which is a product of fission, or the splitting of atoms, fusion=20 produces energy by fusing atoms together -- with no high-level radioactive= =20 waste. If it works, 50 cups of seawater could produce as much energy as two= =20 tons of coal, advocates said.=20 Fusion energy has been proven possible in laboratories, but a power plant= =20 using the technology is still decades away, experts said. The Department of= =20 Energy is spending $248 million on fusion research this year, with the=20 Lawrence Livermore National Laboratory one of several facilities around the= =20 country receiving funding.=20 Fusion research funds, however, have decreased about 40 percent in the past= =20 decade, and Lofgren wants to reverse that. Her legislation, the Fusion Ener= gy=20 Sciences Act of 2001, seeks an increase of $72 million over the next two=20 years. It would also require the energy secretary to submit a plan by July= =20 2004 for the next major step in fusion energy, a burning-plasma experiment.= =20 ``It is time for this country to move beyond caveman technology to the=20 technology of the future -- fusion technology,'' said Lofgren, D-San Jose, = as=20 she announced the legislation in front of the Capitol Hill Power Plant, whi= ch=20 burns coal, oil and natural gas to power congressional offices. She was=20 joined by Reps. Mike Honda, D-San Jose, Randy Cunningham, R-Escondido, and= =20 Rush Holt, D-N.J., a physicist. The bill also is co-sponsored by Reps. Elle= n=20 Tauscher, D-Walnut Creek, and Barbara Lee, D-Oakland.=20 Fusion requires intense heat and pressure. Under the proper conditions, lik= e=20 those inside the sun, the nuclei of two hydrogen atoms can be forced togeth= er=20 so tightly that they fuse, forming a helium nucleus and releasing large=20 amounts of energy that could be harnessed for electricity.=20 The major source of fusion fuel is deuterium (heavy water), which is readil= y=20 extracted from water. The other fuel source, tritium, is widely available= =20 from seawater and land deposits.=20 Fusion is not to be confused with so-called ``cold fusion,'' a disputed=20 theory that few scientists believe is achievable. In 1989 two Utah scientis= ts=20 reported cold-fusion success in the laboratory by immersing metal electrode= s=20 in a jar of heavy water. Their results were later discredited, but some=20 scientists continue to experiment with cold fusion.=20 Although research on ``hot'' fusion has been moving forward, it still has= =20 many scientific hurdles to overcome, said Robert Park, a physics professor = at=20 the University of Maryland.=20 ``We're still a long way away. Thirty years ago they used to say it would b= e=20 30 years, and they're still saying the same thing,'' he said. ``We can fuse= =20 atoms every day, but the trick is when you produce more energy than it take= s=20 to get there.''=20 The head of one of the leading fusion research facilities in the country=20 agreed that it will probably be the middle of this century before a=20 functioning fusion power plant is operating, but he said the scientific=20 advances ``have really been fantastic.''=20 Robert Goldston, director of the Plasma Physics Laboratory at Princeton=20 University, said that as a graduate student there in 1974 he and other=20 researchers were thrilled to produce one-tenth of a watt of electricity for= =20 one-hundredth of a second using fusion. In 1997, they produced 10 million= =20 watts of electricity for about a second -- a degree of advance that outstri= ps=20 the phenomenal increases in computing power.=20 ``The trick now is to make fusion as practical as computers are,'' he said.= =20 ``It's a grand scientific challenge.'' Power is money=20 PUC details plan to raise Edison rates up to 34%. Half of users to see no= =20 hike.=20 May 10, 2001=20 By KATE BERRY The Orange County Register=20 JOHN MEE of Fullerton is focused at a PUC hearing Wednesday at Fullerton=20 College. Photo: Daniel A. Anderson / The Register ? ? Customers of Southern California Edison would see their electricity bills= =20 jump as much as 34 percent under rate proposals unveiled Wednesday by the= =20 state's top energy regulator.=20 The Public Utilities Commission designed two rate plans to encourage energy= =20 conservation and repay the state of California for wholesale power purchase= s.=20 Though many customers would pay higher rates, half of all residential=20 customers, or 4 million households, would not be subject to any rate increa= se=20 at all. In January, the Legislature blocked rate hikes for customers who us= e=20 relatively little electricity or have low incomes.=20 Loretta Lynch, president of the PUC, blamed "unbounded and exorbitant=20 wholesale electricity prices" for the proposed increases, which she disclos= ed=20 at a news conference in San Francisco. "We all have to share the pain of=20 that," she said.=20 If either of the proposed plans is approved Monday by the commission, the= =20 higher rates will appear on electricity bills beginning June 1.=20 The rate increase won't apply to customers of San Diego Gas & Electric or= =20 Anaheim Public Utilities.=20 The burden of higher rates would fall primarily on the 2 million households= =20 that consume the most electricity.=20 A household that pays $114 a month would, on average, pay $12 more. Bigger= =20 users with monthly bills of $213 would pay an additional $73 - a 34 percent= =20 increase.=20 The hikes would come on top of a 9 percent increase approved by the PUC in= =20 January.=20 Economic crisis in forecast=20 May 10, 2001=20 By ANNE C. MULKERN The Orange County Register=20 Rolling blackouts this summer could cost California $26.4 billion in lost= =20 production and income, a business report released Wednesday forecasts.=20 "This isn't an energy crisis, it's an economic crisis,'' said Nancy=20 Heffernan, spokeswoman for the group of retailers, manufacturers and other= =20 business groups that funded the $25,000 study.=20 The report came as Orange County and California escaped a third consecutive= =20 day of rolling blackouts. Energy demand fell when the weather cooled.=20 The report was released to coincide with a state Public Utilities Commissio= n=20 announcement on higher electricity rates. The highest rate hikes - up to 50= =20 percent - will hit industrial customers.=20 Although economists previously have said the energy crisis is unlikely to= =20 cause a recession, the report said blackouts could cut state productivity= =20 growth from current projections of 2.3 percent to less than 1 percent.=20 If the energy crunch is more severe, economic growth could stop, the report= =20 said.=20 The study, by New Jersey-based research AUS Consultants, is based on=20 interviews with 34 businesses in 25 different industries.=20 It assumes 110 hours of blackouts will darken businesses and homes this=20 summer and that the average customer will experience about 20 hours of=20 blackouts.=20 Based on the state's so-far limited experience with rolling blackouts, that= =20 prediction may be overly severe.=20 The report assumes statewide blackouts, but not every customer is blacked o= ut=20 during any given outage. On March 19, for example, when the most severe=20 blackouts so far hit the state, only 14 percent of Orange County was affect= ed. GOP stalls sale of bonds with vote=20 The $13.4 billion measure is approved, but it lacks two-thirds support for= =20 immediate implementation.=20 May 10, 2001=20 By JOHN HOWARD The Orange County Register=20 For Gov. Gray Davis, the bond sale and the new state budget for the 2001-02= =20 fiscal year beginning July 1 were linked.=20 The governor had hoped to win Republican support for the bonds, and thus a= =20 two-thirds majority in both houses, which would have allowed the legislatio= n=20 to take effect immediately and the bonds to be marketed as early as this=20 month.=20 But Republican opposition meant the legislation was approved by only a simp= le=20 majority, forcing a 90-day wait.=20 "We think we're probably biting off more financing than we can chew," said= =20 Jaime Fis Fis, spokesman for Assembly Republican Leader Dave Cox.=20 That means the bond-sale proceeds won't be contained in the state's spendin= g=20 plan until weeks after the new fiscal year begins, and if the market sours= =20 for such a large bond issue the state could be affected.=20 "This greatly complicates the budget process," Davis said.=20 Earlier in the day, the Legislature's financial expert said a slowing econo= my=20 was causing a drop in incoming revenue that could force some $3.4 billion i= n=20 cuts from the plan Davis proposed in January.=20 The administration is going to announce its own view of the budget on Monda= y,=20 but Davis signaled that the worsening economy would affect his spending pla= n.=20 "I suspect it will have an impact," he said.=20 The sole Democratic dissenter in Wednesday's 23-15 Senate vote was Sen. Joe= =20 Dunn, D-Santa Ana.=20 He did not address the bond bill on the Senate floor, but earlier said he= =20 opposed the bond plan because it was not tied to aggressive action targetin= g=20 profiteering power generators.=20 Electricity notebook=20 Davis asks power suppliers to accept 30% less than owed=20 May 10, 2001=20 From Register news services=20 SACRAMENTO Gov. Gray Davis asked generators to accept 30 percent less than= =20 they are owed for electricity sold to the state, saying the discount is the= =20 price of keeping Edison International solvent.=20 Davis said power suppliers must accept less than they are owed in order to= =20 win legislative approval for a financial-rescue package designed to keep=20 Edison, owner of the state's No. 2 utility, Southern California Edison, out= =20 of bankruptcy. PG&E Corp.'s Pacific Gas & Electric declared bankruptcy Apri= l=20 6.=20 "I suggested that 70 percent now was better than anything they could get in= =20 bankruptcy three to four years down the line," the governor said during a= =20 press conference in Sacramento.=20 Davis made his pitch during a meeting with executives from 12 of the larges= t=20 U.S. energy producers.=20 Air pollution rules to be modified for power plants=20 DIAMOND BAR Southern California air regulators are close to slashing their= =20 market-based system for controlling power plant pollution, which for years= =20 has allowed plant operators to avoid installing emission controls.=20 The move is designed to allow large power plants to operate at full capacit= y=20 without facing stiff fines as they try to meet the demand for electricity.= =20 The change was prompted by an executive order from Gov. Gray Davis requirin= g=20 air districts to let large generators run at the greatest capacity.=20 Rules expected to be considered Friday by the South Coast Air Quality=20 Management District Governing Board would curtail a program known as RECLAI= M,=20 which has allowed power plants to buy and sell unused emission "credits"=20 controlled by other polluters.=20 Edison, PG&E allege El Paso withheld natural gas supply=20 SAN FRANCISCO California's two largest utilities have filed testimony with= =20 federal regulators alleging El Paso Corp. withheld natural gas from the=20 state, leading to an overcharge of some $3.7 billion in energy costs over t= he=20 past year and worsening the state's power crisis.=20 "We believe El Paso has withheld significant amounts of natural gas from=20 California and manipulated gas prices to the tune of $3.7 billion. ... PG&E= =20 also supports these findings," said Kevin Lipson, lead attorney for Edison= =20 International unit Southern California Edison, the state's No. 2=20 investor-owned utility.=20 A spokesman for PG&E Corp. unit Pacific Gas & Electric, the state's No. 1= =20 utility, confirmed Wednesday that it made a filing late Tuesday with federa= l=20 energy regulators alleging that El Paso Corp. "clearly possessed the abilit= y=20 and incentive to raise (gas) prices."=20 Natural-gas prices in California, the highest in the U.S. over the past yea= r,=20 have been a key reason for the surge in power prices in the state because= =20 gas-fired turbines are the single biggest source of electricity in=20 California, providing more than a third of the power used by the state's 34= =20 million residents.=20 Regulator says more electricity rate hikes are likely=20 PUC member tells a Fullerton audience that more increases may be necessary.= =20 May 10, 2001=20 By KATE BERRY The Orange County Register=20 FULLERTON COLLEGE economics professor Arienne Turner brought students to=20 Wednesday's PUC hearing on power-rate increases. Photo: Daniel A. Anderson / The Register ? ? A California energy official said consumers can expect more electricity rat= e=20 increases beyond the proposals unveiled Wednesday.=20 Carl Wood, one of five commissioners on the state's Public Utilities=20 Commission, said at a public hearing at Fullerton College on Wednesday that= =20 raising electricity rates was a "hateful choice," but one the commission ma= y=20 have to revisit.=20 "This may not be the end of the rate increases," Wood told about 250 people= =20 at the hearing, one of nine held by the PUC throughout California this week= .=20 The hearings were scheduled to allow consumers a voice on how the rate=20 increase should be divvied up among different classes of customers.=20 PUC President Loretta Lynch unveiled two rate proposals Wednesday. Under=20 those plans, rate increases of as much as 34 percent would show up on the= =20 bills of customers of Southern California Edison and Pacific Gas & Electric= =20 starting in June. The increases would be retroactive to March 27.=20 Consumers expressed anger and frustration at the hearing in Fullerton befor= e=20 Wood and Administrative Law Judge Michael Galvin.=20 "Consumers did not create this mess, and we should not have to pay for it,"= =20 said Ruth Shapin, a Santa Ana lawyer.=20 Darrell Nolta, a systems engineer in Westminster, held up copies of the 199= 6=20 law that deregulated the electricity industry, which promised consumers a 2= 0=20 percent reduction in retail electricity rates by 2002.=20 "I want a refund of my money," Nolta said, referring to the roughly $19=20 billion in so-called "stranded costs" that the state's three largest=20 utilities have collected in the past four years and transferred, in part, t= o=20 their parent corporations. "I want to be able to sue the state of Californi= a=20 and the PUC for this."=20 The money transfers and salaries paid to executives at Edison and PG&E were= =20 the subject of most of the consumer vitriol.=20 The PUC is investigating the utilities' connections with their parent=20 companies. The utilities say their actions have been legal.=20 Tom Martin, a representative of the Small Manufacturers Association of=20 California, said the rate increases will cripple the state's economy.=20 "Some people believe businesses can just raise prices to make up the=20 difference," he said. "But they cannot."=20 Under the proposals released Wednesday, nearly half of all consumers would= =20 pay no rate increase. The 2 million heaviest residential users would pay 10= =20 percent to 34 percent more, or an extra $12 to $73 a month. The 2 million= =20 households that are medium users would pay just $2 more a month, a 3 percen= t=20 increase.=20 Small and medium-sized businesses, which pay lower rates than consumers, ca= n=20 expect a 35 percent increase, while farmers will pay 23 percent more.=20 Industrial users face a 50 percent rate hike.=20 The rates would be partly used to pay back up to $13.4 billion in bonds the= =20 state Senate approved Wednesday to recover state expenditures on power sinc= e=20 January and future purchases. In just four months, the state has spent abou= t=20 $6 billion buying power for Edison, PG&E and San Diego Gas & Electric Co.= =20 customers. Lynch, the PUC president, said the rate proposals would raise $5= =20 billion statewide this year.=20 Under deregulation, consumers' rates were frozen at artificially high level= s=20 to allow the utilities to collect "stranded costs," mostly investments in= =20 nuclear power plants and contracts with small energy producers. The utiliti= es=20 thought those investments would be unprofitable in a deregulated environmen= t.=20 Starting a year ago, when wholesale electricity prices rose above the level= =20 of frozen retail rates, the utilities were stuck with losses on their power= =20 purchases. The losses amounted to more than $14billion for Edison and PG&E= =20 through January.=20 "Most of the money in this crisis went to the power cartel," said Wood,=20 referring to private power generators that purchased power plants from Edis= on=20 and PG&E under deregulation. "In the long run, we have to move back to a=20 regulated system because this is an essential commodity."=20 PG&E declared bankruptcy April 6, saying it could no longer shoulder its=20 debt.=20 Starting all over again=20 The Legislature's special sesion on the power crisis ends today -- with mor= e=20 work to do at an added cost.=20 May 10, 2001=20 By HANH KIM QUACH The Orange County Register=20 SACRAMENTO The state will have to restart a $3.2 million legislative proces= s=20 after lawmakers today adjourn the special session devoted to fixing the=20 energy market.=20 The energy crisis is by no means solved, but because of the rules of the=20 Legislature, the special session must be gav eled to a close to ensure that= =20 the $13.4 billion revenue bond bill passed by the Senate on Wednesday can b= e=20 enacted 91 days after Gov. Gray Davis signs it.=20 But by abruptly ending the session, about 200 energy-related bills that=20 lawmakers have been hashing out will die, said Jon Waldie, chief consultant= =20 for the Assembly Rules Committee.=20 Lawmakers would have to reintroduce them in a new special session with a ne= w=20 bill number, he said. The non-partisan Legislative Analyst's Office estimat= es=20 that it costs an average of $15,900 for each bill that moves through the=20 legislative process. That accounts for printing and staff hours.=20 Democrats are trying to make sure bills don't have to go through the troubl= e=20 of being rescheduled for hearings and re-debated in committees, both=20 time-consuming efforts, said an aide for Assembly Speaker Bob Hertzberg.=20 But restarting the process has Republicans worried.=20 "It's going to delay the process,'' said Assemblyman Tony Strickland,=20 R-Ventura. "How can the process be delayed when people are going through=20 rolling blackouts?"=20 It's also more work for staff members who have spent countless hours drafti= ng=20 ideas into legalese.=20 Bion Gregory, lead attorney for the Legislative Counsel's Office, said the= =20 attorneys need to recreate bills each time they're amended to show how the= =20 proposal would change from existing law.=20 "It's not a matter of taking language and reproducing it,'' he said.=20 The special session mechanism allows lawmakers to pass and enact bills more= =20 quickly than in the regular session. In special session, bills that pass wi= th=20 a simple majority vote take effect 90 days after the session adjourns, rath= er=20 than the following Jan. 1, as with regular-session bills.=20 Bills passed with a two-thirds majority in special session can be enacted= =20 immediately after the governor signs them. In regular session, such bills= =20 don't become effective until 90 days after signed.=20 Having a second session on the same topic didn't concern Ron Roach of the= =20 California Taxpayers Association as much. He said the second session might= =20 even be more efficient because lawmakers will be more aware of each other's= =20 bills and not introduce similar ones. In fact, the second time around might= =20 streamline the process, he said.=20 In addition, some of bills that have been largely passed over as legislativ= e=20 leaders search for more immediate fixes to the energy problem are probably= =20 not going to make it far anyway.=20 "If they didn't get a hearing (and voted on by now) they never will - what'= s=20 the point?'' Roach said.=20 Davis is set to sign a $13.4 billion bond-issue measure today to cover=20 electricity costs=20 May 10, 2001=20 By JOHN HOWARD The Orange County Register=20 SACRAMENTO Gov. Gray Davis is prepared to sign off on the biggest state loa= n=20 in history today - a $13.4 billion bond sale to buy emergency electricity f= or=20 California's beleaguered utilities and replenish a state treasury sapped by= =20 the energy crisis.=20 The average residential utility ratepayer would pay $2.50 to $3 per month f= or=20 up to 15 years to retire the debt. Some critics placed the figure at $10.55= =20 per month for ratepayers of all sizes.=20 The Democrat-ruled state Senate, like the Assembly earlier in the week,=20 approved the bond-sale legislation along partisan lines Wednesday.=20 The bill authorizes the state to borrow up to $13.4 billion by selling=20 revenue bonds beginning in August. The money will be used to pay back the= =20 state for more than $6 billion worth of electricity it has bought since=20 January on behalf of the utilities and to finance the purchase of new power= =20 in long-term contracts.=20 Davis said he plans to use about $12.5 billion of the bond and keep the res= t=20 in an emergency reserve.=20 Democratic supporters said the borrowing protected the state budget as=20 California faces an economic downturn and dwindling revenue, and protected= =20 potentially threatened programs. Republican critics said the bonds would=20 burden ratepayers for years.=20 "If we don't pass this bill today, we're going to have to wipe out programs= ,"=20 said Sen. Tom Torlakson, D-Antioch, although he did not say which programs= =20 could be affected.=20 But Republicans in both houses said the bonds were too high, and urged the= =20 governor and legislative leaders to strike a compromise.=20 Thursday, May 10, 2001=20 Papering over state electricity problems=20 Crisis management and recovery plans are the way to solve a crisis, not=20 piecemeal programs and gimmicks. But even as new blackouts roll across the= =20 state, piecemeal is about all we're getting in the way of solutions from Go= v.=20 Gray Davis and the California Legislature.=20 The latest one came Monday when the Assembly voted for a $13.4 billion=20 revenue bond to pay for this year's high electricity bills. (Revenue bonds= =20 are paid by a service's users, in this case ratepayers.) The Senate is=20 expected to pass the bill, Senate Bill 31X, today or Thursday.=20 Because the two-thirds threshold was not met in the Assembly, the bonds cou= ld=20 not be issued immediately, but instead will be issued in 90 days, in August= .=20 In the 49-29 vote, only Republican Assemblyman Anthony Pescetti of Rancho= =20 Cordova sided with the Democratic majority. The bonds will repay the state general fund for electricity purchases which= ,=20 so far in the crisis, amount to at least $5 billion and will rise much high= er=20 later this year. Bonds will be repaid over 15 years.=20 In a conference call Gov. Davis held with us and several other newspapers= =20 Monday, he explained that he hoped for bipartisan support for the bonds=20 because the delay "would greatly complicate the budget process and could=20 damage the economy. It's my hope that both parties can be part of the=20 solution, not part of the problem. People elected us to be problem solvers.= " The Republicans' beliefs were summarized by Assemblyman Tony Strickland of= =20 Thousand Oaks. "Let me tell you what our caucus' philosophy is," he told th= e=20 San Diego Union-Tribune. "If you have money today, you don't borrow against= =20 your children and grandchildren's future." The Republicans favor using the= =20 state budget surplus to pay for the state electricity purchases. Indeed, the bond sale will create more problems than it solves. "It's not= =20 needed," Adrian Moore, director of economic studies at the Reason Public=20 Policy Institute, told us. "It helps cover up the costs of what Davis's=20 overall policies are bringing about. It just stretches it out so it's not= =20 paid this budget cycle. Plus it adds interest [costs]." What's really needed, Mr. Moore said, is to "get back to a market-based=20 solution." Retail prices to ratepayers, now capped, should be further freed= .=20 Higher retail prices then would bring about more conservation and power pla= nt=20 investment and, as less electricity is used, wholesale and retail prices=20 would moderate.=20 And, the governor and Legislature should stop attacking power producers wit= h=20 threats of seizures and taxes, especially given the intermittant price caps= =20 instituted by federal energy regulators. Leaders should instead encourage= =20 producers to build here. The longer California's leaders paper over the dimensions of the crisis, th= e=20 longer it will persist and the more expensive it will become.=20 Task Force To Propose Legislation By SCOTT LINDLAW Associated Press Writer WASHINGTON (AP) via NewsEdge Corporation - President Bush's energy task force plans to propose legislation allowing the seizure of private property to accelerate the construction of electrical power lines, three administration officials said Tuesday. The recommendation is contained in the final draft of a broad energy blueprint to be unveiled by President Bush next week, the officials said. The ``eminent domain'' authority allows the government to appropriate private property for public use; the property owners are usually compensated. The Federal Energy Regulatory Commission already has eminent domain authority over the siting of natural gas pipelines, but has no such power over long-distance electricity transmission lines. The lack of authority often requires electrical companies to get approval from several states and numerous local jurisdictions. Federal authority to locate transmission lines would quicken the approval process, supporters of the provision contend. The shortage of transmission lines has been cited by officials as one reason for bottlenecks in the electric grids and a shortage of power in areas of high demand. New lines also are needed to connect new power plants to the grid. Vice President Dick Cheney said on CNN Tuesday that the energy task force he heads will include a recommendation on eminent domain for power lines. ``The issue is whether or not we should have the same authority on electrical transmission lines'' as the government has on gas lines, Cheney said. ``That's never been granted previously.'' He did not say what the recommendation would be. But the administration officials, speaking on condition of anonymity, said the report would ask Energy Secretary Spencer Abraham to draw up legislation allowing utilities to obtain rights of way for transmission lines, presumably through FERC. The energy strategy report is going to the printers in stages this week. Officials said there was no talk of taking out the eminent domain provision, though they could not rule out that remote possibility. Utilities, not the government, would own the property, one official said. Earlier this year, a draft of a Republican energy bill in the Senate had included giving FERC eminent domain authority for power lines. But that provision later was deleted when it was introduced by Sen. Frank Murkowski, R-Alaska. The electric utility industry for some time has been lobbying for a federal role in siting electric power lines, which now must go through a maze of overlapping local jurisdictions and state agencies for approval. ``If FERC has the eminent siting authority, that will help facilitate siting of electric power transmission lines,'' said Jim Owen, a spokesman for the Edison Electric Institute, which represents investor-owned utilities. It especially would help in getting interstate transmission rights of way approved, he said. ``But it's still not a silver bullet because ... it can still be a cumbersome process,'' said Owen. Some natural gas pipeline cases before FERC have taken years to resolve, he said. Critics have questioned whether Cheney's task force will emphasize power production and transmission over conservation. Cheney said the report would use tax breaks to encourage conservation. ``Most of the financial incentives that we recommend in the report go for conservation or renewables, for increased efficiencies,'' Cheney said. The task force will likely recommend tax incentives for purchase of ``hybrid,'' ultra-efficient automobiles that run on gasoline and electricity, one administration official said. A similar provision was included in the budget Bush sent to Congress earlier this year. The report will also call for a new tax credit for builders of certain new power plants. Cheney outlined the energy plan at the weekly Senate GOP conference Tuesday. According to one Republican who was present, the vice president said that while he supported energy price controls when President Nixon used them three decades ago, he wouldn't advocate them now. Caps that are too high cause voters to blame politicians rather than the utilities, Cheney said, according to the Republican. Excessively low caps undermine the incentives for developing new power sources, Cheney said. After Cheney spoke, Sen. Gordon Smith, R-Ore., rebutted, saying he came from a state where energy prices have risen enormously in the past year, and he favors price caps. Stage 2 Electrical Emergency Declaration; SCE to Curtail 'Load' for Some=20 Customers ROSEMEAD, Calif., May 9 /PRNewswire/ via NewsEdge Corporation - The California Independent System Operator (Cal-ISO) again declared a Stage 2 Emergency this afternoon, due t= o low power reserves and increased demand for power because of high temperatures. The agency called upon Southern California Edison and other investor-owned utilities to begin voluntary "load" curtailment programs for certain customers within their service areas. Cal-ISO said the Stage 2 Emergency would be in effect from 11:45 a.m. through midnight. Cal-ISO and SCE are making urgent appeals for all custom= ers to immediately reduce their electricity consumption so that reserve levels = do not deteriorate further. To achieve this load reduction during Stage 2, SCE is required to activate its voluntary load curtailment program, under which large industrial, commercial, and agricultural customers have agreed to temporarily curtail electricity usage during an electrical emergency in exchange for reduced rates. Should the situation worsen for any reason, and power reserves drop below 1.5%, Cal-ISO could declare a Stage 3 Emergency, the most critical status. Cal-ISO could direct utilities to "drop load," necessitating involuntary rolling blackouts for groups of customers across their service areas until sufficient reserve levels are achieved. SCE customers are asked to reduce power consumption by turning off any unneeded electrical appliances and lights, especially during the state's da= ily peak consumption period -- noon to 6 p.m. Following are some effective ways customers can reduce their power use and not be greatly inconvenienced: LARGE ENERGY USERS -- turn off all auxiliary or redundant machinery where possible; -- consider shifting or staggering operations outside the hours of highest electrical demand, typically noon to 6 p.m.; AIR CONDITIONERS -- set thermostats no lower than 78 degrees (F); -- use electric fans instead of air conditioning if practical; -- avoid using evaporative coolers or humidifiers at the same time an air conditioner is running; -- avoid cooling unoccupied rooms; -- open windows during evening hours to take advantage of cool breezes; APPLIANCES AND TOOLS -- delay until evening hours the optional use of appliances (dishwashers, clothes washers and dryers), chargers, power tools, and electrical equipment; REFRIGERATORS AND FREEZERS -- avoid unnecessarily opening refrigerators; -- keep your refrigerator or freezer set at the proper temperature; -- be sure to use the "power-saver" switch if your refrigerator has one; -- keep the condenser coils behind or beneath your refrigerator/freezer clean (refrigerators represent approximately 25% of the electric bill for a typical residence); ADDITIONAL TIPS -- run swimming pool equipment during early morning and evening hours; -- limit the reopening of a refrigerator, which is a major user of electricity in most homes; -- use drapes and blinds to keep out direct sunlight; -- replace incandescent light bulbs with ENERGY Star(R) qualified compact fluorescent bulbs; -- always wash a full load of clothes or use the variable water level adjustment for smaller loads; and -- be sure your home has adequate insulation. For more information about electricity conservation and SCE's energy efficiency programs, go to www.sce.com. An Edison International (NYSE: EIX) company, Southern California Edison is one of the nation's largest electric utilities, serving a population of mor= e than 11 million via 4.3 million customer accounts in a 50,000-square-mile service area within central, coastal and Southern California. SOURCE Southern California Edison CONTACT: Corporate Communications of Southern California Edison, 626-302-2255 Web site: http://www.edisonnews.com Web site: http://www.sce.com (EIX) B] FULL/ Pacific Gas & Electric restores all Qualifying Facilities --Pacifi= c=20 Gas & Electric says 8 of 300 QFs still shut down=20 May 10, 2001=20 New York, May 9 (BridgeNews) - Pacific Gas & Electric Co. restored nearly a= ll=20 of the Qualifying Facilities that had been shut down earlier in the year du= e=20 to financial reasons. The company now has only eight of the more than 300= =20 Qualifying Facilities under contract to it still shut down for=20 payment-related reasons.=20 --Adrian Viegas, BridgeNews=20 * * * The following is the text of today's announcement, with emphasis added by= =20 BridgeNews. BridgeStation users will find links to company data at the end:= =20 Most of PG&E's Qualifying Facilities are Back On Line; Only 3% Still Shut= =20 Down for Payment-Related Reasons=20 SAN FRANCISCO----May 9, 2001--PACIFIC GAS AND ELECTRIC COMPANY ANNOUNCED=20 TODAY THAT NEARLY ALL OF THE QUALIFYING FACILITIES (QFS) THAT HAD SHUT DOWN= =20 EARLIER THIS YEAR FOR FINANCIAL REASONS HAVE RETURNED TO SERVICE, AND ARE= =20 AGAIN GENERATING POWER FOR PG&E'S ELECTRIC CUSTOMERS.=20 ONLY EIGHT OF THE MORE THAN 300 QFS UNDER CONTRACT TO PG&E ARE STILL SHUT= =20 DOWN FOR PAYMENT-RELATED REASONS. THESE EIGHT REMAINING GENERATORS TYPICALL= Y=20 DELIVER ABOUT 109 MW OF POWER, OUT OF THE ROUGHLY 2,500 MW TOTAL TYPICALLY= =20 DELIVERED BY ALL PG&E-CONTRACTED QF GENERATORS COMBINED. ALL EIGHT FACILITI= ES=20 ARE GAS-FIRED GENERATORS.=20 "We remain optimistic that these last few generators will come back on line= =20 in the next few days, and we are working with them to help make that happen= ,"=20 said Gordon R. Smith, president and CEO of Pacific Gas and Electric Company= .=20 "Ironically, our Chapter 11 filing has provided additional financial=20 certainty to many QFs, since we are now able to pay them in full for power= =20 they are delivering, and since rates currently cover their costs. We will= =20 continue to work with the QF producers to assure that all of the power they= =20 are supposed to deliver will be available for our customers."=20 The QFs under contract to Pacific Gas and Electric Company have been paid i= n=20 full since early April, and received partial payments for prior deliveries.= =20 In addition to the facilities shut down for nonpayment, another 13 faciliti= es=20 that would ordinarily be delivering an average of 82 mw are out for schedul= ed=20 maintenance or unplanned outages. This amount is fairly typical and not=20 unusual for this time of year.=20 For energy saving tips, please visit our website at www.pge.com/123 or=20 contact the Smarter Energy Line at 1-800-933-9555.=20 CONTACT: Pacific Gas and Electric Company=20 News Department, 415/973-5930 End=20 =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Wed, 6/20: Weather an early test for fee caps:=20 Any severe jump in prices will likely be curbed, experts say Sac Bee, Wed, 6/20: State to borrow up to $5 billion to buy energy Sac Bee, Wed, 6/20: Dan Walters: Once burned, lawmakers are very wary of Davis-Edison agreement SD Union, Wed, 6/20: Senate Democrats lay back to see if FERC action=20 provides rate relief=20 SD Union, Wed, 6/20: House panel erases Bush energy cuts LA Times, Wed, 6/20: Davis, Regulators Face Off at Hearing LA Times, Wed, 6/20: Energy on Agenda, but Issue Is Blame LA Times, Wed, 6/20: Blackout Forecasts' Dark Side LA Times, Wed, 6/20: FERC Move Short-Circuits for Hard Price Caps LA Times, Wed, 6/20: Plan Won't Raise Rates, Davis Says LA Times, Wed, 6/20: State to Pay Electric Bill With Loan, Not Taxes LA Times, Wed, 6/20: Edison Unveils Blackout Warning Plan LA Times, Wed, 6/20: State Joins Challenge to Bush on Air-Conditioner=20 Standards LA Times, Wed, 6/20: New Price Caps Not a Deterrent, Power Firms Say LA Times, Wed, 6/20: The FERC's Action Is Good, Bad, Ugly (Commentary) SF Chron, Wed, 6/20: Davis OKs stopgap loan=20 CRISIS POWERS: Action sidesteps Legislature SF Chron, Wed, 6/20: Experts say state must seize the day=20 ANALYSIS: Price caps set stage for future SF Chron, Wed, 6/20: California's energy crisis hits Northwest like a tidal= =20 wave SF Chron, Wed, 6/20: Davis demands nearly $9 billion for electricity=20 overcharges SF Chron, Wed, 6/20: Fed price caps placate Demos=20 But Feinstein's bill to regulate energy producers was more strict SF Chron, Wed, 6/20: Potrero Hill power plant hit by 2 lawsuits=20 Neighbors, city ask court to cut back hours of operation SF Chron, Wed, 6/20: Washington wakes up Mercury News, Wed, 6/20: Feinstein halts electricity price caps bill=20 Mercury News, 6/20: FERC's fixes have fallen short (Commentary) OC Register, Wed, 6/20: Easing the crunch on costs of power (Commentary) Individual.com (Bridgenews), Wed, 6/20: [B] POWER UPDATE/ US Senate panel to hold off vote on Calif. cap bill=20 Individual.com (Bridgenews), Wed, 6/20: [B] FERC order seen having little= =20 effect on US generator profits Individual.com (PRnewswire), Wed, 6/20: SCE Unveils Rotating Blackout Web S= ite and Public Notification Plan=20 Individual.com (AP), Wed, 6/20: Edison CEO/ Ruling Hasn't Helped NY Times, Wed, 6/20: At Last, Action on California (Editorial) NY Times, Wed, 6/20: Regulators' Order Could Bring Broad California Power= =20 Accord Wash. Post, Wed, 6/20: Davis Finds Hope in Calif. Power Crunch NY Times, Wed, 6/20: The Lesson of When to Give Aid to Free Markets ---------------------------------------------------------------------------= --- ------------------------------- Weather an early test for fee caps: Any severe jump in prices will likely b= e=20 curbed, experts say. By Dale Kasler Bee Staff Writer (Published June 20, 2001)=20 California electricity prices have shot back up recently, potentially posin= g=20 an early test of a new federal price-control plan that takes effect today.= =20 Warm weather has sent wholesale prices doubling this week, partially=20 reversing a dramatic slide that had some state officials believing they'd= =20 tamed the wildly unpredictable California electricity market.=20 The rebound in prices "would be expected," said Arthur O'Donnell, editor of= =20 the California Energy Markets newsletter. "It's 110 degrees in Phoenix, and= =20 it's 100 degrees (in Sacramento) and points in between."=20 Prices this week moved back above $100 a megawatt hour, about double what= =20 they were last week -- although well below the roughly $300 suppliers were= =20 charging California in mid-May. Prices showed signs of stabilizing Tuesday,= =20 analysts said.=20 Experts said the Federal Energy Regulatory Commission's new price-mitigatio= n=20 plan is likely to curb the most severe price spikes. "This will eliminate t= he=20 astronomical prices," said Severin Borenstein, director of the University o= f=20 California Energy Institute.=20 But the plan probably won't bring California a cascade of cheap power,=20 either.=20 Prices likely will bump up constantly against FERC's new price caps, which= =20 will fluctuate from time to time, and they're not likely to go much below t= he=20 caps unless there's a significant glut of energy, said Peter Stiffler of th= e=20 energy consulting firm Economic Insight Inc.=20 "Traders will always trade in at the price ceiling," Stiffler said. "They'r= e=20 going to offer power at the highest price they can."=20 The fluctuating FERC caps are tied to the production costs of the=20 least-efficient, most-expensive generating plant operating in California wh= en=20 supplies are tight and an official "power alert" is declared by the state's= =20 Independent System Operator, which runs most of the power grid. When there= =20 isn't a power alert, prices can't exceed 85 percent of the price establishe= d=20 during the most recent alert.=20 FERC said the system would begin today with a cap of $108.49 a megawatt hou= r=20 but would rise to $127.64 if a power alert is declared.=20 But the cap can fluctuate significantly. Under the old FERC plan, the price= =20 cap in May was set at $267 a megawatt hour. The old plan was similar to the= =20 new system but applied only to California and only kicked in during power= =20 alerts.=20 With the caps flexible, generators could have incentives to withhold power = at=20 some plants in order to raise the caps, said Stanford University economist= =20 Frank Wolak.=20 The FERC plan "still doesn't solve the problem of withholding," said Wolak,= =20 chairman of the ISO's market surveillance committee.=20 Wolak also said he's afraid FERC will let power generators exaggerate their= =20 costs in order to bump up the caps.=20 "The good news is, they seem to be more serious," Wolak said of the=20 oft-criticized commissioners. "But given how many times we've been taken in= ,=20 I'm wary."=20 In addition, generators will be allowed to exceed the price caps if they ca= n=20 justify it to FERC officials. Borenstein said FERC in the past has allowed= =20 generators to justify just about every price level imaginable, and he's=20 suspicious that the commission will let generators do the same in order to= =20 evade the new price controls.=20 State officials, while cautiously optimistic about the plan, were upset tha= t=20 FERC will allow a 10 percent price premium on electricity because of the ri= sk=20 of selling to the California market.=20 "We recognize that the risk of nonpayment in California continues to be=20 greater" than in other states, the commission said in its written opinion,= =20 released late Tuesday.=20 Gov. Gray Davis' spokesman, Steve Maviglio, called the premium ludicrous=20 because the state Department of Water Resources has been buying electricity= =20 ever since the state's troubled utilities exhausted their credit in=20 mid-January.=20 "The state is as creditworthy a buyer as you can get," Maviglio said.=20 Experts said the plan also won't correct the state's energy imbalance.=20 "None of this is going to have much effect on blackouts," Borenstein said.= =20 "This is solving part of the problem; I'm worried people will think=20 everything has been solved.=20 "The emphasis now has to be on getting California to conserve," he added.= =20 A spokesman for power generators, Gary Ackerman, said the price controls=20 could worsen shortages this summer and will discourage generating firms fro= m=20 investing in the new power plants the West desperately needs.=20 Builders "are going to sit on the fence and think about this," said Ackerma= n,=20 head of the Western Power Trading Forum.=20 Acting in the face of mounting political pressure and unrelenting criticism= =20 from California, FERC voted Monday to impose round-the-clock price controls= =20 throughout the 11-state Western region.=20 The FERC plan replaces a three-week-old plan that applied only to Californi= a=20 and took effect only when power reserves fell to below 7 percent of demand= =20 and an official "power alert" was declared.=20 By extending the plan to the entire West, experts said the commission=20 probably put an end to the phenomenon known as "megawatt laundering," in=20 which power was shipped out of California and then re-imported. Imported=20 power wasn't subject to the old price controls.=20 The new controls, said consultant Stiffler, "significantly narrow the abili= ty=20 of a trader to move power around and play the market."=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m. State to borrow up to $5 billion to buy energy=20 By Emily Bazar Bee Capitol Bureau (Published June 20, 2001)=20 State Treasurer Phil Angelides announced Tuesday that he will borrow up to = $5=20 billion to pay for future power purchases, a move he said was necessary to= =20 avoid a continued drain on California's budget and cuts in other state=20 programs.=20 Since mid-January, energy purchased by the state Department of Water=20 Resources on the spot market and under long-term contracts has come out of= =20 the state's general fund, the source of most state spending.=20 Once the loan becomes final by the end of next week, however, energy will b= e=20 purchased with the proceeds.=20 Made possible by an emergency order from the governor, the loan ultimately= =20 will be paid off by customers of the state's investor-owned utilities throu= gh=20 their electricity rates.=20 "In essence, it stops the general fund bleeding," Angelides said.=20 The state has so far committed $8.2 billion from the general fund to=20 electricity purchases. Of that amount, Angelides said the Department of Wat= er=20 Resources has actually spent about $6.1 billion through June 12 on power=20 purchases, and has received about $900 million back from customers'=20 electricity rates.=20 Officials expect the loan to finance power purchases through September, whe= n=20 they plan to issue up to $13.4 billion in revenue bonds.=20 The bonds will reimburse the general fund and and pay off the loan.=20 "This gives the state some more running room, some more cushion in case=20 anything goes awry with the bond sale to make sure ... the state does not r= un=20 out of general fund money, jeopardizing education programs, law enforcement= =20 programs, children's and health services," the Democratic treasurer said.= =20 Angelides said he has obtained firm commitments for $3.5 billion from JP=20 Morgan and Lehman Brothers at a blended interest rate of about 4.5 percent.= =20 If the long-term bonds are not issued by Oct. 31, the interest rate would= =20 climb to about 7 percent.=20 Lawmakers initially had hoped to close the short-term loan in May and float= =20 the long-term bonds shortly thereafter. However, Republicans in the state= =20 Legislature balked at the plan, forcing the delay of the bond sale until=20 mid-August.=20 Rather than wait, Gov. Gray Davis invoked his emergency powers to allow for= =20 the loan and circumvent the delay.=20 Assembly Republicans don't mind that the governor used his emergency powers= =20 to expedite the loan, said James Fisfis, a spokesman for the caucus. Instea= d,=20 he said, they're concerned the loan could backfire and hurt Californians.= =20 "If the larger bond offering falls through, the penalties and added interes= t=20 could add up on ratepayers' bills," he said.=20 But Angelides argued that the loan would benefit ratepayers on several=20 fronts: Power generators can no longer argue the state should pay a "credit= =20 premium" on electricity, he said, and for the most part will not be able to= =20 walk away from long-term energy contracts that have provisions requiring th= e=20 Department of Water Resources to obtain external financing by July 1.=20 Outside the Legislature, the announcement drew praise from financial analys= ts=20 who had criticized the state for buying power with taxpayer money.=20 In late April, for instance, Standard & Poor cited fears over the state's= =20 mounting power costs when it downgraded California's credit rating on state= =20 bonds.=20 But S&P managing director Steven Zimmermann called the governor's executive= =20 order a step in the right direction.=20 "We're very happy," Zimmermann said. "We were very anxious for the state to= =20 take the general fund out of the energy purchasing position it's been in."= =20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . Dan Walters: Once burned, lawmakers are very wary of Davis-Edison agreement (Published June 20, 2001)=20 The Capitol's politicians rarely attempt to resolve big, complicated policy= =20 issues, preferring to occupy their time with relatively trivial matters --= =20 which also tend to be the priorities of well-heeled and generous interest= =20 groups.=20 And when they even acknowledge a need to address something big, they'll oft= en=20 just nibble at the edges rather than confront the underlying conflicts=20 squarely. That's been the pattern on water, transportation, population grow= th=20 and public education, to name but a few of many examples.=20 The Capitol completed just one comprehensive, or seemingly comprehensive, b= it=20 of policymaking during the last quarter-century. But the issue on that=20 occasion was electric utility deregulation, which has exploded into an ener= gy=20 crisis of monumental proportions. And that experience is having a paralyzin= g=20 effect on the Capitol's denizens.=20 Some Capitol old-timers call it "1890 disease," named after the number of t= he=20 1996 bill that created California's fatally flawed system of pricing electr= ic=20 power. The legislation was written largely by lobbyists for affected intere= st=20 groups and then presented to the full Legislature for take-it-or-leave-it= =20 approval. The measure was passed without a single dissenting vote, even=20 though only a few lawmakers even began to understand its ramifications.=20 It was a huge failure of the legislative process, virtually a dereliction o= f=20 duty, and those who participated have been doing some fancy explaining. But= =20 given the history, both veteran legislators and those who came to the Capit= ol=20 after 1996 are very leery about putting their names on additional pieces of= =20 energy policy that could backfire if the real-world outcome is markedly=20 different from the purported effects.=20 One example is the $43 billion in long-term energy supply contracts=20 negotiated by Gov. Gray Davis' administration to end the state's dependence= =20 on volatile spot market prices. When the long-term contracting program was= =20 authorized by the Legislature early this year, it was on the assurances of= =20 the administration that it could obtain large quantities of power at cheap= =20 prices. But by the time that the contracts were made final, months later, t= he=20 average price was 25 percent higher than what was stated earlier, while the= =20 spot market had fallen dramatically. Now the long-term contracts that seeme= d=20 like such a good idea in January and February could become financial=20 albatrosses.=20 An even more telling example is the deal Davis made with Southern Californi= a=20 Edison to keep the utility from joining Pacific Gas and Electric in=20 bankruptcy. The utilities accumulated at least $13 billion in debts in six= =20 months, buying power at prices much higher than they were allowed to=20 recapture from their customers. Consumer groups are denouncing the Edison= =20 deal as a corporate bailout that would impose multibillion-dollar burdens o= n=20 customers while imposing virtually no financial onus on Edison or its=20 creditors. And the deal's critics are pouncing on legislators' reluctance t= o=20 do something that might haunt them later -- especially in 2002, a critical= =20 election year.=20 "Five years ago, lawmakers and the utilities foolishly foisted this=20 deregulation scheme onto California consumers, and now the governor and=20 Edison expect the ratepayers to pay billions more to save the utilities fro= m=20 their own mismanagement and bad policy decisions," consumer gadfly Harvey= =20 Rosenfield said Tuesday as legislative hearings opened on the Edison deal.= =20 "This time, the whole world is watching the Legislature."=20 Harry Snyder of Consumers Union echoed Rosenfield's pledge to hold=20 legislators accountable. "It looks a lot like 1890," Snyder said. "It's too= =20 big, (and) this is the same process all over again."=20 The sheer complexity and potential ramifications of the deal are weighing= =20 heavily on lawmakers. "This is not a Mother's Day resolution," Senate Energ= y=20 Committee Chairwoman Debra Bowen said wryly as the hearings began. Davis an= d=20 Edison lobbyists are pulling out all the stops, but legislators are very,= =20 very nervous about taking another big step that could generate public=20 backlash.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . Senate Democrats lay back to see if FERC action provides rate relief=20 By Finlay Lewis COPLEY NEWS SERVICE=20 June 19, 2001=20 WASHINGTON =01) Key Senate Democrats called a truce Tuesday in the politica= l=20 wars raging over California's energy crisis, as they adopted a wait-and-see= =20 posture over the Federal Energy Regulatory Commission's latest order=20 restricting electricity prices across much of the West.=20 Senators of both parties expressed relief over FERC's action on Monday. But= =20 Sen. Dianne Feinstein, D-Calif., said she was skeptical that the order woul= d=20 end wholesale price manipulation by power providers or result in refunds to= =20 overcharged ratepayers.=20 Feinstein and Sen. Gordon Smith, R-Ore., have prepared legislation seeking = a=20 much tighter pricing formula than the one FERC used. But she asked that the= ir=20 bill be set aside temporarily in deference to the agency's action.=20 "I think we should wait and see what happens," Feinstein said during a Sena= te=20 Energy and Natural Resources Committee hearing on the FERC order.=20 Democrats on the committee pressed FERC Chairman Curtis L. Hebert and the= =20 four other commissioners on why they had not acted sooner to control the=20 daily price turbulence in the California energy market. A market-interventi= on=20 order issued by FERC in April was designed to cope only with energy-supply= =20 emergencies, despite pleas by California Gov. Gray Davis and other Californ= ia=20 Democrats for more drastic measures.=20 "It's time to stop blaming and start problem-solving," said Hebert, a=20 Republican appointed chairman by President Bush.=20 Hebert noted that electricity prices on the volatile spot market have dropp= ed=20 considerably since the April order. Prices on the energy futures market hav= e=20 also tumbled, as have natural gas prices =01) a key component in the cost o= f=20 electricity.=20 On Monday, FERC unanimously ordered around-the-clock restraints on wholesal= e=20 electricity prices in California and 10 neighboring states over the next 15= =20 months.=20 As was the case with the April measure, prices will be pegged to the costs = of=20 the least efficient power provider when reserves in California fall below 7= =20 percent. But when reserves are more plentiful, the prices will drop to 85= =20 percent of the level established during supply shortages.=20 The order also provides for a 22-day period, involving arbitration and revi= ew=20 by an administrative law judge, for resolving price-gouging allegations and= =20 providing refunds in cases of improper pricing.=20 Adamantly opposing price controls earlier, FERC acted after coming under=20 intense pressure from lawmakers of both parties. Republicans said they were= =20 worried that their GOP colleagues in California would have been blamed and= =20 possibly imperiled at the polls if FERC had failed to act.=20 Bush, who also took a hard line against price caps, blessed FERC's action= =20 after it was taken.=20 Hebert criticized the bill advanced by Feinstein and Smith as an attempt to= =20 solve California's problem by "bureaucratic fiat."=20 Their measure would calculate wholesale electricity prices based on the=20 reported production costs of the individual generators, with an added=20 allowance for a profit margin.=20 Hebert argued that the "mitigation price" that FERC will establish "is not = a=20 blunt, arbitrary figure that bears no resemblance to market conditions and = is=20 subject to political pressures and whims."=20 Meanwhile, Commissioner William Massey made it clear that he harbors=20 misgivings about the FERC measure, although he supported it.=20 He said the agency should have acted earlier to avoid the subsequent=20 "carnage" in California, has failed to provide guidelines that would assure= =20 refunds to overcharged consumers and has acted questionably in allowing pow= er=20 providers to impose a 10-percent surcharge to cover credit-worthiness risks= .=20 Massey, a Democrat who has consistently criticized his colleagues for movin= g=20 too slowing in the California crisis, also said he wondered whether the ord= er=20 would provide an unintended incentive for generators to continue using=20 inefficient units in order to assure higher profit margins for their more= =20 modern facilities.=20 Sen. Barbara Boxer, D-Calif., said she would propose legislation later this= =20 week designed to assure refunds to customers who have had to pay unfair=20 prices for their electricity.=20 "If FERC won't do it ... Congress should," Boxer said.=20 A spokesman for Sen. Jeff Bingaman, D-N.M., chairman of the committee, said= =20 Bingaman agreed with Feinstein on the need for a time-out while the FERC=20 order is being implemented.=20 Gov. Davis will testify today (6/20) before the Senate Government Affairs= =20 Committee, which is investigating FERC's role in the crisis. Hebert and the= =20 other commissioners will also appear.=20 House panel erases Bush energy cuts=20 By Alan Fram ASSOCIATED PRESS=20 June 19, 2001=20 WASHINGTON =01) A House subcommittee voted Tuesday to spend $1.2 billion mo= re=20 next year than President Bush proposed for energy and water programs,=20 underlining lawmakers' sensitivity to the West's power problems and their= =20 desire for home-district projects.=20 The $23.7 billion measure, approved by voice vote by a panel of the House= =20 Appropriations Committee, is normally one of the more routine of the 13=20 annual spending measures Congress must approve. But with this year's=20 escalating battle between Bush and Democrats over energy policy, the=20 measure's profile has been raised.=20 The bill would provide $18.7 billion for the Energy Department, $641 millio= n=20 more than Bush requested and $444 million more than this year. Fiscal 2002,= =20 which the bill covers, begins Oct. 1.=20 It also includes nearly $4.5 billion for the Army Corps of Engineers and th= e=20 hundreds of water projects it has under way across the country, $568 millio= n=20 more than Bush proposed but $73 million less than this year.=20 The measure was approved shortly after top members of the committee met wit= h=20 Bush at the White House.=20 Participants said Bush and the lawmakers reaffirmed their goal of keeping t= he=20 price tag of the 13 bills to $661 billion, which is one-third of the overal= l=20 federal budget. That would be a 4 percent boost over 2001, which many=20 Democrats =01) and some Republicans in private =01) say is too low.=20 "He said there would be attempts to raise this as we go through the process= ,=20 and let's stick with him," said Rep. Sonny Callahan, R-Ala., chairman of th= e=20 energy and water subcommittee.=20 Illustrating the pressures Republicans face, David Sirota, spokesman for th= e=20 Democrats on the committee, said the bill lacked the new spending needed fo= r=20 renewable energy and other programs that could help alleviate power=20 shortages.=20 Under the bill approved Tuesday, renewable energy programs would get $377= =20 million, $100 million more than Bush wanted and $1 million more than this= =20 year. Nuclear energy, basic energy sciences, biological and environmental= =20 research and a study of whether spent nuclear fuel should be stored at a=20 Nevada site would all get about what Bush proposed.=20 The bill's $7.03 billion for environmental cleanups is $699 million more th= an=20 Bush proposed. Programs aimed at containing the nuclear arsenals of former= =20 Soviet states would get $845 million, $71 million more than Bush's plan.=20 Members voted to hold the brief meeting behind closed doors after citing th= e=20 national security sensitivity of publicly discussing some of the nuclear=20 weapons programs covered by the bill.=20 Davis, Regulators Face Off at Hearing From Reuters=20 ?????WASHINGTON -- California Governor Gray Davis, a Democrat, today blamed= a=20 Republican-led energy regulatory agency for not doing enough to help his=20 energy-starved state and demanded refunds of $6.7 billion for alleged=20 price-gouging by power generators. ?????Davis, whose political future has been linked to his state's electrici= ty=20 woes, was testifying at a Senate hearing with members of the Federal Energy= =20 Regulatory Commission. ?????The hearing marked the first time that Davis met face to face with all= =20 five FERC commissioners. ?????FERC regulates interstate electricity markets and has jurisdiction to= =20 order refunds by power generators found to have overcharged utilities. ?????Earlier this week the agency, led by a Republican majority, rejected= =20 Davis' pleas for strict caps on prices that soared above $400 per megawatt= =20 hour last month. ?????Sen. Joseph Lieberman, the former Democratic vice presidential nominee= ,=20 heads the Senate Governmental Affairs Committee that quizzed the FERC=20 commissioners and Davis on efforts to stabilize the chaotic Western=20 electricity market. ?????Davis accused FERC of failing to act aggressively against alleged=20 price-gouging by out-of-state generators. ?????"To date, not a single penny in refunds has been returned to=20 Californians," Davis said. "It is unconscionable for the generators to prof= it=20 from their egregious overcharges. FERC must move quickly to enforce the law= =20 and order the energy companies to give back the money." ?????Davis said the state is owed refunds of at least $6.7 billion.=20 California's grid operator has estimated that from May 2000 to May 2001,=20 power generators charged the state nearly $9 billion more than a competitiv= e=20 market would warrant, he said. ?????California, the nation's most populous state, has been hit with a seri= es=20 of rolling blackouts, the bankruptcy of its largest utility, and an economi= c=20 slowdown since the power crisis began last year. ?????The state is expected to convene a criminal grand jury to investigate= =20 whether some power generators withheld supplies, shut down plants or=20 exploited the bidding process to drive up prices. Out-of-state generators= =20 deny any illegal activity, saying the high prices simply reflect supply=20 shortages. ?????Today also marks the day that FERC's newly expanded "price mitigation"= =20 program goes into effect in all 11 Western states with a wholesale price=20 limit of $107.9 per megawatt hour linked to a market formula. The plan had= =20 previously applied only to California during emergency power outages. ?????Since FERC's action earlier this week, Senate Democrats dropped a=20 legislative effort to strictly cap electricity prices in the West. However,= =20 California Democrats in the House were still trying to force a full vote on= a=20 package of energy amendments, including a price cap. ?????The Bush administration and many Republicans oppose price caps,=20 contending they would discourage more power production. ?????Separately, today the U.S. Energy Department issued a study that=20 supported the White House's view that strict price caps would hurt, not hel= p,=20 California. ?????The study found California faces about 113 hours of rolling blackouts= =20 this summer, a level that would double if wholesale prices were capped at= =20 $150 per megawatt because some 3,600 megawatts of generating capacity would= =20 shut down. An alternative approach of setting a price cap based on producti= on=20 costs plus $25 per megawatt would delay or close about 1,300 megawatts of= =20 capacity scheduled to be built in the state, according to the study. ?????However, lawmakers from both political parties have scrambled for some= =20 kind of solution to address the shortages in California well before the=20 congressional elections next year. ?????The FERC plan expands an existing "price mitigation" program in=20 California to 10 other Western states. The plan, which runs through Septemb= er=20 2002, means that during nonemergency periods the price for wholesale power= =20 cannot exceed 85 percent of the cost of electricity sold during a Stage 1= =20 power shortage emergency in California. ?????A Stage 1 emergency is declared when electricity supplies fall below 7= =20 percent of demand on the Western power grid. ?????The plan also imposes a 10 percent surcharge on all power sales into= =20 California as financial protection for generators reluctant to sell to the= =20 state's financially weak utilities. ?????Davis was due to meet the two newest FERC commissioners, Patrick Wood = of=20 Texas and Nora Brownell of Pennsylvania, today. Both are former utilities= =20 regulators in states that successfully deregulated their power industry and= =20 nominated to the agency by President Bush. Copyright 2001 Los Angeles Times=20 NEWS ANALYSIS Energy on Agenda, but Issue Is Blame=20 Politics: Gov. Davis will try to sway voter anger toward the GOP as he face= s=20 a Senate panel.=20 By RONALD BROWNSTEIN, Times Political Writer=20 ?????WASHINGTON--When California Gov. Gray Davis testifies at a high-profil= e=20 Senate hearing today, the issue formally on the table will be the expanded= =20 electricity price controls that federal regulators approved this week. But= =20 the session's political subtext will be the escalating struggle between Dav= is=20 and national Republicans to determine where California voters look for=20 solutions--and blame--for the state's power woes. ?????In both California and Washington, Republican strategists believe Davi= s=20 is trying to manufacture a succession of conflicts with the White House tha= t=20 will allow him to run in 2002 as much against President Bush as against=20 whomever the state GOP nominates in the gubernatorial race. In return,=20 Republicans are trying to shift the focus back toward Davis--most=20 aggressively through a California-wide television advertising campaign=20 organized by Scott Reed, a former executive director of the Republican=20 National Committee. ?????"Our goal is to get the focus back to Sacramento, where it belongs,"= =20 Reed said. ?????Both sides see the same prize in this tug of war: the opportunity to= =20 determine where most Californians direct their anger during what could be a= =20 long, hot summer of power shortages. ?????"The situation is that the public's minds are not made up on this=20 issue--whether it is Sacramento or Washington who has acted too little, too= =20 late," said Mark Baldassare, a pollster at the independent Public Policy=20 Institute of California. "That gives both sides an opportunity to get their= =20 messages out. The stakes are fairly high in terms of how the public in=20 California ends up assessing blame over the next few months." ?????A Slight Uptick in Davis' Popularity ?????Overall, Davis' political situation appears to be stabilizing. After= =20 months of runaway power costs, the prices the state pays for wholesale=20 electricity are falling and new plants will come online next month. And=20 following a free fall in private polls, Davis has seen his numbers tick bac= k=20 up slightly. Similarly, a poll financed by independent power generators=20 showed that in mid-June, for the first time in months, Californians were=20 becoming slightly more confident that the crisis is easing. ?????Within the state Capitol, Davis is asserting himself, demanding that= =20 lawmakers hold hearings on his rescue plan for Southern California Edison. = On=20 Monday, he released details of a similar plan for San Diego Gas & Electric.= =20 Last week, he announced an agreement that is likely to increase generation = by=20 alternative energy producers, who account for about a fourth of the state's= =20 supply. ?????"This guy is changing," said state Sen. Steve Peace (D-El Cajon), who = a=20 few months back had been urging that Davis take a more aggressive stance on= =20 the crisis. "There is a difference in his demeanor and focus." ?????Yet the energy crisis still looms as a vast cloud over a reelection=20 campaign that once looked like a stroll on the beach. ?????The paradox for Davis is that the substantive victory for pricecontrol= =20 advocates at the Federal Energy Regulatory Commission meeting this week may= =20 complicate his political goal of maintaining a heavy focus on Washington.= =20 Though Davis and some congressional Democrats portrayed FERC's decision as= =20 insufficient, it appears to have lanced the pressure for federal legislatio= n=20 to impose the tighter price controls that Davis supports.=20 ?????Sen. Dianne Feinstein (D-Calif.), a principal sponsor of that bill, on= =20 Tuesday announced she would shelve the measure for six months to give the n= ew=20 FERC plan time to work. ?????As a result, the political effect of the FERC ruling could be to shift= =20 the focus away from Washington back toward decisions in Sacramento, which i= s=20 exactly what Republicans prefer. "Gray Davis is the dog that finally caught= =20 the car," said Dan Schnur, a San Francisco-based GOP consultant. "Davis is= =20 going to keep screaming about price caps and refunds, but now Republicans c= an=20 point to substantive action." ?????Davis: 'Much More They Should Do' ?????For months, Davis has criticized Bush for refusing to support=20 electricity price controls and other measures that the governor says could= =20 ease California's energy crunch. At almost every opportunity, Davis offers= =20 the same message: California is taking the steps it needs to, but Washingto= n=20 has failed to help enough. That was precisely Davis' message Monday when FE= RC=20 significantly expanded the limited price caps it had imposed previously. ?????While saying that FERC had "finally taken a step in the right=20 direction," Davis added: "There is much more they should do"--including=20 providing refunds to California for alleged overcharges. The overall tone o= f=20 Davis' statement was much more skeptical about FERC's action than the remar= ks=20 from Feinstein, who described the decision as "a giant step forward." ?????Aides say Davis plans to repeat that two-part message in his appearanc= e=20 today before the Senate Governmental Affairs Committee, chaired by Sen.=20 Joseph I. Lieberman (D-Conn.). In his testimony, and in a round of schedule= d=20 television appearances, Davis will demand that FERC order refunds in the=20 range of $5 billion to $6 billion to the state, aides said. Davis also will= =20 distribute to every member of Congress a 177-page book chronicling the=20 state's response to the crisis. ?????Inside the Bush White House, some officials see in Davis' cool respons= e=20 to FERC's decision more evidence that the governor is determined to use the= =20 White House as a foil in his reelection campaign. The prevailing view, one= =20 official said, is that, no matter what concessions the administration offer= s,=20 Davis will immediately raise the bar and demand something else--the way he= =20 did by talking about rebates as soon as FERC offered tougher price controls= . ?????"That is Davis' M.O.," said one official involved in the White House's= =20 energy strategy. "He asks the administration to do something, the=20 administration does it, and then he attacks the administration for not doin= g=20 enough. . . . He needs someone to blame." ?????Davis aides reject that characterization, arguing that the governor is= =20 merely representing the state's interests against an administration that th= ey=20 maintain is favoring energy producers over consumers. But Davis advisors=20 acknowledge that they have used focus groups to test campaign messages that= =20 pin the blame for the energy crunch primarily on Davis' Republican=20 predecessor, Pete Wilson, and a "Republican president who has failed to sto= p=20 his rich friends in the energy industry" from gouging consumers, one aide= =20 said. ?????"You don't have to tell people in focus groups more than once how this= =20 is connected," the Davis aide said. ?????Gubernatorial Rivals Are Free of Blame ?????Baldassare, the independent pollster, notes it may be especially=20 imperative for Davis to keep Bush's energy decisions in the spotlight becau= se=20 none of his potential Republican opponents in 2002--California Secretary of= =20 State Bill Jones, former Los Angeles Mayor Richard Riordan or businessman= =20 William E. Simon Jr.--is easily tagged with complicity in the problem. "Non= e=20 of them were really involved in the decision-making over deregulation,"=20 Baldassare said. "The only one else to blame, in a political sense, is=20 Washington and the Bush administration." ?????The new independent advertising campaign against Davis was inspired=20 largely by the fear of that strategy succeeding--damaging the standing in= =20 California not only of Bush but also of other Republicans, particularly tho= se=20 in Congress. Reed, whose American Taxpayers Alliance is funding the ads, sa= id=20 he decided to launch the campaign after Davis appeared to gain the upper ha= nd=20 in the media debate following Bush's visit to California late last month. ?????"The Bush trip really changed the terms of debate about Davis' problem= =20 and made it more of a possible national Republican problem," Reed said. "Th= e=20 entire terms of debate turned around and was focused on the issue of price= =20 caps as opposed to negligence on Davis' behalf. Our group is attempting to = go=20 out and engage Davis." ?????To "engage" Davis, Reed's group, which has not revealed its donors, is= =20 spending what he said would be $1.5 million on an initial ad criticizing=20 Davis this week, though a spot check of TV stations around the state=20 indicated a far more modest buy. Reed said the group is planning to air a n= ew=20 ad as soon as this week. ?????Democrats plan to answer the ads with attacks of their own and will be= =20 filing complaints with the IRS and other federal agencies about the anonymo= us=20 funding of the Reed ad. ?????Today's Senate hearing will give Davis another chance to respond to th= e=20 GOP and make his case for greater help from Washington. But Lieberman aides= =20 acknowledge the hearing is likely to be much less confrontational than it= =20 would have been if FERC had not acted Monday. The agency's decision "change= d=20 the dynamic," the aide said. ?????That assessment may apply not only to the conflict between FERC and it= s=20 critics but also equally to the hostilities between Davis and the White Hou= se. ---=20 ?????Times staff writers Dan Morain in Sacramento and Mark Z. Barabak in Lo= s=20 Angeles contributed to this story. Copyright 2001 Los Angeles Times=20 Blackout Forecasts' Dark Side=20 If optimists are wrong and the power runs out, California's energy crisis= =20 could quickly cost lives and cripple the economy.=20 By JENIFER WARREN, Times Staff Writer=20 ?????It's here. Summer 2001, the blackout season, is only a day away. ?????Already Californians anticipate power outages when temperatures rise. = By=20 August, the occasional annoyances endured so far--stoplights gone dark,=20 computers, air conditioners and elevators idled--could seem almost quaint. ?????Gov. Gray Davis insists we needn't worry. Four large new power plants= =20 are firing up soon, he said, and government's best and brightest are lockin= g=20 up still more megawatts to help meet our peak summer need. Californians,=20 Davis predicts, will valiantly heed his call to conserve, helping the state= =20 survive the hot months, no sweat. ?????With luck, he'll be right. Power prices have stabilized, and some ener= gy=20 analysts are wondering whether California may have tamed the blackout beast= . ?????But what if those plants don't get built in time, people don't trim=20 their electricity use 7% and energy imports are more meager than expected? ?????And what if the state gets hit by a summer that is not moderately hot,= =20 as Davis bets, but blistering, record-setting hot? ?????Government experts who ponder such questions don't expect disaster in= =20 the coming months. But they are planning for it nonetheless. ?????At best, they say, Californians can expect some gridlocked=20 intersections, an occasionally overloaded 911 system, perhaps some business= =20 bankruptcies, certainly inconvenience. At worst, the Western power grid cou= ld=20 crash, causing uncontrolled blackouts that might lead to looting,=20 contaminated water supplies, even civil unrest. ?????"How bad could this summer get?" said state Sen. Joe Dunn (D-Santa Ana= ).=20 "This summer could be the worst disaster to ever hit the state of Californi= a." ?????Imagine it's a Thursday morning in the third week of July. Relentless= =20 heat grips California, the curse of a stubborn high-pressure ridge that jus= t=20 won't budge. ?????As air conditioners from Redding to Chula Vista lumber to life, manage= rs=20 of the state's power grid in Folsom gulp their third and fourth cups of=20 coffee, stare at a bank of computers and begin to fret. ?????Demand is jumping. Supply is static, Canada and Arizona have nothing t= o=20 sell. It's looking tight. ?????Thirty minutes later, the picture is gloomier. A brush fire shuts down= =20 transmission lines near Fresno, squeezing supply in the Central Valley. In= =20 the Bay Area, the unusual heat drives demand well past projections. ?????By noon things look bleak. Operators of the Diablo Canyon nuclear powe= r=20 plant near San Luis Obispo have cut output by 80%. The trouble? Chunks of= =20 kelp have lodged in one of the plant's seawater intake valves, creating a= =20 clog like one that plagued the facility in January. ?????With a chorus of groans, the grid's keepers scour the market for power= =20 to offset the Diablo loss. No luck. As the mercury climbs and the Golden=20 State economy roars into full swing, electricity consumption ticks upward,= =20 minute by minute. And when managers of a power plant near Long Beach cut=20 output because of a cracked turbine, everyone knows what it means. ?????Alert the utilities. It's lights out, California, for the fourth day i= n=20 a row. ?????Dr. J. Michael Leary dreads blackouts--not personally, but=20 professionally. Leary is an emergency room physician in the desert city of= =20 Rancho Mirage. When air conditioners go on the blink there, the=20 victims--scores of them, mostly old folks--wind up in his ER. ?????In a normal year, 75% of his emergency patients are geriatrics. Like= =20 infants, the elderly are unusually vulnerable to the heat. When blackouts= =20 hit, they are most at risk. ?????"It's as if you lived in Maine and they turned the heat off in January= ,"=20 Leary said. "This is an extreme environment we live in. The effects can be= =20 devastating." ?????Many desert seniors are on fixed incomes and live in mobile homes, som= e=20 of them poorly insulated boxes that turn into ovens under the brutal summer= =20 sun. Take away the air conditioning and the humans inside start baking, qui= ck. ?????For Leary, the specter of continual, back-to-back blackouts in=20 July--and, some predict, in June and August too--conjures images of an=20 82-year-old man, living alone in one of those mobile homes, taking medicati= on=20 for heart disease. The cardiovascular drugs plague the man with numerous si= de=20 effects; one inhibits his body's ability to cool itself. ?????When a person gets overheated, body temperature eventually rises=20 uncontrollably. Then comes a nasty spiral of effects, and pretty soon "you = go=20 into shock," Leary said. "Everything just shuts down." ?????On average each year, 371 Americans die from heat-related causes, more= =20 than the number killed by earthquakes, tornadoes, hurricanes, lightning and= =20 floods combined. In 1995, a record hot spell in Chicago killed 465 people.= =20 Eleven Californians died from the heat in 1998. ?????A new report by the United Seniors Assn. predicts that more than half = a=20 million elderly Californians could need hospitalization for heat-related=20 ailments this summer.=20 ?????Some communities have laid plans for cooling shelters, wading pools an= d=20 other measures to provide relief. But will all who need help get it? Or get= =20 it in time? ?????Out in the desert, paramedics expect a crush of 911 calls when the pow= er=20 goes out and the ill, frail and frightened seek help. Leary and others at= =20 Eisenhower Medical Center will be waiting, armed with ice packs, cooled IVs= =20 and ventilators. ?????"I am very, very worried," the doctor said. "I think we'll see a great= =20 toll in human suffering, even mortality." ?????California's tomato processors are no less anxious. They wash, cook,= =20 peel, chop, mash and can about 1 million tons of tomatoes a week from July = to=20 October--enough to account for half the world's supply. For them, a string = of=20 unexpected power losses could mean economic ruin in a matter of days. ?????The reason lies in the peculiar nature of food processing--a sterile= =20 system instantly contaminated if the power fails and the plant's precise=20 temperature is disturbed. ?????Once a batch of tomatoes is tainted, it must be thrown out--all 50,000= =20 pounds. The plant must then be sanitized, a painstaking process that takes= =20 about 36 hours. ?????"If you get hit by blackouts every third day for, say, two weeks, you'= re=20 starting, stopping, cleaning, restarting--it's a nightmare," said Jeff Boes= e,=20 president of the California League of Food Processors. "You could lose thre= e=20 batches and be out $40 million before you knew what hit you." ?????Meanwhile, farmers with still more truckloads of tomatoes line up=20 outside the plant, waiting to be paid for their crop: "If we can't process= =20 them, the farmers have spent an entire season growing them for nothing,"=20 Boese said. ?????In Sonoma County, the object in peril is the chicken. Egg producers=20 equip their laying houses with fans and swamp coolers to keep the hens=20 comfortable. Power is also needed to run giant refrigerators filled with eg= gs. ?????"In a blackout, those hens can overheat in no time," said Rich Matteis= =20 of the Pacific Egg and Poultry Assn. "In 20 or 30 minutes, you could have= =20 100,000 birds die." ?????Many large producers have backup generators, but they are not designed= =20 for ongoing, intensive use. Will they hold up? Small-scale egg producers=20 often have no backup power at all. ?????Hundreds of other California businesses could suffer if summer shapes = up=20 as bad as some predict. ?????The Valero Refining Co. of California, northeast of San Francisco,=20 produces 115,000 barrels of gasoline a day. Because restarting a refinery i= s=20 a complicated task, two or three blackouts close together could prompt=20 officials to shutter it until electricity supplies stabilize--costing=20 California about 10% of its gasoline supply. ?????At a Berkeley medical laboratory, doctors say power losses to their=20 freezers could destroy bone marrow needed to give young leukemia patients= =20 lifesaving transplants. The state's 400 dialysis centers, where patients=20 without kidney function go to have their blood cleansed every other day, ar= e=20 in the same fix. Few have backup generators, so when an outage hits,=20 technicians must crank the machines by hand. ?????Most Californians, of course, face far more ordinary consequences. The= =20 scoreboards will fizzle at summer softball games, joggers on treadmills wil= l=20 be stopped in their tracks, electric organs will go silent, leaving choirs = to=20 sing without accompaniment. ?????Parents will be asked to retrieve children from day-care centers when= =20 the lights and cooling systems conk out. Anniversary lunches may be ruined= =20 when restaurants cannot grill salmon or blend margaritas. ?????Most people will tolerate occasional disturbances, psychologists say,= =20 doing their part in a time of crisis. But what if such irritations become a= n=20 everyday fact of life? ?????Hundreds of "essential" energy users--including prisons, fire=20 departments and airports--are protected from blackouts, and hundreds more= =20 have applied for exemptions. That means the pool of people bearing the=20 blackout burden is shrinking, so more frequent outages are likely. ?????Blackout predictions vary widely, but at least one forecaster, a=20 consultant for California water districts, anticipates an outage almost eve= ry=20 afternoon of every workday this summer if temperatures are unusually warm. ?????Californians are accustomed to trash compactors, giant-screen TVs and= =20 having the Internet at their fingertips. How much deprivation will they=20 tolerate? ?????"So far, the version of blackouts we've experienced hasn't looked too= =20 scary to people--it happens on a workday, in the afternoon, and you basical= ly=20 have to come home and reset your VCR," said Dan Kammen, a professor of ener= gy=20 and society at UC Berkeley. ?????But if outages become daily events, and start to invade the evening=20 hours, the public mood could change abruptly. ?????"When there's a disaster or crisis or trauma, people tend to act=20 heroically and work together," said Robert Butterworth, a Los Angeles=20 psychologist and trauma specialist. "But the civilized behavior only lasts = a=20 short period. Then people start acting in unpredictable ways." ?????That tendency may be exacerbated, Butterworth said, by the nature of t= he=20 energy crisis--not a natural disaster, but a man-made one. ?????"People start to look for a scapegoat," he said. "People will look for= a=20 target, and there's a tendency to strike out at whoever is closest to you." ?????One place that tendency may surface, Butterworth said, is on=20 traffic-clogged roads. Blackouts already have led to scores of accidents. A= dd=20 summer heat to the mix, and repeat the pattern day after day at rush hour,= =20 and motorists' patience could wear thin, law enforcement officials say. ?????"We're bracing for . . . possible acts of violence and road rage," sai= d=20 Sacramento County Sheriff's Lt. Larry Saunders. ?????Lon House is the water consultant who predicts California could see=20 blackouts almost every summer weekday. Among the worries for the 440 water= =20 agencies he represents: losing the ability to pump water during wildfire=20 season. ?????"I'm telling them to be ready for a major earthquake every day this=20 summer--meaning all your power is out throughout your district for multiple= =20 hours," House said. ?????House insists he isn't an alarmist. But on top of the fire fears, he= =20 warns that blackouts of more than a few hours would allow air into water=20 pipes, contaminating supplies. If that happens, Californians would be urged= =20 to boil their water until the system can be disinfected from one end of the= =20 pipe to the other. ?????Though rolling blackouts are risky, they remain essentially a controll= ed=20 phenomenon, occurring when and where the grid managers and utilities decide= .=20 Far more frightening--and devastating--are unexpected, cascading outages th= at=20 could shut down the entire Western power grid. It happened in August 1996,= =20 leaving 4 million people without power during a triple-digit heat wave. ?????The problem began when power lines in Oregon sagged into trees and shu= t=20 themselves off. That triggered a chain reaction of automatic switch-offs an= d=20 oscillating surges of energy that ultimately shut down all four of the main= =20 power arteries between California and the Pacific Northwest. ?????That robbed the system of thousands of megawatts--enough to power the= =20 city of Seattle four times over--and scattered outages across California an= d=20 six other Western states. Thousands of customers were without power for mor= e=20 than a day. ?????Though such an episode is rare, California grid managers say it is mor= e=20 likely today because the system is taxed by the ever-increasing load of=20 electricity it bears. ?????"The system is very dynamic, and when it's heavily loaded and highly= =20 stressed, like it is now, the smallest little thing could cause big trouble= ,"=20 said Kevin Bakker, who oversees California's connection to the greater=20 Western power grid.=20 ?????If a massive, uncontrolled outage should hit, the ramifications could = be=20 dizzying, said Mike Guerin, chief of law enforcement for the state Office o= f=20 Emergency Services. Police departments would probably go to tactical alert,= =20 guarding against looting by criminals who might take advantage of disabled= =20 alarm systems and darkened street lights. ?????In hot areas, cities might convert municipal buses--parked with air=20 conditioners running--into cooling shelters, Guerin said. The state would= =20 provide emergency generators to nursing homes and others in need, while the= =20 California National Guard might be called into action. ?????"With this kind of blackout scenario, you're not worried about the=20 bologna going bad in the refrigerator," Guerin said. "We're talking about= =20 doctors doing surgeries on backup generators for three days. We're talking= =20 about a lot of things we don't like to think about." ---=20 ?????Times staff writers Nancy Vogel and Alexander Gronke and researcher=20 Patti Williams contributed to this story. Copyright 2001 Los Angeles Times=20 FERC Move Short-Circuits Push for Hard Price Caps=20 By RICHARD T. COOPER and JANET HOOK, Times Staff Writers=20 ?????WASHINGTON--The Federal Energy Regulatory Commission's decision to=20 impose full-time price ceilings on wholesale electricity in California and= =20 the West appears to have deflated the congressional drive for a return to= =20 traditional utility regulation. ?????Sen. Dianne Feinstein (D-Calif.), calling the "price mitigation" syste= m=20 FERC unveiled Monday "a giant step forward," announced Tuesday that she is= =20 pulling back her bill to force a return to the "cost of service" pricing=20 system that prevailed before deregulation. Republican Sen. Gordon Smith of= =20 Oregon, a co-sponsor, agreed, as did Sen. Jeff Bingaman (D-N.M.), chairman = of=20 the Senate Energy Committee. ?????House Democrats vowed to fight on for tougher controls, but they were= =20 given little chance to succeed. ?????As a result, although the political blame game will rage on, the reali= ty=20 of a long, ugly summer for California appears to have arrived: at least=20 several months of tears, toil, sweat--and fast-rising electric bills. ?????California consumers are likely to face an unpleasant paradox, energy= =20 analysts said: Given present power shortages, blackouts are virtually=20 inevitable this summer. And, since state authorities are beginning to let= =20 high wholesale prices flow through into retail bills after months of=20 subsidies, many consumers could face higher charges at the same time their= =20 lights begin to flicker. ?????Even if FERC's order succeeds and wholesale prices fall, as they have= =20 begun to do in recent weeks, consumers' bills are likely to rise. Since=20 retail charges lag well behind wholesale prices, closing the gap will=20 probably mean a period of higher costs for consumers, regardless of what=20 happens in wholesale markets. ?????There is light at the end of the tunnel, energy analysts said, but it = is=20 probably a year away. And reaching it, they said, depends in part on=20 government officials taking no action that might spook investors and disrup= t=20 present plans for expanding the region's capacity to generate and deliver= =20 more power. ?????The new FERC system, which its designers said would provide temporary= =20 price relief while preserving incentives for energy investment, imposes=20 cost-based curbs on wholesale prices throughout the West and covers all suc= h=20 sales, not just those during periods of extreme shortages, as did the order= =20 issued in April. ?????FERC Chairman Curtis L. Hebert Jr. told the committee the new system= =20 will prevent "megawatt laundering" and other potential abuses. He said his= =20 agency is "committed to ferreting out any forms of market misbehavior 24=20 hours a day, seven days a week." ?????With the apparent collapse of demands for more intervention, Congress= =20 now seems ready to give FERC a year or more of leeway to see whether its pl= an=20 will curb wholesale prices and create what FERC member Linda Breathitt, a= =20 Democrat, called "a breathing spell" in which California and the West can= =20 "repair their dysfunctional markets." ?????"It still remains to be seen whether there can be manipulation, but I= =20 think we should wait and see," Feinstein said Tuesday at a Senate Energy=20 Committee meeting attended by all five FERC members. The commissioners call= =20 their new system "price mitigation," not price caps, but Feinstein said it= =20 amounts to the same thing. ?????"Whether you call it price mitigation or something else, a rose is a= =20 rose is a rose," said Feinstein, a member of the energy committee. ?????And Sen. Barbara Boxer (D-Calif.), appearing before the committee as a= =20 witness, said: "I was very pleased with [Monday's] about-face by FERC. I=20 believe they have a new tone." ?????Democrats on the other side of the Capitol pledged to keep fighting fo= r=20 traditional regulation, but with Republicans in control of the House, the= =20 struggle appears to be largely symbolic. ?????House Democrats wanted to introduce amendments on price controls and= =20 other energy policy to a mid-year supplemental appropriation bill due to co= me=20 before the House today. However, GOP leaders expected to block Democrats fr= om=20 even offering the amendments on procedural grounds. ?????The most sweeping of the amendments would set cost-based limits on=20 wholesale energy prices in the West. Rep. Henry A. Waxman (D-Los Angeles) a= nd=20 other sponsors insisted that the measure is still needed in spite of the FE= RC=20 action, which he said would continue to provide windfall profits to=20 generators, encourage suppliers to withhold power and do too little to=20 restrain the price of natural gas. ?????He called the FERC policy an "experiment" that is using California and= =20 other Western states as subjects. ?????Similarly, Rep. Nancy Pelosi (D-San Francisco) said: "Although the FER= C=20 decision [Monday] is a step in the right direction, I am concerned it does= =20 not remove incentives for energy suppliers to withhold power, drive up pric= es=20 and gouge consumers." ?????The commission went as far as it did in part because of the specter of= =20 broader price control legislation, Pelosi said. "They felt the heat, they s= aw=20 the amendments coming and decided to act." ?????And Rep. Bob Filner (D-San Diego), in an interview Tuesday, said he wi= ll=20 press ahead with legislation to impose hard price caps. "I would advise the= =20 senators that after a year of dealing with these price gougers that they wi= ll=20 easily manipulate this latest order," he said, calling it a "Swiss cheese= =20 order--full of holes."=20 ?????Feinstein's shift put House Democrats in an awkward political position= =20 because it came just as they prepared to make their big push for tougher=20 controls. But the Democrats tried to minimize the differences in legislativ= e=20 strategy. ?????"She too is waiting to see if the FERC experiment works," Waxman said.= =20 "I'm a little more skeptical, but we're both watching carefully." ?????As a political matter, a Democratic leadership aide acknowledged, the= =20 FERC order muddies the debate at a time when Democrats have been working ha= rd=20 to make it a defining issue--and one they had hoped would help them win=20 control of the House in the 2002 elections. ?????"It's hard to describe to people what the difference is between what w= e=20 want and what FERC has done," said the aide. ?????And Republicans said FERC's action had clearly taken the wind out of t= he=20 sails of price control efforts that some GOP strategists feared might have= =20 passed the House. ?????"I would have thought [it would pass] last week," said John Feehery,= =20 spokesman for House Speaker J. Dennis Hastert (R-Ill.). "But now, with what= =20 FERC did, it takes a lot of air out of the balloon." ?????"I think the FERC action will dissipate that strong push," agreed Emil= y=20 Miller, a spokeswoman for House Majority Whip Tom DeLay (R-Texas). "It will= =20 take the heat off." ?????House Majority Leader Dick Armey (R-Texas) said the message to Democra= ts=20 was, "It's time to come off your political high horse." ?????He said he wanted to keep Democrats from offering their price control= =20 amendment to Wednesday's supplemental appropriation bill because the propos= al=20 is "a political statement, not a policy statement." ---=20 ?????Times staff writers Megan Garvey and Richard Simon contributed to this= =20 story. Copyright 2001 Los Angeles Times=20 Plan Won't Raise Rates, Davis Says=20 Edison: Governor seeks to assure Senate, where Democrats say action is a=20 bailout of nearly bankrupt utility.=20 By CARL INGRAM, Times Staff Writer=20 ?????SACRAMENTO--Gov. Gray Davis sought to assure the state Senate on Tuesd= ay=20 that his plan to save Southern California Edison from threatened financial= =20 collapse would work without increasing customer rates. ?????Davis sent assurances to the Senate Energy Committee through his top= =20 attorney, Barry Goode, who helped negotiate the controversial proposal with= =20 the utility. ?????Senate Republicans have taken a wait-and-see attitude on the plan. But= =20 they generally contend that the business of utilities belongs in the hands = of=20 private enterprise. ?????But Democrats in both houses have charged that the deal between Democr= at=20 Davis and Edison represents a state bailout of the nearly bankrupt=20 Rosemead-based utility. The analysis is shared by leading consumer activist= s. ?????At the first in a series of Senate hearings on the package, which is= =20 considered all but dead in its current form, Sen. Byron Sher (D-Palo Alto)= =20 voiced concerns about political problems with the plan. ?????He asked Goode, who was flanked at a witness table by Edison executive= s,=20 whether monthly bills of the utility's customers would increase as a=20 consequence of approval of the governor's package. ?????"Our models say there will be no additional impact on the ratepayers,"= =20 Goode replied. ?????Other members appeared ready to pursue rate increase questions, but=20 Chairwoman Debra Bowen (D-Marina del Rey) cut them short. She said the issu= e=20 would be fully examined at a later hearing. ?????To spare Edison from going into bankruptcy and to restore its=20 credit-worthiness, Davis and executives of the utility reached a complex=20 compromise in April, the centerpiece of which was a state purchase of=20 Edison's transmission grid for about $2.8 billion, more than twice its book= =20 value. ?????Edison has estimated that it owes $3.5 billion to creditors, including= =20 wholesale power generators, as a result of deregulation of retail electrici= ty=20 prices in 1996. ?????Because of a freeze in retail rates, Edison was prohibited from passin= g=20 its energy costs to customers. ?????Other features of the deal include dedicating a portion of consumer=20 rates to help pay off the debt, a guaranteed 11.6% rate of return to Edison= =20 on its sales and investments, and termination of an ongoing Public Utilitie= s=20 Commission investigation into financial dealings of Edison's parent company= ,=20 Edison International. ?????The energy committee held the hearing for fact-finding purposes and di= d=20 not consider the Edison bill, SB 78x by Sen. Richard Polanco (D-Los Angeles= ). ?????But the Davis-Edison deal has angered consumer activists, who contende= d=20 that bankruptcy for Edison would be preferable. ?????They deplored it as a bailout that would cost Edison customers $5=20 billion to $7 billion. ?????"If the Legislature makes the mistake of forcing the ratepayers of=20 California to pay one more penny to bail out these companies, we will put [= an=20 initiative] right on the ballot," said Harvey Rosenfield of the Foundation= =20 for Taxpayer and Consumer Rights. ?????Consumer organizations in 1998 put to the voters an initiative to junk= =20 the 1996 deregulation law. The measure failed. ?????Rosenfield, Harry Snyder of Consumers Union and Matt Freedman of the= =20 Utility Reform Network all asserted at a news conference that the Davis=20 rescue program should be killed. ?????Snyder, who opposed deregulation, said the governor's bill is shaping = up=20 as a replay of 1996. ?????"It's too big, too complicated. . . . This is the same process that=20 brought about this [deregulation] disaster," Snyder said. ?????Separately, San Diego Gas & Electric agreed Monday to sell its=20 transmission grid to the state for about $1 billion on the same terms as=20 Edison. ?????With all the controversy surrounding the Edison deal, the chance of=20 SDG&E winning legislative approval of its sale is slightly better than 50%,= =20 said Stephen L. Baum, chief executive of Sempra Energy, parent of SDG&E. ?????"I think there's a widely shared view in the Legislature that they don= 't=20 want the state in the long-term business of power procurement. . . . In ord= er=20 to get Edison back into that business there has to be this infusion of=20 capital" to pay off past electricity debts and make the utility=20 credit-worthy, Baum said. ---=20 ?????Times staff writer Nancy Rivera Brooks contributed to this story. Copyright 2001 Los Angeles Times=20 State to Pay Electric Bill With Loan, Not Taxes=20 By MIGUEL BUSTILLO, Times Staff Writer=20 ?????SACRAMENTO--California taxpayers, who have had to bankroll billions of= =20 dollars in electricity purchases for the teetering power utilities, will so= on=20 no longer see their money evaporate at record rates, under an executive ord= er=20 by Gov. Gray Davis. ?????As early as next week, the order will stop the hemorrhaging of the sta= te=20 budget by allowing Treasurer Phil Angelides to borrow $5 billion to buy=20 electricity. That money is expected to cover power purchases until this fal= l,=20 when the state plans to sell an unprecedented $12.5 billion in bonds to rep= ay=20 the general tax fund and buy future electricity. ?????Angelides said Tuesday that he has already lined up $3.5 billion in=20 loans from two Wall Street firms, and expects to secure at least another=20 billion by next week, when he plans to close the deal and obtain the money. ?????The loan is critical, he said, because without it, electricity purchas= es=20 would completely deplete state coffers as early as October. ?????"In essence, it stops the general-fund bleeding," Angelides said. "Wha= t=20 this interim financing does is take the pressure off the general fund and,= =20 hopefully, avert a cash crisis." ?????The loan could also ease concerns on Wall Street that California's ris= ky=20 entry into the power business has placed the state budget in a precarious= =20 position. Those concerns were one of the main reasons two major credit rati= ng=20 agencies downgraded the state earlier this year. ?????"We have been looking forward to this day," said Ray Murphy, a vice=20 president at Moody's Investors Service, one of the two firms that downgrade= d=20 California's credit rating. "We view this as a positive first step toward= =20 getting the state out of the power business. We wanted the state to get the= =20 general fund out of the business as quickly as possible." ?????California has allocated $8.2 billion in taxpayer money for electricit= y=20 since January because the state's private utilities became too saddled with= =20 debt to continue purchasing power on the open market. and massive blackouts= =20 loomed. ?????Under a plan devised by Davis and approved by the Legislature, the sta= te=20 budget is supposed to be reimbursed for the power purchases with the bond= =20 issue, the largest in American history. The bonds, in turn, are to be paid= =20 off by utility ratepayers through their monthly bills. ?????The bond issue, however, has been delayed by partisan politics and=20 complex legal issues raised by the bankruptcy of Pacific Gas & Electric Co.= ,=20 the state's largest private utility. ?????A bond sale initially planned for May is now scheduled for late=20 September, according to Angelides' latest estimate. The state's Public=20 Utilities Commission still needs to take a number of technical actions befo= re=20 the sale can take place. ?????As a result, the state budget has been drained for power purchases far= =20 longer than initially anticipated--a situation that has imperiled spending = on=20 education, transportation and other critical needs, at least temporarily. ?????Angelides had earlier sought to secure a $4-billion bridge loan to rep= ay=20 the state budget for power purchases until the bonds were sold, but was=20 rebuffed by Republicans in the Legislature, who argued that the loan was no= t=20 necessary. ?????Davis' executive order, issued late Monday as part of the Democratic= =20 governor's emergency powers during the energy crisis, gives Angelides the= =20 authority to press ahead. ?????But it does not allow the treasurer to use the loan to repay the budge= t=20 for the billions spent so far this year on electricity, as he had originall= y=20 intended. Rather, it permits Angelides to use the loan proceeds to assist t= he=20 Department of Water Resources, the state agency buying power, with its futu= re=20 electricity expenses. ?????If the bond issue is further delayed, Angelides estimated, the loan=20 would gives California another four to six months before it would begin to= =20 run out of money. Furthermore, the loan closes a potential loophole that=20 existed in the long-term contracts Davis had signed to stabilize the cost o= f=20 electricity, which would have let power suppliers walk away from the deals = if=20 the state had not secured a source of financing by next month. ?????But Republicans warned that by entering into a bridge loan deal withou= t=20 knowing when the bonds would be sold, Davis and the Democrats were incurrin= g=20 major risks that could further drive up the price tag of the crisis. ?????The loan carries a blended interest rate of about 4.5%, but if it is n= ot=20 repaid by Oct. 31, the rate jumps to 7%. Because the loan is to be repaid b= y=20 the bonds, which have been marred by a history of delay, GOP officials=20 Tuesday were already calling the bridge loan a "bridge to nowhere." ?????"The thing that is most troubling is that the governor did not bother = to=20 consult with anyone," said Assembly Republican leader Dave Cox (R-Fair Oaks= ),=20 who learned of Davis' order from reporters. "It's disappointing, but the=20 governor does not seem to recognize there is a legislative branch." Copyright 2001 Los Angeles Times=20 Edison Unveils Blackout Warning Plan=20 Technology: The utility will notify customers by Internet and telephone whe= n=20 power might go out.=20 By DANIEL HERNANDEZ, Times Staff Writer ?????Southern California Edison on Tuesday unveiled a system that will=20 forecast coming blackouts over the Internet and by telephone.=20 ?????Ordered by the state to create a warning system for customers as=20 California enters a summer that will almost certainly include rotating=20 blackouts, Edison is also preparing to use automatic phone calls, faxes and= =20 wireless communications to alert subscribers to outages.=20 ?????With these steps, Edison is complying with an order by the state Publi= c=20 Utilities Commission, which in April told the company to notify customers o= f=20 coming outages. Privately held Pacific Gas and Electric Co. established a= =20 similar program months ago.=20 ?????Edison previously opposed a notification system, arguing that such a= =20 system could incite looters and burglars. But police agencies, including th= e=20 Los Angeles County Sheriff's Department, saw more danger in not warning=20 customers, said Richard Rosenblum, an Edison senior vice president. ?????"On balance, [we concluded] it was preferable for public safety to mak= e=20 that information available," Rosenblum said. ?????Consumer advocates said Edison's notification system is welcome, if=20 tardy. ?????"It's fair to say that Edison has been a little behind where PG&E has= =20 been in trying to implement this," said Mike Florio, an attorney with the= =20 Utility Reform Network and a member of the California Independent System=20 Operator board, which runs the state power grid. ?????Edison's Web site, www.sce.com, now features a pop-up screen that warn= s=20 of any blackouts coming in the next hour. It also links to a page, which ca= n=20 be reached at www.outagewatch.com, that forecasts which "outage groups" wil= l=20 be cut off next in the event of rotating blackouts. Detailed maps outline= =20 which areas are included in each group.=20 ?????The new Web features are expected to handle about 4 million simultaneo= us=20 users. Beginning this month, Edison customers also can learn their block=20 number by looking at their bills, said Edison spokesman Gil Alexander. ?????Outage information also will be made available on an automated phone= =20 line, (800) 611-1911. ?????Edison officials are negotiating with another company to provide=20 additional warnings by e-mail, fax, phone and wireless communications. SDG&= E,=20 which like Edison was required to inform customers of outage forecasts, has= =20 moved more quickly, providing large industrial customers with blackout=20 notification via pager since June 4. ?????Up-to-the-minute outage reports also will be provided in several=20 languages to radio and TV stations, Edison officials said. ?????Edison officials emphasized that the new alert system can never be 100= %=20 accurate, and that sudden blackouts, although rare, are always a possibilit= y.=20 ?????"We have planned as aggressively as we think is warranted, understandi= ng=20 that you can't predict how your customers will respond," Alexander said. Copyright 2001 Los Angeles Times=20 State Joins Challenge to Bush on Air-Conditioner Standards=20 Regulations: U.S. rolled back Clinton rule from 30% increase in efficiency = to=20 20% on manufacturers' urging.=20 By JENIFER WARREN, Times Staff Writer=20 ?????California and two other states joined environmentalists Tuesday in=20 suing the Bush administration over its decision to weaken efficiency=20 standards for home air conditioners. ?????The lawsuit caps weeks of criticism heaped on the administration after= =20 it rolled back a rule requiring manufacturers to increase the efficiency of= =20 air conditioners 30% by 2006. ?????That rule was adopted by President Clinton during his final days in=20 office and after years of research and debate. California and other=20 states--including Texas--endorsed it as a way to substantially cut energy u= se=20 and improve air quality. ?????But after reviewing the rule at the industry's behest, Bush=20 administration officials in April sliced the mandated increase to 20%. The= =20 higher standard, they said, would have made home coolers too expensive,=20 especially for the poor. ?????Conservationists and consumer groups blasted the policy change, callin= g=20 it shortsighted at a time when California and other states are enduring an= =20 energy crunch. ?????In California, residential air-conditioning accounts for about 15% of= =20 the peak energy demand. Weakening efficiency standards, critics say, will= =20 require as many as 60 new power plants nationwide, four in California. ?????"This is a time when we need to conserve electricity and reduce our=20 dependence on the large energy generators and importers," state Atty. Gen.= =20 Bill Lockyer said in an interview. "Weakening this standard is precisely th= e=20 wrong message at precisely the wrong time." ?????In their lawsuit, Lockyer and the attorneys general of New York and=20 Connecticut allege that federal law bars the U.S. Department of Energy from= =20 softening an appliance efficiency standard. A separate but similar suit was= =20 filed by the Natural Resources Defense Council, the Consumer Federation of= =20 America and another nonprofit group. ?????Joe Davis, the Energy Department's deputy spokesman, said there would = be=20 no immediate comment on the suit, filed in federal court in Manhattan. He= =20 added, however, that "we believe all of the actions of our decision-making = in=20 the air conditioner standards are well within the law." ?????When Clinton's rule was issued in January, his outgoing energy=20 secretary, Bill Richardson, said the payoff in power savings and cleaner ai= r=20 would be one of the administration's greatest environmental achievements. ?????But a trade association representing air conditioner manufacturers=20 challenged the new rule, arguing that it would dramatically increase costs = of=20 the units--priced between $2,000 and $4,000--and thus discourage people fro= m=20 replacing old ones. ?????The Department of Energy sided with the industry group in April.=20 Officials said Clinton's proposal would have added $335 to the price of a n= ew=20 air conditioner, while the lower, 20% standard would boost prices only abou= t=20 $213. ?????Others, however, say those figures do not take into account the=20 economies of scale gained when manufacturers increase production of the mor= e=20 efficient units. When Congress passed the first efficiency standard for air= =20 conditioners in the late 1980s, "industry said the sky was falling, and tha= t=20 it would increase the cost of air conditioners by $700," said Andrew Delask= i,=20 executive director of the nonprofit Appliance Standards Awareness Project. = In=20 fact, he said, U.S. Department of Commerce data showed no price jump. ?????Dan Reicher, the assistant secretary of Energy under Clinton who overs= aw=20 development of the stricter standards, added that high-efficiency air=20 conditioners "are not some exotic, untested technology." ?????"There are lots and lots of air conditioners already meeting the=20 standards--between 5% and 10% of the units sold today," he said. ?????Although most manufacturers support the Bush rollback, the second=20 largest maker of air conditioners--Houston-based Goodman Global Holding,=20 which produces the Amana brand--opposes it, saying any higher upfront costs= =20 would be recovered by consumers in lower utility bills. ?????On Tuesday, the company's president, John Goodman, issued a statement= =20 supporting the lawsuit, saying the tougher standard would "give consumers a= n=20 enormous cost saving, U.S. energy consumption will drop and our environment= =20 will benefit from reduced air pollutant emissions and greenhouse gases." ---=20 ?????Times staff writer James Gerstenzang in Washington contributed to this= =20 story. Copyright 2001 Los Angeles Times=20 New Price Caps Not a Deterrent, Power Firms Say=20 Regulation: Producers are unhappy with the federal action but say it is=20 unlikely to discourage them from constructing new plants.=20 By NANCY VOGEL and THOMAS S. MULLIGAN, Times Staff Writers=20 ?????The expanded electricity price limits approved by federal regulators= =20 could squeeze big energy traders but will probably not discourage power pla= nt=20 construction in California, electricity producers said Tuesday. ?????Power plant owners and marketers said they had not had time to digest= =20 the 53-page order and thus could not say exactly how it would affect=20 California and the 10 other Western states it covers. ?????But the companies generally asserted Tuesday that the order would not= =20 deter them from investing in the vast, power-starved Western region--though= =20 they have often raised such a prospect in arguing against price controls. ?????Whatever its long-term effects, Monday's order by the Federal Energy= =20 Regulatory Commission appeared to have an immediate effect in dampening=20 prices in California's volatile daily, or spot, market. ?????The order does not take effect until today, but the prospect of new=20 measures aimed at limiting prices appeared to tame markets Tuesday.=20 Californians used more electricity at the late-afternoon peak than on any d= ay=20 this year, yet market prices hovered around $100 a megawatt-hour. ?????That is well below the average of $284 a megawatt-hour that the state= =20 paid for electricity from January through April, with prices soaring as hig= h=20 as $1,900 at times of tight supply. ?????"All the markets in the West have come down," said Mike Wilczek, senio= r=20 power markets reporter for Platts, the energy market information division o= f=20 the McGraw-Hill Cos. "It's bearish news." ?????Nevertheless, several generators minimized the effects of the FERC=20 order, contradicting earlier warnings from some industry sources and=20 officials of the Bush administration who consider price limits to be=20 impediments to future investment in power plants. ?????"Calpine will have no problem operating under this order," said Joe=20 Ronan, vice president of regulatory affairs for San Jose-based Calpine Corp= .,=20 which has three power plants under construction in California and plans to= =20 build at least three others. ?????The federal order lasts only until September 2002, he said, and becaus= e=20 it sets prices based on the cost of running the most expensive, inefficient= =20 power plant in the market, it should guarantee the owners of modern plants = a=20 profit. ?????Another company planning major investments in California, Duke Energy= =20 Corp. of North Carolina, said it will not be seriously affected by the=20 federal order because it has sold the output of its four California plants= =20 well into the future. ?????"We've already forward-sold 90% of our generation for 2001 and 70% for= =20 2002," company spokesman Pat Mullen said. ?????Reliant Energy Inc. of Houston, which owns five power plants in=20 California, was not so sanguine about the federal order, but it has not=20 backed away from plans to install more generators. ?????"We remain committed to California, as hard as it is to do business he= re=20 today," spokesman Richard Wheatley said. "We have plans that are on the=20 drawing boards for at least one, possibly two projects." ?????On Monday, Reliant Chief Executive Joe Bob Perkins called the FERC=20 action "more of a political response" than an acknowledgment of the gap=20 between electricity supply and demand in California. ?????"Price caps don't work," Perkins said, and he warned California=20 consumers against assuming that the energy crisis is over simply because=20 wholesale electricity prices have recently dropped to their lowest levels i= n=20 a year. ?????Prices are falling because of mild weather, not price controls, he sai= d. ?????"Without sound economics that increase available supply and reduce pea= k=20 demand . . . consumers can only hope for favorable weather and look forward= =20 to [rolling blackouts]," Perkins said. ?????Energy analyst Frederick Schultz of Raymond James & Associates in=20 Houston called the FERC order "a nonevent to the California generators"=20 because so much of their power is now being sold through long-term contract= s. ?????However, every long-term deal reduces the size of the electricity=20 market, which supplies about 20% of California's needs. And that, in turn,= =20 limits trading opportunities for such firms as Enron Corp., which profit on= =20 the daily market's ups and downs, Schultz said. ?????Enron representatives did not respond to calls for comment. ?????The federal order imposes round-the-clock price curbs on wholesale=20 electricity sold in 11 Western states that are connected by transmission=20 grids. ?????Under the order, traders say, market prices will probably hover around= =20 $100 a megawatt-hour, depending upon the price of the natural gas that fuel= s=20 most of the state's electric generating plants. Though that is well below= =20 recent market prices, it is higher than the average of about $32 a=20 megawatt-hour that California utilities paid in 1999, before the state's=20 deregulated market spiraled out of control. ?????The FERC order dictates that the price for spot market electricity=20 across the West will be based on the cost of producing one megawatt-hour of= =20 power at the least-efficient plant selling to California grid operators. Ma= y=20 31, when a previous FERC order based on a similar formula took effect, the= =20 price set was $127 a megawatt-hour. ---=20 ?????Vogel reported from Sacramento, Mulligan from New York. Copyright 2001 Los Angeles Times=20 Wednesday, June 20, 2001=20 The FERC's Action Is Good, Bad,Ugly=20 By PETER NAVARRO ?????The Federal Energy Regulatory Commission's new wholesale price caps wi= ll=20 save the Western states literally tens of billions of dollars in electricit= y=20 bills. As wonderful as that sounds, the FERC order still allows wholesale= =20 generators to extract enough windfall profits to drive the region into=20 recession.=20 ?????The FERC's approach may also perversely lead to more air pollution and= =20 natural gas shortages.=20 ?????Let's look at what the FERC did right. First, the order approved Monda= y=20 establishes price caps on a 24/7 basis rather than simply during power=20 emergencies--a long overdue reform.=20 ?????Second, the order protects the entire West, not just California. This= =20 regional cap will end "megawatt laundering," whereby in-state generators so= ld=20 power across California lines and then resold it back into the state to eva= de=20 caps.=20 ?????Third, the order closes the ridiculous broker loophole that made the= =20 FERC's previous price caps Swiss cheese. Before, generators could redirect= =20 their sales from the market to energy brokers who were exempt from the pric= e=20 caps.=20 ?????So where did the FERC go wrong? The problem may be traced to the two= =20 competing methods of imposing price caps and the all-important concept of= =20 "economic rent."=20 ?????Economic rent, in the wholesale electricity market, is the market pric= e=20 of electricity minus the producer's cost, where cost includes not just labo= r=20 and fuel but a "fair profit" on the invested capital as well. In traditiona= l=20 regulation, this fair profit is calculated very simply as the market cost o= f=20 the money borrowed to build the power plant.=20 ?????Under this definition, if the producer's cost is a nickel a kilowatt= =20 hour and he can sell it for 35 cents--as producers in the West have been=20 doing--the producer can extract 30 cents of economic rent from consumers.= =20 ?????In California, the extraction of such economic rent through market=20 manipulation has taken place on a grand-theft scale. In 1999, California's= =20 electricity bill was about $7 billion. Last year, it was almost $30 billion= =20 for roughly the same amount of electricity. This year, California's bill is= =20 well on its way to $50 billion annually.=20 ?????To stop this rip-off, Gov. Gray Davis proposed "cost-based" price caps= .=20 Such caps are calculated on a plant-specific basis. Each generator is allow= ed=20 to recover its cost of production, including the fair profit, but not a pen= ny=20 more.=20 ?????Thus, for example, a newer, highly efficient plant generating power at= a=20 nickel per kilowatt hour would collect a nickel. The oldest, least efficien= t=20 plant that generated power for 20 cents would be allowed to collect 20 cent= s.=20 ?????By setting different prices for different plants, the economic rents a= re=20 driven to zero. Yet each generator still has a fair profit incentive to=20 produce. From a public policy perspective, it's the best of all possible=20 worlds. And it was categorically rejected by the FERC. Instead, the FERC se= ts=20 a single price for all generators based on the cost of the "least efficient= =20 plant."=20 ?????The obvious problem with this umbrella pricing rule is that it still= =20 allows generators to extract billions in economic rent from consumers.=20 ?????In our previous example, and under the FERC's rule, the least efficien= t=20 plant still collects 20 cents a unit to recover costs. However, the most=20 efficient plant producing power at a nickel-per-kilowatt also collects 20= =20 cents rather than a nickel and thus extracts a full 15 cents of economic=20 rent.=20 ?????Thus, under the FERC's rule, wholesale generators still will be able t= o=20 capture tens of billions of dollars more from consumers and businesses than= =20 under Davis' cost-based rule.=20 ?????The FERC's approach is still subject to the same kind of strategic=20 gaming that has been the hallmark of this crisis. Generators will ensure th= at=20 during peak times, when the price cap is being established, the most=20 expensive possible plant is in operation--whether it needs to be or not. Th= is=20 will peg the price at the highest level.=20 ?????In addition, the FERC provides generators with a perverse incentive to= =20 run their least efficient units more often. Since these least efficient=20 plants are also the highest polluting, the result will be dirtier air.=20 Moreover, the excessive running of these plants may also put a strain on=20 already stretched natural gas supplies. These least efficient plants use up= =20 to 40% more natural gas to produce a unit of electricity.=20 ?????The bottom line: The FERC "done good." But it could have done a lot=20 better. And the way things stand now, there still is a danger that higher= =20 electricity costs could push California and the rest of the West--and=20 eventually the nation--into a nasty recession.=20 - - - Peter Navarro Is an Associate Professor of Economics and Public Policy at U= c=20 Irvine. E-mail: Pnavarro@uci.edu Copyright 2001 Los Angeles Times=20 Davis OKs stopgap loan=20 CRISIS POWERS: Action sidesteps Legislature=20 Greg Lucas, Sacramento Bureau Chief Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/20/MN173816= .DTL=20 Circumventing the Legislature, Gov. Gray Davis used his emergency powers=20 yesterday to authorize borrowing up to $5 billion for energy purchases in= =20 advance of a record bond issue.=20 Sidestepping the Legislature with a stroke of the pen, Davis' action=20 indicates that the state may need more time to prepare a $12.5 billion bond= =20 issue this fall, the largest sale of its kind in history.=20 The Democratic governor's action was swiftly assailed by the Republican=20 leadership.=20 "This is not a dictatorship. It's a democracy," said Assembly GOP leader Da= ve=20 Cox of Carmichael. "There is a judiciary, a legislative side and an executi= ve=20 side, and everyone has roles and responsibilities. Yet we continue to have= =20 the governor say, 'I'm the only one around here that makes any difference.= =20 The rest of you shall do my bidding.' "=20 Normally, it is the Legislature that has the power to raise and spend money= ,=20 and a governor may not spend a cent unless lawmakers allow him to.=20 But Davis has broad powers under the state of emergency, which he declared = in=20 January to combat California's energy crisis.=20 NO ADVANCE NOTICE The governor's aides declined to comment on yesterday's executive order and= =20 gave no advance notice of it.=20 "This executive order, authorizing a bridge loan, will allow us to get=20 California's General Fund out of the power-buying business," was the=20 governor's only comment in a written statement issued last night.=20 State Treasurer Phil Angelides said lawyers had advised him and the governo= r=20 that such borrowing could be authorized by an executive order.=20 The loan from Wall Street will temporarily fill the $5.2 billion -- and=20 growing -- hole in the state budget created when the state began buying=20 electricity on behalf of the state's cash-starved utilities in January.=20 The idea is to tide the state over until a larger bond sale of $12.5 billio= n=20 can be arranged later this year. A portion of that sale will pay back the= =20 $5.2 billion borrowed from Wall Street.=20 'STOPS THE BLEEDING'=20 "It stops the general fund bleeding," said Angelides. "It takes the pressur= e=20 off, and hopefully we'll avert a cash crisis."=20 The state runs out of internal borrowing power sometime in October. Angelid= es=20 said the loan would buy the state another four to six months.=20 The idea of a loan was floated earlier this year.=20 Cox and other GOP lawmakers objected, wondering why the state should pay=20 interest on borrowed money when it could still borrow from various accounts= =20 within the state budget.=20 They refused to vote for a bill authorizing the larger bond sale of $12.5= =20 billion, forcing a delay in issuing it until at least Aug. 14.=20 The idea of borrowing from Wall Street appears to have been abandoned, sinc= e=20 both Davis administration and legislative budget-writers said the state cou= ld=20 keep borrowing internally into October, well after the bond sale.=20 Yesterday's executive order authorizing the borrowing suggests that neither= =20 Angelides nor Davis are confident that the steps needed to prepare the $12.= 5=20 billion bond issue for market can be completed before then.=20 Angelides had previously said he hoped to sell the bonds in early September= .=20 Yesterday, he said the governor's "hope is to still sell long-term bonds by= =20 Sept. 30."=20 ACT OF DESPERATION? Sen. Tom McClintock, R-Northridge, described the executive order as an act = of=20 desperation that "would suggest they are expecting the large bond sale to= =20 occur later rather than sooner.'=20 Numerous actions must be completed before the bond sale.=20 Among them are the approval by the Public Utilities Commission of several= =20 deals with the state and utilities, to ensure that enough money from=20 consumers flows back to bond buyers to pay off interest and principal.=20 Although Davis' executive order authorizes $5 billion in loans, Angelides h= as=20 only lined up $3.5 billion.=20 So far, only two lenders have come forward to offer the state a loan, J.P= =20 Morgan with $2.5 billion and Lehman Brothers with $1 billion, at an interes= t=20 rate of 4.5 percent. If the long-term bonds are not sold by Oct. 31, that= =20 will increase to 7 percent.=20 Angelides said he hoped to line up another $1 billion by next week, when th= e=20 loan deal occurs.=20 Assuming a loan of $4.5 billion, Angelides said the state would pay out $8= =20 million in fees.=20 E-mail Greg Lucas at glucas@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Experts say state must seize the day=20 ANALYSIS: Price caps set stage for future=20 David Lazarus, Chronicle Staff Writer Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/20/MN58963.= DTL=20 One day after federal authorities ordered long-sought electricity price cap= s=20 throughout the West, analysts said yesterday it is up to California to=20 respond with measures to bring an end to the state's long, frustrating=20 experiment with deregulation.=20 Possible steps the experts point to include raising power bills, easing=20 pollution controls and spending billions of dollars in taxpayers' money on= =20 new plants.=20 "Gov. (Gray) Davis and his team have been making this up week by week," sai= d=20 Paul Joskow, director of the Center for Energy and Environmental Policy=20 Research at the Massachusetts Institute of Technology.=20 "It's time for them to get together with the Federal Energy Regulatory=20 Commission (FERC) to come up with some solutions," he said. "The state need= s=20 to get down to business and decide how the power market is going to look 18= =20 months from now."=20 Easier said than done. To date, California's strategy for tackling its ener= gy=20 woes largely has consisted of wheedling, cajoling and all but begging feder= al=20 officials to come to the rescue.=20 Now that the federal regulators have gone much of the way toward granting t= he=20 state's wishes, analysts said Davis and other officials must act swiftly an= d=20 decisively to further remedy California's prolonged power troubles.=20 For his part, however, the governor feels that federal regulators have not= =20 done enough. He will push today during congressional hearings in Washington= =20 for billions of dollars in refunds for California ratepayers.=20 "FERC has taken some first steps, but the proverbial fat lady hasn't sung,"= =20 said Steve Maviglio, a spokesman for Davis.=20 This persistent focus on federal assistance could slow progress toward a=20 lasting solution to California's problems, some analysts believe.=20 "We are still likely to experience blackouts this summer," said Michael=20 Zenker, director of Cambridge Energy Research Associates in Oakland. "It's= =20 not yet clear that the state will do what it can to address other aspects o= f=20 the problem."=20 Put simply, such steps would require enormous political courage -- and woul= d=20 be very expensive. In the end, taxpayers and ratepayers will bear the burde= n=20 for this prolonged fiasco.=20 Among measures under consideration:=20 -- Raising electricity rates even higher. Although Californians got the=20 largest rate increase in state history last month, even higher charges woul= d=20 promote conservation and lessen the need for California to borrow billions = of=20 dollars in the bond market.=20 -- Loosening emissions restrictions for power plants statewide. This would= =20 provide more electricity during shortages but turn back the clock on=20 California's strict environmental standards.=20 -- Building new plants at taxpayers' expense. This would guarantee a steady= =20 supply of juice but would leave the state struggling for years to recoup th= e=20 huge investment costs.=20 Of the three, easing pollution controls is the easiest first step and the= =20 most likely, analysts said. Such environmental protections have been roundl= y=20 criticized by power industry officials who claim the restrictions have=20 hampered the construction of new generating plants.=20 Taxpayer-financed power plants are possible under a new state power authori= ty=20 backed by the governor, but the timing and financing remain undecided.=20 Higher electricity rates could be the toughest move to make, analysts agree= .=20 They note that Davis will seek re-election next year and doesn't want to be= =20 seen as the governor who sent voters' power bills into the stratosphere.=20 Already, critics are trying to paint him as the governor who was asleep at= =20 the power switch.=20 As federal regulators were moving at last on the price-cap front this week,= =20 another big development took place closer to home Monday when Davis disclos= ed=20 a tentative deal with Sempra Energy's San Diego Gas & Electric Co. The plan= =20 calls for the state to purchase the utility's 1,800 miles of power lines fo= r=20 nearly $1 billion.=20 As with a similar accord reached with Southern California Edison, the Sempr= a=20 deal is intended to counter the catastrophic effects of California having= =20 deregulated wholesale power prices but not allowing the state's utilities t= o=20 pass on costs to customers.=20 Between them, California's three major utilities have rung up more than $15= =20 billion in debt.=20 Here, too, the state appears unsure how to proceed. Both the Sempra and=20 Edison agreements require approval from the Legislature. It's anyone's gues= s=20 whether such approval is forthcoming.=20 "It's going to be a really, really tough sell," said Nettie Hoge, executive= =20 director of The Utility Reform Network in San Francisco. "These aren't=20 fabulous deals."=20 ONE SCENARIO FOR UTILITIES Rather, she believes the agreements will be reworked so that less taxpayer= =20 money changes hands while allowing the utilities to retain possession of=20 their power systems.=20 Hoge said this could subsequently influence a speedy resolution of Pacific= =20 Gas and Electric Co.'s bankruptcy proceedings. If it can avoid selling off= =20 key assets like power lines, PG&E may be more open to any settlement plans= =20 put forward by the state.=20 "The utilities are all going to end up with similar deals," Hoge forecast.= =20 State Senate President Pro Tem John Burton, D-San Francisco, isn't so sure.= =20 He observed that the Edison deal hinges on a sale of the utility's power=20 lines to the state, while the Sempra accord could stand even without such a= =20 transaction.=20 "The two deals are totally unrelated," Burton said, adding that approval of= =20 the Edison accord is "very much in flux." A bankruptcy filing by the state'= s=20 second-largest utility remains a distinct possibility, he said.=20 This would only increase the importance of price caps in bringing some=20 stability back to California's power market.=20 While the state's current rate freeze will continue cushioning consumers fr= om=20 the volatility of wholesale electricity prices, the caps -- or "price=20 mitigation," as federal regulators are calling it -- will limit the amount= =20 that power generators can charge on the open market.=20 SYSTEM HAS FLAWS It is not a perfect system: Power companies can base prices on the cost of= =20 running the least-efficient -- and thus costliest -- generating facility. B= ut=20 this amount almost certainly will be below some of the more outrageous pric= es=20 seen when the sky was the limit.=20 On at least one occasion this year, California's wholesale power price topp= ed=20 $3,000 per megawatt hour, compared with just $30 about a year ago.=20 "This is a plan that is good for California, good for the Pacific Northwest= =20 and good for the entire West," said FERC Chairman Curt Hebert.=20 That remains to be seen. As it stands, the price caps will remain in effect= =20 through next summer.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 California's energy crisis hits Northwest like a tidal wave=20 Jeff Hammarlund Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/E D165509.DTL=20 THERE WAS a time when many Northwesterners thought we could watch=20 California's energy crisis from a safe distance.=20 We have since learned that a major energy crisis does not stop at the Golde= n=20 State's borders but, instead, rolls over the Northwest like a tidal wave,= =20 wreaking havoc with our economy and overwhelming our carefully crafted ener= gy=20 policies.=20 As one Northwest utility official put it, "We learned that everyone else is= =20 the tail. California is the dog."=20 To understand why the Northwest is now facing its own energy crisis and how= =20 the energy problems in the Northwest and California each affect each other,= =20 one must understand how the Northwest gets its power.=20 In the Northwest, falling water is our primary fuel. Depending on the=20 available snowpack, hydroelectricity produced at more than 200 dams in the= =20 Columbia River basin generates between 60 and 75 percent of the region's=20 electricity. About two-thirds of this hydropower comes from 29 dams owned a= nd=20 operated by the two federal agencies, the U.S. Army Corps of Engineers and= =20 the Bureau of Reclamation.=20 By taking advantage of the region's geography and climate, the Columbia's= =20 hydroelectric dams have produced some of the least expensive electricity in= =20 the nation, power that has been the economic backbone of the region.=20 However, the Columbia's hydrosystem also has two curses.=20 One is that water conditions can vary greatly, and right now the Northwest= =20 and California are in the middle of an extreme drought. The second is the= =20 dams' negative impact on salmon. These dams operate under a federal salmon= =20 recovery plan established under the Endangered Species Act that calls for= =20 more water to be sent over spillways to help push the salmon downstream=20 instead of through the dams' power-generating turbines.=20 That power is sold at cost and transmitted to Northwest consumer-owned=20 utilities by yet another federal agency called the Bonneville Power=20 Administration. These "cost-based" rates cover the expense of repaying the= =20 U.S.=20 Treasury for the cost of developing these hydropower projects, moving the= =20 power over massive transmission lines, and supporting efforts to restore th= e=20 dwindling salmon runs.=20 Under federal law, Northwest consumers get preferred access to the relative= ly=20 low-cost power. Any surplus power can be sold, most often to California's= =20 municipal and investor-owned utilities.=20 This Northwest "regional preference" to federal power was part of the deal= =20 that led to the construction of the massive transmission lines, called "the= =20 intertie," which first connected the Northwest with California and the=20 Southwest in the late 1960s.=20 For decades, the intertie worked almost flawlessly and to everyone's benefi= t.=20 During the summer, when air conditioners caused California's power use to= =20 peak, many California utilities would supplement their needs by turning to= =20 the Northwest. In the winter, when Northwest electric furnaces are turned o= n=20 for space heating, California utilities would return the favor and ship the= ir=20 surplus power north.=20 Recently, the BPA has had to purchase large blocs of power on the wholesale= =20 market to meet its contractual obligations to its Northwest customers.=20 The same exorbitant wholesale prices that began to plague California last= =20 year have also affected the Northwest, meaning that the BPA has been runnin= g=20 out of money, and is now in danger of defaulting on its debt obligations to= =20 the Treasury.=20 California's deregulation plan has affected energy relations between the tw= o=20 regions in other ways. For example, the BPA has historically sold surplus= =20 power to California for relatively low prices. However, the state's=20 deregulation law made it almost impossible for California utilities to ente= r=20 into favorable long-term contracts.=20 Instead, power had to be purchased at the much higher "market clearing pric= e"=20 on the short-term spot market.=20 The BPA has taken extraordinary steps to help California keep the lights on= .=20 At times, the agency even declared energy emergencies, which allowed it to= =20 temporarily override salmon protections and use the water to generate power= =20 for California rather than sweep salmon over the dams. California officials= =20 have praised the BPA for its cooperation, but Northwest environmentalists a= nd=20 tribal leaders complain that the BPA has been helping California address it= s=20 energy crisis by selling salmon down the river.=20 The Northwest will be helped by FERC's decision yesterday to extend limited= =20 temporary price restrictions it had imposed in California in the spring to= =20 other Western states during severe shortages. The order should also be good= =20 for California. Without consistent price restrictions throughout the West,= =20 power marketers would simply skip California during an emergency and sell a= t=20 higher prices elsewhere.=20 But not everyone is happy with the decision. Many critics say the rates are= =20 still too high, and some critics said in s published report that the "order= =20 rewards inefficiency by pegging price ceilings to the costliest California= =20 gas plants."=20 The half-hearted response from FERC, along with continuing supply shortages= =20 and other problems make it likely that California will continue to face=20 rolling blackouts and high utility bills -- even though they may not be as= =20 high as we once feared.=20 The Northwest may follow suit next winter.=20 Some in our region fear that some desperate California political leaders=20 might try to wrest control of the BPA and a large portion of the Columbia= =20 Basin's hydropower. The 6,600 megawatts of hydropower from the Columbia's= =20 federal dams would only offer a few drops in the bucket for California's=20 massive 50,000-megawatt system, but its loss would devastate the Northwest= =20 economy.=20 The four Northwest governors (of Washington, Oregon, Idaho and Montana) and= =20 more than 40 state legislators met in February and agreed to explore ways t= o=20 ensure that the Northwest does not lose its regional preference to the=20 Columbia's hydropower.=20 Northwest governors have had some productive meetings with Gov. Gray Davis= =20 and his staff this year regarding power sharing, and there are encouraging= =20 signs that trust is growing at this and other levels.=20 Just last week, officials from the BPA, California's Department of Water=20 Resources, and the California ISO agreed on a plan that outlines when and h= ow=20 the BPA may be able to help California during the expected summer shortages= .=20 We will soon find out whether our two regions will succeed in collaborating= =20 with or cannibalizing each other as we enter the next phase of the West Coa= st=20 energy crisis.=20 Ultimately, California's experience with energy deregulation makes the case= =20 for a strong and supportive federal role in the energy markets. It also=20 reinforces the view that electricity should be treated as an essential=20 service and be sold at cost by utilities that are owned and controlled by t= he=20 public, rather than as a commodity and sold at the highest price.=20 In fact, something like a California power authority that places California= =20 in charge of its own destiny makes more sense to me all the time.=20 Jeff Hammarlund is an adjunct associate professor and research fellow at th= e=20 Mark Hatfield School of Government at Portland State University where he=20 teaches graduate courses on energy policy. He is also president of Northwes= t=20 Energy and Environmental Str=20 ,2001 San Francisco Chronicle ? Page?A - 19=20 Davis demands nearly $9 billion for electricity overcharges=20 H. JOSEF HEBERT, Associated Press Writer Wednesday, June 20, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/20/n= ation al1103EDT0569.DTL=20 (06-20) 08:03 PDT WASHINGTON (AP) --=20 California Gov. Gray Davis demanded that power generators refund nearly $9= =20 billion in electricity overcharges and complained that federal regulators= =20 have "looked the other way while energy companies bilked our state."=20 Davis told a Senate hearing Wednesday that the decision by the Federal Ener= gy=20 Regulatory Commission to curtail price spikes in California and 10 other=20 Western states was a step forward. "But its actions do nothing about the=20 overcharges" over the past year, he said.=20 The governor, a Democrat, has been criticized by Republicans, who charge he= =20 has allowed the California power crisis to get out of hand.=20 Davis defended his actions, saying the state has stepped up approval for ne= w=20 power plants and strengthened conservation programs. He also said the state= =20 has little control over price gouging by out-of-state power generators.=20 "The governor once said he could solve California's problems in 15 minutes.= =20 ... But it appears that California has continued to try and hide the true= =20 cost of power by having the state pay for it instead of the utilities,"=20 putting California taxpayers in jeopardy, said Sen. Frank Murkowski,=20 R-Alaska.=20 Murkowski said many of the alleged overcharges are by public power entities= =20 not under FERC jurisdiction=20 Sen. Joe Lieberman, D-Conn., chairman of the Governmental Affairs Committee= ,=20 said the FERC, which regulates wholesale electricity sales, has been slow t= o=20 respond and "surprisingly reluctant" to assure that electricity prices are= =20 just and reasonable, as required by the 1934 Federal Power Act.=20 The agency's response to the Western power problem "raises serious question= s=20 about whether (FERC) has or will oversee the newly deregulated energy=20 markets" not only in the West but across the rest of the country.=20 The federal agency, whose commissioners were to testify later in the day,= =20 imposed limited, market-based price caps on Monday in California and 10 oth= er=20 Western states from Washington to Arizona. The agency also ordered the=20 parties to attend a conference next week to try to work out agreements on= =20 overcharges and other issues.=20 Months ago, the FERC singled out $124 million in alleged overcharges by pow= er=20 generators. The power companies have since challenged the agency's findings= =20 and the matter remains in dispute.=20 "To date not a single penny in refunds has been returned to California,"=20 complained Davis. He said that between May 2000 and the beginning of this= =20 month power generators are believed to have overcharged California $8.9=20 billion.=20 "They must be required to give us back our money," said Davis. "It is=20 unconscionable that FERC looked the other way while energy companies bilked= =20 our state for up to $9 billion."=20 The state spent $7 billion for electricity in 1999 and $27 billion in 2000= =20 and is projected to pay nearly $50 billion this year, said Davis. "Power=20 generators have been able to exert extreme power over our energy market," h= e=20 said.=20 Davis rejected Republican criticism that the state is not addressing the=20 problem. He said newly approved power plants will provide 20,000 additional= =20 megawatts of electricity by 2003, including 4,000 megawatts by the end of= =20 this summer. "Everything that can be done to bring reliable, affordable=20 energy to California is being done ... except wholesale price relief," he= =20 said.=20 "This administration has minimized this crisis (for) more months," said Sen= .=20 Patty Murray, D-Wash., alluding to President Bush's repeated refusal to urg= e=20 the FERC to mitigate electricity prices. Bush has strongly opposed price=20 controls, although he indicated support for FERC's limited price mitigation= =20 effort this week.=20 Murray said the government should issue a disaster declaration so that=20 businesses can get low-income loans, and require that FERC press its=20 investigation into price gouging and demand refunds not only in California= =20 but in the Pacific Northwest, where electricity prices have also skyrockete= d.=20 Republicans continued their opposition to more stringent price caps based o= n=20 the cost of generation at individual power plants.=20 "Having a federal agency try to determine what is a just and reasonable pri= ce=20 is laughable," said Sen. Fred Thompson of Tennessee, the committee's rankin= g=20 Republican. Hard price caps "don't work when supply is the problem. ... The= y=20 make a bad situation worse," he said.=20 After FERC issued its limited price control order this week, Senate Democra= ts=20 on Tuesday said they would drop legislation to require more stringent=20 cost-based price caps on Western electricity sales.=20 Democrats in the House, however, said they would continue to pursue a bill= =20 requiring the FERC to take more aggressive action.=20 ,2001 Associated Press ?=20 Fed price caps placate Demos=20 But Feinstein's bill to regulate energy producers was more strict=20 Carolyn Lochhead, Chronicle Washington Bureau Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/M N145950.DTL=20 Washington -- With federal regulators moving to cap prices on wholesale=20 electricity, California's Dianne Feinstein and other Senate Democrats=20 yesterday withdrew their threat to do it for them.=20 "A rose is a rose by any other name," Feinstein declared to the five member= s=20 of the Federal Energy Regulatory Commission, the day after they unanimously= =20 imposed a sweeping price ceiling on electricity throughout eleven western= =20 states.=20 "I'm very grateful," Feinstein told the commissioners, who were called to= =20 testify to the Senate Energy and Natural Resources Committee. "Let's watch= =20 and wait and see how this order works."=20 Feinstein had been leading the Democratic charge in Washington to force FER= C=20 to impose price controls; indeed, yesterday's hearing had been intended to= =20 highlight the agency's inaction. Gov. Gray Davis is still billed to appear= =20 today at another Senate panel headed by Sen. Joe Lieberman, D-Conn., to=20 investigate price gouging.=20 The 60-page FERC order, which takes effect at midnight tonight and remains= =20 until September 2002, limits prices based on the cost of the least-efficien= t,=20 and therefore highest-cost, generating plant. It is intended to mimic the w= ay=20 a competitive market functions.=20 While Democrats hailed FERC's move, power generators and marketers warned= =20 that it would backfire, leading to more blackouts and stifling investment i= n=20 new power plants.=20 "It doesn't create or conserve a single megawatt in California or the West,= "=20 said Enron spokesman Mark Palmer. "Government price controls always have=20 unintended consequences, and history has proven that those have never been= =20 good for consumers."=20 Joe Bob Perkins, president and chief operating officer of Reliant Energy,= =20 bluntly called the price caps "a political response" to California's crisis= =20 that ignores the basics of supply and demand.=20 "Price caps don't work," Perkins said in a statement. "This fact has been= =20 proven over and over in the context of virtually every business sector in= =20 which government regulators have experimented with such measures."=20 The Bush administration, which has fought electricity price caps since taki= ng=20 office in January, yesterday insisted that FERC had actually spurned them.= =20 "It's important to note that FERC rejected price controls," said White Hous= e=20 spokesman Ari Fleischer, who instead called it "a market-based mitigation= =20 plan."=20 He added the order is "in keeping with the president's desire to help the= =20 state of California and to make certain that there is no illegal price=20 gouging carried on by any companies."=20 FERC's action coincided with the arrival of two new Bush appointees to the= =20 agency, Patrick Henry Wood III, a former Texas utility regulator, and Nora= =20 Mead Brownell, a former Pennsylvania regulator.=20 The soft-spoken, boyish-looking Wood yesterday sought to allay Feinstein's= =20 lingering concerns that the new price control scheme would still permit=20 generators to manipulate the market.=20 Feinstein's bill would have gone further than the new FERC plan, imposing a= =20 cost-of-service based price cap that would return California to the=20 regulatory regime it had before its 1996 electricity restructuring.=20 "I am personally not allergic to that sort of remedy," Wood told the panel = -=20 - a position that is toxic to the Bush administration's former opposition t= o=20 price caps. "The cost-of-service regime was good enough for 80 years," Wood= =20 said. "We're trying to move away from it but we can still do it."=20 FERC's action, followed by Feinstein's bill withdrawal, quickly defused a= =20 mounting political confrontation between the Bush White House and Democrats= =20 over price caps -- one that saw Capitol Hill Republicans beating a retreat.= =20 Democrats argued that Bush, by refusing to impose price controls, was=20 allowing out-of-state generators based mostly in Texas to gouge California= =20 consumers.=20 The administration, especially Vice President Dick Cheney and Energy=20 Secretary Spencer Abraham, had insisted that price controls would backfire = by=20 reducing electricity sales and power plant investment, making the state's= =20 blackouts worse.=20 Yesterday, Sen. Gordon Smith, an Oregon Republican who co-sponsored=20 Feinstein's bill, as much as said the White House would have lost the fight= .=20 Smith said their measure "would have won large majorities in both the Senat= e=20 and House" had it gone to a vote.=20 E-mail Carolyn Lochhead at clochhead@sfchronicle.com=20 ,2001 San Francisco Chronicle ? Page?A - 11=20 Potrero Hill power plant hit by 2 lawsuits=20 Neighbors, city ask court to cut back hours of operation=20 Rachel Gordon, Chronicle Staff Writer Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/M N238116.DTL=20 The San Francisco city attorney joined forces with environmental and=20 community groups and sued in federal court yesterday to force the operator = of=20 the Potrero Hill power plant to cut its ramped-up electricity output until= =20 more rigorous pollution controls are installed.=20 The plant, run by Mirant Corp., increased its output in response to Gov. Gr= ay=20 Davis' move to relax environmental laws on power producers and generate mor= e=20 electricity for Californians.=20 The lawsuits, filed against Mirant in U.S. District Court, allege the compa= ny=20 is illegally operating its so-called peaker plants. The suits appear to be= =20 the first challenge in California to Davis' efforts to produce more power.= =20 The Potrero Hill plant, which runs during times of peak demand, has a total= =20 of six turbines that generate 156 megawatts of electricity, enough to power= =20 156,000 homes. Each turbine is permitted to operate 877 hours a year -- a= =20 threshold that already has been exceeded.=20 Mirant struck a deal March 30 with administrators of the Bay Area Air Quali= ty=20 Management District -- the regional agency that regulates air pollution -- = to=20 run the plants as much as needed to keep up with the energy demand. In=20 return, Mirant will pay $20,000 per ton of excess emissions of nitrogen=20 oxides, a pollutant that causes smog. The company placed $400,000 on deposi= t.=20 "The Mirant Corporation is behaving like an outlaw and the air district is= =20 their willing accomplice in violating clean air laws," said Mike Thomas, an= =20 organizer with Communities for a Better Environment, one of the plaintiffs.= =20 The other groups that sued are Bayview-Hunters Point Community Advocates an= d=20 Our Children's Earth.=20 The city filed a separate suit over the same issue.=20 The lawsuits ask the court to order Mirant to stop operating beyond the 877= -=20 hour cap until it obtains new permits. The city and environmental groups=20 argue the permits for expanded operation are required by the federal Clean= =20 Air Act.=20 The lawsuits also demand that more stringent pollution controls be installe= d=20 on the peakers. The increased power production poses a potentially serious= =20 health risk to the people who live and work in the surrounding neighborhood= ,=20 the plaintiffs charge.=20 Because the peaker plants weren't originally intended to run full time, the= y=20 aren't equipped with the most up-to-date pollution controls.=20 The plaintiffs also allege the air district regulators violated the=20 California Environmental Quality Act by failing to conduct thorough reviews= =20 of the expanded operation and not allowing for public comment.=20 "We as a city are not saying no to power. We're saying there's a process an= d=20 they need to follow it," said San Francisco Supervisor Sophie Maxwell, who= =20 represents District 10 where the power plant is located.=20 Terry Lee, a spokesman for the air district, said her agency and Mirant did= =20 nothing illegal. Mirant spokesman Patrick Dorinson concurred.=20 They pointed to Davis' executive orders earlier this year that gave power= =20 companies the right to step up production without going through the normal= =20 permit process and adhering to the stricter pollution controls.=20 William Rostov, an attorney for Communities for a Better Environment,=20 contends Davis does not have authority to override federal air quality laws= .=20 Lee said the U.S. Environmental Protection Agency signed off on the=20 governor's plan.=20 The plant, near 23rd and Illinois streets, long has been a target of=20 neighbors trying to close it. Mirant is hoping to build a new 540-megawatt= =20 plant on the site that uses cleaner-burning natural gas. The existing plant= =20 burns highly polluting distillate oil.=20 Lee said the money Mirant is paying for the extra emissions will help reduc= e=20 air pollution in Potrero Hill. The efforts include placing filters on Muni= =20 diesel fuel buses that operate in the neighborhood and installing a lower-= =20 polluting engine on a tug boat that runs off the nearby shores.=20 "Is this a perfect situation? No," Lee said. "But under the governor's=20 executive orders this is the way we're proceeding."=20 E-mail Rachel Gordon at rgordon@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 13=20 Washington wakes up=20 Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/E D40132.DTL=20 WASHINGTON, after all, does feel our pain. Partial but reasonable price=20 controls will contain wholesale electricity prices beginning today under a= =20 long-sought ruling by the Federal Energy Regulatory Commission. It's about= =20 time.=20 Where was this agency until now, and why the sudden willingness to help?=20 Politics.=20 At first, the Bush administration denounced controls as market interference= =20 that would chase off investment in power generation.=20 But the peril has spread beyond California to other Western states, whose= =20 governors are Republicans. Mid-term elections for Congress are coming up ne= xt=20 year. Also, the White House was besieged by California Republicans and=20 business groups worried about blackouts and price gouging.=20 President Bush finally sounded the retreat the day before the commission=20 vote. He could accept a "mechanism" that would "mitigate any severe price= =20 spike." He insisted that the final results were not firm price controls,=20 which arguably they are not.=20 Gov. Gray Davis, who begged for help for months, said the final package=20 didn't go far enough. What he wanted were tougher limits pegged to generati= on=20 costs, plus a profit figure of 30 to 50 percent.=20 The final formula approved by the commission amounts to a loose-fit limit= =20 that should dampen the absurd price surges that have endangered the state.= =20 The 24/7 plan rewards modern plants by setting prices based on the=20 least-efficient power producers. It covers 11 states, not just sickly=20 California.=20 There is room for doubt. Canny operators may find ways to exploit the prici= ng=20 mechanism. Also, California will be whacked with a one-state-only surcharge= =20 of 10 percent. The commission took no action on another Davis complaint tha= t=20 power generators may have overcharged the state by $6.2 billion.=20 Still, the new limits may be the most anyone could expect. Consider how far= =20 Washington has come: A hidebound ideology has given way to real-world=20 recognition of a huge problem. U.S. Sen. Dianne Feinstein acknowledged as= =20 much yesterday when she dropped a measure to impose stricter price limits.= =20 California's troubles aren't over. Conservation remains supremely important= .=20 New power plants need approval and speedy construction. The financial damag= e=20 to state utilities and the state's coffers needs attention. The severity of= =20 summer blackouts is a wild card.=20 The federal controls add a measure of protection from this volatile mix. It= 's=20 a shame that help didn't come sooner.=20 ,2001 San Francisco Chronicle ? Page?A - 18=20 Feinstein halts electricity price caps bill=20 Posted at 12:15 a.m. PDT Wednesday, June 20, 2001=20 BY JIM PUZZANGHERA=20 Mercury News=20 WASHINGTON -- Like a steam valve on an overheating boiler, the move by=20 federal regulators to enact broad new electricity price controls in the Wes= t=20 has relieved much of the growing political pressure for stronger action --= =20 for now.=20 Sen. Dianne Feinstein removed one major source of that pressure Tuesday.=20 Satisfied that the Federal Energy Regulatory Commission has taken ``a giant= =20 step forward'' in curbing California energy prices, Feinstein withdrew her= =20 legislation to enact price caps on wholesale electricity prices throughout= =20 the West.=20 ``Let's watch and wait and see how this order works,'' the California=20 Democrat told members of the commission during a Senate hearing.=20 But while the battle over the actions of federal regulators may have=20 subsided, the larger political war over energy prices continues.=20 California Gov. Gray Davis, who has been pounding away for weeks at the Bus= h=20 administration for not providing enough help to the state, will step into t= he=20 fray here today. The governor will appear at a Senate hearing where he will= =20 praise federal regulators for moving in the right direction with the new=20 plan. But he's also expected to continue to press for harder price caps and= =20 criticize federal regulators for taking months to act while the state drain= ed=20 billions from its budget to pay for electricity.=20 In addition, Davis will question some aspects of the plan, such as the lack= =20 of strong action on forcing refunds from suppliers. ``He wants to make sure= =20 that Congress gets the message loud and clear that we want our money back= =20 from the overcharges by generators,'' said Davis media representative Steve= =20 Maviglio.=20 But the Republicans are just as eager to lay responsibility for the=20 electricity crisis on Davis, who is up for re-election next year. A=20 hard-hitting Republican-backed TV ad campaign in California organized by=20 Scott Reed, a former executive director of the Republican National Committe= e,=20 blames the governor for failing to act quickly when the crisis first emerge= d.=20 The politics of shifting blame are likely to set the tone for the hearings= =20 organized by the new Democratic chair of the Senate Governmental Affairs=20 Committee, Sen. Joe Lieberman, D-Conn. Davis and all five FERC commissioner= s=20 have been invited to the hearing to determine if the commission has lived u= p=20 to its legal obligation to ensure ``just and reasonable'' electricity price= s=20 in California.=20 Price controls=20 With that oversight hearing pending this week, the commission called a=20 special meeting Monday and took stronger action. It expanded existing=20 electricity price controls around the clock and to 11 Western states. Under= =20 the commission's plan, ceiling prices will be set that suppliers can exceed= =20 as long as they provide justification for the higher price. A hard price ca= p=20 would set a price that could not be exceeded.=20 Commission Chairman Curt H,bert, a Republican, said politics played no role= =20 in enacting the new plan. But Commissioner William Massey, one of two=20 Democrats on the five-member commission, acknowledged that political pressu= re=20 in recent weeks from Republicans and newly empowered Democrats in the Senat= e=20 had an impact.=20 ``We are an independent agency but we operate in a highly charged political= =20 environment. I would not imply that we did not rule on an independent basis= =20 here, but you know, this is Washington, D.C., for God's sake,'' Massey told= =20 the Mercury News on Tuesday. ``I think that it was enlightening to the agen= cy=20 that this wasn't just a Democratic question, this was Democrats and=20 Republicans throughout the West saying, `My God, solve this problem.' And s= o=20 we hope we have.''=20 The White House, which had opposed any form of price controls, also moved t= o=20 adjust to this political reality.=20 ``To the degree that it is a market-based program, this is in keeping with= =20 what the president said, and the president is pleased to be able to help=20 California in that manner,'' White House press secretary Ari Fleischer said= .=20 ``It does not change the president's fundamental view that a separate=20 economic matter, which would be price controls, would not be productive.''= =20 But Democrats are eager to point to the shift as evidence that the White=20 House realized it was paying too high a political price for its earlier=20 position, insisting that the electricity crisis was largely California's=20 problem to solve.=20 ``The Bush administration is realizing the jig is up. The game is over,''= =20 said Sen. Barbara Boxer, D-Calif. ``Their attitude of hands-off has hurt th= em=20 deeply.''=20 Democrats in the House have vowed to continue pushing for a vote on their o= wn=20 price-caps bill. The legislation is adamantly opposed by Republican leaders= =20 in Congress, who believe FERC's actions Monday are enough government=20 intervention.=20 ``I hope that its actions are based on market principles, not political=20 half-measures,'' said House Majority Whip Tom DeLay, R-Texas. ``It's now ti= me=20 for Governor Davis to stop pointing fingers and shifting blame.''=20 Feinstein has vowed to quickly resurrect her bill if electricity prices sho= ot=20 up dramatically. Boxer said she will introduce legislation to force FERC to= =20 order power suppliers to refund what the state says are billions of dollars= =20 in overcharges for electricity purchases.=20 Meeting on refunds=20 The commission has set up a conference for the state, suppliers and utiliti= es=20 to settle the contentious refund issue by July 10. If no settlement can be= =20 reached under the auspices of an administrative law judge, the judge will= =20 make a recommendation to the commission and it will resolve the dispute,=20 H,bert said.=20 Massey had supported Feinstein's legislation to force him and his fellow=20 commissioners to enact price caps. But after the commission unanimously=20 approved its expanded price-control plan, he joined the four other=20 commissioners Tuesday in urging the Senate Energy and Natural Resources=20 Committee not to pass such a law.=20 The commission's chair, H,bert, strongly warned against legislative action,= =20 saying, ``I believe in my heart, and I know in my educated mind, that we ar= e=20 on the right track.''=20 But the issue disappeared Tuesday as Feinstein and the Republican co-sponso= r=20 of the price-cap legislation tabled their plan.=20 ``I think it renders substantially moot the legislative efforts that she an= d=20 I were pursuing,'' Sen. Gordon Smith, R-Ore., said of the commission's new= =20 price-control plan. ``And I do believe that effort would have won large=20 majorities in the Senate and the House, and so I think what you are doing i= s=20 reflecting the will of the elected representatives of the American people.'= '=20 Feinstein said that whatever the commission calls the plan, it is close=20 enough to hard caps to merit a chance to work.=20 ``I view this action by FERC as a giant step forward and I'm very grateful = to=20 you,'' she told the commissioners. ``I also view the fact that Senator Smit= h=20 and I have worked hard on this bill perhaps has been helpful in urging you= =20 along.''=20 FERC's fixes have fallen short=20 Published Wednesday, June 20, 2001, in the San Jose Mercury News=20 BY FRANK WOLAK=20 ON Monday, for the third time in the past eight months, the Federal Energy= =20 Regulatory Commission, the agency charged with regulating wholesale=20 electricity prices in California, implemented remedies that it claims will= =20 set just and reasonable wholesale electricity prices. This is a case where= =20 the third time is unlikely to be a charm.=20 As chairman of the Market Surveillance Committee of the California=20 Independent System Operator, the independent committee formed by FERC to=20 monitor the California market, I have analyzed the results of FERC's previo= us=20 attempts. They reveal a misunderstanding of important details of the=20 California electricity market. It is therefore not surprising that they hav= e=20 been ineffective.=20 Starting in November of 2000, FERC acknowledged that wholesale prices in=20 California during the summer of 2000 were unjust and unreasonable. Its=20 December 2000 order implemented the first set of remedies. Both the=20 California Power Exchange Market Monitoring Committee and the committee I= =20 chair pointed out important shortcomings in FERC's analysis of the Californ= ia=20 market and argued that its remedies would most likely harm, rather than=20 enhance, market performance.=20 At this time, FERC also did not order refunds for the unjust and unreasonab= le=20 prices, even though it acknowledged the prices reflected the exercise of=20 market power, which is the ability of a producer to force prices higher. Th= e=20 Federal Power Act requires refunds under these circumstances. But FERC said= =20 it was unable to find specific instances of firms exercising market power.= =20 This makes no sense. If FERC finds that prices indicate market power, then= =20 the generators who bid those prices are exercising market power.=20 Following the implementation of these remedies, conditions in the Californi= a=20 market deteriorated far beyond what had been predicted by the two market=20 monitoring committees. Even though January and February are the lowest dema= nd=20 months of the year, average wholesale electricity prices were almost 10 tim= es=20 higher in 2001 than they were during the same two months of 2000 and almost= =20 double the average price during the summer of 2000. In January, March and= =20 May, California experienced several days of rolling blackouts and had syste= m=20 emergencies almost every day during January and February of 2001.=20 IN April, FERC made another round of market rule changes designed to lead t= o=20 just and reasonable prices. However, in response to growing pressure from= =20 Congress, less than 10 days after these remedies were implemented, FERC=20 enacted its most recent order.=20 Before Congress declares victory, it should verify that FERC's most recent= =20 plan achieves the following two goals.=20 First, the plan should guarantee that the average price of wholesale=20 electricity paid by California over the next two years is equal to the=20 average price that would occur in a competitive electricity market, with=20 California's current supply and demand conditions and fuel costs. The Feder= al=20 Power Act requires not just a high probability of just and reasonable rates= ;=20 it requires that they occur with certainty.=20 The second goal is to alter the incentives faced by all market participants= =20 so that it will no longer be profit-maximizing for a firm to withhold=20 electricity from the market in order to drive up prices.=20 FERC's most recently implemented plan does not achieve either of these goal= s,=20 although it does come closer than any previous attempts.=20 One solution satisfying both of these goals has been proposed to FERC. In a= =20 December report to FERC, the Market Surveillance Committee of the Californi= a=20 ISO proposed a one-time regulatory intervention. This intervention would=20 require that each generator serving California sign a forward contract=20 guaranteeing that California consumers can purchase 75 percent of the=20 generator's expected output over the next two years at a specified=20 competitive benchmark price. Once a firm has signed these forward contracts= ,=20 it is free to sell all remaining energy in the western U.S. wholesale marke= t=20 at whatever price it can obtain.=20 The obligation to provide power under the contracts, and the incentive to= =20 sell 25 percent of power at unrestricted prices, would prevent generators= =20 from withholding power.=20 Unless FERC implements a solution satisfying these two goals, Congress shou= ld=20 require FERC to suspend the market-based pricing authority for all supplier= s=20 in the Western U.S. for the next two years and order all sales during this= =20 period at cost-of-service prices. This will guarantee that FERC meets the= =20 statutory mandate of the Federal Power Act in California. Frank Wolak is a professor of economics at Stanford University.=20 Wednesday, June 20, 2001=20 Easing the crunch on costs of power=20 It could have been worse. Yesterday the Federal Energy Regulatory Commissio= n=20 expanded limited price caps on electricity to cover 11 Western states and t= o=20 last 24 hours a day during an emergency.=20 This follows an action in April that imposed caps only in California during= =20 the hours the state declared a power emergency.=20 Under the new rules, "when reserves are below 7 percent in the California= =20 Independent System Operator spot markets ... the maximum price that can be= =20 charged for spot market sales ... will be 85 percent of the highest hourly= =20 price that was in effect during the most recent Stage 1 [emergency] called = by=20 the ISO," the FERC explained yesterday. The order will last until Sept. 30, 2001.=20 The action came after intense pressure by Democrats and the Bush=20 administration on the FERC, whose three Republican and two Democrat members= =20 all voted for the new controls. It also comes after continuing stories about "gouging" by suppliers. On=20 Sunday, the Register reported how Tulsa-based Williams, an energy supplier,= =20 manipulated the market to keep prices high.=20 And after Gov. Gray Davis last week attacked Los Angeles' government-run=20 Department of Water and Power for gouging the state on electricity purchase= s,=20 reported the Los Angeles Daily News, "the DWP caved in, and agreed to start= =20 selling the state power at 'cost'." The new FERC ruling certainly is better than the demand for across-the-boar= d,=20 continuous price controls demanded by Gov. Davis and other Democrats. "They're trying to let the market do the best it can under tremendous=20 pressure," Robert Michaels, a professor of economics at Cal State Fullerton= ,=20 told us of the FERC members. "It's explicitly only for one kind of power,= =20 that on short-term, so-called spot market kinds of exchanges. Most power is= =20 under other kinds of contracts not touched." The main effect of the new order is that, unlike full-blown price controls,= =20 it should not discourage the construction of new power generators.=20 [B] POWER UPDATE/ US Senate panel to hold off vote on Calif. cap bill=20 June 20, 2001=20 (BridgeNews) June 19, 2124 GMT/1724 ET=20 ................................................................. TOP=20 STORIES:=20 US Senate panel to hold off vote on Calif. power cap bill=20 San Francisco, June 19 (BridgeNews) - U.S. Senate Energy and Natural=20 Resources Committee Chairman Jeff Bingaman, D-N.M., plans to hold off on=20 voting on a bill for U.S. West power price caps following a request by fell= ow=20 senators Dianne Feinstein, D-Calif., and Barbara Boxer, D-Calif., according= =20 to an aide in Bingaman's office Tuesday. ( Story .20121 )=20 IPE says merger with ICE complete; will keep IPE name=20 New York, June 19 (BridgeNews) - London's International Petroleum Exchange= =20 has completed its merger with the Intercontinental Exchange, an electronic= =20 market for the trading of energy and metals products, IPE Chief Executive= =20 Richard Ward said Tuesday. He said the company will still be called the IPE= .=20 His statement follows ICE's announcement Monday that all of conditions of i= ts=20 recommended offer to acquire the issued share capital of IPE Holdings had= =20 been satisfied or waived and that the offer was unconditional. ( Story=20 .17970, .19353 )=20 ................................................................. OF=20 INTEREST:=20 --AMERICAS--=20 FERC order seen having little effect on US generator profits=20 San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory=20 Commission order to impose a "soft" price cap on U.S. West wholesale power= =20 prices will likely have little significant effect on producer profits from= =20 electricity sales while the order is in effect over the next year, industry= =20 analysts said Tuesday. Some analysts cautioned that some producers without= =20 long-term contracts could be negatively affected by the order. ( Story .203= 40=20 )=20 White House says FERC power plan "helpful step" for California=20 Washington, June 19 (BridgeNews) - The White House Tuesday said action take= n=20 Monday by the federal energy regulators to extend limits on electricity=20 prices in California "is and can be a helpful step" for the beleaguered=20 state. ( Story .18824 )=20 Calif. ISO rescinds Tues blackout forecast; supplies still tight=20 New York, June 19 (BridgeNews) - While the California Independent System=20 Operator has rescinded its forecast of possible blackouts for Tuesday, the= =20 agency running the Golden State's electricity grid is currently projecting= =20 very little surplus power generated in the state for the day. ( Story .1491= 3=20 )=20 Three states sue DOE over air conditioning standards ruling=20 New York, June 19 (BridgeNews) - Attorney generals of California, Connectic= ut=20 and New York along with several consumer groups sued the Department of Ener= gy=20 to block a Bush Administration plan allegedly designed to weaken efficiency= =20 standards for residential appliances, including air conditioners and heat= =20 pumps. The complaint filed Tuesday in Manhattan federal court calls the=20 administration "short sighted" and seeks to invalidate its rule changes. (= =20 Story .18548 )=20 NY, New England ISOs expand power reserve sharing agreement=20 New York, June 19 (BridgeNews) - The Independent System Operators (ISO) for= =20 New York (NYIOS) and New England (ISO-NE) have agreed to expand their=20 reserve-sharing agreement to allow for each ISO to draw on available reserv= es=20 in the other region in the event of a system interruption, according to a= =20 statement issued Tuesday by ISO-NE. ( Story .19283 )=20 AGA Preview: US natural gas inventories seen up 85 to 95 bcf=20 New York, June 19 (BridgeNews) - The American Gas Association (AGA) is=20 expected to report Wednesday that U.S. natural gas stocks have risen by 85= =20 billion to 95 billion cubic feet (bcf) for the week ended Friday, according= =20 to a BridgeNews survey of brokers, analysts and traders. The AGA will relea= se=20 the storage report at 1400 ET Wednesday. ( Story .1856 )=20 --ASIA/PACIFIC--=20 GAIL planning 20-bln-rupee gas pipeline in southern India=20 New Delhi, June 19 (BridgeNews) - India's state-owned Gas Authority of Indi= a=20 Ltd. plans to lay a new 500-kilometer-long natural gas pipeline connecting= =20 the two southern states of Kerala and Karnataka at a cost of 20 billion=20 rupees, the Press Trust of India said Tuesday. The pipeline will carry 6=20 million cubic meters of gas. ( Story .12193 )=20 Indonesia official sees power cuts by 2004 unless new units built=20 Jakarta, June 19 (BridgeNews) - Indonesia will face power cuts by 2004 unle= ss=20 additional generating capacity is built, Eddie Widiono, president director = of=20 state power group PLN, said at an industry seminar here on Tuesday. But=20 experts warned that the capital markets were unwilling to finance the=20 billion-dollar investments needed and the public sector could not afford it= .=20 ( Story .12536 )=20 Indonesia to restructure PLN, raise power tariff, says minister=20 Jakarta, June 19 (BridgeNews) - The government aims to revive investment in= =20 Indonesia's power sector with a scheduled 17.5% rise in electricity prices= =20 this year and a later $3 billion debt equity swap to restructure state powe= r=20 company PLN, minister of energy and mines Purnomo Yusgiantoro said Tuesday.= =20 PLN will negotiate directly with independent power producers (IPPs) to=20 install additional capacity, he added. ( Story .10568 )=20 Indonesian minister claims ExxonMobil to resume Aceh operations soon=20 Jakarta, June 19 (AFP) - PT Exxon Mobil Indonesia will resume oil and gas= =20 production in separatist-plagued Aceh province in early July, ending a free= ze=20 of more than three months for security reasons, a minister said Tuesday. (= =20 Story .10751 )=20 --EUROPE/MIDDLE EAST--=20 Czech's Temelin nuclear plant reactor to be restarted in July=20 Prague, June 19 (AFP) - Reactor number one at the controversial Temelin=20 nuclear plant in the Czech Republic will be restarted on July 21 after bein= g=20 shut down for two months for repairs, the plant's spokesman announced=20 Tuesday. The reactor was shut down in early May when faults were detected i= n=20 its non-nuclear secondary circuit, the latest in a series of technical=20 glitches discovered since it was first put into service in October last yea= r.=20 ( Story .16716 )=20 British Energy: Sizewell B power plant back onstream=20 London, June 19 (BridgeNews) - The 1188-megawatt Sizewell B nuclear power= =20 plant has been back onstream "for a few days," a spokeswoman for operator= =20 British Energy told BridgeNews Tuesday, refusing to detail when exactly the= =20 plant was recommissioned and whether its available capacity had since been= =20 utilized by the market. ( Story .12928 )=20 Germany's Mueller says nuclear phase-down formula won't disrupt=20 Berlin, June 19 (BridgeNews) - The formula for shutting down German nuclear= =20 power plants should cut atomic generating capacity only one-sixth by 2010,= =20 insufficient to raise fears of shortages, said Economics Minister Werner=20 Mueller. ( Story .12337 )=20 TURKEY CRISIS: Press: Govt late on IMF pledged power sell-offs=20 Ankara, June 19 (BridgeNews) - The Turkish Cabinet has decided to propose t= o=20 the parliament to extend the transfer of operational rights of power plants= =20 to the private sector by another four months, once again violating pledges= =20 made to the IMF when securing a U.S. $10 billion bailout package after the= =20 February crisis, Sabah newspaper reported Tuesday. The government, in its n= ew=20 IMF-supported program, pledged to complete transfer of the rights by=20 end-June. ( Story .11978 )=20 se ................................................................. SPOT= =20 NEWS LINKS:=20 Media://NewsSearch::/source=3Dmar/category=3Dn-eny/go/search=20 ................................................................. THE=20 MARKETS:=20 US FUTURES: UK FUTURES .1908 NY Natural Gas Pre-Opg .1795 IPE Nat Gas Review=20 .1906 NY Natural Gas Review .1794 IPE Nat Gas Midday=20 .1747 NY Natural Gas=20 US/CANADA CASH NATURAL GAS UK/EUROPE CASH NATURAL GAS .1894 Henry Hub natural gas .1807 UK Spot Gas=20 .1884 US/Canada Spot Natural Gas=20 US CASH ELECTRICITY UK/EUROPE CASH ELECTRICITY .8575 California PX: Next day .1892 UK Power Index=20 .8576 .8577 WSCC Forwards (AM/PM) .1889 Nordic Power Market=20 .8585 .8586 PJM Forwards (AM/PM) .1890 Spanish Power Market=20 .8593 .8594 Cinergy Forwards (AM/PM) .1844 UK EFA Power Market=20 .8597 .8598 Entergy Forwards (AM/PM) CANADA CASH ELECTRICITY=20 .8601 .8602 ERCOT Forwards (AM/PM) .5637 Canadian Power Market=20 .8603 New England Forwards=20 .8587 .8600 TVA Forwards (AM/PM)=20 OTHER=20 .1873 US Nuclear Plants Operating Status=20 .2029 BRIDGE CALENDAR: US POWER: Key events to watch=20 .2030 US Utility Deregulation Digest=20 .1704 US Utility M&A Digest=20 ................................................................. SYMBOL=20 LINKS:=20 Click below for adamb chart in Athena NATURAL GAS=20 NYMEX - Media://Chart:NYMEX:/symbol=3DUS@NG.1=20 IPE - Media://Chart:IPE:/symbol=3DGB@NGP.1 NYMEX ELECTRICITY=20 Palo Verde electricity - Media://Chart:PaloVerde:/symbol=3DUS@VK.1=20 COB electricity- Media://Chart:COB:/symbol=3DUS@OW.1=20 Cinergy electricity - Media://Chart:Cinergy:/symbol=3DUS@CN.1=20 Entergy electricity - Media://Chart:Entergy:/symbol=3DUS@NT.1=20 PJM electricity - Media://Chart:PJM:/symbol=3DUS@QJ.1=20 .................................................................=20 BridgeNews=20 Send comments to gennews@bridge.com=20 [B] FERC order seen having little effect on US generator profits=20 June 20, 2001=20 By Christine Cordner San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory=20 Commission order to impose a "soft" price cap on U.S. West wholesale power= =20 prices will likely have little significant effect on producer profits from= =20 electricity sales while the order is in effect over the next year, industry= =20 analysts said Tuesday. Some analysts cautioned that some producers without= =20 long-term contracts could be negatively affected by the order.=20 * * * "FERC's decision to expand the soft price cap throughout the western grid i= s=20 not very painful for generators," Barry Abramson, UBS Warburg analyst, said= =20 in a research note. "The expanded soft price cap will have little impact on= =20 the earnings of the wholesale generating companies. By definition, every=20 other power plant is more efficient than the least efficient power plant, a= nd=20 thus every other power plant should be able to make a good profit selling a= t=20 the soft price cap.=20 "Furthermore, on most days, most of the power that is produced is sold at= =20 prices below the soft price cap, so the soft-price cap has little impact on= =20 the overall earnings of the wholesale generators in the region," Abramson= =20 said.=20 FERC on Monday unanimously voted 5-to-0 to expand wholesale price caps to t= he=20 10 western states comprising the Western Systems Coordinating Council. FERC= =20 also expanded the price caps on wholesale power to 24 hours per day, seven= =20 days per week, from limits only during supply emergencies when reserve=20 margins in California fall below 7%.=20 Under the order, wholesale power prices will be limited to 85% of the price= =20 in effect during the final hour of the most recent emergency, when Californ= ia=20 is not in a supply emergency. The proxy price will be based on the costs fo= r=20 the least efficient power plant used to generate electricity on that day as= =20 well as the price for natural gas.=20 Generators, investor-owned utilities and independent power producers,=20 however, can receive more than the proxy price if they can justify the high= er=20 generation costs. The plan also allows a 10% surcharge on all wholesale pow= er=20 sales in California in order to account for credit risk.=20 In a research note, JP Morgan analysts Jim Von Riesemann and Anatol Feygin= =20 said that earnings for generating companies "should remain relatively intac= t=20 and valuations look attractive," especially for AES, Mirant and NRG.=20 Robert Winters, a Bear Stearns analyst, said, "The near-term actions by the= =20 FERC (and the focus on Monday's meeting), the heightened political rhetoric= =20 and the weakening in gas and power prices across much of the U.S. over the= =20 past month has led to the weakness in the shares of the wholesale energy=20 companies...We believe very attractive buying opportunities are being creat= ed=20 within certain areas of the wholesale energy sectors where companies are no= w=20 trading at discounts to their projected earnings growth range."=20 Winters said there were buying opportunities with Williams, "which continue= s=20 to be our top pick in the wholesale energy space," and with Enron Corp.=20 But Abramson noted that the order does not allow producers "to mark up the = r=20 price of spot power for resale above the soft price cap," which could affec= t=20 some profit margins.=20 "The FERC plan should make it challenging for some to repeat the growth of= =20 the last couple of quarters in the West, particularly those that without=20 long-term contracts. It appears that the plan would likely dampen volatilit= y,=20 although price caps can have unexpected consequences," said Merrill Lynch= =20 analyst Steven Fleishman.=20 "On a relative basis, we believe companies that have locked up much of thei= r=20 capacity under long-term contracts and have efficient baseload power are be= st=20 positioned under the new FERC plan," Fleishman said in a note. He said=20 Calpine, Dynegy, NRG Energy and Williams stand to benefit the most from thi= s=20 scenario.=20 "Companies that could be challenged are those with less long-term contracts= ,=20 that are more dependent on inefficient peaking plants, and that could be=20 affected by less volatility in the West," Fleishman said. "The big question= =20 is how well the marketers positioned their books ahead of this changed=20 environment." He said Reliant Resources since it appears to have the least= =20 contracted in the West for 2002.=20 The plan, which will be in effect from Wednesday to Sept. 30, 2002, follows= =20 pleas from California Gov. Gray Davis to control wholesale prices, which he= =20 said cost the state roughly $50 billion this year.=20 The state's largest utility Pacific Gas & Electric declared bankruptcy=20 earlier this year, citing losses from high wholesale prices. End=20 SCE Unveils Rotating Blackout Web Site and Public Notification Plan=20 June 20, 2001=20 ROSEMEAD, Calif., June 19 /PRNewswire/ via NewsEdge Corporation -=20 Southern California Edison (SCE) today unveiled its enhanced Web site and= =20 public notification process to help guide the public through possible=20 rotating power blackouts when ordered by the California Independent System= =20 Operator (Cal-ISO).=20 "We have been able to increase significantly the amount of outage informati= on=20 available to our customers, because we want to empower them with critical= =20 information to prepare for and safely cope through power blackouts," said P= am=20 Bass, SCE's senior vice president of customer service. "We recognize that t= he=20 more information customers have before and during rotating outages, the=20 better equipped they will be to address the concerns and safety of their=20 families and employees."=20 Bass said customers have indicated they want to know four basic things when= =20 rotating blackouts occur: the location, the duration, whether it affects=20 them, and what they should and should not do to safely get through the=20 outages. SCE offers several information resources that address these concer= ns=20 -- through toll-free phone lines, through news media updates, and now throu= gh=20 an expanded, user-friendly rotating outage Web site.=20 All of these sources will tell customers that the outages rotate among=20 electrical circuits across SCE's vast service area for about one hour, as= =20 directed by Cal-ISO. They will also list the likely affected customer group= s=20 and communities, and even provide geographic maps outlining the specific=20 neighborhoods. Customers will also be able to access practical tips on how = to=20 prepare and function safely through outages.=20 Customers can find out the group their home or business is assigned to by= =20 identifying their alphanumeric Rotating Outage Group Number, which now=20 appears directly under the customer's name and address in the top left corn= er=20 of the bill's front page. When Cal-ISO predicts possible rotating outages,= =20 SCE will immediately announce which groups may be affected through its outa= ge=20 hotline -- (800) 611-1911 -- its Web site -- www.sce.com -- and through the= =20 news media.=20 When outages are forecasted or actually begin, customers can determine if= =20 their group is part of the current outage or likely to be included in the= =20 next round, since SCE generally interrupts groups in numerical order, with= =20 some exceptions. For example, customers can now hear on the morning news=20 whether Cal-ISO is predicting outages for the day. By calling the hotline o= r=20 checking www.sce.com, they can learn which groups would likely be interrupt= ed=20 if circumstances turn out as predicted. If their group number is on the lis= t=20 of groups likely to be interrupted, the customer could take steps to prepar= e=20 for the likelihood of rotating blackouts affecting their home or business= =20 that particular day.=20 It should be noted that group numbers may change without advance notice for= =20 operational reasons or when state regulators revise their policy regarding= =20 customers exempted from blackouts. SCE will notify customers of such change= s=20 as quickly as practical.=20 Visitors to SCE's customer Web site, www.sce.com, will find the following= =20 helpful enhancements:=20 -- The site displays outage group numbers and corresponding communities=20 affected during recent, current, and predicted rotating outage=20 incidents.=20 -- When customers click on the name of a community affected by an outage,= =20 they are taken to a detailed street map of the affected circuit.=20 -- The Web site offers general outage information and links, including=20 outage preparation and safety tips, grid status information from Cal-=20 ISO, frequently asked questions about rotating outages, and=20 conservation tips.=20 -- A dynamic home-page pop-up window will change messages depending on=20 state power conditions. For example, during a Stage 2 Emergency,=20 customers will be directed to information about potential outages.=20 During a Stage 3 Emergency in which rotating outages are underway, the=20 box will provide a hotlink to group numbers and communities currently=20 affected and likely to be affected should outages likely continue.=20 For customers who don't have Internet access, SCE provides essentially the= =20 same Web site information through an automated outage phone line, (800)=20 611-1911. This service makes it possible to obtain outage information=20 immediately without waiting. Among major features:=20 -- Customers can call at any time to learn the Rotating Outage Group=20 Number assigned to their home or business.=20 -- When customers experience a power blackout, they can call to determine= =20 whether they are part of a rotating outage incident or if their=20 circuit has been affected by a routine interruption such as a car or=20 construction accident.=20 -- During rotating blackouts, customers can learn if their circuit is=20 currently affected or may be affected in the coming hours and which=20 portions of specific communities may be affected.=20 -- When customers call, they should have their account number and group=20 number handy. However, if customers call during a rotating outage=20 incident and do not know their group number, they will be able to=20 obtain information by entering their zip code.=20 SCE's media relations office has developed strategic communications=20 partnerships with radio and television stations that provide frequent live= =20 updates to the public, including information about circuit groups affected = or=20 likely to be affected by outages.=20 It should be further noted that while SCE is committed to providing as much= =20 advance public notification about pending rotating blackouts, it can only d= o=20 so as it receives timely notification from Cal-ISO.=20 SOURCE Southern California Edison=20 CONTACT: Corporate Communications of Southern California Edison,=20 626-302-2255, www.edisonnews.com=20 Web site: http://www.sce.com (EIX)=20 Edison CEO/ Ruling Hasn't Helped=20 June 20, 2001=20 By LESLIE GORNSTEIN AP Business Writer LOS ANGELES (AP) via NewsEdge Corporation -=20 A federal ruling this week limiting wholesale energy prices in 10 Western= =20 states hasn't been enough to pull Southern California Edison any further fr= om=20 the brink of bankruptcy, Edison International chief John E. Bryson said=20 Tuesday.=20 The state's second-largest utility is no further from or closer to bankrupt= cy=20 now than it was ``two weeks, four weeks, six weeks ago,'' Bryson told a pre= ss=20 conference before a speech to Town Hall Los Angeles, a public policy forum.= =20 Bryson is chairman, president and chief executive officer of Edison=20 International, parent of subsidiary Southern California Edison, which serve= s=20 4.2 million customers.=20 Bryson said, however, that he senses a warming among state legislators to a= =20 proposed bailout deal between his company and the state.=20 That deal would supply billions of dollars to Edison in exchange for years = of=20 cheap power and possibly the utility's power lines.=20 ``Interest has at least intensified in Sacramento on the part of legislator= s=20 to take steps _ debate continues exactly what steps _ to have Edison health= y=20 and to take the state out of the power business and so on,'' Bryson said.= =20 Such lawmaker approval is required for the deal to survive. Key lawmakers= =20 surrounding the deal were not immediately available for comment.=20 In his Town Hall address, Bryson used the forum as a kind of open plea to= =20 state legislators, listing what he called a series of widespread myths that= =20 might be keeping leaders from acting.=20 ``The first myth is that somehow Southern California Edison is seeking a=20 bailout from taxpayers,'' Bryson said. ``Only the reverse is true.''=20 Instead, Bryson said, it was Edison who bailed out California by keeping th= e=20 lights on even when the utility's power costs far exceeded its revenues.=20 Secondly, Bryson said, Edison and its investors are not profiting from the= =20 power crisis, and SoCal Edison's parent did not act improperly by collectin= g=20 money from the utility earlier this year.=20 That money was later given to shareholders, a move that outraged consumer= =20 groups.=20 Bryson also warned that a SoCal Edison bankruptcy would severely hurt=20 California's economy by scaring away new businesses and investment capital.= =20 ``Inaction would deeply hurt the state of California and all of us,'' he=20 said.=20 Editorial Desk; Section A=20 At Last, Action on California=20 ?=20 06/20/2001=20 The New York Times=20 Page 22, Column 1=20 c. 2001 New York Times Company=20 After months of dithering, the Federal Energy Regulatory Commission took so= me=20 potentially meaningful steps on Monday to contain the wholesale price of=20 electricity in California and elsewhere in the Western United States. Anxio= us=20 not to be seen as caving in to public pressure or abandoning its fidelity t= o=20 the free market, the White House described the new policy as ''consistent= =20 with where the president has been all along.'' Gov. Gray Davis of Californi= a=20 , for his part, said the policy did not go far enough, and of course only= =20 time will tell whether it does. But to many others, including Senator Diann= e=20 Feinstein of California , the move amounted to the first significant federa= l=20 intervention in the California wholesale market since the crisis began last= =20 year. Ms. Feinstein withdrew her own price-cap bill pending the outcome of= =20 the new plan.=20 Under the new arrangement, approved unanimously by a reshuffled five-member= =20 Regulatory Commission, price limits will be based on the cost of producing= =20 electricity at the least efficient generator. The formula covers the sale o= f=20 electricity for immediate delivery -- the so-called ''spot market'' that=20 supplies about 20 percent of California 's needs and that California turns = to=20 when it is desperately trying to keep the lights on. The companies will be= =20 allowed to charge higher prices during peak periods, but not the huge sums= =20 they command today.=20 In addition, the constraints will apply throughout 10 other Western states,= =20 presumably eliminating any incentive for generators to withhold power from= =20 the California market in order to obtain a higher price elsewhere. The=20 controls are to expire in September of next year, which should relieve some= =20 of the administration's earlier fears that constraints of any kind would=20 discourage investment in new and badly needed sources of supply.=20 The benefits will not immediately be felt by California consumers. Both=20 individuals and businesses have recently been hit by rate increases belated= ly=20 imposed by the state's Public Utilities Commission at Mr. Davis's request.= =20 But the new plan should ultimately benefit taxpayers by lessening the impac= t=20 of higher energy costs on the state government, which has been buying power= =20 on behalf of the state's two largest utilities, both essentially insolvent.= =20 Recent estimates have suggested that California , which paid $7 billion for= =20 electricity two years ago, could pay as much as $50 billion this year.=20 Until quite recently the president and his energy czar, Dick Cheney, had=20 seemed almost indifferent to California 's needs. But Republican members of= =20 Congress from California and other Western states have been growing=20 increasingly restive as they contemplate the potential political fallout in= =20 the midterm elections of 2002. In addition, the two newest members of the= =20 regulatory commission, both Bush appointees, have expressed sympathy for=20 California 's plight. Whatever the reason, the administration appears to ha= ve=20 seen the light, even though it is reluctant to admit it. National Desk; Section A=20 Regulators' Order Could Bring Broad California Power Accord By LAURA M. HOLSON with JEFF GERTH ?=20 06/20/2001=20 The New York Times=20 Page 14, Column 3=20 c. 2001 New York Times Company=20 LOS ANGELES, June 19 -- An order by federal regulators that power generator= s=20 enter settlement talks with the State of California could open the door to = a=20 sweeping compromise of the financial issues in the state's power crisis,=20 energy industry analysts and executives said today.=20 But the question that remains -- and it is a vital one, they said -- is=20 whether the Federal Energy Regulatory Commission has the wherewithal to for= ce=20 the warring parties to hammer out an understanding that, at its heart, is a= s=20 much about politics as about money.=20 The commission on Monday gave California regulators and power generators=20 until July 9 to come up with a plan for settling accounts between the=20 generators and California 's struggling utilities. The power companies are= =20 owed billions, but the state has accused them of price-gouging. If the=20 parties cannot reach some agreement, an administrative judge will step in a= nd=20 recommend a settlement to the commission instead.=20 Asked at a Senate hearing in Washington today to clarify what he hoped to= =20 accomplish as a result of the two weeks of settlement talks, the commission= 's=20 chairman, Curtis L. Hebert Jr., was noncommittal. The parties, he explained= ,=20 need two things for the talks to succeed: a deadline and uncertainty.=20 Senator Dianne Feinstein, Democrat of California , expressed skepticism abo= ut=20 the undertaking. Ms. Feinstein said at the hearing, held by the Senate Ener= gy=20 and Natural Resources Committee, that she was concerned that the commission= =20 had laid out ''no rules'' for the talks.=20 ''Very little, if any, money has changed hands as a result of prior=20 settlement conferences,'' she said.=20 Many industry executives and state officials have not yet seen the=20 commission's order, and they were scrambling today to figure out exactly wh= at=20 they were being asked to do.=20 ''Without seeing what exactly is in the order, who knows?'' said Sean=20 Gallagher, a staff lawyer for California 's Public Utilities Commission.=20 ''But we wouldn't turn our noses up at participating in negotiations.''=20 Gary Ackerman, executive director of the Western Power Trading Forum, a=20 coalition of energy traders and electricity generators, noted that the=20 federal regulators' timetable ''has a very short fuse.'' And the fact that= =20 the state's biggest utility, the Pacific Gas and Electric Company, has file= d=20 for bankruptcy will complicate efforts to reach a comprehensive agreement, = he=20 added.=20 ''I don't hold high hopes that a settlement would work out,'' Mr. Ackerman= =20 said, ''but I commend the FERC for taking a stab.''=20 Moreover, the parties to the settlement talks may lack an element vital to= =20 successful negotiations: trust.=20 Several California entities, including the Public Utilities Commission, are= =20 investigating whether generators took advantage of consumers by charging=20 excessive prices for power. The Independent System Operator, which runs the= =20 state's power grid, released a study in March concluding that Californians= =20 might have been overcharged for electricity by more than $6 billion. One=20 state government negotiator said the California attorney general's office= =20 could file a suit against the power generators in the next few weeks.=20 And as state officials, including Gov. Gray Davis, continue to hurl attacks= =20 at the generators, calling them pirates and profiteers, the companies and= =20 California utilities are blaming legislators, saying they failed to address= =20 the power crisis quickly enough.=20 In March, Duke Energy, one of the companies the state has accused of=20 profiteering, offered to negotiate a broad settlement, but Governor Davis= =20 ruled out calling off the state's inquiries as part of any agreement.=20 The outlines of Duke's proposal included a compromise on the money owed by= =20 California utilities, in exchange for the dropping of private lawsuits,=20 California 's complaints to federal regulators and the state investigations= .=20 Duke would have admitted no wrongdoing.=20 In formal proceedings, the power generators to date have vigorously fought= =20 discounting the debts they are owed by California .=20 The Federal Energy Regulatory Commission has ordered generators to refund= =20 nearly $130 million in what it judged to be overcharges. Today one of the= =20 commissioners, William L. Massey, said 80 percent of that money had not bee= n=20 collected. A Section=20 Davis Finds Hope in Calif. Power Crunch Rene Sanchez and Peter Behr ?=20 06/20/2001=20 The Washington Post=20 FINAL=20 Page A06=20 Copyright 2001, The Washington Post Co. All Rights Reserved=20 LOS ANGELES, June 19 -- Sinking in the polls, under attack by a new=20 Republican advertising campaign and still struggling to avert a summer of= =20 blackouts, California Gov. Gray Davis (D) nevertheless seems heartened abou= t=20 the latest developments in the power crisis that has engulfed his state and= =20 threatened his political career.=20 On his first trip to Washington in months, Davis will detail California 's= =20 plight Wednesday in testimony to a Senate committee newly led by sympatheti= c=20 Democrats -- one important reason for his optimism.=20 But he has others: Conservation is taking hold in the state, and prices for= =20 power on the daily spot market are dropping. California has managed to avoi= d=20 rolling blackouts so far this month, in part because it has been spared a= =20 heat wave.=20 Federal regulators, under pressure even from Republican lawmakers, decided= =20 Monday to impose more controls on prices that energy suppliers can charge= =20 California . Two new power plants are scheduled to begin producing=20 electricity in weeks. California also has recently secured more than a doze= n=20 deals for power over the next decade, a move Davis contends will stabilize= =20 the volatile wholesale market for energy.=20 In short, Davis and his aides say their concerted political strategy and=20 efforts to ease the crisis are beginning to pay off.=20 "The bottom line is that we're stabilizing prices and assuring the power wi= ll=20 be there without additional rate increases," said Steve Maviglio, a spokesm= an=20 for the governor. But he added: "We're not ready to say the war is over. It= 's=20 still going to be a tight summer."=20 Whether any or all of those steps will keep the lights on in California thi= s=20 summer, or help solve an array of other financial problems the crisis has= =20 caused, is hardly clear.=20 In fact, California 's power shortfall could produce 113 hours of rotating= =20 outages this summer, according to a U.S. Department of Energy study schedul= ed=20 to be released Wednesday.=20 Since California 's two largest utilities fell into financial ruin this yea= r,=20 forcing the state to spend nearly $5 billion to buy power directly and=20 saddling residents with huge new rate increases, the support that Davis onc= e=20 had from a majority of voters has vanished. Recent polls suggest that he=20 could have trouble winning a second term.=20 Consumer advocates here are besieging him, saying that the $43 billion in= =20 long-term power deals that Davis has signed could lock residents into payin= g=20 artificially high utility rates for years. Some contend that all he has=20 gained from Washington is political cover.=20 "The Bush administration has created this toothless price cap mechanism tha= t=20 will be used as political protection but certainly not consumer protection,= "=20 said Doug Heller, a director of the Foundation for Taxpayer and Consumer=20 Rights.=20 Davis has stuck mostly to the same political script. He is demanding more= =20 federal help for California -- on Monday he called the Federal Energy=20 Regulatory Commission's decision merely "a step in the right direction" --= =20 and he is denouncing out-of-state energy suppliers and their Republican=20 allies.=20 Today, Republicans launched a $1.5 million advertising offensive that blame= s=20 Davis for the state's energy crunch. The spots, running on English and=20 Spanish-language media, describe the crisis as "Grayouts from Gray Davis."= =20 Scott Reed, the GOP strategist who runs the American Taxpayers Alliance,=20 which funded the ad campaign, said his group wants to counter the governor'= s=20 spin. "The blame game has to end," said Reed.=20 But Davis's aides say the ads are a sign that Republicans sense California = 's=20 energy predicament could deepen GOP political troubles in the state.=20 Privately, some Republican lawmakers pushing for more federal assistance sa= y=20 they are worried that in midterm congressional elections next fall the GOP= =20 could lose House seats in California that it needs to hold a majority.=20 Today's hearing will bring both Davis and his adversaries on the Federal=20 Energy Regulatory Commission before the Senate's Governmental Affairs=20 Committee, chaired by Sen. Joseph I. Lieberman (D-Conn.).=20 Instead of a committee debate on California 's electricity prices, the focu= s=20 of the session may be shifting toward the billions of dollars of alleged=20 overcharges by energy suppliers.=20 Under growing pressure from both parties in Congress, FERC's commissioners= =20 responded Monday with far more extensive price controls than they had been= =20 willing to consider previously. They extended April price controls that had= =20 applied only to times of power emergencies to all hours of the day, through= =20 September 2002. And they expanded the controls to cover 10 other western=20 states.=20 California Sens. Dianne Feinstein and Barbara Boxer, both Democrats, said= =20 FERC's action was a positive step and agreed to delay efforts to direct the= =20 commission to clamp down on California 's energy prices. "We're willing to= =20 give them a chance to see if it works," Boxer told reporters.=20 Now, Davis will press his demands that FERC recover some $8 billion in=20 alleged overcharges by wholesale power suppliers since the crisis began -- = a=20 far larger amount than the $124.5 million in refunds that FERC has so far= =20 assessed.=20 Whether there is even a chance of a peace process is unclear. Just last wee= k,=20 California Attorney General Bill Lockyer announced plans to convene a=20 criminal grand jury to investigate whether power generators illegally=20 conspired to drive up electricity and natural gas prices.=20 The governor could face other new problems. Several of California 's major= =20 independent power generators said the price controls and state lawsuits=20 against the generators made it more difficult to justify expanding operatio= ns=20 in California , a warning echoed today by Energy Secretary Spencer Abraham.= =20 But heading into the summer, California 's power prices are much lower than= =20 they were a month or two ago, with daily or "spot" power prices averaging $= 78=20 per megawatt hour in June, compared to $372 in April.=20 Both Davis and the FERC commissioners are taking credit. S. David Freeman,= =20 Davis's energy adviser, said that the long-term power contracts the state h= as=20 signed, the new power plants and favorable weather have tamed prices.=20 FERC Chairman Curt Hebert Jr. said Monday that the limited price restraints= =20 that the commission imposed on wholesale electricity sales in April have be= en=20 a key reason for the price decline.=20 Sanchez reported from Los Angeles and Behr from Washington. Staff writers= =20 Mike Allen and Juliet Eilperin contributed to this report from Washington.= =20 http://www.washingtonpost.com=20 Contact: http://www.washingtonpost.com=20 National Desk; Section A=20 The Lesson of When to Give Aid to Free Markets By DAVID E. SANGER ?=20 06/20/2001=20 The New York Times=20 Page 14, Column 3=20 c. 2001 New York Times Company=20 WASHINGTON, June 19 -- Three weeks ago George W. Bush addressed a sympathet= ic=20 audience of business executives at the Century Plaza Hotel in Los Angeles a= nd=20 declared that his administration ''will not take any action that makes=20 California 's problems worse, and that's why I oppose price caps'' on=20 electricity .=20 As he spoke, the Democratic governor of California , Gray Davis, sat=20 impassively on the dais, preparing to meet Mr. Bush and then denounce him f= or=20 failing to protect California consumers from an electricity market gone wil= d.=20 Today, the White House halfheartedly welcomed action by federal regulators = to=20 impose throughout the West a system that looks and smells a lot like price= =20 caps -- though the White House said it was something different.=20 ''This is not a price control,'' Ari Fleischer, the White House spokesman,= =20 said. ''This is a market-based mitigation plan that now will extend to 11= =20 Western states.''=20 In fact, it bore some resemblance to a proposal made by 10 leading economis= ts=20 who urged a middle ground between fixed prices and a deregulated electricit= y=20 market. Mr. Davis used their proposal to support his position in favor of= =20 limited price restraints when Mr. Bush visited California .=20 The White House shift from outright opposition to price controls to its mor= e=20 nuanced position today exemplifies how Mr. Bush has tempered his embrace of= =20 completely unfettered markets in recent weeks. He didn't have much choice.= =20 As the threat of blackouts loomed, demands for action rose from officials o= f=20 both parties and from consumers in the West. It was almost possible to hear= =20 sighs of relief at the White House today that the Federal Energy Regulatory= =20 Commission -- an independent body in the Energy Department -- had moved to= =20 turn down the political heat.=20 In fact, while some House Democrats are still pressing for firmer caps on= =20 prices, Senators Dianne Feinstein, Democrat of California , and Gordon H.= =20 Smith, Republican of Oregon, withdrew a bill that would have placed strict= =20 price controls on electricity sold in Western markets.=20 Senator Feinstein said the White House could call yesterday's regulatory=20 action ''mitigation'' or anything else it pleased.=20 ''A rose is a rose by any other name,'' she said today.=20 And a free market is not always free. Two weeks ago the administration said= =20 it would rescue steel companies and steelworkers who have long complained= =20 about unfair competition from South Korea, Taiwan, China, Brazil, Germany,= =20 Russia and Ukraine. The White House defended the action by saying it was th= e=20 only way for the industry to adjust to a new competitive environment.=20 Last month, with no major announcements at the White House, the Bush=20 administration voted for International Monetary Fund aid to two countries,= =20 Turkey and Argentina, that (like California ) had made some economically=20 disastrous political decisions.=20 In each case, Mr. Bush's economic orthodoxies were tempered by political=20 realities.=20 The California crisis was one thing when it involved a Democratic governor = in=20 a state Mr. Bush lost by a million votes; it was another, one of his aides= =20 conceded today, when congressional Republicans from around the West were=20 warning Mr. Bush that blackouts and sky-high prices could blow up in his=20 first year in office.=20 ''We heard from a lot of members of Congress who feared that Republicans=20 would be tarred with worsening the problem, even though it happened on Gray= =20 Davis's watch,'' the political aide said. ''The president took that on=20 board.''=20 Similarly, the steel decision was partly about enforcing laws against=20 ''dumping'' foreign products in the market -- and partly about Mr. Bush's= =20 desire to convince labor unions not to block his trade agenda. Like=20 Californians coping with higher energy prices, the steelworkers need time t= o=20 adjust to a new world, the administration said.=20 ''Open markets improve the lives of people by increasing opportunity, choic= e=20 and economic freedom,'' Robert B. Zoellick, Mr. Bush's trade representative= ,=20 said in an interview today. ''But compassionate conservatism also recognize= s=20 the reality that the effects of rapid change fall harder on some communitie= s=20 and industries,'' which, he said, need ''vital breathing space to adapt to= =20 change.''=20 While Mr. Bush expressed deep reservations about I.M.F. bailouts during the= =20 presidential campaign, the situation seemed a bit more complicated once he= =20 got to Washington. The State and Defense Departments feared that if Turkey= =20 were engulfed in economic chaos, and blamed the United States for failing t= o=20 come to its aid, its leaders might be less inclined to let American fighter= =20 jets use its territory to mount missions over Iraq.=20 So given the choice between letting the Turkish people pay a high price for= =20 political mistakes -- Californians take note -- and weakening American=20 pressure on Saddam Hussein, Mr. Bush decided that economic niceties were le= ss=20 important than political consistency. Mr. Bush chose the Pentagon over the= =20 Treasury.=20 Administration officials said these actions did not represent a retreat fro= m=20 let-the-markets-prevail orthodoxy.=20 Lawrence B. Lindsey, Mr. Bush's chief economic adviser, said in an intervie= w=20 today that he opposed price caps at the beginning of the California crisis= =20 and that he opposed them now. But he would not criticize the federal=20 commission for ''mitigating'' price spikes in the market.=20 ''What they are trying to do is achieve two incompatible missions --=20 preserving what is called 'just and reasonable pricing' and assuring an=20 adaquate supply of electricity ,'' Mr. Lindsey said. Yet the reality, he=20 added, is that new supplies of electricity will not become available for a= =20 year or more. ''FERC is doing its best to square that circle in the face of= =20 the fundamental problem, which is inadequate supply,'' he said.=20 That is the kind of argument that keeps economists happily arguing for hour= s.=20 It is not likely to be the kind of argument Mr. Bush himself is likely to= =20 engage in for long. As one of his political advisers said the other day,=20 ''Don't think about this purely in terms of megawatts. We need to produce= =20 more electricity , but we also need to produce some more seats in the=20 House.''=20

dasovich-j/all_documents/27968.

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Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/27968. ===================================== Please see the following articles: Sac Bee, Wed, 6/20: Weather an early test for fee caps:=20 Any severe jump in prices will likely be curbed, experts say Sac Bee, Wed, 6/20: State to borrow up to $5 billion to buy energy Sac Bee, Wed, 6/20: Dan Walters: Once burned, lawmakers are very wary of Davis-Edison agreement SD Union, Wed, 6/20: Senate Democrats lay back to see if FERC action=20 provides rate relief=20 SD Union, Wed, 6/20: House panel erases Bush energy cuts LA Times, Wed, 6/20: Davis, Regulators Face Off at Hearing LA Times, Wed, 6/20: Energy on Agenda, but Issue Is Blame LA Times, Wed, 6/20: Blackout Forecasts' Dark Side LA Times, Wed, 6/20: FERC Move Short-Circuits for Hard Price Caps LA Times, Wed, 6/20: Plan Won't Raise Rates, Davis Says LA Times, Wed, 6/20: State to Pay Electric Bill With Loan, Not Taxes LA Times, Wed, 6/20: Edison Unveils Blackout Warning Plan LA Times, Wed, 6/20: State Joins Challenge to Bush on Air-Conditioner=20 Standards LA Times, Wed, 6/20: New Price Caps Not a Deterrent, Power Firms Say LA Times, Wed, 6/20: The FERC's Action Is Good, Bad, Ugly (Commentary) SF Chron, Wed, 6/20: Davis OKs stopgap loan=20 CRISIS POWERS: Action sidesteps Legislature SF Chron, Wed, 6/20: Experts say state must seize the day=20 ANALYSIS: Price caps set stage for future SF Chron, Wed, 6/20: California's energy crisis hits Northwest like a tidal= =20 wave SF Chron, Wed, 6/20: Davis demands nearly $9 billion for electricity=20 overcharges SF Chron, Wed, 6/20: Fed price caps placate Demos=20 But Feinstein's bill to regulate energy producers was more strict SF Chron, Wed, 6/20: Potrero Hill power plant hit by 2 lawsuits=20 Neighbors, city ask court to cut back hours of operation SF Chron, Wed, 6/20: Washington wakes up Mercury News, Wed, 6/20: Feinstein halts electricity price caps bill=20 Mercury News, 6/20: FERC's fixes have fallen short (Commentary) OC Register, Wed, 6/20: Easing the crunch on costs of power (Commentary) Individual.com (Bridgenews), Wed, 6/20: [B] POWER UPDATE/ US Senate panel to hold off vote on Calif. cap bill=20 Individual.com (Bridgenews), Wed, 6/20: [B] FERC order seen having little= =20 effect on US generator profits Individual.com (PRnewswire), Wed, 6/20: SCE Unveils Rotating Blackout Web S= ite and Public Notification Plan=20 Individual.com (AP), Wed, 6/20: Edison CEO/ Ruling Hasn't Helped NY Times, Wed, 6/20: At Last, Action on California (Editorial) NY Times, Wed, 6/20: Regulators' Order Could Bring Broad California Power= =20 Accord Wash. Post, Wed, 6/20: Davis Finds Hope in Calif. Power Crunch NY Times, Wed, 6/20: The Lesson of When to Give Aid to Free Markets ---------------------------------------------------------------------------= --- ------------------------------- Weather an early test for fee caps: Any severe jump in prices will likely b= e=20 curbed, experts say. By Dale Kasler Bee Staff Writer (Published June 20, 2001)=20 California electricity prices have shot back up recently, potentially posin= g=20 an early test of a new federal price-control plan that takes effect today.= =20 Warm weather has sent wholesale prices doubling this week, partially=20 reversing a dramatic slide that had some state officials believing they'd= =20 tamed the wildly unpredictable California electricity market.=20 The rebound in prices "would be expected," said Arthur O'Donnell, editor of= =20 the California Energy Markets newsletter. "It's 110 degrees in Phoenix, and= =20 it's 100 degrees (in Sacramento) and points in between."=20 Prices this week moved back above $100 a megawatt hour, about double what= =20 they were last week -- although well below the roughly $300 suppliers were= =20 charging California in mid-May. Prices showed signs of stabilizing Tuesday,= =20 analysts said.=20 Experts said the Federal Energy Regulatory Commission's new price-mitigatio= n=20 plan is likely to curb the most severe price spikes. "This will eliminate t= he=20 astronomical prices," said Severin Borenstein, director of the University o= f=20 California Energy Institute.=20 But the plan probably won't bring California a cascade of cheap power,=20 either.=20 Prices likely will bump up constantly against FERC's new price caps, which= =20 will fluctuate from time to time, and they're not likely to go much below t= he=20 caps unless there's a significant glut of energy, said Peter Stiffler of th= e=20 energy consulting firm Economic Insight Inc.=20 "Traders will always trade in at the price ceiling," Stiffler said. "They'r= e=20 going to offer power at the highest price they can."=20 The fluctuating FERC caps are tied to the production costs of the=20 least-efficient, most-expensive generating plant operating in California wh= en=20 supplies are tight and an official "power alert" is declared by the state's= =20 Independent System Operator, which runs most of the power grid. When there= =20 isn't a power alert, prices can't exceed 85 percent of the price establishe= d=20 during the most recent alert.=20 FERC said the system would begin today with a cap of $108.49 a megawatt hou= r=20 but would rise to $127.64 if a power alert is declared.=20 But the cap can fluctuate significantly. Under the old FERC plan, the price= =20 cap in May was set at $267 a megawatt hour. The old plan was similar to the= =20 new system but applied only to California and only kicked in during power= =20 alerts.=20 With the caps flexible, generators could have incentives to withhold power = at=20 some plants in order to raise the caps, said Stanford University economist= =20 Frank Wolak.=20 The FERC plan "still doesn't solve the problem of withholding," said Wolak,= =20 chairman of the ISO's market surveillance committee.=20 Wolak also said he's afraid FERC will let power generators exaggerate their= =20 costs in order to bump up the caps.=20 "The good news is, they seem to be more serious," Wolak said of the=20 oft-criticized commissioners. "But given how many times we've been taken in= ,=20 I'm wary."=20 In addition, generators will be allowed to exceed the price caps if they ca= n=20 justify it to FERC officials. Borenstein said FERC in the past has allowed= =20 generators to justify just about every price level imaginable, and he's=20 suspicious that the commission will let generators do the same in order to= =20 evade the new price controls.=20 State officials, while cautiously optimistic about the plan, were upset tha= t=20 FERC will allow a 10 percent price premium on electricity because of the ri= sk=20 of selling to the California market.=20 "We recognize that the risk of nonpayment in California continues to be=20 greater" than in other states, the commission said in its written opinion,= =20 released late Tuesday.=20 Gov. Gray Davis' spokesman, Steve Maviglio, called the premium ludicrous=20 because the state Department of Water Resources has been buying electricity= =20 ever since the state's troubled utilities exhausted their credit in=20 mid-January.=20 "The state is as creditworthy a buyer as you can get," Maviglio said.=20 Experts said the plan also won't correct the state's energy imbalance.=20 "None of this is going to have much effect on blackouts," Borenstein said.= =20 "This is solving part of the problem; I'm worried people will think=20 everything has been solved.=20 "The emphasis now has to be on getting California to conserve," he added.= =20 A spokesman for power generators, Gary Ackerman, said the price controls=20 could worsen shortages this summer and will discourage generating firms fro= m=20 investing in the new power plants the West desperately needs.=20 Builders "are going to sit on the fence and think about this," said Ackerma= n,=20 head of the Western Power Trading Forum.=20 Acting in the face of mounting political pressure and unrelenting criticism= =20 from California, FERC voted Monday to impose round-the-clock price controls= =20 throughout the 11-state Western region.=20 The FERC plan replaces a three-week-old plan that applied only to Californi= a=20 and took effect only when power reserves fell to below 7 percent of demand= =20 and an official "power alert" was declared.=20 By extending the plan to the entire West, experts said the commission=20 probably put an end to the phenomenon known as "megawatt laundering," in=20 which power was shipped out of California and then re-imported. Imported=20 power wasn't subject to the old price controls.=20 The new controls, said consultant Stiffler, "significantly narrow the abili= ty=20 of a trader to move power around and play the market."=20 The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.co= m. State to borrow up to $5 billion to buy energy=20 By Emily Bazar Bee Capitol Bureau (Published June 20, 2001)=20 State Treasurer Phil Angelides announced Tuesday that he will borrow up to = $5=20 billion to pay for future power purchases, a move he said was necessary to= =20 avoid a continued drain on California's budget and cuts in other state=20 programs.=20 Since mid-January, energy purchased by the state Department of Water=20 Resources on the spot market and under long-term contracts has come out of= =20 the state's general fund, the source of most state spending.=20 Once the loan becomes final by the end of next week, however, energy will b= e=20 purchased with the proceeds.=20 Made possible by an emergency order from the governor, the loan ultimately= =20 will be paid off by customers of the state's investor-owned utilities throu= gh=20 their electricity rates.=20 "In essence, it stops the general fund bleeding," Angelides said.=20 The state has so far committed $8.2 billion from the general fund to=20 electricity purchases. Of that amount, Angelides said the Department of Wat= er=20 Resources has actually spent about $6.1 billion through June 12 on power=20 purchases, and has received about $900 million back from customers'=20 electricity rates.=20 Officials expect the loan to finance power purchases through September, whe= n=20 they plan to issue up to $13.4 billion in revenue bonds.=20 The bonds will reimburse the general fund and and pay off the loan.=20 "This gives the state some more running room, some more cushion in case=20 anything goes awry with the bond sale to make sure ... the state does not r= un=20 out of general fund money, jeopardizing education programs, law enforcement= =20 programs, children's and health services," the Democratic treasurer said.= =20 Angelides said he has obtained firm commitments for $3.5 billion from JP=20 Morgan and Lehman Brothers at a blended interest rate of about 4.5 percent.= =20 If the long-term bonds are not issued by Oct. 31, the interest rate would= =20 climb to about 7 percent.=20 Lawmakers initially had hoped to close the short-term loan in May and float= =20 the long-term bonds shortly thereafter. However, Republicans in the state= =20 Legislature balked at the plan, forcing the delay of the bond sale until=20 mid-August.=20 Rather than wait, Gov. Gray Davis invoked his emergency powers to allow for= =20 the loan and circumvent the delay.=20 Assembly Republicans don't mind that the governor used his emergency powers= =20 to expedite the loan, said James Fisfis, a spokesman for the caucus. Instea= d,=20 he said, they're concerned the loan could backfire and hurt Californians.= =20 "If the larger bond offering falls through, the penalties and added interes= t=20 could add up on ratepayers' bills," he said.=20 But Angelides argued that the loan would benefit ratepayers on several=20 fronts: Power generators can no longer argue the state should pay a "credit= =20 premium" on electricity, he said, and for the most part will not be able to= =20 walk away from long-term energy contracts that have provisions requiring th= e=20 Department of Water Resources to obtain external financing by July 1.=20 Outside the Legislature, the announcement drew praise from financial analys= ts=20 who had criticized the state for buying power with taxpayer money.=20 In late April, for instance, Standard & Poor cited fears over the state's= =20 mounting power costs when it downgraded California's credit rating on state= =20 bonds.=20 But S&P managing director Steven Zimmermann called the governor's executive= =20 order a step in the right direction.=20 "We're very happy," Zimmermann said. "We were very anxious for the state to= =20 take the general fund out of the energy purchasing position it's been in."= =20 The Bee's Emily Bazar can be reached at (916) 326-5540 or ebazar@sacbee.com= . Dan Walters: Once burned, lawmakers are very wary of Davis-Edison agreement (Published June 20, 2001)=20 The Capitol's politicians rarely attempt to resolve big, complicated policy= =20 issues, preferring to occupy their time with relatively trivial matters --= =20 which also tend to be the priorities of well-heeled and generous interest= =20 groups.=20 And when they even acknowledge a need to address something big, they'll oft= en=20 just nibble at the edges rather than confront the underlying conflicts=20 squarely. That's been the pattern on water, transportation, population grow= th=20 and public education, to name but a few of many examples.=20 The Capitol completed just one comprehensive, or seemingly comprehensive, b= it=20 of policymaking during the last quarter-century. But the issue on that=20 occasion was electric utility deregulation, which has exploded into an ener= gy=20 crisis of monumental proportions. And that experience is having a paralyzin= g=20 effect on the Capitol's denizens.=20 Some Capitol old-timers call it "1890 disease," named after the number of t= he=20 1996 bill that created California's fatally flawed system of pricing electr= ic=20 power. The legislation was written largely by lobbyists for affected intere= st=20 groups and then presented to the full Legislature for take-it-or-leave-it= =20 approval. The measure was passed without a single dissenting vote, even=20 though only a few lawmakers even began to understand its ramifications.=20 It was a huge failure of the legislative process, virtually a dereliction o= f=20 duty, and those who participated have been doing some fancy explaining. But= =20 given the history, both veteran legislators and those who came to the Capit= ol=20 after 1996 are very leery about putting their names on additional pieces of= =20 energy policy that could backfire if the real-world outcome is markedly=20 different from the purported effects.=20 One example is the $43 billion in long-term energy supply contracts=20 negotiated by Gov. Gray Davis' administration to end the state's dependence= =20 on volatile spot market prices. When the long-term contracting program was= =20 authorized by the Legislature early this year, it was on the assurances of= =20 the administration that it could obtain large quantities of power at cheap= =20 prices. But by the time that the contracts were made final, months later, t= he=20 average price was 25 percent higher than what was stated earlier, while the= =20 spot market had fallen dramatically. Now the long-term contracts that seeme= d=20 like such a good idea in January and February could become financial=20 albatrosses.=20 An even more telling example is the deal Davis made with Southern Californi= a=20 Edison to keep the utility from joining Pacific Gas and Electric in=20 bankruptcy. The utilities accumulated at least $13 billion in debts in six= =20 months, buying power at prices much higher than they were allowed to=20 recapture from their customers. Consumer groups are denouncing the Edison= =20 deal as a corporate bailout that would impose multibillion-dollar burdens o= n=20 customers while imposing virtually no financial onus on Edison or its=20 creditors. And the deal's critics are pouncing on legislators' reluctance t= o=20 do something that might haunt them later -- especially in 2002, a critical= =20 election year.=20 "Five years ago, lawmakers and the utilities foolishly foisted this=20 deregulation scheme onto California consumers, and now the governor and=20 Edison expect the ratepayers to pay billions more to save the utilities fro= m=20 their own mismanagement and bad policy decisions," consumer gadfly Harvey= =20 Rosenfield said Tuesday as legislative hearings opened on the Edison deal.= =20 "This time, the whole world is watching the Legislature."=20 Harry Snyder of Consumers Union echoed Rosenfield's pledge to hold=20 legislators accountable. "It looks a lot like 1890," Snyder said. "It's too= =20 big, (and) this is the same process all over again."=20 The sheer complexity and potential ramifications of the deal are weighing= =20 heavily on lawmakers. "This is not a Mother's Day resolution," Senate Energ= y=20 Committee Chairwoman Debra Bowen said wryly as the hearings began. Davis an= d=20 Edison lobbyists are pulling out all the stops, but legislators are very,= =20 very nervous about taking another big step that could generate public=20 backlash.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . Senate Democrats lay back to see if FERC action provides rate relief=20 By Finlay Lewis COPLEY NEWS SERVICE=20 June 19, 2001=20 WASHINGTON =01) Key Senate Democrats called a truce Tuesday in the politica= l=20 wars raging over California's energy crisis, as they adopted a wait-and-see= =20 posture over the Federal Energy Regulatory Commission's latest order=20 restricting electricity prices across much of the West.=20 Senators of both parties expressed relief over FERC's action on Monday. But= =20 Sen. Dianne Feinstein, D-Calif., said she was skeptical that the order woul= d=20 end wholesale price manipulation by power providers or result in refunds to= =20 overcharged ratepayers.=20 Feinstein and Sen. Gordon Smith, R-Ore., have prepared legislation seeking = a=20 much tighter pricing formula than the one FERC used. But she asked that the= ir=20 bill be set aside temporarily in deference to the agency's action.=20 "I think we should wait and see what happens," Feinstein said during a Sena= te=20 Energy and Natural Resources Committee hearing on the FERC order.=20 Democrats on the committee pressed FERC Chairman Curtis L. Hebert and the= =20 four other commissioners on why they had not acted sooner to control the=20 daily price turbulence in the California energy market. A market-interventi= on=20 order issued by FERC in April was designed to cope only with energy-supply= =20 emergencies, despite pleas by California Gov. Gray Davis and other Californ= ia=20 Democrats for more drastic measures.=20 "It's time to stop blaming and start problem-solving," said Hebert, a=20 Republican appointed chairman by President Bush.=20 Hebert noted that electricity prices on the volatile spot market have dropp= ed=20 considerably since the April order. Prices on the energy futures market hav= e=20 also tumbled, as have natural gas prices =01) a key component in the cost o= f=20 electricity.=20 On Monday, FERC unanimously ordered around-the-clock restraints on wholesal= e=20 electricity prices in California and 10 neighboring states over the next 15= =20 months.=20 As was the case with the April measure, prices will be pegged to the costs = of=20 the least efficient power provider when reserves in California fall below 7= =20 percent. But when reserves are more plentiful, the prices will drop to 85= =20 percent of the level established during supply shortages.=20 The order also provides for a 22-day period, involving arbitration and revi= ew=20 by an administrative law judge, for resolving price-gouging allegations and= =20 providing refunds in cases of improper pricing.=20 Adamantly opposing price controls earlier, FERC acted after coming under=20 intense pressure from lawmakers of both parties. Republicans said they were= =20 worried that their GOP colleagues in California would have been blamed and= =20 possibly imperiled at the polls if FERC had failed to act.=20 Bush, who also took a hard line against price caps, blessed FERC's action= =20 after it was taken.=20 Hebert criticized the bill advanced by Feinstein and Smith as an attempt to= =20 solve California's problem by "bureaucratic fiat."=20 Their measure would calculate wholesale electricity prices based on the=20 reported production costs of the individual generators, with an added=20 allowance for a profit margin.=20 Hebert argued that the "mitigation price" that FERC will establish "is not = a=20 blunt, arbitrary figure that bears no resemblance to market conditions and = is=20 subject to political pressures and whims."=20 Meanwhile, Commissioner William Massey made it clear that he harbors=20 misgivings about the FERC measure, although he supported it.=20 He said the agency should have acted earlier to avoid the subsequent=20 "carnage" in California, has failed to provide guidelines that would assure= =20 refunds to overcharged consumers and has acted questionably in allowing pow= er=20 providers to impose a 10-percent surcharge to cover credit-worthiness risks= .=20 Massey, a Democrat who has consistently criticized his colleagues for movin= g=20 too slowing in the California crisis, also said he wondered whether the ord= er=20 would provide an unintended incentive for generators to continue using=20 inefficient units in order to assure higher profit margins for their more= =20 modern facilities.=20 Sen. Barbara Boxer, D-Calif., said she would propose legislation later this= =20 week designed to assure refunds to customers who have had to pay unfair=20 prices for their electricity.=20 "If FERC won't do it ... Congress should," Boxer said.=20 A spokesman for Sen. Jeff Bingaman, D-N.M., chairman of the committee, said= =20 Bingaman agreed with Feinstein on the need for a time-out while the FERC=20 order is being implemented.=20 Gov. Davis will testify today (6/20) before the Senate Government Affairs= =20 Committee, which is investigating FERC's role in the crisis. Hebert and the= =20 other commissioners will also appear.=20 House panel erases Bush energy cuts=20 By Alan Fram ASSOCIATED PRESS=20 June 19, 2001=20 WASHINGTON =01) A House subcommittee voted Tuesday to spend $1.2 billion mo= re=20 next year than President Bush proposed for energy and water programs,=20 underlining lawmakers' sensitivity to the West's power problems and their= =20 desire for home-district projects.=20 The $23.7 billion measure, approved by voice vote by a panel of the House= =20 Appropriations Committee, is normally one of the more routine of the 13=20 annual spending measures Congress must approve. But with this year's=20 escalating battle between Bush and Democrats over energy policy, the=20 measure's profile has been raised.=20 The bill would provide $18.7 billion for the Energy Department, $641 millio= n=20 more than Bush requested and $444 million more than this year. Fiscal 2002,= =20 which the bill covers, begins Oct. 1.=20 It also includes nearly $4.5 billion for the Army Corps of Engineers and th= e=20 hundreds of water projects it has under way across the country, $568 millio= n=20 more than Bush proposed but $73 million less than this year.=20 The measure was approved shortly after top members of the committee met wit= h=20 Bush at the White House.=20 Participants said Bush and the lawmakers reaffirmed their goal of keeping t= he=20 price tag of the 13 bills to $661 billion, which is one-third of the overal= l=20 federal budget. That would be a 4 percent boost over 2001, which many=20 Democrats =01) and some Republicans in private =01) say is too low.=20 "He said there would be attempts to raise this as we go through the process= ,=20 and let's stick with him," said Rep. Sonny Callahan, R-Ala., chairman of th= e=20 energy and water subcommittee.=20 Illustrating the pressures Republicans face, David Sirota, spokesman for th= e=20 Democrats on the committee, said the bill lacked the new spending needed fo= r=20 renewable energy and other programs that could help alleviate power=20 shortages.=20 Under the bill approved Tuesday, renewable energy programs would get $377= =20 million, $100 million more than Bush wanted and $1 million more than this= =20 year. Nuclear energy, basic energy sciences, biological and environmental= =20 research and a study of whether spent nuclear fuel should be stored at a=20 Nevada site would all get about what Bush proposed.=20 The bill's $7.03 billion for environmental cleanups is $699 million more th= an=20 Bush proposed. Programs aimed at containing the nuclear arsenals of former= =20 Soviet states would get $845 million, $71 million more than Bush's plan.=20 Members voted to hold the brief meeting behind closed doors after citing th= e=20 national security sensitivity of publicly discussing some of the nuclear=20 weapons programs covered by the bill.=20 Davis, Regulators Face Off at Hearing From Reuters=20 ?????WASHINGTON -- California Governor Gray Davis, a Democrat, today blamed= a=20 Republican-led energy regulatory agency for not doing enough to help his=20 energy-starved state and demanded refunds of $6.7 billion for alleged=20 price-gouging by power generators. ?????Davis, whose political future has been linked to his state's electrici= ty=20 woes, was testifying at a Senate hearing with members of the Federal Energy= =20 Regulatory Commission. ?????The hearing marked the first time that Davis met face to face with all= =20 five FERC commissioners. ?????FERC regulates interstate electricity markets and has jurisdiction to= =20 order refunds by power generators found to have overcharged utilities. ?????Earlier this week the agency, led by a Republican majority, rejected= =20 Davis' pleas for strict caps on prices that soared above $400 per megawatt= =20 hour last month. ?????Sen. Joseph Lieberman, the former Democratic vice presidential nominee= ,=20 heads the Senate Governmental Affairs Committee that quizzed the FERC=20 commissioners and Davis on efforts to stabilize the chaotic Western=20 electricity market. ?????Davis accused FERC of failing to act aggressively against alleged=20 price-gouging by out-of-state generators. ?????"To date, not a single penny in refunds has been returned to=20 Californians," Davis said. "It is unconscionable for the generators to prof= it=20 from their egregious overcharges. FERC must move quickly to enforce the law= =20 and order the energy companies to give back the money." ?????Davis said the state is owed refunds of at least $6.7 billion.=20 California's grid operator has estimated that from May 2000 to May 2001,=20 power generators charged the state nearly $9 billion more than a competitiv= e=20 market would warrant, he said. ?????California, the nation's most populous state, has been hit with a seri= es=20 of rolling blackouts, the bankruptcy of its largest utility, and an economi= c=20 slowdown since the power crisis began last year. ?????The state is expected to convene a criminal grand jury to investigate= =20 whether some power generators withheld supplies, shut down plants or=20 exploited the bidding process to drive up prices. Out-of-state generators= =20 deny any illegal activity, saying the high prices simply reflect supply=20 shortages. ?????Today also marks the day that FERC's newly expanded "price mitigation"= =20 program goes into effect in all 11 Western states with a wholesale price=20 limit of $107.9 per megawatt hour linked to a market formula. The plan had= =20 previously applied only to California during emergency power outages. ?????Since FERC's action earlier this week, Senate Democrats dropped a=20 legislative effort to strictly cap electricity prices in the West. However,= =20 California Democrats in the House were still trying to force a full vote on= a=20 package of energy amendments, including a price cap. ?????The Bush administration and many Republicans oppose price caps,=20 contending they would discourage more power production. ?????Separately, today the U.S. Energy Department issued a study that=20 supported the White House's view that strict price caps would hurt, not hel= p,=20 California. ?????The study found California faces about 113 hours of rolling blackouts= =20 this summer, a level that would double if wholesale prices were capped at= =20 $150 per megawatt because some 3,600 megawatts of generating capacity would= =20 shut down. An alternative approach of setting a price cap based on producti= on=20 costs plus $25 per megawatt would delay or close about 1,300 megawatts of= =20 capacity scheduled to be built in the state, according to the study. ?????However, lawmakers from both political parties have scrambled for some= =20 kind of solution to address the shortages in California well before the=20 congressional elections next year. ?????The FERC plan expands an existing "price mitigation" program in=20 California to 10 other Western states. The plan, which runs through Septemb= er=20 2002, means that during nonemergency periods the price for wholesale power= =20 cannot exceed 85 percent of the cost of electricity sold during a Stage 1= =20 power shortage emergency in California. ?????A Stage 1 emergency is declared when electricity supplies fall below 7= =20 percent of demand on the Western power grid. ?????The plan also imposes a 10 percent surcharge on all power sales into= =20 California as financial protection for generators reluctant to sell to the= =20 state's financially weak utilities. ?????Davis was due to meet the two newest FERC commissioners, Patrick Wood = of=20 Texas and Nora Brownell of Pennsylvania, today. Both are former utilities= =20 regulators in states that successfully deregulated their power industry and= =20 nominated to the agency by President Bush. Copyright 2001 Los Angeles Times=20 NEWS ANALYSIS Energy on Agenda, but Issue Is Blame=20 Politics: Gov. Davis will try to sway voter anger toward the GOP as he face= s=20 a Senate panel.=20 By RONALD BROWNSTEIN, Times Political Writer=20 ?????WASHINGTON--When California Gov. Gray Davis testifies at a high-profil= e=20 Senate hearing today, the issue formally on the table will be the expanded= =20 electricity price controls that federal regulators approved this week. But= =20 the session's political subtext will be the escalating struggle between Dav= is=20 and national Republicans to determine where California voters look for=20 solutions--and blame--for the state's power woes. ?????In both California and Washington, Republican strategists believe Davi= s=20 is trying to manufacture a succession of conflicts with the White House tha= t=20 will allow him to run in 2002 as much against President Bush as against=20 whomever the state GOP nominates in the gubernatorial race. In return,=20 Republicans are trying to shift the focus back toward Davis--most=20 aggressively through a California-wide television advertising campaign=20 organized by Scott Reed, a former executive director of the Republican=20 National Committee. ?????"Our goal is to get the focus back to Sacramento, where it belongs,"= =20 Reed said. ?????Both sides see the same prize in this tug of war: the opportunity to= =20 determine where most Californians direct their anger during what could be a= =20 long, hot summer of power shortages. ?????"The situation is that the public's minds are not made up on this=20 issue--whether it is Sacramento or Washington who has acted too little, too= =20 late," said Mark Baldassare, a pollster at the independent Public Policy=20 Institute of California. "That gives both sides an opportunity to get their= =20 messages out. The stakes are fairly high in terms of how the public in=20 California ends up assessing blame over the next few months." ?????A Slight Uptick in Davis' Popularity ?????Overall, Davis' political situation appears to be stabilizing. After= =20 months of runaway power costs, the prices the state pays for wholesale=20 electricity are falling and new plants will come online next month. And=20 following a free fall in private polls, Davis has seen his numbers tick bac= k=20 up slightly. Similarly, a poll financed by independent power generators=20 showed that in mid-June, for the first time in months, Californians were=20 becoming slightly more confident that the crisis is easing. ?????Within the state Capitol, Davis is asserting himself, demanding that= =20 lawmakers hold hearings on his rescue plan for Southern California Edison. = On=20 Monday, he released details of a similar plan for San Diego Gas & Electric.= =20 Last week, he announced an agreement that is likely to increase generation = by=20 alternative energy producers, who account for about a fourth of the state's= =20 supply. ?????"This guy is changing," said state Sen. Steve Peace (D-El Cajon), who = a=20 few months back had been urging that Davis take a more aggressive stance on= =20 the crisis. "There is a difference in his demeanor and focus." ?????Yet the energy crisis still looms as a vast cloud over a reelection=20 campaign that once looked like a stroll on the beach. ?????The paradox for Davis is that the substantive victory for pricecontrol= =20 advocates at the Federal Energy Regulatory Commission meeting this week may= =20 complicate his political goal of maintaining a heavy focus on Washington.= =20 Though Davis and some congressional Democrats portrayed FERC's decision as= =20 insufficient, it appears to have lanced the pressure for federal legislatio= n=20 to impose the tighter price controls that Davis supports.=20 ?????Sen. Dianne Feinstein (D-Calif.), a principal sponsor of that bill, on= =20 Tuesday announced she would shelve the measure for six months to give the n= ew=20 FERC plan time to work. ?????As a result, the political effect of the FERC ruling could be to shift= =20 the focus away from Washington back toward decisions in Sacramento, which i= s=20 exactly what Republicans prefer. "Gray Davis is the dog that finally caught= =20 the car," said Dan Schnur, a San Francisco-based GOP consultant. "Davis is= =20 going to keep screaming about price caps and refunds, but now Republicans c= an=20 point to substantive action." ?????Davis: 'Much More They Should Do' ?????For months, Davis has criticized Bush for refusing to support=20 electricity price controls and other measures that the governor says could= =20 ease California's energy crunch. At almost every opportunity, Davis offers= =20 the same message: California is taking the steps it needs to, but Washingto= n=20 has failed to help enough. That was precisely Davis' message Monday when FE= RC=20 significantly expanded the limited price caps it had imposed previously. ?????While saying that FERC had "finally taken a step in the right=20 direction," Davis added: "There is much more they should do"--including=20 providing refunds to California for alleged overcharges. The overall tone o= f=20 Davis' statement was much more skeptical about FERC's action than the remar= ks=20 from Feinstein, who described the decision as "a giant step forward." ?????Aides say Davis plans to repeat that two-part message in his appearanc= e=20 today before the Senate Governmental Affairs Committee, chaired by Sen.=20 Joseph I. Lieberman (D-Conn.). In his testimony, and in a round of schedule= d=20 television appearances, Davis will demand that FERC order refunds in the=20 range of $5 billion to $6 billion to the state, aides said. Davis also will= =20 distribute to every member of Congress a 177-page book chronicling the=20 state's response to the crisis. ?????Inside the Bush White House, some officials see in Davis' cool respons= e=20 to FERC's decision more evidence that the governor is determined to use the= =20 White House as a foil in his reelection campaign. The prevailing view, one= =20 official said, is that, no matter what concessions the administration offer= s,=20 Davis will immediately raise the bar and demand something else--the way he= =20 did by talking about rebates as soon as FERC offered tougher price controls= . ?????"That is Davis' M.O.," said one official involved in the White House's= =20 energy strategy. "He asks the administration to do something, the=20 administration does it, and then he attacks the administration for not doin= g=20 enough. . . . He needs someone to blame." ?????Davis aides reject that characterization, arguing that the governor is= =20 merely representing the state's interests against an administration that th= ey=20 maintain is favoring energy producers over consumers. But Davis advisors=20 acknowledge that they have used focus groups to test campaign messages that= =20 pin the blame for the energy crunch primarily on Davis' Republican=20 predecessor, Pete Wilson, and a "Republican president who has failed to sto= p=20 his rich friends in the energy industry" from gouging consumers, one aide= =20 said. ?????"You don't have to tell people in focus groups more than once how this= =20 is connected," the Davis aide said. ?????Gubernatorial Rivals Are Free of Blame ?????Baldassare, the independent pollster, notes it may be especially=20 imperative for Davis to keep Bush's energy decisions in the spotlight becau= se=20 none of his potential Republican opponents in 2002--California Secretary of= =20 State Bill Jones, former Los Angeles Mayor Richard Riordan or businessman= =20 William E. Simon Jr.--is easily tagged with complicity in the problem. "Non= e=20 of them were really involved in the decision-making over deregulation,"=20 Baldassare said. "The only one else to blame, in a political sense, is=20 Washington and the Bush administration." ?????The new independent advertising campaign against Davis was inspired=20 largely by the fear of that strategy succeeding--damaging the standing in= =20 California not only of Bush but also of other Republicans, particularly tho= se=20 in Congress. Reed, whose American Taxpayers Alliance is funding the ads, sa= id=20 he decided to launch the campaign after Davis appeared to gain the upper ha= nd=20 in the media debate following Bush's visit to California late last month. ?????"The Bush trip really changed the terms of debate about Davis' problem= =20 and made it more of a possible national Republican problem," Reed said. "Th= e=20 entire terms of debate turned around and was focused on the issue of price= =20 caps as opposed to negligence on Davis' behalf. Our group is attempting to = go=20 out and engage Davis." ?????To "engage" Davis, Reed's group, which has not revealed its donors, is= =20 spending what he said would be $1.5 million on an initial ad criticizing=20 Davis this week, though a spot check of TV stations around the state=20 indicated a far more modest buy. Reed said the group is planning to air a n= ew=20 ad as soon as this week. ?????Democrats plan to answer the ads with attacks of their own and will be= =20 filing complaints with the IRS and other federal agencies about the anonymo= us=20 funding of the Reed ad. ?????Today's Senate hearing will give Davis another chance to respond to th= e=20 GOP and make his case for greater help from Washington. But Lieberman aides= =20 acknowledge the hearing is likely to be much less confrontational than it= =20 would have been if FERC had not acted Monday. The agency's decision "change= d=20 the dynamic," the aide said. ?????That assessment may apply not only to the conflict between FERC and it= s=20 critics but also equally to the hostilities between Davis and the White Hou= se. ---=20 ?????Times staff writers Dan Morain in Sacramento and Mark Z. Barabak in Lo= s=20 Angeles contributed to this story. Copyright 2001 Los Angeles Times=20 Blackout Forecasts' Dark Side=20 If optimists are wrong and the power runs out, California's energy crisis= =20 could quickly cost lives and cripple the economy.=20 By JENIFER WARREN, Times Staff Writer=20 ?????It's here. Summer 2001, the blackout season, is only a day away. ?????Already Californians anticipate power outages when temperatures rise. = By=20 August, the occasional annoyances endured so far--stoplights gone dark,=20 computers, air conditioners and elevators idled--could seem almost quaint. ?????Gov. Gray Davis insists we needn't worry. Four large new power plants= =20 are firing up soon, he said, and government's best and brightest are lockin= g=20 up still more megawatts to help meet our peak summer need. Californians,=20 Davis predicts, will valiantly heed his call to conserve, helping the state= =20 survive the hot months, no sweat. ?????With luck, he'll be right. Power prices have stabilized, and some ener= gy=20 analysts are wondering whether California may have tamed the blackout beast= . ?????But what if those plants don't get built in time, people don't trim=20 their electricity use 7% and energy imports are more meager than expected? ?????And what if the state gets hit by a summer that is not moderately hot,= =20 as Davis bets, but blistering, record-setting hot? ?????Government experts who ponder such questions don't expect disaster in= =20 the coming months. But they are planning for it nonetheless. ?????At best, they say, Californians can expect some gridlocked=20 intersections, an occasionally overloaded 911 system, perhaps some business= =20 bankruptcies, certainly inconvenience. At worst, the Western power grid cou= ld=20 crash, causing uncontrolled blackouts that might lead to looting,=20 contaminated water supplies, even civil unrest. ?????"How bad could this summer get?" said state Sen. Joe Dunn (D-Santa Ana= ).=20 "This summer could be the worst disaster to ever hit the state of Californi= a." ?????Imagine it's a Thursday morning in the third week of July. Relentless= =20 heat grips California, the curse of a stubborn high-pressure ridge that jus= t=20 won't budge. ?????As air conditioners from Redding to Chula Vista lumber to life, manage= rs=20 of the state's power grid in Folsom gulp their third and fourth cups of=20 coffee, stare at a bank of computers and begin to fret. ?????Demand is jumping. Supply is static, Canada and Arizona have nothing t= o=20 sell. It's looking tight. ?????Thirty minutes later, the picture is gloomier. A brush fire shuts down= =20 transmission lines near Fresno, squeezing supply in the Central Valley. In= =20 the Bay Area, the unusual heat drives demand well past projections. ?????By noon things look bleak. Operators of the Diablo Canyon nuclear powe= r=20 plant near San Luis Obispo have cut output by 80%. The trouble? Chunks of= =20 kelp have lodged in one of the plant's seawater intake valves, creating a= =20 clog like one that plagued the facility in January. ?????With a chorus of groans, the grid's keepers scour the market for power= =20 to offset the Diablo loss. No luck. As the mercury climbs and the Golden=20 State economy roars into full swing, electricity consumption ticks upward,= =20 minute by minute. And when managers of a power plant near Long Beach cut=20 output because of a cracked turbine, everyone knows what it means. ?????Alert the utilities. It's lights out, California, for the fourth day i= n=20 a row. ?????Dr. J. Michael Leary dreads blackouts--not personally, but=20 professionally. Leary is an emergency room physician in the desert city of= =20 Rancho Mirage. When air conditioners go on the blink there, the=20 victims--scores of them, mostly old folks--wind up in his ER. ?????In a normal year, 75% of his emergency patients are geriatrics. Like= =20 infants, the elderly are unusually vulnerable to the heat. When blackouts= =20 hit, they are most at risk. ?????"It's as if you lived in Maine and they turned the heat off in January= ,"=20 Leary said. "This is an extreme environment we live in. The effects can be= =20 devastating." ?????Many desert seniors are on fixed incomes and live in mobile homes, som= e=20 of them poorly insulated boxes that turn into ovens under the brutal summer= =20 sun. Take away the air conditioning and the humans inside start baking, qui= ck. ?????For Leary, the specter of continual, back-to-back blackouts in=20 July--and, some predict, in June and August too--conjures images of an=20 82-year-old man, living alone in one of those mobile homes, taking medicati= on=20 for heart disease. The cardiovascular drugs plague the man with numerous si= de=20 effects; one inhibits his body's ability to cool itself. ?????When a person gets overheated, body temperature eventually rises=20 uncontrollably. Then comes a nasty spiral of effects, and pretty soon "you = go=20 into shock," Leary said. "Everything just shuts down." ?????On average each year, 371 Americans die from heat-related causes, more= =20 than the number killed by earthquakes, tornadoes, hurricanes, lightning and= =20 floods combined. In 1995, a record hot spell in Chicago killed 465 people.= =20 Eleven Californians died from the heat in 1998. ?????A new report by the United Seniors Assn. predicts that more than half = a=20 million elderly Californians could need hospitalization for heat-related=20 ailments this summer.=20 ?????Some communities have laid plans for cooling shelters, wading pools an= d=20 other measures to provide relief. But will all who need help get it? Or get= =20 it in time? ?????Out in the desert, paramedics expect a crush of 911 calls when the pow= er=20 goes out and the ill, frail and frightened seek help. Leary and others at= =20 Eisenhower Medical Center will be waiting, armed with ice packs, cooled IVs= =20 and ventilators. ?????"I am very, very worried," the doctor said. "I think we'll see a great= =20 toll in human suffering, even mortality." ?????California's tomato processors are no less anxious. They wash, cook,= =20 peel, chop, mash and can about 1 million tons of tomatoes a week from July = to=20 October--enough to account for half the world's supply. For them, a string = of=20 unexpected power losses could mean economic ruin in a matter of days. ?????The reason lies in the peculiar nature of food processing--a sterile= =20 system instantly contaminated if the power fails and the plant's precise=20 temperature is disturbed. ?????Once a batch of tomatoes is tainted, it must be thrown out--all 50,000= =20 pounds. The plant must then be sanitized, a painstaking process that takes= =20 about 36 hours. ?????"If you get hit by blackouts every third day for, say, two weeks, you'= re=20 starting, stopping, cleaning, restarting--it's a nightmare," said Jeff Boes= e,=20 president of the California League of Food Processors. "You could lose thre= e=20 batches and be out $40 million before you knew what hit you." ?????Meanwhile, farmers with still more truckloads of tomatoes line up=20 outside the plant, waiting to be paid for their crop: "If we can't process= =20 them, the farmers have spent an entire season growing them for nothing,"=20 Boese said. ?????In Sonoma County, the object in peril is the chicken. Egg producers=20 equip their laying houses with fans and swamp coolers to keep the hens=20 comfortable. Power is also needed to run giant refrigerators filled with eg= gs. ?????"In a blackout, those hens can overheat in no time," said Rich Matteis= =20 of the Pacific Egg and Poultry Assn. "In 20 or 30 minutes, you could have= =20 100,000 birds die." ?????Many large producers have backup generators, but they are not designed= =20 for ongoing, intensive use. Will they hold up? Small-scale egg producers=20 often have no backup power at all. ?????Hundreds of other California businesses could suffer if summer shapes = up=20 as bad as some predict. ?????The Valero Refining Co. of California, northeast of San Francisco,=20 produces 115,000 barrels of gasoline a day. Because restarting a refinery i= s=20 a complicated task, two or three blackouts close together could prompt=20 officials to shutter it until electricity supplies stabilize--costing=20 California about 10% of its gasoline supply. ?????At a Berkeley medical laboratory, doctors say power losses to their=20 freezers could destroy bone marrow needed to give young leukemia patients= =20 lifesaving transplants. The state's 400 dialysis centers, where patients=20 without kidney function go to have their blood cleansed every other day, ar= e=20 in the same fix. Few have backup generators, so when an outage hits,=20 technicians must crank the machines by hand. ?????Most Californians, of course, face far more ordinary consequences. The= =20 scoreboards will fizzle at summer softball games, joggers on treadmills wil= l=20 be stopped in their tracks, electric organs will go silent, leaving choirs = to=20 sing without accompaniment. ?????Parents will be asked to retrieve children from day-care centers when= =20 the lights and cooling systems conk out. Anniversary lunches may be ruined= =20 when restaurants cannot grill salmon or blend margaritas. ?????Most people will tolerate occasional disturbances, psychologists say,= =20 doing their part in a time of crisis. But what if such irritations become a= n=20 everyday fact of life? ?????Hundreds of "essential" energy users--including prisons, fire=20 departments and airports--are protected from blackouts, and hundreds more= =20 have applied for exemptions. That means the pool of people bearing the=20 blackout burden is shrinking, so more frequent outages are likely. ?????Blackout predictions vary widely, but at least one forecaster, a=20 consultant for California water districts, anticipates an outage almost eve= ry=20 afternoon of every workday this summer if temperatures are unusually warm. ?????Californians are accustomed to trash compactors, giant-screen TVs and= =20 having the Internet at their fingertips. How much deprivation will they=20 tolerate? ?????"So far, the version of blackouts we've experienced hasn't looked too= =20 scary to people--it happens on a workday, in the afternoon, and you basical= ly=20 have to come home and reset your VCR," said Dan Kammen, a professor of ener= gy=20 and society at UC Berkeley. ?????But if outages become daily events, and start to invade the evening=20 hours, the public mood could change abruptly. ?????"When there's a disaster or crisis or trauma, people tend to act=20 heroically and work together," said Robert Butterworth, a Los Angeles=20 psychologist and trauma specialist. "But the civilized behavior only lasts = a=20 short period. Then people start acting in unpredictable ways." ?????That tendency may be exacerbated, Butterworth said, by the nature of t= he=20 energy crisis--not a natural disaster, but a man-made one. ?????"People start to look for a scapegoat," he said. "People will look for= a=20 target, and there's a tendency to strike out at whoever is closest to you." ?????One place that tendency may surface, Butterworth said, is on=20 traffic-clogged roads. Blackouts already have led to scores of accidents. A= dd=20 summer heat to the mix, and repeat the pattern day after day at rush hour,= =20 and motorists' patience could wear thin, law enforcement officials say. ?????"We're bracing for . . . possible acts of violence and road rage," sai= d=20 Sacramento County Sheriff's Lt. Larry Saunders. ?????Lon House is the water consultant who predicts California could see=20 blackouts almost every summer weekday. Among the worries for the 440 water= =20 agencies he represents: losing the ability to pump water during wildfire=20 season. ?????"I'm telling them to be ready for a major earthquake every day this=20 summer--meaning all your power is out throughout your district for multiple= =20 hours," House said. ?????House insists he isn't an alarmist. But on top of the fire fears, he= =20 warns that blackouts of more than a few hours would allow air into water=20 pipes, contaminating supplies. If that happens, Californians would be urged= =20 to boil their water until the system can be disinfected from one end of the= =20 pipe to the other. ?????Though rolling blackouts are risky, they remain essentially a controll= ed=20 phenomenon, occurring when and where the grid managers and utilities decide= .=20 Far more frightening--and devastating--are unexpected, cascading outages th= at=20 could shut down the entire Western power grid. It happened in August 1996,= =20 leaving 4 million people without power during a triple-digit heat wave. ?????The problem began when power lines in Oregon sagged into trees and shu= t=20 themselves off. That triggered a chain reaction of automatic switch-offs an= d=20 oscillating surges of energy that ultimately shut down all four of the main= =20 power arteries between California and the Pacific Northwest. ?????That robbed the system of thousands of megawatts--enough to power the= =20 city of Seattle four times over--and scattered outages across California an= d=20 six other Western states. Thousands of customers were without power for mor= e=20 than a day. ?????Though such an episode is rare, California grid managers say it is mor= e=20 likely today because the system is taxed by the ever-increasing load of=20 electricity it bears. ?????"The system is very dynamic, and when it's heavily loaded and highly= =20 stressed, like it is now, the smallest little thing could cause big trouble= ,"=20 said Kevin Bakker, who oversees California's connection to the greater=20 Western power grid.=20 ?????If a massive, uncontrolled outage should hit, the ramifications could = be=20 dizzying, said Mike Guerin, chief of law enforcement for the state Office o= f=20 Emergency Services. Police departments would probably go to tactical alert,= =20 guarding against looting by criminals who might take advantage of disabled= =20 alarm systems and darkened street lights. ?????In hot areas, cities might convert municipal buses--parked with air=20 conditioners running--into cooling shelters, Guerin said. The state would= =20 provide emergency generators to nursing homes and others in need, while the= =20 California National Guard might be called into action. ?????"With this kind of blackout scenario, you're not worried about the=20 bologna going bad in the refrigerator," Guerin said. "We're talking about= =20 doctors doing surgeries on backup generators for three days. We're talking= =20 about a lot of things we don't like to think about." ---=20 ?????Times staff writers Nancy Vogel and Alexander Gronke and researcher=20 Patti Williams contributed to this story. Copyright 2001 Los Angeles Times=20 FERC Move Short-Circuits Push for Hard Price Caps=20 By RICHARD T. COOPER and JANET HOOK, Times Staff Writers=20 ?????WASHINGTON--The Federal Energy Regulatory Commission's decision to=20 impose full-time price ceilings on wholesale electricity in California and= =20 the West appears to have deflated the congressional drive for a return to= =20 traditional utility regulation. ?????Sen. Dianne Feinstein (D-Calif.), calling the "price mitigation" syste= m=20 FERC unveiled Monday "a giant step forward," announced Tuesday that she is= =20 pulling back her bill to force a return to the "cost of service" pricing=20 system that prevailed before deregulation. Republican Sen. Gordon Smith of= =20 Oregon, a co-sponsor, agreed, as did Sen. Jeff Bingaman (D-N.M.), chairman = of=20 the Senate Energy Committee. ?????House Democrats vowed to fight on for tougher controls, but they were= =20 given little chance to succeed. ?????As a result, although the political blame game will rage on, the reali= ty=20 of a long, ugly summer for California appears to have arrived: at least=20 several months of tears, toil, sweat--and fast-rising electric bills. ?????California consumers are likely to face an unpleasant paradox, energy= =20 analysts said: Given present power shortages, blackouts are virtually=20 inevitable this summer. And, since state authorities are beginning to let= =20 high wholesale prices flow through into retail bills after months of=20 subsidies, many consumers could face higher charges at the same time their= =20 lights begin to flicker. ?????Even if FERC's order succeeds and wholesale prices fall, as they have= =20 begun to do in recent weeks, consumers' bills are likely to rise. Since=20 retail charges lag well behind wholesale prices, closing the gap will=20 probably mean a period of higher costs for consumers, regardless of what=20 happens in wholesale markets. ?????There is light at the end of the tunnel, energy analysts said, but it = is=20 probably a year away. And reaching it, they said, depends in part on=20 government officials taking no action that might spook investors and disrup= t=20 present plans for expanding the region's capacity to generate and deliver= =20 more power. ?????The new FERC system, which its designers said would provide temporary= =20 price relief while preserving incentives for energy investment, imposes=20 cost-based curbs on wholesale prices throughout the West and covers all suc= h=20 sales, not just those during periods of extreme shortages, as did the order= =20 issued in April. ?????FERC Chairman Curtis L. Hebert Jr. told the committee the new system= =20 will prevent "megawatt laundering" and other potential abuses. He said his= =20 agency is "committed to ferreting out any forms of market misbehavior 24=20 hours a day, seven days a week." ?????With the apparent collapse of demands for more intervention, Congress= =20 now seems ready to give FERC a year or more of leeway to see whether its pl= an=20 will curb wholesale prices and create what FERC member Linda Breathitt, a= =20 Democrat, called "a breathing spell" in which California and the West can= =20 "repair their dysfunctional markets." ?????"It still remains to be seen whether there can be manipulation, but I= =20 think we should wait and see," Feinstein said Tuesday at a Senate Energy=20 Committee meeting attended by all five FERC members. The commissioners call= =20 their new system "price mitigation," not price caps, but Feinstein said it= =20 amounts to the same thing. ?????"Whether you call it price mitigation or something else, a rose is a= =20 rose is a rose," said Feinstein, a member of the energy committee. ?????And Sen. Barbara Boxer (D-Calif.), appearing before the committee as a= =20 witness, said: "I was very pleased with [Monday's] about-face by FERC. I=20 believe they have a new tone." ?????Democrats on the other side of the Capitol pledged to keep fighting fo= r=20 traditional regulation, but with Republicans in control of the House, the= =20 struggle appears to be largely symbolic. ?????House Democrats wanted to introduce amendments on price controls and= =20 other energy policy to a mid-year supplemental appropriation bill due to co= me=20 before the House today. However, GOP leaders expected to block Democrats fr= om=20 even offering the amendments on procedural grounds. ?????The most sweeping of the amendments would set cost-based limits on=20 wholesale energy prices in the West. Rep. Henry A. Waxman (D-Los Angeles) a= nd=20 other sponsors insisted that the measure is still needed in spite of the FE= RC=20 action, which he said would continue to provide windfall profits to=20 generators, encourage suppliers to withhold power and do too little to=20 restrain the price of natural gas. ?????He called the FERC policy an "experiment" that is using California and= =20 other Western states as subjects. ?????Similarly, Rep. Nancy Pelosi (D-San Francisco) said: "Although the FER= C=20 decision [Monday] is a step in the right direction, I am concerned it does= =20 not remove incentives for energy suppliers to withhold power, drive up pric= es=20 and gouge consumers." ?????The commission went as far as it did in part because of the specter of= =20 broader price control legislation, Pelosi said. "They felt the heat, they s= aw=20 the amendments coming and decided to act." ?????And Rep. Bob Filner (D-San Diego), in an interview Tuesday, said he wi= ll=20 press ahead with legislation to impose hard price caps. "I would advise the= =20 senators that after a year of dealing with these price gougers that they wi= ll=20 easily manipulate this latest order," he said, calling it a "Swiss cheese= =20 order--full of holes."=20 ?????Feinstein's shift put House Democrats in an awkward political position= =20 because it came just as they prepared to make their big push for tougher=20 controls. But the Democrats tried to minimize the differences in legislativ= e=20 strategy. ?????"She too is waiting to see if the FERC experiment works," Waxman said.= =20 "I'm a little more skeptical, but we're both watching carefully." ?????As a political matter, a Democratic leadership aide acknowledged, the= =20 FERC order muddies the debate at a time when Democrats have been working ha= rd=20 to make it a defining issue--and one they had hoped would help them win=20 control of the House in the 2002 elections. ?????"It's hard to describe to people what the difference is between what w= e=20 want and what FERC has done," said the aide. ?????And Republicans said FERC's action had clearly taken the wind out of t= he=20 sails of price control efforts that some GOP strategists feared might have= =20 passed the House. ?????"I would have thought [it would pass] last week," said John Feehery,= =20 spokesman for House Speaker J. Dennis Hastert (R-Ill.). "But now, with what= =20 FERC did, it takes a lot of air out of the balloon." ?????"I think the FERC action will dissipate that strong push," agreed Emil= y=20 Miller, a spokeswoman for House Majority Whip Tom DeLay (R-Texas). "It will= =20 take the heat off." ?????House Majority Leader Dick Armey (R-Texas) said the message to Democra= ts=20 was, "It's time to come off your political high horse." ?????He said he wanted to keep Democrats from offering their price control= =20 amendment to Wednesday's supplemental appropriation bill because the propos= al=20 is "a political statement, not a policy statement." ---=20 ?????Times staff writers Megan Garvey and Richard Simon contributed to this= =20 story. Copyright 2001 Los Angeles Times=20 Plan Won't Raise Rates, Davis Says=20 Edison: Governor seeks to assure Senate, where Democrats say action is a=20 bailout of nearly bankrupt utility.=20 By CARL INGRAM, Times Staff Writer=20 ?????SACRAMENTO--Gov. Gray Davis sought to assure the state Senate on Tuesd= ay=20 that his plan to save Southern California Edison from threatened financial= =20 collapse would work without increasing customer rates. ?????Davis sent assurances to the Senate Energy Committee through his top= =20 attorney, Barry Goode, who helped negotiate the controversial proposal with= =20 the utility. ?????Senate Republicans have taken a wait-and-see attitude on the plan. But= =20 they generally contend that the business of utilities belongs in the hands = of=20 private enterprise. ?????But Democrats in both houses have charged that the deal between Democr= at=20 Davis and Edison represents a state bailout of the nearly bankrupt=20 Rosemead-based utility. The analysis is shared by leading consumer activist= s. ?????At the first in a series of Senate hearings on the package, which is= =20 considered all but dead in its current form, Sen. Byron Sher (D-Palo Alto)= =20 voiced concerns about political problems with the plan. ?????He asked Goode, who was flanked at a witness table by Edison executive= s,=20 whether monthly bills of the utility's customers would increase as a=20 consequence of approval of the governor's package. ?????"Our models say there will be no additional impact on the ratepayers,"= =20 Goode replied. ?????Other members appeared ready to pursue rate increase questions, but=20 Chairwoman Debra Bowen (D-Marina del Rey) cut them short. She said the issu= e=20 would be fully examined at a later hearing. ?????To spare Edison from going into bankruptcy and to restore its=20 credit-worthiness, Davis and executives of the utility reached a complex=20 compromise in April, the centerpiece of which was a state purchase of=20 Edison's transmission grid for about $2.8 billion, more than twice its book= =20 value. ?????Edison has estimated that it owes $3.5 billion to creditors, including= =20 wholesale power generators, as a result of deregulation of retail electrici= ty=20 prices in 1996. ?????Because of a freeze in retail rates, Edison was prohibited from passin= g=20 its energy costs to customers. ?????Other features of the deal include dedicating a portion of consumer=20 rates to help pay off the debt, a guaranteed 11.6% rate of return to Edison= =20 on its sales and investments, and termination of an ongoing Public Utilitie= s=20 Commission investigation into financial dealings of Edison's parent company= ,=20 Edison International. ?????The energy committee held the hearing for fact-finding purposes and di= d=20 not consider the Edison bill, SB 78x by Sen. Richard Polanco (D-Los Angeles= ). ?????But the Davis-Edison deal has angered consumer activists, who contende= d=20 that bankruptcy for Edison would be preferable. ?????They deplored it as a bailout that would cost Edison customers $5=20 billion to $7 billion. ?????"If the Legislature makes the mistake of forcing the ratepayers of=20 California to pay one more penny to bail out these companies, we will put [= an=20 initiative] right on the ballot," said Harvey Rosenfield of the Foundation= =20 for Taxpayer and Consumer Rights. ?????Consumer organizations in 1998 put to the voters an initiative to junk= =20 the 1996 deregulation law. The measure failed. ?????Rosenfield, Harry Snyder of Consumers Union and Matt Freedman of the= =20 Utility Reform Network all asserted at a news conference that the Davis=20 rescue program should be killed. ?????Snyder, who opposed deregulation, said the governor's bill is shaping = up=20 as a replay of 1996. ?????"It's too big, too complicated. . . . This is the same process that=20 brought about this [deregulation] disaster," Snyder said. ?????Separately, San Diego Gas & Electric agreed Monday to sell its=20 transmission grid to the state for about $1 billion on the same terms as=20 Edison. ?????With all the controversy surrounding the Edison deal, the chance of=20 SDG&E winning legislative approval of its sale is slightly better than 50%,= =20 said Stephen L. Baum, chief executive of Sempra Energy, parent of SDG&E. ?????"I think there's a widely shared view in the Legislature that they don= 't=20 want the state in the long-term business of power procurement. . . . In ord= er=20 to get Edison back into that business there has to be this infusion of=20 capital" to pay off past electricity debts and make the utility=20 credit-worthy, Baum said. ---=20 ?????Times staff writer Nancy Rivera Brooks contributed to this story. Copyright 2001 Los Angeles Times=20 State to Pay Electric Bill With Loan, Not Taxes=20 By MIGUEL BUSTILLO, Times Staff Writer=20 ?????SACRAMENTO--California taxpayers, who have had to bankroll billions of= =20 dollars in electricity purchases for the teetering power utilities, will so= on=20 no longer see their money evaporate at record rates, under an executive ord= er=20 by Gov. Gray Davis. ?????As early as next week, the order will stop the hemorrhaging of the sta= te=20 budget by allowing Treasurer Phil Angelides to borrow $5 billion to buy=20 electricity. That money is expected to cover power purchases until this fal= l,=20 when the state plans to sell an unprecedented $12.5 billion in bonds to rep= ay=20 the general tax fund and buy future electricity. ?????Angelides said Tuesday that he has already lined up $3.5 billion in=20 loans from two Wall Street firms, and expects to secure at least another=20 billion by next week, when he plans to close the deal and obtain the money. ?????The loan is critical, he said, because without it, electricity purchas= es=20 would completely deplete state coffers as early as October. ?????"In essence, it stops the general-fund bleeding," Angelides said. "Wha= t=20 this interim financing does is take the pressure off the general fund and,= =20 hopefully, avert a cash crisis." ?????The loan could also ease concerns on Wall Street that California's ris= ky=20 entry into the power business has placed the state budget in a precarious= =20 position. Those concerns were one of the main reasons two major credit rati= ng=20 agencies downgraded the state earlier this year. ?????"We have been looking forward to this day," said Ray Murphy, a vice=20 president at Moody's Investors Service, one of the two firms that downgrade= d=20 California's credit rating. "We view this as a positive first step toward= =20 getting the state out of the power business. We wanted the state to get the= =20 general fund out of the business as quickly as possible." ?????California has allocated $8.2 billion in taxpayer money for electricit= y=20 since January because the state's private utilities became too saddled with= =20 debt to continue purchasing power on the open market. and massive blackouts= =20 loomed. ?????Under a plan devised by Davis and approved by the Legislature, the sta= te=20 budget is supposed to be reimbursed for the power purchases with the bond= =20 issue, the largest in American history. The bonds, in turn, are to be paid= =20 off by utility ratepayers through their monthly bills. ?????The bond issue, however, has been delayed by partisan politics and=20 complex legal issues raised by the bankruptcy of Pacific Gas & Electric Co.= ,=20 the state's largest private utility. ?????A bond sale initially planned for May is now scheduled for late=20 September, according to Angelides' latest estimate. The state's Public=20 Utilities Commission still needs to take a number of technical actions befo= re=20 the sale can take place. ?????As a result, the state budget has been drained for power purchases far= =20 longer than initially anticipated--a situation that has imperiled spending = on=20 education, transportation and other critical needs, at least temporarily. ?????Angelides had earlier sought to secure a $4-billion bridge loan to rep= ay=20 the state budget for power purchases until the bonds were sold, but was=20 rebuffed by Republicans in the Legislature, who argued that the loan was no= t=20 necessary. ?????Davis' executive order, issued late Monday as part of the Democratic= =20 governor's emergency powers during the energy crisis, gives Angelides the= =20 authority to press ahead. ?????But it does not allow the treasurer to use the loan to repay the budge= t=20 for the billions spent so far this year on electricity, as he had originall= y=20 intended. Rather, it permits Angelides to use the loan proceeds to assist t= he=20 Department of Water Resources, the state agency buying power, with its futu= re=20 electricity expenses. ?????If the bond issue is further delayed, Angelides estimated, the loan=20 would gives California another four to six months before it would begin to= =20 run out of money. Furthermore, the loan closes a potential loophole that=20 existed in the long-term contracts Davis had signed to stabilize the cost o= f=20 electricity, which would have let power suppliers walk away from the deals = if=20 the state had not secured a source of financing by next month. ?????But Republicans warned that by entering into a bridge loan deal withou= t=20 knowing when the bonds would be sold, Davis and the Democrats were incurrin= g=20 major risks that could further drive up the price tag of the crisis. ?????The loan carries a blended interest rate of about 4.5%, but if it is n= ot=20 repaid by Oct. 31, the rate jumps to 7%. Because the loan is to be repaid b= y=20 the bonds, which have been marred by a history of delay, GOP officials=20 Tuesday were already calling the bridge loan a "bridge to nowhere." ?????"The thing that is most troubling is that the governor did not bother = to=20 consult with anyone," said Assembly Republican leader Dave Cox (R-Fair Oaks= ),=20 who learned of Davis' order from reporters. "It's disappointing, but the=20 governor does not seem to recognize there is a legislative branch." Copyright 2001 Los Angeles Times=20 Edison Unveils Blackout Warning Plan=20 Technology: The utility will notify customers by Internet and telephone whe= n=20 power might go out.=20 By DANIEL HERNANDEZ, Times Staff Writer ?????Southern California Edison on Tuesday unveiled a system that will=20 forecast coming blackouts over the Internet and by telephone.=20 ?????Ordered by the state to create a warning system for customers as=20 California enters a summer that will almost certainly include rotating=20 blackouts, Edison is also preparing to use automatic phone calls, faxes and= =20 wireless communications to alert subscribers to outages.=20 ?????With these steps, Edison is complying with an order by the state Publi= c=20 Utilities Commission, which in April told the company to notify customers o= f=20 coming outages. Privately held Pacific Gas and Electric Co. established a= =20 similar program months ago.=20 ?????Edison previously opposed a notification system, arguing that such a= =20 system could incite looters and burglars. But police agencies, including th= e=20 Los Angeles County Sheriff's Department, saw more danger in not warning=20 customers, said Richard Rosenblum, an Edison senior vice president. ?????"On balance, [we concluded] it was preferable for public safety to mak= e=20 that information available," Rosenblum said. ?????Consumer advocates said Edison's notification system is welcome, if=20 tardy. ?????"It's fair to say that Edison has been a little behind where PG&E has= =20 been in trying to implement this," said Mike Florio, an attorney with the= =20 Utility Reform Network and a member of the California Independent System=20 Operator board, which runs the state power grid. ?????Edison's Web site, www.sce.com, now features a pop-up screen that warn= s=20 of any blackouts coming in the next hour. It also links to a page, which ca= n=20 be reached at www.outagewatch.com, that forecasts which "outage groups" wil= l=20 be cut off next in the event of rotating blackouts. Detailed maps outline= =20 which areas are included in each group.=20 ?????The new Web features are expected to handle about 4 million simultaneo= us=20 users. Beginning this month, Edison customers also can learn their block=20 number by looking at their bills, said Edison spokesman Gil Alexander. ?????Outage information also will be made available on an automated phone= =20 line, (800) 611-1911. ?????Edison officials are negotiating with another company to provide=20 additional warnings by e-mail, fax, phone and wireless communications. SDG&= E,=20 which like Edison was required to inform customers of outage forecasts, has= =20 moved more quickly, providing large industrial customers with blackout=20 notification via pager since June 4. ?????Up-to-the-minute outage reports also will be provided in several=20 languages to radio and TV stations, Edison officials said. ?????Edison officials emphasized that the new alert system can never be 100= %=20 accurate, and that sudden blackouts, although rare, are always a possibilit= y.=20 ?????"We have planned as aggressively as we think is warranted, understandi= ng=20 that you can't predict how your customers will respond," Alexander said. Copyright 2001 Los Angeles Times=20 State Joins Challenge to Bush on Air-Conditioner Standards=20 Regulations: U.S. rolled back Clinton rule from 30% increase in efficiency = to=20 20% on manufacturers' urging.=20 By JENIFER WARREN, Times Staff Writer=20 ?????California and two other states joined environmentalists Tuesday in=20 suing the Bush administration over its decision to weaken efficiency=20 standards for home air conditioners. ?????The lawsuit caps weeks of criticism heaped on the administration after= =20 it rolled back a rule requiring manufacturers to increase the efficiency of= =20 air conditioners 30% by 2006. ?????That rule was adopted by President Clinton during his final days in=20 office and after years of research and debate. California and other=20 states--including Texas--endorsed it as a way to substantially cut energy u= se=20 and improve air quality. ?????But after reviewing the rule at the industry's behest, Bush=20 administration officials in April sliced the mandated increase to 20%. The= =20 higher standard, they said, would have made home coolers too expensive,=20 especially for the poor. ?????Conservationists and consumer groups blasted the policy change, callin= g=20 it shortsighted at a time when California and other states are enduring an= =20 energy crunch. ?????In California, residential air-conditioning accounts for about 15% of= =20 the peak energy demand. Weakening efficiency standards, critics say, will= =20 require as many as 60 new power plants nationwide, four in California. ?????"This is a time when we need to conserve electricity and reduce our=20 dependence on the large energy generators and importers," state Atty. Gen.= =20 Bill Lockyer said in an interview. "Weakening this standard is precisely th= e=20 wrong message at precisely the wrong time." ?????In their lawsuit, Lockyer and the attorneys general of New York and=20 Connecticut allege that federal law bars the U.S. Department of Energy from= =20 softening an appliance efficiency standard. A separate but similar suit was= =20 filed by the Natural Resources Defense Council, the Consumer Federation of= =20 America and another nonprofit group. ?????Joe Davis, the Energy Department's deputy spokesman, said there would = be=20 no immediate comment on the suit, filed in federal court in Manhattan. He= =20 added, however, that "we believe all of the actions of our decision-making = in=20 the air conditioner standards are well within the law." ?????When Clinton's rule was issued in January, his outgoing energy=20 secretary, Bill Richardson, said the payoff in power savings and cleaner ai= r=20 would be one of the administration's greatest environmental achievements. ?????But a trade association representing air conditioner manufacturers=20 challenged the new rule, arguing that it would dramatically increase costs = of=20 the units--priced between $2,000 and $4,000--and thus discourage people fro= m=20 replacing old ones. ?????The Department of Energy sided with the industry group in April.=20 Officials said Clinton's proposal would have added $335 to the price of a n= ew=20 air conditioner, while the lower, 20% standard would boost prices only abou= t=20 $213. ?????Others, however, say those figures do not take into account the=20 economies of scale gained when manufacturers increase production of the mor= e=20 efficient units. When Congress passed the first efficiency standard for air= =20 conditioners in the late 1980s, "industry said the sky was falling, and tha= t=20 it would increase the cost of air conditioners by $700," said Andrew Delask= i,=20 executive director of the nonprofit Appliance Standards Awareness Project. = In=20 fact, he said, U.S. Department of Commerce data showed no price jump. ?????Dan Reicher, the assistant secretary of Energy under Clinton who overs= aw=20 development of the stricter standards, added that high-efficiency air=20 conditioners "are not some exotic, untested technology." ?????"There are lots and lots of air conditioners already meeting the=20 standards--between 5% and 10% of the units sold today," he said. ?????Although most manufacturers support the Bush rollback, the second=20 largest maker of air conditioners--Houston-based Goodman Global Holding,=20 which produces the Amana brand--opposes it, saying any higher upfront costs= =20 would be recovered by consumers in lower utility bills. ?????On Tuesday, the company's president, John Goodman, issued a statement= =20 supporting the lawsuit, saying the tougher standard would "give consumers a= n=20 enormous cost saving, U.S. energy consumption will drop and our environment= =20 will benefit from reduced air pollutant emissions and greenhouse gases." ---=20 ?????Times staff writer James Gerstenzang in Washington contributed to this= =20 story. Copyright 2001 Los Angeles Times=20 New Price Caps Not a Deterrent, Power Firms Say=20 Regulation: Producers are unhappy with the federal action but say it is=20 unlikely to discourage them from constructing new plants.=20 By NANCY VOGEL and THOMAS S. MULLIGAN, Times Staff Writers=20 ?????The expanded electricity price limits approved by federal regulators= =20 could squeeze big energy traders but will probably not discourage power pla= nt=20 construction in California, electricity producers said Tuesday. ?????Power plant owners and marketers said they had not had time to digest= =20 the 53-page order and thus could not say exactly how it would affect=20 California and the 10 other Western states it covers. ?????But the companies generally asserted Tuesday that the order would not= =20 deter them from investing in the vast, power-starved Western region--though= =20 they have often raised such a prospect in arguing against price controls. ?????Whatever its long-term effects, Monday's order by the Federal Energy= =20 Regulatory Commission appeared to have an immediate effect in dampening=20 prices in California's volatile daily, or spot, market. ?????The order does not take effect until today, but the prospect of new=20 measures aimed at limiting prices appeared to tame markets Tuesday.=20 Californians used more electricity at the late-afternoon peak than on any d= ay=20 this year, yet market prices hovered around $100 a megawatt-hour. ?????That is well below the average of $284 a megawatt-hour that the state= =20 paid for electricity from January through April, with prices soaring as hig= h=20 as $1,900 at times of tight supply. ?????"All the markets in the West have come down," said Mike Wilczek, senio= r=20 power markets reporter for Platts, the energy market information division o= f=20 the McGraw-Hill Cos. "It's bearish news." ?????Nevertheless, several generators minimized the effects of the FERC=20 order, contradicting earlier warnings from some industry sources and=20 officials of the Bush administration who consider price limits to be=20 impediments to future investment in power plants. ?????"Calpine will have no problem operating under this order," said Joe=20 Ronan, vice president of regulatory affairs for San Jose-based Calpine Corp= .,=20 which has three power plants under construction in California and plans to= =20 build at least three others. ?????The federal order lasts only until September 2002, he said, and becaus= e=20 it sets prices based on the cost of running the most expensive, inefficient= =20 power plant in the market, it should guarantee the owners of modern plants = a=20 profit. ?????Another company planning major investments in California, Duke Energy= =20 Corp. of North Carolina, said it will not be seriously affected by the=20 federal order because it has sold the output of its four California plants= =20 well into the future. ?????"We've already forward-sold 90% of our generation for 2001 and 70% for= =20 2002," company spokesman Pat Mullen said. ?????Reliant Energy Inc. of Houston, which owns five power plants in=20 California, was not so sanguine about the federal order, but it has not=20 backed away from plans to install more generators. ?????"We remain committed to California, as hard as it is to do business he= re=20 today," spokesman Richard Wheatley said. "We have plans that are on the=20 drawing boards for at least one, possibly two projects." ?????On Monday, Reliant Chief Executive Joe Bob Perkins called the FERC=20 action "more of a political response" than an acknowledgment of the gap=20 between electricity supply and demand in California. ?????"Price caps don't work," Perkins said, and he warned California=20 consumers against assuming that the energy crisis is over simply because=20 wholesale electricity prices have recently dropped to their lowest levels i= n=20 a year. ?????Prices are falling because of mild weather, not price controls, he sai= d. ?????"Without sound economics that increase available supply and reduce pea= k=20 demand . . . consumers can only hope for favorable weather and look forward= =20 to [rolling blackouts]," Perkins said. ?????Energy analyst Frederick Schultz of Raymond James & Associates in=20 Houston called the FERC order "a nonevent to the California generators"=20 because so much of their power is now being sold through long-term contract= s. ?????However, every long-term deal reduces the size of the electricity=20 market, which supplies about 20% of California's needs. And that, in turn,= =20 limits trading opportunities for such firms as Enron Corp., which profit on= =20 the daily market's ups and downs, Schultz said. ?????Enron representatives did not respond to calls for comment. ?????The federal order imposes round-the-clock price curbs on wholesale=20 electricity sold in 11 Western states that are connected by transmission=20 grids. ?????Under the order, traders say, market prices will probably hover around= =20 $100 a megawatt-hour, depending upon the price of the natural gas that fuel= s=20 most of the state's electric generating plants. Though that is well below= =20 recent market prices, it is higher than the average of about $32 a=20 megawatt-hour that California utilities paid in 1999, before the state's=20 deregulated market spiraled out of control. ?????The FERC order dictates that the price for spot market electricity=20 across the West will be based on the cost of producing one megawatt-hour of= =20 power at the least-efficient plant selling to California grid operators. Ma= y=20 31, when a previous FERC order based on a similar formula took effect, the= =20 price set was $127 a megawatt-hour. ---=20 ?????Vogel reported from Sacramento, Mulligan from New York. Copyright 2001 Los Angeles Times=20 Wednesday, June 20, 2001=20 The FERC's Action Is Good, Bad,Ugly=20 By PETER NAVARRO ?????The Federal Energy Regulatory Commission's new wholesale price caps wi= ll=20 save the Western states literally tens of billions of dollars in electricit= y=20 bills. As wonderful as that sounds, the FERC order still allows wholesale= =20 generators to extract enough windfall profits to drive the region into=20 recession.=20 ?????The FERC's approach may also perversely lead to more air pollution and= =20 natural gas shortages.=20 ?????Let's look at what the FERC did right. First, the order approved Monda= y=20 establishes price caps on a 24/7 basis rather than simply during power=20 emergencies--a long overdue reform.=20 ?????Second, the order protects the entire West, not just California. This= =20 regional cap will end "megawatt laundering," whereby in-state generators so= ld=20 power across California lines and then resold it back into the state to eva= de=20 caps.=20 ?????Third, the order closes the ridiculous broker loophole that made the= =20 FERC's previous price caps Swiss cheese. Before, generators could redirect= =20 their sales from the market to energy brokers who were exempt from the pric= e=20 caps.=20 ?????So where did the FERC go wrong? The problem may be traced to the two= =20 competing methods of imposing price caps and the all-important concept of= =20 "economic rent."=20 ?????Economic rent, in the wholesale electricity market, is the market pric= e=20 of electricity minus the producer's cost, where cost includes not just labo= r=20 and fuel but a "fair profit" on the invested capital as well. In traditiona= l=20 regulation, this fair profit is calculated very simply as the market cost o= f=20 the money borrowed to build the power plant.=20 ?????Under this definition, if the producer's cost is a nickel a kilowatt= =20 hour and he can sell it for 35 cents--as producers in the West have been=20 doing--the producer can extract 30 cents of economic rent from consumers.= =20 ?????In California, the extraction of such economic rent through market=20 manipulation has taken place on a grand-theft scale. In 1999, California's= =20 electricity bill was about $7 billion. Last year, it was almost $30 billion= =20 for roughly the same amount of electricity. This year, California's bill is= =20 well on its way to $50 billion annually.=20 ?????To stop this rip-off, Gov. Gray Davis proposed "cost-based" price caps= .=20 Such caps are calculated on a plant-specific basis. Each generator is allow= ed=20 to recover its cost of production, including the fair profit, but not a pen= ny=20 more.=20 ?????Thus, for example, a newer, highly efficient plant generating power at= a=20 nickel per kilowatt hour would collect a nickel. The oldest, least efficien= t=20 plant that generated power for 20 cents would be allowed to collect 20 cent= s.=20 ?????By setting different prices for different plants, the economic rents a= re=20 driven to zero. Yet each generator still has a fair profit incentive to=20 produce. From a public policy perspective, it's the best of all possible=20 worlds. And it was categorically rejected by the FERC. Instead, the FERC se= ts=20 a single price for all generators based on the cost of the "least efficient= =20 plant."=20 ?????The obvious problem with this umbrella pricing rule is that it still= =20 allows generators to extract billions in economic rent from consumers.=20 ?????In our previous example, and under the FERC's rule, the least efficien= t=20 plant still collects 20 cents a unit to recover costs. However, the most=20 efficient plant producing power at a nickel-per-kilowatt also collects 20= =20 cents rather than a nickel and thus extracts a full 15 cents of economic=20 rent.=20 ?????Thus, under the FERC's rule, wholesale generators still will be able t= o=20 capture tens of billions of dollars more from consumers and businesses than= =20 under Davis' cost-based rule.=20 ?????The FERC's approach is still subject to the same kind of strategic=20 gaming that has been the hallmark of this crisis. Generators will ensure th= at=20 during peak times, when the price cap is being established, the most=20 expensive possible plant is in operation--whether it needs to be or not. Th= is=20 will peg the price at the highest level.=20 ?????In addition, the FERC provides generators with a perverse incentive to= =20 run their least efficient units more often. Since these least efficient=20 plants are also the highest polluting, the result will be dirtier air.=20 Moreover, the excessive running of these plants may also put a strain on=20 already stretched natural gas supplies. These least efficient plants use up= =20 to 40% more natural gas to produce a unit of electricity.=20 ?????The bottom line: The FERC "done good." But it could have done a lot=20 better. And the way things stand now, there still is a danger that higher= =20 electricity costs could push California and the rest of the West--and=20 eventually the nation--into a nasty recession.=20 - - - Peter Navarro Is an Associate Professor of Economics and Public Policy at U= c=20 Irvine. E-mail: Pnavarro@uci.edu Copyright 2001 Los Angeles Times=20 Davis OKs stopgap loan=20 CRISIS POWERS: Action sidesteps Legislature=20 Greg Lucas, Sacramento Bureau Chief Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/20/MN173816= .DTL=20 Circumventing the Legislature, Gov. Gray Davis used his emergency powers=20 yesterday to authorize borrowing up to $5 billion for energy purchases in= =20 advance of a record bond issue.=20 Sidestepping the Legislature with a stroke of the pen, Davis' action=20 indicates that the state may need more time to prepare a $12.5 billion bond= =20 issue this fall, the largest sale of its kind in history.=20 The Democratic governor's action was swiftly assailed by the Republican=20 leadership.=20 "This is not a dictatorship. It's a democracy," said Assembly GOP leader Da= ve=20 Cox of Carmichael. "There is a judiciary, a legislative side and an executi= ve=20 side, and everyone has roles and responsibilities. Yet we continue to have= =20 the governor say, 'I'm the only one around here that makes any difference.= =20 The rest of you shall do my bidding.' "=20 Normally, it is the Legislature that has the power to raise and spend money= ,=20 and a governor may not spend a cent unless lawmakers allow him to.=20 But Davis has broad powers under the state of emergency, which he declared = in=20 January to combat California's energy crisis.=20 NO ADVANCE NOTICE The governor's aides declined to comment on yesterday's executive order and= =20 gave no advance notice of it.=20 "This executive order, authorizing a bridge loan, will allow us to get=20 California's General Fund out of the power-buying business," was the=20 governor's only comment in a written statement issued last night.=20 State Treasurer Phil Angelides said lawyers had advised him and the governo= r=20 that such borrowing could be authorized by an executive order.=20 The loan from Wall Street will temporarily fill the $5.2 billion -- and=20 growing -- hole in the state budget created when the state began buying=20 electricity on behalf of the state's cash-starved utilities in January.=20 The idea is to tide the state over until a larger bond sale of $12.5 billio= n=20 can be arranged later this year. A portion of that sale will pay back the= =20 $5.2 billion borrowed from Wall Street.=20 'STOPS THE BLEEDING'=20 "It stops the general fund bleeding," said Angelides. "It takes the pressur= e=20 off, and hopefully we'll avert a cash crisis."=20 The state runs out of internal borrowing power sometime in October. Angelid= es=20 said the loan would buy the state another four to six months.=20 The idea of a loan was floated earlier this year.=20 Cox and other GOP lawmakers objected, wondering why the state should pay=20 interest on borrowed money when it could still borrow from various accounts= =20 within the state budget.=20 They refused to vote for a bill authorizing the larger bond sale of $12.5= =20 billion, forcing a delay in issuing it until at least Aug. 14.=20 The idea of borrowing from Wall Street appears to have been abandoned, sinc= e=20 both Davis administration and legislative budget-writers said the state cou= ld=20 keep borrowing internally into October, well after the bond sale.=20 Yesterday's executive order authorizing the borrowing suggests that neither= =20 Angelides nor Davis are confident that the steps needed to prepare the $12.= 5=20 billion bond issue for market can be completed before then.=20 Angelides had previously said he hoped to sell the bonds in early September= .=20 Yesterday, he said the governor's "hope is to still sell long-term bonds by= =20 Sept. 30."=20 ACT OF DESPERATION? Sen. Tom McClintock, R-Northridge, described the executive order as an act = of=20 desperation that "would suggest they are expecting the large bond sale to= =20 occur later rather than sooner.'=20 Numerous actions must be completed before the bond sale.=20 Among them are the approval by the Public Utilities Commission of several= =20 deals with the state and utilities, to ensure that enough money from=20 consumers flows back to bond buyers to pay off interest and principal.=20 Although Davis' executive order authorizes $5 billion in loans, Angelides h= as=20 only lined up $3.5 billion.=20 So far, only two lenders have come forward to offer the state a loan, J.P= =20 Morgan with $2.5 billion and Lehman Brothers with $1 billion, at an interes= t=20 rate of 4.5 percent. If the long-term bonds are not sold by Oct. 31, that= =20 will increase to 7 percent.=20 Angelides said he hoped to line up another $1 billion by next week, when th= e=20 loan deal occurs.=20 Assuming a loan of $4.5 billion, Angelides said the state would pay out $8= =20 million in fees.=20 E-mail Greg Lucas at glucas@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Experts say state must seize the day=20 ANALYSIS: Price caps set stage for future=20 David Lazarus, Chronicle Staff Writer Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/06/20/MN58963.= DTL=20 One day after federal authorities ordered long-sought electricity price cap= s=20 throughout the West, analysts said yesterday it is up to California to=20 respond with measures to bring an end to the state's long, frustrating=20 experiment with deregulation.=20 Possible steps the experts point to include raising power bills, easing=20 pollution controls and spending billions of dollars in taxpayers' money on= =20 new plants.=20 "Gov. (Gray) Davis and his team have been making this up week by week," sai= d=20 Paul Joskow, director of the Center for Energy and Environmental Policy=20 Research at the Massachusetts Institute of Technology.=20 "It's time for them to get together with the Federal Energy Regulatory=20 Commission (FERC) to come up with some solutions," he said. "The state need= s=20 to get down to business and decide how the power market is going to look 18= =20 months from now."=20 Easier said than done. To date, California's strategy for tackling its ener= gy=20 woes largely has consisted of wheedling, cajoling and all but begging feder= al=20 officials to come to the rescue.=20 Now that the federal regulators have gone much of the way toward granting t= he=20 state's wishes, analysts said Davis and other officials must act swiftly an= d=20 decisively to further remedy California's prolonged power troubles.=20 For his part, however, the governor feels that federal regulators have not= =20 done enough. He will push today during congressional hearings in Washington= =20 for billions of dollars in refunds for California ratepayers.=20 "FERC has taken some first steps, but the proverbial fat lady hasn't sung,"= =20 said Steve Maviglio, a spokesman for Davis.=20 This persistent focus on federal assistance could slow progress toward a=20 lasting solution to California's problems, some analysts believe.=20 "We are still likely to experience blackouts this summer," said Michael=20 Zenker, director of Cambridge Energy Research Associates in Oakland. "It's= =20 not yet clear that the state will do what it can to address other aspects o= f=20 the problem."=20 Put simply, such steps would require enormous political courage -- and woul= d=20 be very expensive. In the end, taxpayers and ratepayers will bear the burde= n=20 for this prolonged fiasco.=20 Among measures under consideration:=20 -- Raising electricity rates even higher. Although Californians got the=20 largest rate increase in state history last month, even higher charges woul= d=20 promote conservation and lessen the need for California to borrow billions = of=20 dollars in the bond market.=20 -- Loosening emissions restrictions for power plants statewide. This would= =20 provide more electricity during shortages but turn back the clock on=20 California's strict environmental standards.=20 -- Building new plants at taxpayers' expense. This would guarantee a steady= =20 supply of juice but would leave the state struggling for years to recoup th= e=20 huge investment costs.=20 Of the three, easing pollution controls is the easiest first step and the= =20 most likely, analysts said. Such environmental protections have been roundl= y=20 criticized by power industry officials who claim the restrictions have=20 hampered the construction of new generating plants.=20 Taxpayer-financed power plants are possible under a new state power authori= ty=20 backed by the governor, but the timing and financing remain undecided.=20 Higher electricity rates could be the toughest move to make, analysts agree= .=20 They note that Davis will seek re-election next year and doesn't want to be= =20 seen as the governor who sent voters' power bills into the stratosphere.=20 Already, critics are trying to paint him as the governor who was asleep at= =20 the power switch.=20 As federal regulators were moving at last on the price-cap front this week,= =20 another big development took place closer to home Monday when Davis disclos= ed=20 a tentative deal with Sempra Energy's San Diego Gas & Electric Co. The plan= =20 calls for the state to purchase the utility's 1,800 miles of power lines fo= r=20 nearly $1 billion.=20 As with a similar accord reached with Southern California Edison, the Sempr= a=20 deal is intended to counter the catastrophic effects of California having= =20 deregulated wholesale power prices but not allowing the state's utilities t= o=20 pass on costs to customers.=20 Between them, California's three major utilities have rung up more than $15= =20 billion in debt.=20 Here, too, the state appears unsure how to proceed. Both the Sempra and=20 Edison agreements require approval from the Legislature. It's anyone's gues= s=20 whether such approval is forthcoming.=20 "It's going to be a really, really tough sell," said Nettie Hoge, executive= =20 director of The Utility Reform Network in San Francisco. "These aren't=20 fabulous deals."=20 ONE SCENARIO FOR UTILITIES Rather, she believes the agreements will be reworked so that less taxpayer= =20 money changes hands while allowing the utilities to retain possession of=20 their power systems.=20 Hoge said this could subsequently influence a speedy resolution of Pacific= =20 Gas and Electric Co.'s bankruptcy proceedings. If it can avoid selling off= =20 key assets like power lines, PG&E may be more open to any settlement plans= =20 put forward by the state.=20 "The utilities are all going to end up with similar deals," Hoge forecast.= =20 State Senate President Pro Tem John Burton, D-San Francisco, isn't so sure.= =20 He observed that the Edison deal hinges on a sale of the utility's power=20 lines to the state, while the Sempra accord could stand even without such a= =20 transaction.=20 "The two deals are totally unrelated," Burton said, adding that approval of= =20 the Edison accord is "very much in flux." A bankruptcy filing by the state'= s=20 second-largest utility remains a distinct possibility, he said.=20 This would only increase the importance of price caps in bringing some=20 stability back to California's power market.=20 While the state's current rate freeze will continue cushioning consumers fr= om=20 the volatility of wholesale electricity prices, the caps -- or "price=20 mitigation," as federal regulators are calling it -- will limit the amount= =20 that power generators can charge on the open market.=20 SYSTEM HAS FLAWS It is not a perfect system: Power companies can base prices on the cost of= =20 running the least-efficient -- and thus costliest -- generating facility. B= ut=20 this amount almost certainly will be below some of the more outrageous pric= es=20 seen when the sky was the limit.=20 On at least one occasion this year, California's wholesale power price topp= ed=20 $3,000 per megawatt hour, compared with just $30 about a year ago.=20 "This is a plan that is good for California, good for the Pacific Northwest= =20 and good for the entire West," said FERC Chairman Curt Hebert.=20 That remains to be seen. As it stands, the price caps will remain in effect= =20 through next summer.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 California's energy crisis hits Northwest like a tidal wave=20 Jeff Hammarlund Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/E D165509.DTL=20 THERE WAS a time when many Northwesterners thought we could watch=20 California's energy crisis from a safe distance.=20 We have since learned that a major energy crisis does not stop at the Golde= n=20 State's borders but, instead, rolls over the Northwest like a tidal wave,= =20 wreaking havoc with our economy and overwhelming our carefully crafted ener= gy=20 policies.=20 As one Northwest utility official put it, "We learned that everyone else is= =20 the tail. California is the dog."=20 To understand why the Northwest is now facing its own energy crisis and how= =20 the energy problems in the Northwest and California each affect each other,= =20 one must understand how the Northwest gets its power.=20 In the Northwest, falling water is our primary fuel. Depending on the=20 available snowpack, hydroelectricity produced at more than 200 dams in the= =20 Columbia River basin generates between 60 and 75 percent of the region's=20 electricity. About two-thirds of this hydropower comes from 29 dams owned a= nd=20 operated by the two federal agencies, the U.S. Army Corps of Engineers and= =20 the Bureau of Reclamation.=20 By taking advantage of the region's geography and climate, the Columbia's= =20 hydroelectric dams have produced some of the least expensive electricity in= =20 the nation, power that has been the economic backbone of the region.=20 However, the Columbia's hydrosystem also has two curses.=20 One is that water conditions can vary greatly, and right now the Northwest= =20 and California are in the middle of an extreme drought. The second is the= =20 dams' negative impact on salmon. These dams operate under a federal salmon= =20 recovery plan established under the Endangered Species Act that calls for= =20 more water to be sent over spillways to help push the salmon downstream=20 instead of through the dams' power-generating turbines.=20 That power is sold at cost and transmitted to Northwest consumer-owned=20 utilities by yet another federal agency called the Bonneville Power=20 Administration. These "cost-based" rates cover the expense of repaying the= =20 U.S.=20 Treasury for the cost of developing these hydropower projects, moving the= =20 power over massive transmission lines, and supporting efforts to restore th= e=20 dwindling salmon runs.=20 Under federal law, Northwest consumers get preferred access to the relative= ly=20 low-cost power. Any surplus power can be sold, most often to California's= =20 municipal and investor-owned utilities.=20 This Northwest "regional preference" to federal power was part of the deal= =20 that led to the construction of the massive transmission lines, called "the= =20 intertie," which first connected the Northwest with California and the=20 Southwest in the late 1960s.=20 For decades, the intertie worked almost flawlessly and to everyone's benefi= t.=20 During the summer, when air conditioners caused California's power use to= =20 peak, many California utilities would supplement their needs by turning to= =20 the Northwest. In the winter, when Northwest electric furnaces are turned o= n=20 for space heating, California utilities would return the favor and ship the= ir=20 surplus power north.=20 Recently, the BPA has had to purchase large blocs of power on the wholesale= =20 market to meet its contractual obligations to its Northwest customers.=20 The same exorbitant wholesale prices that began to plague California last= =20 year have also affected the Northwest, meaning that the BPA has been runnin= g=20 out of money, and is now in danger of defaulting on its debt obligations to= =20 the Treasury.=20 California's deregulation plan has affected energy relations between the tw= o=20 regions in other ways. For example, the BPA has historically sold surplus= =20 power to California for relatively low prices. However, the state's=20 deregulation law made it almost impossible for California utilities to ente= r=20 into favorable long-term contracts.=20 Instead, power had to be purchased at the much higher "market clearing pric= e"=20 on the short-term spot market.=20 The BPA has taken extraordinary steps to help California keep the lights on= .=20 At times, the agency even declared energy emergencies, which allowed it to= =20 temporarily override salmon protections and use the water to generate power= =20 for California rather than sweep salmon over the dams. California officials= =20 have praised the BPA for its cooperation, but Northwest environmentalists a= nd=20 tribal leaders complain that the BPA has been helping California address it= s=20 energy crisis by selling salmon down the river.=20 The Northwest will be helped by FERC's decision yesterday to extend limited= =20 temporary price restrictions it had imposed in California in the spring to= =20 other Western states during severe shortages. The order should also be good= =20 for California. Without consistent price restrictions throughout the West,= =20 power marketers would simply skip California during an emergency and sell a= t=20 higher prices elsewhere.=20 But not everyone is happy with the decision. Many critics say the rates are= =20 still too high, and some critics said in s published report that the "order= =20 rewards inefficiency by pegging price ceilings to the costliest California= =20 gas plants."=20 The half-hearted response from FERC, along with continuing supply shortages= =20 and other problems make it likely that California will continue to face=20 rolling blackouts and high utility bills -- even though they may not be as= =20 high as we once feared.=20 The Northwest may follow suit next winter.=20 Some in our region fear that some desperate California political leaders=20 might try to wrest control of the BPA and a large portion of the Columbia= =20 Basin's hydropower. The 6,600 megawatts of hydropower from the Columbia's= =20 federal dams would only offer a few drops in the bucket for California's=20 massive 50,000-megawatt system, but its loss would devastate the Northwest= =20 economy.=20 The four Northwest governors (of Washington, Oregon, Idaho and Montana) and= =20 more than 40 state legislators met in February and agreed to explore ways t= o=20 ensure that the Northwest does not lose its regional preference to the=20 Columbia's hydropower.=20 Northwest governors have had some productive meetings with Gov. Gray Davis= =20 and his staff this year regarding power sharing, and there are encouraging= =20 signs that trust is growing at this and other levels.=20 Just last week, officials from the BPA, California's Department of Water=20 Resources, and the California ISO agreed on a plan that outlines when and h= ow=20 the BPA may be able to help California during the expected summer shortages= .=20 We will soon find out whether our two regions will succeed in collaborating= =20 with or cannibalizing each other as we enter the next phase of the West Coa= st=20 energy crisis.=20 Ultimately, California's experience with energy deregulation makes the case= =20 for a strong and supportive federal role in the energy markets. It also=20 reinforces the view that electricity should be treated as an essential=20 service and be sold at cost by utilities that are owned and controlled by t= he=20 public, rather than as a commodity and sold at the highest price.=20 In fact, something like a California power authority that places California= =20 in charge of its own destiny makes more sense to me all the time.=20 Jeff Hammarlund is an adjunct associate professor and research fellow at th= e=20 Mark Hatfield School of Government at Portland State University where he=20 teaches graduate courses on energy policy. He is also president of Northwes= t=20 Energy and Environmental Str=20 ,2001 San Francisco Chronicle ? Page?A - 19=20 Davis demands nearly $9 billion for electricity overcharges=20 H. JOSEF HEBERT, Associated Press Writer Wednesday, June 20, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/06/20/n= ation al1103EDT0569.DTL=20 (06-20) 08:03 PDT WASHINGTON (AP) --=20 California Gov. Gray Davis demanded that power generators refund nearly $9= =20 billion in electricity overcharges and complained that federal regulators= =20 have "looked the other way while energy companies bilked our state."=20 Davis told a Senate hearing Wednesday that the decision by the Federal Ener= gy=20 Regulatory Commission to curtail price spikes in California and 10 other=20 Western states was a step forward. "But its actions do nothing about the=20 overcharges" over the past year, he said.=20 The governor, a Democrat, has been criticized by Republicans, who charge he= =20 has allowed the California power crisis to get out of hand.=20 Davis defended his actions, saying the state has stepped up approval for ne= w=20 power plants and strengthened conservation programs. He also said the state= =20 has little control over price gouging by out-of-state power generators.=20 "The governor once said he could solve California's problems in 15 minutes.= =20 ... But it appears that California has continued to try and hide the true= =20 cost of power by having the state pay for it instead of the utilities,"=20 putting California taxpayers in jeopardy, said Sen. Frank Murkowski,=20 R-Alaska.=20 Murkowski said many of the alleged overcharges are by public power entities= =20 not under FERC jurisdiction=20 Sen. Joe Lieberman, D-Conn., chairman of the Governmental Affairs Committee= ,=20 said the FERC, which regulates wholesale electricity sales, has been slow t= o=20 respond and "surprisingly reluctant" to assure that electricity prices are= =20 just and reasonable, as required by the 1934 Federal Power Act.=20 The agency's response to the Western power problem "raises serious question= s=20 about whether (FERC) has or will oversee the newly deregulated energy=20 markets" not only in the West but across the rest of the country.=20 The federal agency, whose commissioners were to testify later in the day,= =20 imposed limited, market-based price caps on Monday in California and 10 oth= er=20 Western states from Washington to Arizona. The agency also ordered the=20 parties to attend a conference next week to try to work out agreements on= =20 overcharges and other issues.=20 Months ago, the FERC singled out $124 million in alleged overcharges by pow= er=20 generators. The power companies have since challenged the agency's findings= =20 and the matter remains in dispute.=20 "To date not a single penny in refunds has been returned to California,"=20 complained Davis. He said that between May 2000 and the beginning of this= =20 month power generators are believed to have overcharged California $8.9=20 billion.=20 "They must be required to give us back our money," said Davis. "It is=20 unconscionable that FERC looked the other way while energy companies bilked= =20 our state for up to $9 billion."=20 The state spent $7 billion for electricity in 1999 and $27 billion in 2000= =20 and is projected to pay nearly $50 billion this year, said Davis. "Power=20 generators have been able to exert extreme power over our energy market," h= e=20 said.=20 Davis rejected Republican criticism that the state is not addressing the=20 problem. He said newly approved power plants will provide 20,000 additional= =20 megawatts of electricity by 2003, including 4,000 megawatts by the end of= =20 this summer. "Everything that can be done to bring reliable, affordable=20 energy to California is being done ... except wholesale price relief," he= =20 said.=20 "This administration has minimized this crisis (for) more months," said Sen= .=20 Patty Murray, D-Wash., alluding to President Bush's repeated refusal to urg= e=20 the FERC to mitigate electricity prices. Bush has strongly opposed price=20 controls, although he indicated support for FERC's limited price mitigation= =20 effort this week.=20 Murray said the government should issue a disaster declaration so that=20 businesses can get low-income loans, and require that FERC press its=20 investigation into price gouging and demand refunds not only in California= =20 but in the Pacific Northwest, where electricity prices have also skyrockete= d.=20 Republicans continued their opposition to more stringent price caps based o= n=20 the cost of generation at individual power plants.=20 "Having a federal agency try to determine what is a just and reasonable pri= ce=20 is laughable," said Sen. Fred Thompson of Tennessee, the committee's rankin= g=20 Republican. Hard price caps "don't work when supply is the problem. ... The= y=20 make a bad situation worse," he said.=20 After FERC issued its limited price control order this week, Senate Democra= ts=20 on Tuesday said they would drop legislation to require more stringent=20 cost-based price caps on Western electricity sales.=20 Democrats in the House, however, said they would continue to pursue a bill= =20 requiring the FERC to take more aggressive action.=20 ,2001 Associated Press ?=20 Fed price caps placate Demos=20 But Feinstein's bill to regulate energy producers was more strict=20 Carolyn Lochhead, Chronicle Washington Bureau Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/M N145950.DTL=20 Washington -- With federal regulators moving to cap prices on wholesale=20 electricity, California's Dianne Feinstein and other Senate Democrats=20 yesterday withdrew their threat to do it for them.=20 "A rose is a rose by any other name," Feinstein declared to the five member= s=20 of the Federal Energy Regulatory Commission, the day after they unanimously= =20 imposed a sweeping price ceiling on electricity throughout eleven western= =20 states.=20 "I'm very grateful," Feinstein told the commissioners, who were called to= =20 testify to the Senate Energy and Natural Resources Committee. "Let's watch= =20 and wait and see how this order works."=20 Feinstein had been leading the Democratic charge in Washington to force FER= C=20 to impose price controls; indeed, yesterday's hearing had been intended to= =20 highlight the agency's inaction. Gov. Gray Davis is still billed to appear= =20 today at another Senate panel headed by Sen. Joe Lieberman, D-Conn., to=20 investigate price gouging.=20 The 60-page FERC order, which takes effect at midnight tonight and remains= =20 until September 2002, limits prices based on the cost of the least-efficien= t,=20 and therefore highest-cost, generating plant. It is intended to mimic the w= ay=20 a competitive market functions.=20 While Democrats hailed FERC's move, power generators and marketers warned= =20 that it would backfire, leading to more blackouts and stifling investment i= n=20 new power plants.=20 "It doesn't create or conserve a single megawatt in California or the West,= "=20 said Enron spokesman Mark Palmer. "Government price controls always have=20 unintended consequences, and history has proven that those have never been= =20 good for consumers."=20 Joe Bob Perkins, president and chief operating officer of Reliant Energy,= =20 bluntly called the price caps "a political response" to California's crisis= =20 that ignores the basics of supply and demand.=20 "Price caps don't work," Perkins said in a statement. "This fact has been= =20 proven over and over in the context of virtually every business sector in= =20 which government regulators have experimented with such measures."=20 The Bush administration, which has fought electricity price caps since taki= ng=20 office in January, yesterday insisted that FERC had actually spurned them.= =20 "It's important to note that FERC rejected price controls," said White Hous= e=20 spokesman Ari Fleischer, who instead called it "a market-based mitigation= =20 plan."=20 He added the order is "in keeping with the president's desire to help the= =20 state of California and to make certain that there is no illegal price=20 gouging carried on by any companies."=20 FERC's action coincided with the arrival of two new Bush appointees to the= =20 agency, Patrick Henry Wood III, a former Texas utility regulator, and Nora= =20 Mead Brownell, a former Pennsylvania regulator.=20 The soft-spoken, boyish-looking Wood yesterday sought to allay Feinstein's= =20 lingering concerns that the new price control scheme would still permit=20 generators to manipulate the market.=20 Feinstein's bill would have gone further than the new FERC plan, imposing a= =20 cost-of-service based price cap that would return California to the=20 regulatory regime it had before its 1996 electricity restructuring.=20 "I am personally not allergic to that sort of remedy," Wood told the panel = -=20 - a position that is toxic to the Bush administration's former opposition t= o=20 price caps. "The cost-of-service regime was good enough for 80 years," Wood= =20 said. "We're trying to move away from it but we can still do it."=20 FERC's action, followed by Feinstein's bill withdrawal, quickly defused a= =20 mounting political confrontation between the Bush White House and Democrats= =20 over price caps -- one that saw Capitol Hill Republicans beating a retreat.= =20 Democrats argued that Bush, by refusing to impose price controls, was=20 allowing out-of-state generators based mostly in Texas to gouge California= =20 consumers.=20 The administration, especially Vice President Dick Cheney and Energy=20 Secretary Spencer Abraham, had insisted that price controls would backfire = by=20 reducing electricity sales and power plant investment, making the state's= =20 blackouts worse.=20 Yesterday, Sen. Gordon Smith, an Oregon Republican who co-sponsored=20 Feinstein's bill, as much as said the White House would have lost the fight= .=20 Smith said their measure "would have won large majorities in both the Senat= e=20 and House" had it gone to a vote.=20 E-mail Carolyn Lochhead at clochhead@sfchronicle.com=20 ,2001 San Francisco Chronicle ? Page?A - 11=20 Potrero Hill power plant hit by 2 lawsuits=20 Neighbors, city ask court to cut back hours of operation=20 Rachel Gordon, Chronicle Staff Writer Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/M N238116.DTL=20 The San Francisco city attorney joined forces with environmental and=20 community groups and sued in federal court yesterday to force the operator = of=20 the Potrero Hill power plant to cut its ramped-up electricity output until= =20 more rigorous pollution controls are installed.=20 The plant, run by Mirant Corp., increased its output in response to Gov. Gr= ay=20 Davis' move to relax environmental laws on power producers and generate mor= e=20 electricity for Californians.=20 The lawsuits, filed against Mirant in U.S. District Court, allege the compa= ny=20 is illegally operating its so-called peaker plants. The suits appear to be= =20 the first challenge in California to Davis' efforts to produce more power.= =20 The Potrero Hill plant, which runs during times of peak demand, has a total= =20 of six turbines that generate 156 megawatts of electricity, enough to power= =20 156,000 homes. Each turbine is permitted to operate 877 hours a year -- a= =20 threshold that already has been exceeded.=20 Mirant struck a deal March 30 with administrators of the Bay Area Air Quali= ty=20 Management District -- the regional agency that regulates air pollution -- = to=20 run the plants as much as needed to keep up with the energy demand. In=20 return, Mirant will pay $20,000 per ton of excess emissions of nitrogen=20 oxides, a pollutant that causes smog. The company placed $400,000 on deposi= t.=20 "The Mirant Corporation is behaving like an outlaw and the air district is= =20 their willing accomplice in violating clean air laws," said Mike Thomas, an= =20 organizer with Communities for a Better Environment, one of the plaintiffs.= =20 The other groups that sued are Bayview-Hunters Point Community Advocates an= d=20 Our Children's Earth.=20 The city filed a separate suit over the same issue.=20 The lawsuits ask the court to order Mirant to stop operating beyond the 877= -=20 hour cap until it obtains new permits. The city and environmental groups=20 argue the permits for expanded operation are required by the federal Clean= =20 Air Act.=20 The lawsuits also demand that more stringent pollution controls be installe= d=20 on the peakers. The increased power production poses a potentially serious= =20 health risk to the people who live and work in the surrounding neighborhood= ,=20 the plaintiffs charge.=20 Because the peaker plants weren't originally intended to run full time, the= y=20 aren't equipped with the most up-to-date pollution controls.=20 The plaintiffs also allege the air district regulators violated the=20 California Environmental Quality Act by failing to conduct thorough reviews= =20 of the expanded operation and not allowing for public comment.=20 "We as a city are not saying no to power. We're saying there's a process an= d=20 they need to follow it," said San Francisco Supervisor Sophie Maxwell, who= =20 represents District 10 where the power plant is located.=20 Terry Lee, a spokesman for the air district, said her agency and Mirant did= =20 nothing illegal. Mirant spokesman Patrick Dorinson concurred.=20 They pointed to Davis' executive orders earlier this year that gave power= =20 companies the right to step up production without going through the normal= =20 permit process and adhering to the stricter pollution controls.=20 William Rostov, an attorney for Communities for a Better Environment,=20 contends Davis does not have authority to override federal air quality laws= .=20 Lee said the U.S. Environmental Protection Agency signed off on the=20 governor's plan.=20 The plant, near 23rd and Illinois streets, long has been a target of=20 neighbors trying to close it. Mirant is hoping to build a new 540-megawatt= =20 plant on the site that uses cleaner-burning natural gas. The existing plant= =20 burns highly polluting distillate oil.=20 Lee said the money Mirant is paying for the extra emissions will help reduc= e=20 air pollution in Potrero Hill. The efforts include placing filters on Muni= =20 diesel fuel buses that operate in the neighborhood and installing a lower-= =20 polluting engine on a tug boat that runs off the nearby shores.=20 "Is this a perfect situation? No," Lee said. "But under the governor's=20 executive orders this is the way we're proceeding."=20 E-mail Rachel Gordon at rgordon@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 13=20 Washington wakes up=20 Wednesday, June 20, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/06= /20/E D40132.DTL=20 WASHINGTON, after all, does feel our pain. Partial but reasonable price=20 controls will contain wholesale electricity prices beginning today under a= =20 long-sought ruling by the Federal Energy Regulatory Commission. It's about= =20 time.=20 Where was this agency until now, and why the sudden willingness to help?=20 Politics.=20 At first, the Bush administration denounced controls as market interference= =20 that would chase off investment in power generation.=20 But the peril has spread beyond California to other Western states, whose= =20 governors are Republicans. Mid-term elections for Congress are coming up ne= xt=20 year. Also, the White House was besieged by California Republicans and=20 business groups worried about blackouts and price gouging.=20 President Bush finally sounded the retreat the day before the commission=20 vote. He could accept a "mechanism" that would "mitigate any severe price= =20 spike." He insisted that the final results were not firm price controls,=20 which arguably they are not.=20 Gov. Gray Davis, who begged for help for months, said the final package=20 didn't go far enough. What he wanted were tougher limits pegged to generati= on=20 costs, plus a profit figure of 30 to 50 percent.=20 The final formula approved by the commission amounts to a loose-fit limit= =20 that should dampen the absurd price surges that have endangered the state.= =20 The 24/7 plan rewards modern plants by setting prices based on the=20 least-efficient power producers. It covers 11 states, not just sickly=20 California.=20 There is room for doubt. Canny operators may find ways to exploit the prici= ng=20 mechanism. Also, California will be whacked with a one-state-only surcharge= =20 of 10 percent. The commission took no action on another Davis complaint tha= t=20 power generators may have overcharged the state by $6.2 billion.=20 Still, the new limits may be the most anyone could expect. Consider how far= =20 Washington has come: A hidebound ideology has given way to real-world=20 recognition of a huge problem. U.S. Sen. Dianne Feinstein acknowledged as= =20 much yesterday when she dropped a measure to impose stricter price limits.= =20 California's troubles aren't over. Conservation remains supremely important= .=20 New power plants need approval and speedy construction. The financial damag= e=20 to state utilities and the state's coffers needs attention. The severity of= =20 summer blackouts is a wild card.=20 The federal controls add a measure of protection from this volatile mix. It= 's=20 a shame that help didn't come sooner.=20 ,2001 San Francisco Chronicle ? Page?A - 18=20 Feinstein halts electricity price caps bill=20 Posted at 12:15 a.m. PDT Wednesday, June 20, 2001=20 BY JIM PUZZANGHERA=20 Mercury News=20 WASHINGTON -- Like a steam valve on an overheating boiler, the move by=20 federal regulators to enact broad new electricity price controls in the Wes= t=20 has relieved much of the growing political pressure for stronger action --= =20 for now.=20 Sen. Dianne Feinstein removed one major source of that pressure Tuesday.=20 Satisfied that the Federal Energy Regulatory Commission has taken ``a giant= =20 step forward'' in curbing California energy prices, Feinstein withdrew her= =20 legislation to enact price caps on wholesale electricity prices throughout= =20 the West.=20 ``Let's watch and wait and see how this order works,'' the California=20 Democrat told members of the commission during a Senate hearing.=20 But while the battle over the actions of federal regulators may have=20 subsided, the larger political war over energy prices continues.=20 California Gov. Gray Davis, who has been pounding away for weeks at the Bus= h=20 administration for not providing enough help to the state, will step into t= he=20 fray here today. The governor will appear at a Senate hearing where he will= =20 praise federal regulators for moving in the right direction with the new=20 plan. But he's also expected to continue to press for harder price caps and= =20 criticize federal regulators for taking months to act while the state drain= ed=20 billions from its budget to pay for electricity.=20 In addition, Davis will question some aspects of the plan, such as the lack= =20 of strong action on forcing refunds from suppliers. ``He wants to make sure= =20 that Congress gets the message loud and clear that we want our money back= =20 from the overcharges by generators,'' said Davis media representative Steve= =20 Maviglio.=20 But the Republicans are just as eager to lay responsibility for the=20 electricity crisis on Davis, who is up for re-election next year. A=20 hard-hitting Republican-backed TV ad campaign in California organized by=20 Scott Reed, a former executive director of the Republican National Committe= e,=20 blames the governor for failing to act quickly when the crisis first emerge= d.=20 The politics of shifting blame are likely to set the tone for the hearings= =20 organized by the new Democratic chair of the Senate Governmental Affairs=20 Committee, Sen. Joe Lieberman, D-Conn. Davis and all five FERC commissioner= s=20 have been invited to the hearing to determine if the commission has lived u= p=20 to its legal obligation to ensure ``just and reasonable'' electricity price= s=20 in California.=20 Price controls=20 With that oversight hearing pending this week, the commission called a=20 special meeting Monday and took stronger action. It expanded existing=20 electricity price controls around the clock and to 11 Western states. Under= =20 the commission's plan, ceiling prices will be set that suppliers can exceed= =20 as long as they provide justification for the higher price. A hard price ca= p=20 would set a price that could not be exceeded.=20 Commission Chairman Curt H,bert, a Republican, said politics played no role= =20 in enacting the new plan. But Commissioner William Massey, one of two=20 Democrats on the five-member commission, acknowledged that political pressu= re=20 in recent weeks from Republicans and newly empowered Democrats in the Senat= e=20 had an impact.=20 ``We are an independent agency but we operate in a highly charged political= =20 environment. I would not imply that we did not rule on an independent basis= =20 here, but you know, this is Washington, D.C., for God's sake,'' Massey told= =20 the Mercury News on Tuesday. ``I think that it was enlightening to the agen= cy=20 that this wasn't just a Democratic question, this was Democrats and=20 Republicans throughout the West saying, `My God, solve this problem.' And s= o=20 we hope we have.''=20 The White House, which had opposed any form of price controls, also moved t= o=20 adjust to this political reality.=20 ``To the degree that it is a market-based program, this is in keeping with= =20 what the president said, and the president is pleased to be able to help=20 California in that manner,'' White House press secretary Ari Fleischer said= .=20 ``It does not change the president's fundamental view that a separate=20 economic matter, which would be price controls, would not be productive.''= =20 But Democrats are eager to point to the shift as evidence that the White=20 House realized it was paying too high a political price for its earlier=20 position, insisting that the electricity crisis was largely California's=20 problem to solve.=20 ``The Bush administration is realizing the jig is up. The game is over,''= =20 said Sen. Barbara Boxer, D-Calif. ``Their attitude of hands-off has hurt th= em=20 deeply.''=20 Democrats in the House have vowed to continue pushing for a vote on their o= wn=20 price-caps bill. The legislation is adamantly opposed by Republican leaders= =20 in Congress, who believe FERC's actions Monday are enough government=20 intervention.=20 ``I hope that its actions are based on market principles, not political=20 half-measures,'' said House Majority Whip Tom DeLay, R-Texas. ``It's now ti= me=20 for Governor Davis to stop pointing fingers and shifting blame.''=20 Feinstein has vowed to quickly resurrect her bill if electricity prices sho= ot=20 up dramatically. Boxer said she will introduce legislation to force FERC to= =20 order power suppliers to refund what the state says are billions of dollars= =20 in overcharges for electricity purchases.=20 Meeting on refunds=20 The commission has set up a conference for the state, suppliers and utiliti= es=20 to settle the contentious refund issue by July 10. If no settlement can be= =20 reached under the auspices of an administrative law judge, the judge will= =20 make a recommendation to the commission and it will resolve the dispute,=20 H,bert said.=20 Massey had supported Feinstein's legislation to force him and his fellow=20 commissioners to enact price caps. But after the commission unanimously=20 approved its expanded price-control plan, he joined the four other=20 commissioners Tuesday in urging the Senate Energy and Natural Resources=20 Committee not to pass such a law.=20 The commission's chair, H,bert, strongly warned against legislative action,= =20 saying, ``I believe in my heart, and I know in my educated mind, that we ar= e=20 on the right track.''=20 But the issue disappeared Tuesday as Feinstein and the Republican co-sponso= r=20 of the price-cap legislation tabled their plan.=20 ``I think it renders substantially moot the legislative efforts that she an= d=20 I were pursuing,'' Sen. Gordon Smith, R-Ore., said of the commission's new= =20 price-control plan. ``And I do believe that effort would have won large=20 majorities in the Senate and the House, and so I think what you are doing i= s=20 reflecting the will of the elected representatives of the American people.'= '=20 Feinstein said that whatever the commission calls the plan, it is close=20 enough to hard caps to merit a chance to work.=20 ``I view this action by FERC as a giant step forward and I'm very grateful = to=20 you,'' she told the commissioners. ``I also view the fact that Senator Smit= h=20 and I have worked hard on this bill perhaps has been helpful in urging you= =20 along.''=20 FERC's fixes have fallen short=20 Published Wednesday, June 20, 2001, in the San Jose Mercury News=20 BY FRANK WOLAK=20 ON Monday, for the third time in the past eight months, the Federal Energy= =20 Regulatory Commission, the agency charged with regulating wholesale=20 electricity prices in California, implemented remedies that it claims will= =20 set just and reasonable wholesale electricity prices. This is a case where= =20 the third time is unlikely to be a charm.=20 As chairman of the Market Surveillance Committee of the California=20 Independent System Operator, the independent committee formed by FERC to=20 monitor the California market, I have analyzed the results of FERC's previo= us=20 attempts. They reveal a misunderstanding of important details of the=20 California electricity market. It is therefore not surprising that they hav= e=20 been ineffective.=20 Starting in November of 2000, FERC acknowledged that wholesale prices in=20 California during the summer of 2000 were unjust and unreasonable. Its=20 December 2000 order implemented the first set of remedies. Both the=20 California Power Exchange Market Monitoring Committee and the committee I= =20 chair pointed out important shortcomings in FERC's analysis of the Californ= ia=20 market and argued that its remedies would most likely harm, rather than=20 enhance, market performance.=20 At this time, FERC also did not order refunds for the unjust and unreasonab= le=20 prices, even though it acknowledged the prices reflected the exercise of=20 market power, which is the ability of a producer to force prices higher. Th= e=20 Federal Power Act requires refunds under these circumstances. But FERC said= =20 it was unable to find specific instances of firms exercising market power.= =20 This makes no sense. If FERC finds that prices indicate market power, then= =20 the generators who bid those prices are exercising market power.=20 Following the implementation of these remedies, conditions in the Californi= a=20 market deteriorated far beyond what had been predicted by the two market=20 monitoring committees. Even though January and February are the lowest dema= nd=20 months of the year, average wholesale electricity prices were almost 10 tim= es=20 higher in 2001 than they were during the same two months of 2000 and almost= =20 double the average price during the summer of 2000. In January, March and= =20 May, California experienced several days of rolling blackouts and had syste= m=20 emergencies almost every day during January and February of 2001.=20 IN April, FERC made another round of market rule changes designed to lead t= o=20 just and reasonable prices. However, in response to growing pressure from= =20 Congress, less than 10 days after these remedies were implemented, FERC=20 enacted its most recent order.=20 Before Congress declares victory, it should verify that FERC's most recent= =20 plan achieves the following two goals.=20 First, the plan should guarantee that the average price of wholesale=20 electricity paid by California over the next two years is equal to the=20 average price that would occur in a competitive electricity market, with=20 California's current supply and demand conditions and fuel costs. The Feder= al=20 Power Act requires not just a high probability of just and reasonable rates= ;=20 it requires that they occur with certainty.=20 The second goal is to alter the incentives faced by all market participants= =20 so that it will no longer be profit-maximizing for a firm to withhold=20 electricity from the market in order to drive up prices.=20 FERC's most recently implemented plan does not achieve either of these goal= s,=20 although it does come closer than any previous attempts.=20 One solution satisfying both of these goals has been proposed to FERC. In a= =20 December report to FERC, the Market Surveillance Committee of the Californi= a=20 ISO proposed a one-time regulatory intervention. This intervention would=20 require that each generator serving California sign a forward contract=20 guaranteeing that California consumers can purchase 75 percent of the=20 generator's expected output over the next two years at a specified=20 competitive benchmark price. Once a firm has signed these forward contracts= ,=20 it is free to sell all remaining energy in the western U.S. wholesale marke= t=20 at whatever price it can obtain.=20 The obligation to provide power under the contracts, and the incentive to= =20 sell 25 percent of power at unrestricted prices, would prevent generators= =20 from withholding power.=20 Unless FERC implements a solution satisfying these two goals, Congress shou= ld=20 require FERC to suspend the market-based pricing authority for all supplier= s=20 in the Western U.S. for the next two years and order all sales during this= =20 period at cost-of-service prices. This will guarantee that FERC meets the= =20 statutory mandate of the Federal Power Act in California. Frank Wolak is a professor of economics at Stanford University.=20 Wednesday, June 20, 2001=20 Easing the crunch on costs of power=20 It could have been worse. Yesterday the Federal Energy Regulatory Commissio= n=20 expanded limited price caps on electricity to cover 11 Western states and t= o=20 last 24 hours a day during an emergency.=20 This follows an action in April that imposed caps only in California during= =20 the hours the state declared a power emergency.=20 Under the new rules, "when reserves are below 7 percent in the California= =20 Independent System Operator spot markets ... the maximum price that can be= =20 charged for spot market sales ... will be 85 percent of the highest hourly= =20 price that was in effect during the most recent Stage 1 [emergency] called = by=20 the ISO," the FERC explained yesterday. The order will last until Sept. 30, 2001.=20 The action came after intense pressure by Democrats and the Bush=20 administration on the FERC, whose three Republican and two Democrat members= =20 all voted for the new controls. It also comes after continuing stories about "gouging" by suppliers. On=20 Sunday, the Register reported how Tulsa-based Williams, an energy supplier,= =20 manipulated the market to keep prices high.=20 And after Gov. Gray Davis last week attacked Los Angeles' government-run=20 Department of Water and Power for gouging the state on electricity purchase= s,=20 reported the Los Angeles Daily News, "the DWP caved in, and agreed to start= =20 selling the state power at 'cost'." The new FERC ruling certainly is better than the demand for across-the-boar= d,=20 continuous price controls demanded by Gov. Davis and other Democrats. "They're trying to let the market do the best it can under tremendous=20 pressure," Robert Michaels, a professor of economics at Cal State Fullerton= ,=20 told us of the FERC members. "It's explicitly only for one kind of power,= =20 that on short-term, so-called spot market kinds of exchanges. Most power is= =20 under other kinds of contracts not touched." The main effect of the new order is that, unlike full-blown price controls,= =20 it should not discourage the construction of new power generators.=20 [B] POWER UPDATE/ US Senate panel to hold off vote on Calif. cap bill=20 June 20, 2001=20 (BridgeNews) June 19, 2124 GMT/1724 ET=20 ................................................................. TOP=20 STORIES:=20 US Senate panel to hold off vote on Calif. power cap bill=20 San Francisco, June 19 (BridgeNews) - U.S. Senate Energy and Natural=20 Resources Committee Chairman Jeff Bingaman, D-N.M., plans to hold off on=20 voting on a bill for U.S. West power price caps following a request by fell= ow=20 senators Dianne Feinstein, D-Calif., and Barbara Boxer, D-Calif., according= =20 to an aide in Bingaman's office Tuesday. ( Story .20121 )=20 IPE says merger with ICE complete; will keep IPE name=20 New York, June 19 (BridgeNews) - London's International Petroleum Exchange= =20 has completed its merger with the Intercontinental Exchange, an electronic= =20 market for the trading of energy and metals products, IPE Chief Executive= =20 Richard Ward said Tuesday. He said the company will still be called the IPE= .=20 His statement follows ICE's announcement Monday that all of conditions of i= ts=20 recommended offer to acquire the issued share capital of IPE Holdings had= =20 been satisfied or waived and that the offer was unconditional. ( Story=20 .17970, .19353 )=20 ................................................................. OF=20 INTEREST:=20 --AMERICAS--=20 FERC order seen having little effect on US generator profits=20 San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory=20 Commission order to impose a "soft" price cap on U.S. West wholesale power= =20 prices will likely have little significant effect on producer profits from= =20 electricity sales while the order is in effect over the next year, industry= =20 analysts said Tuesday. Some analysts cautioned that some producers without= =20 long-term contracts could be negatively affected by the order. ( Story .203= 40=20 )=20 White House says FERC power plan "helpful step" for California=20 Washington, June 19 (BridgeNews) - The White House Tuesday said action take= n=20 Monday by the federal energy regulators to extend limits on electricity=20 prices in California "is and can be a helpful step" for the beleaguered=20 state. ( Story .18824 )=20 Calif. ISO rescinds Tues blackout forecast; supplies still tight=20 New York, June 19 (BridgeNews) - While the California Independent System=20 Operator has rescinded its forecast of possible blackouts for Tuesday, the= =20 agency running the Golden State's electricity grid is currently projecting= =20 very little surplus power generated in the state for the day. ( Story .1491= 3=20 )=20 Three states sue DOE over air conditioning standards ruling=20 New York, June 19 (BridgeNews) - Attorney generals of California, Connectic= ut=20 and New York along with several consumer groups sued the Department of Ener= gy=20 to block a Bush Administration plan allegedly designed to weaken efficiency= =20 standards for residential appliances, including air conditioners and heat= =20 pumps. The complaint filed Tuesday in Manhattan federal court calls the=20 administration "short sighted" and seeks to invalidate its rule changes. (= =20 Story .18548 )=20 NY, New England ISOs expand power reserve sharing agreement=20 New York, June 19 (BridgeNews) - The Independent System Operators (ISO) for= =20 New York (NYIOS) and New England (ISO-NE) have agreed to expand their=20 reserve-sharing agreement to allow for each ISO to draw on available reserv= es=20 in the other region in the event of a system interruption, according to a= =20 statement issued Tuesday by ISO-NE. ( Story .19283 )=20 AGA Preview: US natural gas inventories seen up 85 to 95 bcf=20 New York, June 19 (BridgeNews) - The American Gas Association (AGA) is=20 expected to report Wednesday that U.S. natural gas stocks have risen by 85= =20 billion to 95 billion cubic feet (bcf) for the week ended Friday, according= =20 to a BridgeNews survey of brokers, analysts and traders. The AGA will relea= se=20 the storage report at 1400 ET Wednesday. ( Story .1856 )=20 --ASIA/PACIFIC--=20 GAIL planning 20-bln-rupee gas pipeline in southern India=20 New Delhi, June 19 (BridgeNews) - India's state-owned Gas Authority of Indi= a=20 Ltd. plans to lay a new 500-kilometer-long natural gas pipeline connecting= =20 the two southern states of Kerala and Karnataka at a cost of 20 billion=20 rupees, the Press Trust of India said Tuesday. The pipeline will carry 6=20 million cubic meters of gas. ( Story .12193 )=20 Indonesia official sees power cuts by 2004 unless new units built=20 Jakarta, June 19 (BridgeNews) - Indonesia will face power cuts by 2004 unle= ss=20 additional generating capacity is built, Eddie Widiono, president director = of=20 state power group PLN, said at an industry seminar here on Tuesday. But=20 experts warned that the capital markets were unwilling to finance the=20 billion-dollar investments needed and the public sector could not afford it= .=20 ( Story .12536 )=20 Indonesia to restructure PLN, raise power tariff, says minister=20 Jakarta, June 19 (BridgeNews) - The government aims to revive investment in= =20 Indonesia's power sector with a scheduled 17.5% rise in electricity prices= =20 this year and a later $3 billion debt equity swap to restructure state powe= r=20 company PLN, minister of energy and mines Purnomo Yusgiantoro said Tuesday.= =20 PLN will negotiate directly with independent power producers (IPPs) to=20 install additional capacity, he added. ( Story .10568 )=20 Indonesian minister claims ExxonMobil to resume Aceh operations soon=20 Jakarta, June 19 (AFP) - PT Exxon Mobil Indonesia will resume oil and gas= =20 production in separatist-plagued Aceh province in early July, ending a free= ze=20 of more than three months for security reasons, a minister said Tuesday. (= =20 Story .10751 )=20 --EUROPE/MIDDLE EAST--=20 Czech's Temelin nuclear plant reactor to be restarted in July=20 Prague, June 19 (AFP) - Reactor number one at the controversial Temelin=20 nuclear plant in the Czech Republic will be restarted on July 21 after bein= g=20 shut down for two months for repairs, the plant's spokesman announced=20 Tuesday. The reactor was shut down in early May when faults were detected i= n=20 its non-nuclear secondary circuit, the latest in a series of technical=20 glitches discovered since it was first put into service in October last yea= r.=20 ( Story .16716 )=20 British Energy: Sizewell B power plant back onstream=20 London, June 19 (BridgeNews) - The 1188-megawatt Sizewell B nuclear power= =20 plant has been back onstream "for a few days," a spokeswoman for operator= =20 British Energy told BridgeNews Tuesday, refusing to detail when exactly the= =20 plant was recommissioned and whether its available capacity had since been= =20 utilized by the market. ( Story .12928 )=20 Germany's Mueller says nuclear phase-down formula won't disrupt=20 Berlin, June 19 (BridgeNews) - The formula for shutting down German nuclear= =20 power plants should cut atomic generating capacity only one-sixth by 2010,= =20 insufficient to raise fears of shortages, said Economics Minister Werner=20 Mueller. ( Story .12337 )=20 TURKEY CRISIS: Press: Govt late on IMF pledged power sell-offs=20 Ankara, June 19 (BridgeNews) - The Turkish Cabinet has decided to propose t= o=20 the parliament to extend the transfer of operational rights of power plants= =20 to the private sector by another four months, once again violating pledges= =20 made to the IMF when securing a U.S. $10 billion bailout package after the= =20 February crisis, Sabah newspaper reported Tuesday. The government, in its n= ew=20 IMF-supported program, pledged to complete transfer of the rights by=20 end-June. ( Story .11978 )=20 se ................................................................. SPOT= =20 NEWS LINKS:=20 Media://NewsSearch::/source=3Dmar/category=3Dn-eny/go/search=20 ................................................................. THE=20 MARKETS:=20 US FUTURES: UK FUTURES .1908 NY Natural Gas Pre-Opg .1795 IPE Nat Gas Review=20 .1906 NY Natural Gas Review .1794 IPE Nat Gas Midday=20 .1747 NY Natural Gas=20 US/CANADA CASH NATURAL GAS UK/EUROPE CASH NATURAL GAS .1894 Henry Hub natural gas .1807 UK Spot Gas=20 .1884 US/Canada Spot Natural Gas=20 US CASH ELECTRICITY UK/EUROPE CASH ELECTRICITY .8575 California PX: Next day .1892 UK Power Index=20 .8576 .8577 WSCC Forwards (AM/PM) .1889 Nordic Power Market=20 .8585 .8586 PJM Forwards (AM/PM) .1890 Spanish Power Market=20 .8593 .8594 Cinergy Forwards (AM/PM) .1844 UK EFA Power Market=20 .8597 .8598 Entergy Forwards (AM/PM) CANADA CASH ELECTRICITY=20 .8601 .8602 ERCOT Forwards (AM/PM) .5637 Canadian Power Market=20 .8603 New England Forwards=20 .8587 .8600 TVA Forwards (AM/PM)=20 OTHER=20 .1873 US Nuclear Plants Operating Status=20 .2029 BRIDGE CALENDAR: US POWER: Key events to watch=20 .2030 US Utility Deregulation Digest=20 .1704 US Utility M&A Digest=20 ................................................................. SYMBOL=20 LINKS:=20 Click below for adamb chart in Athena NATURAL GAS=20 NYMEX - Media://Chart:NYMEX:/symbol=3DUS@NG.1=20 IPE - Media://Chart:IPE:/symbol=3DGB@NGP.1 NYMEX ELECTRICITY=20 Palo Verde electricity - Media://Chart:PaloVerde:/symbol=3DUS@VK.1=20 COB electricity- Media://Chart:COB:/symbol=3DUS@OW.1=20 Cinergy electricity - Media://Chart:Cinergy:/symbol=3DUS@CN.1=20 Entergy electricity - Media://Chart:Entergy:/symbol=3DUS@NT.1=20 PJM electricity - Media://Chart:PJM:/symbol=3DUS@QJ.1=20 .................................................................=20 BridgeNews=20 Send comments to gennews@bridge.com=20 [B] FERC order seen having little effect on US generator profits=20 June 20, 2001=20 By Christine Cordner San Francisco, June 19 (BridgeNews) - A U.S. Federal Energy Regulatory=20 Commission order to impose a "soft" price cap on U.S. West wholesale power= =20 prices will likely have little significant effect on producer profits from= =20 electricity sales while the order is in effect over the next year, industry= =20 analysts said Tuesday. Some analysts cautioned that some producers without= =20 long-term contracts could be negatively affected by the order.=20 * * * "FERC's decision to expand the soft price cap throughout the western grid i= s=20 not very painful for generators," Barry Abramson, UBS Warburg analyst, said= =20 in a research note. "The expanded soft price cap will have little impact on= =20 the earnings of the wholesale generating companies. By definition, every=20 other power plant is more efficient than the least efficient power plant, a= nd=20 thus every other power plant should be able to make a good profit selling a= t=20 the soft price cap.=20 "Furthermore, on most days, most of the power that is produced is sold at= =20 prices below the soft price cap, so the soft-price cap has little impact on= =20 the overall earnings of the wholesale generators in the region," Abramson= =20 said.=20 FERC on Monday unanimously voted 5-to-0 to expand wholesale price caps to t= he=20 10 western states comprising the Western Systems Coordinating Council. FERC= =20 also expanded the price caps on wholesale power to 24 hours per day, seven= =20 days per week, from limits only during supply emergencies when reserve=20 margins in California fall below 7%.=20 Under the order, wholesale power prices will be limited to 85% of the price= =20 in effect during the final hour of the most recent emergency, when Californ= ia=20 is not in a supply emergency. The proxy price will be based on the costs fo= r=20 the least efficient power plant used to generate electricity on that day as= =20 well as the price for natural gas.=20 Generators, investor-owned utilities and independent power producers,=20 however, can receive more than the proxy price if they can justify the high= er=20 generation costs. The plan also allows a 10% surcharge on all wholesale pow= er=20 sales in California in order to account for credit risk.=20 In a research note, JP Morgan analysts Jim Von Riesemann and Anatol Feygin= =20 said that earnings for generating companies "should remain relatively intac= t=20 and valuations look attractive," especially for AES, Mirant and NRG.=20 Robert Winters, a Bear Stearns analyst, said, "The near-term actions by the= =20 FERC (and the focus on Monday's meeting), the heightened political rhetoric= =20 and the weakening in gas and power prices across much of the U.S. over the= =20 past month has led to the weakness in the shares of the wholesale energy=20 companies...We believe very attractive buying opportunities are being creat= ed=20 within certain areas of the wholesale energy sectors where companies are no= w=20 trading at discounts to their projected earnings growth range."=20 Winters said there were buying opportunities with Williams, "which continue= s=20 to be our top pick in the wholesale energy space," and with Enron Corp.=20 But Abramson noted that the order does not allow producers "to mark up the = r=20 price of spot power for resale above the soft price cap," which could affec= t=20 some profit margins.=20 "The FERC plan should make it challenging for some to repeat the growth of= =20 the last couple of quarters in the West, particularly those that without=20 long-term contracts. It appears that the plan would likely dampen volatilit= y,=20 although price caps can have unexpected consequences," said Merrill Lynch= =20 analyst Steven Fleishman.=20 "On a relative basis, we believe companies that have locked up much of thei= r=20 capacity under long-term contracts and have efficient baseload power are be= st=20 positioned under the new FERC plan," Fleishman said in a note. He said=20 Calpine, Dynegy, NRG Energy and Williams stand to benefit the most from thi= s=20 scenario.=20 "Companies that could be challenged are those with less long-term contracts= ,=20 that are more dependent on inefficient peaking plants, and that could be=20 affected by less volatility in the West," Fleishman said. "The big question= =20 is how well the marketers positioned their books ahead of this changed=20 environment." He said Reliant Resources since it appears to have the least= =20 contracted in the West for 2002.=20 The plan, which will be in effect from Wednesday to Sept. 30, 2002, follows= =20 pleas from California Gov. Gray Davis to control wholesale prices, which he= =20 said cost the state roughly $50 billion this year.=20 The state's largest utility Pacific Gas & Electric declared bankruptcy=20 earlier this year, citing losses from high wholesale prices. End=20 SCE Unveils Rotating Blackout Web Site and Public Notification Plan=20 June 20, 2001=20 ROSEMEAD, Calif., June 19 /PRNewswire/ via NewsEdge Corporation -=20 Southern California Edison (SCE) today unveiled its enhanced Web site and= =20 public notification process to help guide the public through possible=20 rotating power blackouts when ordered by the California Independent System= =20 Operator (Cal-ISO).=20 "We have been able to increase significantly the amount of outage informati= on=20 available to our customers, because we want to empower them with critical= =20 information to prepare for and safely cope through power blackouts," said P= am=20 Bass, SCE's senior vice president of customer service. "We recognize that t= he=20 more information customers have before and during rotating outages, the=20 better equipped they will be to address the concerns and safety of their=20 families and employees."=20 Bass said customers have indicated they want to know four basic things when= =20 rotating blackouts occur: the location, the duration, whether it affects=20 them, and what they should and should not do to safely get through the=20 outages. SCE offers several information resources that address these concer= ns=20 -- through toll-free phone lines, through news media updates, and now throu= gh=20 an expanded, user-friendly rotating outage Web site.=20 All of these sources will tell customers that the outages rotate among=20 electrical circuits across SCE's vast service area for about one hour, as= =20 directed by Cal-ISO. They will also list the likely affected customer group= s=20 and communities, and even provide geographic maps outlining the specific=20 neighborhoods. Customers will also be able to access practical tips on how = to=20 prepare and function safely through outages.=20 Customers can find out the group their home or business is assigned to by= =20 identifying their alphanumeric Rotating Outage Group Number, which now=20 appears directly under the customer's name and address in the top left corn= er=20 of the bill's front page. When Cal-ISO predicts possible rotating outages,= =20 SCE will immediately announce which groups may be affected through its outa= ge=20 hotline -- (800) 611-1911 -- its Web site -- www.sce.com -- and through the= =20 news media.=20 When outages are forecasted or actually begin, customers can determine if= =20 their group is part of the current outage or likely to be included in the= =20 next round, since SCE generally interrupts groups in numerical order, with= =20 some exceptions. For example, customers can now hear on the morning news=20 whether Cal-ISO is predicting outages for the day. By calling the hotline o= r=20 checking www.sce.com, they can learn which groups would likely be interrupt= ed=20 if circumstances turn out as predicted. If their group number is on the lis= t=20 of groups likely to be interrupted, the customer could take steps to prepar= e=20 for the likelihood of rotating blackouts affecting their home or business= =20 that particular day.=20 It should be noted that group numbers may change without advance notice for= =20 operational reasons or when state regulators revise their policy regarding= =20 customers exempted from blackouts. SCE will notify customers of such change= s=20 as quickly as practical.=20 Visitors to SCE's customer Web site, www.sce.com, will find the following= =20 helpful enhancements:=20 -- The site displays outage group numbers and corresponding communities=20 affected during recent, current, and predicted rotating outage=20 incidents.=20 -- When customers click on the name of a community affected by an outage,= =20 they are taken to a detailed street map of the affected circuit.=20 -- The Web site offers general outage information and links, including=20 outage preparation and safety tips, grid status information from Cal-=20 ISO, frequently asked questions about rotating outages, and=20 conservation tips.=20 -- A dynamic home-page pop-up window will change messages depending on=20 state power conditions. For example, during a Stage 2 Emergency,=20 customers will be directed to information about potential outages.=20 During a Stage 3 Emergency in which rotating outages are underway, the=20 box will provide a hotlink to group numbers and communities currently=20 affected and likely to be affected should outages likely continue.=20 For customers who don't have Internet access, SCE provides essentially the= =20 same Web site information through an automated outage phone line, (800)=20 611-1911. This service makes it possible to obtain outage information=20 immediately without waiting. Among major features:=20 -- Customers can call at any time to learn the Rotating Outage Group=20 Number assigned to their home or business.=20 -- When customers experience a power blackout, they can call to determine= =20 whether they are part of a rotating outage incident or if their=20 circuit has been affected by a routine interruption such as a car or=20 construction accident.=20 -- During rotating blackouts, customers can learn if their circuit is=20 currently affected or may be affected in the coming hours and which=20 portions of specific communities may be affected.=20 -- When customers call, they should have their account number and group=20 number handy. However, if customers call during a rotating outage=20 incident and do not know their group number, they will be able to=20 obtain information by entering their zip code.=20 SCE's media relations office has developed strategic communications=20 partnerships with radio and television stations that provide frequent live= =20 updates to the public, including information about circuit groups affected = or=20 likely to be affected by outages.=20 It should be further noted that while SCE is committed to providing as much= =20 advance public notification about pending rotating blackouts, it can only d= o=20 so as it receives timely notification from Cal-ISO.=20 SOURCE Southern California Edison=20 CONTACT: Corporate Communications of Southern California Edison,=20 626-302-2255, www.edisonnews.com=20 Web site: http://www.sce.com (EIX)=20 Edison CEO/ Ruling Hasn't Helped=20 June 20, 2001=20 By LESLIE GORNSTEIN AP Business Writer LOS ANGELES (AP) via NewsEdge Corporation -=20 A federal ruling this week limiting wholesale energy prices in 10 Western= =20 states hasn't been enough to pull Southern California Edison any further fr= om=20 the brink of bankruptcy, Edison International chief John E. Bryson said=20 Tuesday.=20 The state's second-largest utility is no further from or closer to bankrupt= cy=20 now than it was ``two weeks, four weeks, six weeks ago,'' Bryson told a pre= ss=20 conference before a speech to Town Hall Los Angeles, a public policy forum.= =20 Bryson is chairman, president and chief executive officer of Edison=20 International, parent of subsidiary Southern California Edison, which serve= s=20 4.2 million customers.=20 Bryson said, however, that he senses a warming among state legislators to a= =20 proposed bailout deal between his company and the state.=20 That deal would supply billions of dollars to Edison in exchange for years = of=20 cheap power and possibly the utility's power lines.=20 ``Interest has at least intensified in Sacramento on the part of legislator= s=20 to take steps _ debate continues exactly what steps _ to have Edison health= y=20 and to take the state out of the power business and so on,'' Bryson said.= =20 Such lawmaker approval is required for the deal to survive. Key lawmakers= =20 surrounding the deal were not immediately available for comment.=20 In his Town Hall address, Bryson used the forum as a kind of open plea to= =20 state legislators, listing what he called a series of widespread myths that= =20 might be keeping leaders from acting.=20 ``The first myth is that somehow Southern California Edison is seeking a=20 bailout from taxpayers,'' Bryson said. ``Only the reverse is true.''=20 Instead, Bryson said, it was Edison who bailed out California by keeping th= e=20 lights on even when the utility's power costs far exceeded its revenues.=20 Secondly, Bryson said, Edison and its investors are not profiting from the= =20 power crisis, and SoCal Edison's parent did not act improperly by collectin= g=20 money from the utility earlier this year.=20 That money was later given to shareholders, a move that outraged consumer= =20 groups.=20 Bryson also warned that a SoCal Edison bankruptcy would severely hurt=20 California's economy by scaring away new businesses and investment capital.= =20 ``Inaction would deeply hurt the state of California and all of us,'' he=20 said.=20 Editorial Desk; Section A=20 At Last, Action on California=20 ?=20 06/20/2001=20 The New York Times=20 Page 22, Column 1=20 c. 2001 New York Times Company=20 After months of dithering, the Federal Energy Regulatory Commission took so= me=20 potentially meaningful steps on Monday to contain the wholesale price of=20 electricity in California and elsewhere in the Western United States. Anxio= us=20 not to be seen as caving in to public pressure or abandoning its fidelity t= o=20 the free market, the White House described the new policy as ''consistent= =20 with where the president has been all along.'' Gov. Gray Davis of Californi= a=20 , for his part, said the policy did not go far enough, and of course only= =20 time will tell whether it does. But to many others, including Senator Diann= e=20 Feinstein of California , the move amounted to the first significant federa= l=20 intervention in the California wholesale market since the crisis began last= =20 year. Ms. Feinstein withdrew her own price-cap bill pending the outcome of= =20 the new plan.=20 Under the new arrangement, approved unanimously by a reshuffled five-member= =20 Regulatory Commission, price limits will be based on the cost of producing= =20 electricity at the least efficient generator. The formula covers the sale o= f=20 electricity for immediate delivery -- the so-called ''spot market'' that=20 supplies about 20 percent of California 's needs and that California turns = to=20 when it is desperately trying to keep the lights on. The companies will be= =20 allowed to charge higher prices during peak periods, but not the huge sums= =20 they command today.=20 In addition, the constraints will apply throughout 10 other Western states,= =20 presumably eliminating any incentive for generators to withhold power from= =20 the California market in order to obtain a higher price elsewhere. The=20 controls are to expire in September of next year, which should relieve some= =20 of the administration's earlier fears that constraints of any kind would=20 discourage investment in new and badly needed sources of supply.=20 The benefits will not immediately be felt by California consumers. Both=20 individuals and businesses have recently been hit by rate increases belated= ly=20 imposed by the state's Public Utilities Commission at Mr. Davis's request.= =20 But the new plan should ultimately benefit taxpayers by lessening the impac= t=20 of higher energy costs on the state government, which has been buying power= =20 on behalf of the state's two largest utilities, both essentially insolvent.= =20 Recent estimates have suggested that California , which paid $7 billion for= =20 electricity two years ago, could pay as much as $50 billion this year.=20 Until quite recently the president and his energy czar, Dick Cheney, had=20 seemed almost indifferent to California 's needs. But Republican members of= =20 Congress from California and other Western states have been growing=20 increasingly restive as they contemplate the potential political fallout in= =20 the midterm elections of 2002. In addition, the two newest members of the= =20 regulatory commission, both Bush appointees, have expressed sympathy for=20 California 's plight. Whatever the reason, the administration appears to ha= ve=20 seen the light, even though it is reluctant to admit it. National Desk; Section A=20 Regulators' Order Could Bring Broad California Power Accord By LAURA M. HOLSON with JEFF GERTH ?=20 06/20/2001=20 The New York Times=20 Page 14, Column 3=20 c. 2001 New York Times Company=20 LOS ANGELES, June 19 -- An order by federal regulators that power generator= s=20 enter settlement talks with the State of California could open the door to = a=20 sweeping compromise of the financial issues in the state's power crisis,=20 energy industry analysts and executives said today.=20 But the question that remains -- and it is a vital one, they said -- is=20 whether the Federal Energy Regulatory Commission has the wherewithal to for= ce=20 the warring parties to hammer out an understanding that, at its heart, is a= s=20 much about politics as about money.=20 The commission on Monday gave California regulators and power generators=20 until July 9 to come up with a plan for settling accounts between the=20 generators and California 's struggling utilities. The power companies are= =20 owed billions, but the state has accused them of price-gouging. If the=20 parties cannot reach some agreement, an administrative judge will step in a= nd=20 recommend a settlement to the commission instead.=20 Asked at a Senate hearing in Washington today to clarify what he hoped to= =20 accomplish as a result of the two weeks of settlement talks, the commission= 's=20 chairman, Curtis L. Hebert Jr., was noncommittal. The parties, he explained= ,=20 need two things for the talks to succeed: a deadline and uncertainty.=20 Senator Dianne Feinstein, Democrat of California , expressed skepticism abo= ut=20 the undertaking. Ms. Feinstein said at the hearing, held by the Senate Ener= gy=20 and Natural Resources Committee, that she was concerned that the commission= =20 had laid out ''no rules'' for the talks.=20 ''Very little, if any, money has changed hands as a result of prior=20 settlement conferences,'' she said.=20 Many industry executives and state officials have not yet seen the=20 commission's order, and they were scrambling today to figure out exactly wh= at=20 they were being asked to do.=20 ''Without seeing what exactly is in the order, who knows?'' said Sean=20 Gallagher, a staff lawyer for California 's Public Utilities Commission.=20 ''But we wouldn't turn our noses up at participating in negotiations.''=20 Gary Ackerman, executive director of the Western Power Trading Forum, a=20 coalition of energy traders and electricity generators, noted that the=20 federal regulators' timetable ''has a very short fuse.'' And the fact that= =20 the state's biggest utility, the Pacific Gas and Electric Company, has file= d=20 for bankruptcy will complicate efforts to reach a comprehensive agreement, = he=20 added.=20 ''I don't hold high hopes that a settlement would work out,'' Mr. Ackerman= =20 said, ''but I commend the FERC for taking a stab.''=20 Moreover, the parties to the settlement talks may lack an element vital to= =20 successful negotiations: trust.=20 Several California entities, including the Public Utilities Commission, are= =20 investigating whether generators took advantage of consumers by charging=20 excessive prices for power. The Independent System Operator, which runs the= =20 state's power grid, released a study in March concluding that Californians= =20 might have been overcharged for electricity by more than $6 billion. One=20 state government negotiator said the California attorney general's office= =20 could file a suit against the power generators in the next few weeks.=20 And as state officials, including Gov. Gray Davis, continue to hurl attacks= =20 at the generators, calling them pirates and profiteers, the companies and= =20 California utilities are blaming legislators, saying they failed to address= =20 the power crisis quickly enough.=20 In March, Duke Energy, one of the companies the state has accused of=20 profiteering, offered to negotiate a broad settlement, but Governor Davis= =20 ruled out calling off the state's inquiries as part of any agreement.=20 The outlines of Duke's proposal included a compromise on the money owed by= =20 California utilities, in exchange for the dropping of private lawsuits,=20 California 's complaints to federal regulators and the state investigations= .=20 Duke would have admitted no wrongdoing.=20 In formal proceedings, the power generators to date have vigorously fought= =20 discounting the debts they are owed by California .=20 The Federal Energy Regulatory Commission has ordered generators to refund= =20 nearly $130 million in what it judged to be overcharges. Today one of the= =20 commissioners, William L. Massey, said 80 percent of that money had not bee= n=20 collected. A Section=20 Davis Finds Hope in Calif. Power Crunch Rene Sanchez and Peter Behr ?=20 06/20/2001=20 The Washington Post=20 FINAL=20 Page A06=20 Copyright 2001, The Washington Post Co. All Rights Reserved=20 LOS ANGELES, June 19 -- Sinking in the polls, under attack by a new=20 Republican advertising campaign and still struggling to avert a summer of= =20 blackouts, California Gov. Gray Davis (D) nevertheless seems heartened abou= t=20 the latest developments in the power crisis that has engulfed his state and= =20 threatened his political career.=20 On his first trip to Washington in months, Davis will detail California 's= =20 plight Wednesday in testimony to a Senate committee newly led by sympatheti= c=20 Democrats -- one important reason for his optimism.=20 But he has others: Conservation is taking hold in the state, and prices for= =20 power on the daily spot market are dropping. California has managed to avoi= d=20 rolling blackouts so far this month, in part because it has been spared a= =20 heat wave.=20 Federal regulators, under pressure even from Republican lawmakers, decided= =20 Monday to impose more controls on prices that energy suppliers can charge= =20 California . Two new power plants are scheduled to begin producing=20 electricity in weeks. California also has recently secured more than a doze= n=20 deals for power over the next decade, a move Davis contends will stabilize= =20 the volatile wholesale market for energy.=20 In short, Davis and his aides say their concerted political strategy and=20 efforts to ease the crisis are beginning to pay off.=20 "The bottom line is that we're stabilizing prices and assuring the power wi= ll=20 be there without additional rate increases," said Steve Maviglio, a spokesm= an=20 for the governor. But he added: "We're not ready to say the war is over. It= 's=20 still going to be a tight summer."=20 Whether any or all of those steps will keep the lights on in California thi= s=20 summer, or help solve an array of other financial problems the crisis has= =20 caused, is hardly clear.=20 In fact, California 's power shortfall could produce 113 hours of rotating= =20 outages this summer, according to a U.S. Department of Energy study schedul= ed=20 to be released Wednesday.=20 Since California 's two largest utilities fell into financial ruin this yea= r,=20 forcing the state to spend nearly $5 billion to buy power directly and=20 saddling residents with huge new rate increases, the support that Davis onc= e=20 had from a majority of voters has vanished. Recent polls suggest that he=20 could have trouble winning a second term.=20 Consumer advocates here are besieging him, saying that the $43 billion in= =20 long-term power deals that Davis has signed could lock residents into payin= g=20 artificially high utility rates for years. Some contend that all he has=20 gained from Washington is political cover.=20 "The Bush administration has created this toothless price cap mechanism tha= t=20 will be used as political protection but certainly not consumer protection,= "=20 said Doug Heller, a director of the Foundation for Taxpayer and Consumer=20 Rights.=20 Davis has stuck mostly to the same political script. He is demanding more= =20 federal help for California -- on Monday he called the Federal Energy=20 Regulatory Commission's decision merely "a step in the right direction" --= =20 and he is denouncing out-of-state energy suppliers and their Republican=20 allies.=20 Today, Republicans launched a $1.5 million advertising offensive that blame= s=20 Davis for the state's energy crunch. The spots, running on English and=20 Spanish-language media, describe the crisis as "Grayouts from Gray Davis."= =20 Scott Reed, the GOP strategist who runs the American Taxpayers Alliance,=20 which funded the ad campaign, said his group wants to counter the governor'= s=20 spin. "The blame game has to end," said Reed.=20 But Davis's aides say the ads are a sign that Republicans sense California = 's=20 energy predicament could deepen GOP political troubles in the state.=20 Privately, some Republican lawmakers pushing for more federal assistance sa= y=20 they are worried that in midterm congressional elections next fall the GOP= =20 could lose House seats in California that it needs to hold a majority.=20 Today's hearing will bring both Davis and his adversaries on the Federal=20 Energy Regulatory Commission before the Senate's Governmental Affairs=20 Committee, chaired by Sen. Joseph I. Lieberman (D-Conn.).=20 Instead of a committee debate on California 's electricity prices, the focu= s=20 of the session may be shifting toward the billions of dollars of alleged=20 overcharges by energy suppliers.=20 Under growing pressure from both parties in Congress, FERC's commissioners= =20 responded Monday with far more extensive price controls than they had been= =20 willing to consider previously. They extended April price controls that had= =20 applied only to times of power emergencies to all hours of the day, through= =20 September 2002. And they expanded the controls to cover 10 other western=20 states.=20 California Sens. Dianne Feinstein and Barbara Boxer, both Democrats, said= =20 FERC's action was a positive step and agreed to delay efforts to direct the= =20 commission to clamp down on California 's energy prices. "We're willing to= =20 give them a chance to see if it works," Boxer told reporters.=20 Now, Davis will press his demands that FERC recover some $8 billion in=20 alleged overcharges by wholesale power suppliers since the crisis began -- = a=20 far larger amount than the $124.5 million in refunds that FERC has so far= =20 assessed.=20 Whether there is even a chance of a peace process is unclear. Just last wee= k,=20 California Attorney General Bill Lockyer announced plans to convene a=20 criminal grand jury to investigate whether power generators illegally=20 conspired to drive up electricity and natural gas prices.=20 The governor could face other new problems. Several of California 's major= =20 independent power generators said the price controls and state lawsuits=20 against the generators made it more difficult to justify expanding operatio= ns=20 in California , a warning echoed today by Energy Secretary Spencer Abraham.= =20 But heading into the summer, California 's power prices are much lower than= =20 they were a month or two ago, with daily or "spot" power prices averaging $= 78=20 per megawatt hour in June, compared to $372 in April.=20 Both Davis and the FERC commissioners are taking credit. S. David Freeman,= =20 Davis's energy adviser, said that the long-term power contracts the state h= as=20 signed, the new power plants and favorable weather have tamed prices.=20 FERC Chairman Curt Hebert Jr. said Monday that the limited price restraints= =20 that the commission imposed on wholesale electricity sales in April have be= en=20 a key reason for the price decline.=20 Sanchez reported from Los Angeles and Behr from Washington. Staff writers= =20 Mike Allen and Juliet Eilperin contributed to this report from Washington.= =20 http://www.washingtonpost.com=20 Contact: http://www.washingtonpost.com=20 National Desk; Section A=20 The Lesson of When to Give Aid to Free Markets By DAVID E. SANGER ?=20 06/20/2001=20 The New York Times=20 Page 14, Column 3=20 c. 2001 New York Times Company=20 WASHINGTON, June 19 -- Three weeks ago George W. Bush addressed a sympathet= ic=20 audience of business executives at the Century Plaza Hotel in Los Angeles a= nd=20 declared that his administration ''will not take any action that makes=20 California 's problems worse, and that's why I oppose price caps'' on=20 electricity .=20 As he spoke, the Democratic governor of California , Gray Davis, sat=20 impassively on the dais, preparing to meet Mr. Bush and then denounce him f= or=20 failing to protect California consumers from an electricity market gone wil= d.=20 Today, the White House halfheartedly welcomed action by federal regulators = to=20 impose throughout the West a system that looks and smells a lot like price= =20 caps -- though the White House said it was something different.=20 ''This is not a price control,'' Ari Fleischer, the White House spokesman,= =20 said. ''This is a market-based mitigation plan that now will extend to 11= =20 Western states.''=20 In fact, it bore some resemblance to a proposal made by 10 leading economis= ts=20 who urged a middle ground between fixed prices and a deregulated electricit= y=20 market. Mr. Davis used their proposal to support his position in favor of= =20 limited price restraints when Mr. Bush visited California .=20 The White House shift from outright opposition to price controls to its mor= e=20 nuanced position today exemplifies how Mr. Bush has tempered his embrace of= =20 completely unfettered markets in recent weeks. He didn't have much choice.= =20 As the threat of blackouts loomed, demands for action rose from officials o= f=20 both parties and from consumers in the West. It was almost possible to hear= =20 sighs of relief at the White House today that the Federal Energy Regulatory= =20 Commission -- an independent body in the Energy Department -- had moved to= =20 turn down the political heat.=20 In fact, while some House Democrats are still pressing for firmer caps on= =20 prices, Senators Dianne Feinstein, Democrat of California , and Gordon H.= =20 Smith, Republican of Oregon, withdrew a bill that would have placed strict= =20 price controls on electricity sold in Western markets.=20 Senator Feinstein said the White House could call yesterday's regulatory=20 action ''mitigation'' or anything else it pleased.=20 ''A rose is a rose by any other name,'' she said today.=20 And a free market is not always free. Two weeks ago the administration said= =20 it would rescue steel companies and steelworkers who have long complained= =20 about unfair competition from South Korea, Taiwan, China, Brazil, Germany,= =20 Russia and Ukraine. The White House defended the action by saying it was th= e=20 only way for the industry to adjust to a new competitive environment.=20 Last month, with no major announcements at the White House, the Bush=20 administration voted for International Monetary Fund aid to two countries,= =20 Turkey and Argentina, that (like California ) had made some economically=20 disastrous political decisions.=20 In each case, Mr. Bush's economic orthodoxies were tempered by political=20 realities.=20 The California crisis was one thing when it involved a Democratic governor = in=20 a state Mr. Bush lost by a million votes; it was another, one of his aides= =20 conceded today, when congressional Republicans from around the West were=20 warning Mr. Bush that blackouts and sky-high prices could blow up in his=20 first year in office.=20 ''We heard from a lot of members of Congress who feared that Republicans=20 would be tarred with worsening the problem, even though it happened on Gray= =20 Davis's watch,'' the political aide said. ''The president took that on=20 board.''=20 Similarly, the steel decision was partly about enforcing laws against=20 ''dumping'' foreign products in the market -- and partly about Mr. Bush's= =20 desire to convince labor unions not to block his trade agenda. Like=20 Californians coping with higher energy prices, the steelworkers need time t= o=20 adjust to a new world, the administration said.=20 ''Open markets improve the lives of people by increasing opportunity, choic= e=20 and economic freedom,'' Robert B. Zoellick, Mr. Bush's trade representative= ,=20 said in an interview today. ''But compassionate conservatism also recognize= s=20 the reality that the effects of rapid change fall harder on some communitie= s=20 and industries,'' which, he said, need ''vital breathing space to adapt to= =20 change.''=20 While Mr. Bush expressed deep reservations about I.M.F. bailouts during the= =20 presidential campaign, the situation seemed a bit more complicated once he= =20 got to Washington. The State and Defense Departments feared that if Turkey= =20 were engulfed in economic chaos, and blamed the United States for failing t= o=20 come to its aid, its leaders might be less inclined to let American fighter= =20 jets use its territory to mount missions over Iraq.=20 So given the choice between letting the Turkish people pay a high price for= =20 political mistakes -- Californians take note -- and weakening American=20 pressure on Saddam Hussein, Mr. Bush decided that economic niceties were le= ss=20 important than political consistency. Mr. Bush chose the Pentagon over the= =20 Treasury.=20 Administration officials said these actions did not represent a retreat fro= m=20 let-the-markets-prevail orthodoxy.=20 Lawrence B. Lindsey, Mr. Bush's chief economic adviser, said in an intervie= w=20 today that he opposed price caps at the beginning of the California crisis= =20 and that he opposed them now. But he would not criticize the federal=20 commission for ''mitigating'' price spikes in the market.=20 ''What they are trying to do is achieve two incompatible missions --=20 preserving what is called 'just and reasonable pricing' and assuring an=20 adaquate supply of electricity ,'' Mr. Lindsey said. Yet the reality, he=20 added, is that new supplies of electricity will not become available for a= =20 year or more. ''FERC is doing its best to square that circle in the face of= =20 the fundamental problem, which is inadequate supply,'' he said.=20 That is the kind of argument that keeps economists happily arguing for hour= s.=20 It is not likely to be the kind of argument Mr. Bush himself is likely to= =20 engage in for long. As one of his political advisers said the other day,=20 ''Don't think about this purely in terms of megawatts. We need to produce= =20 more electricity , but we also need to produce some more seats in the=20 House.''=20 =====================================

venturewire@venturewire.com

VentureWire, Tuesday, September 12, 2000

====================================================== VENTUREWIRE --- Tuesday, September 12, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Internet Network Frim Interxion Raises $173 Million Series B o Government Rejects One Argument in Napster Appeal o AppleSoup Becomes Flycode After Apple Computer Complains o Affiliates of Citicorp Venture Capital To Anchor New Fund o Juniper Financial Holds $94 Million Series B Funding o Palladium Equity Partners Closes $300 Million Fund |||||||||||||||||||| Advertisement |||||||||||||||||||| vcapital is the place to find funding for your business. That's because vcapital offers you access to over 370 venture capital firms representing over $70 billion in capital under management. 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Turn to vcapital for your best deal today. http://www.vcapital.com ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Oracle ASP Appshop Closes Series A Round with $17 Million o Digital Music Provider FullAudio Gets $15 Million Round Two o ICP Company MetStream Closes $4 Million Series A o NC Virtual Systems Raises $5 Million First Round o Net Infrastructure Firm Waveset Gets $7.3 Million Round One o Network Storage Firm Panasas Raises $10 Million Led by MDV o Online Medical Resource Veritas Raises $8 Million Round One o Ownership Services Firm Allmystuff Gets $10 Million Series A o Security Consultant Espiria Gets $6 Million Series A o Sun & GigaPixel Co-Founders Invest in Multimedia Company o Supplier Integration Firm RioLabs Has $6 Million First Round o Web Network Bla-bla Gets $3.25 Million More in Seed Round o Web Security Firm Ingrian Systems Gets $4 Million Round One o Wireless Firm Red Jade Gets $10 Million in Initial Funding o Advice Site AskForFree.com Completes First Round of Funding o Data Replication Firm Cogenia Raises $1 Million First Round o Document Exchange Raises $30 Million Led by Apax Partners o IXEurope Raises $56.8 Million Second Funding Round o $15 Million Round Two for Latin E-Commerce Enabler Decidir o Broadband Wireless Firm nBand Closes $14 Million Series B o CascadeWorks Raises $8 Million in Second Round of Funding o E-business Firm Event Zero Gets $20 Million Round Two o Mobile Net Firm Mobilocity Raises $21 Million Second Round o VoDSL Provider Woodwind Closes $12.2 Million Second Round o Freelancer Marketplace Guru.com Raises $44 Million C Round o Net Messaging Provider @Once Closes $8.1 Million Series C o Data Storage Company 3Ware Secures $43 Million in Series D o eNIC Gets $4 Million and Commitment for $21 Million More o New Forum Gets $6 Million, Lamar Alexander Joins Board o Mobile Communications Software Firm Ecutel Gets $6 Million o Translation Software Firm Trados Receives $4 Million New Products: o Info, Resource Site for Minority Businesses Announces Launch o Online Business Info Provider RhondaWorks Launches o Gilat-To-Home Becomes StarBand Communications o Local Busines App Firm Dbusiness.com Now LocalBusiness.com M&A: o Contact Center Firm !hey Software Merges with icontact.com o Tech Licensing Firm UVentures Buys Datamonitor's QX Health o BarterNet Acquires Majority Interest in BXI Exchange New Directors: o Supply Chain B2B SupplyLinks Adds Curry to Board o Former FCC Director Joins Hispanic Sports' Board o Money Management Services Provider eBalance Adds to Board o ARM Holdings COO Joins NCipher Board of Directors New People: o Mobilestop Hires Former Ericsson Exec. As President, CEO o DailyShopper Network Names Ex-L.A. Times VP President & COO o XML App Firm Vordel Names Former Siemens Exec as CEO o Former Internet Capital Group Exec Named CEO of XYAN.com o Authentication Provider BioNetrix Names Ex-Previo Chief CEO o Newmediary.com Hires Former Adsmart CEO as President, CEO o U.K. Internet Graphics Firm ZY.com Appoints New CEO o Virtue Names Freshmarketing.net Co-Founder as President VC Fund News: o Pacifica Fund Gets $25 Million to Build Early Stage Fund o TechnoCap Raises Additional $74.4 Million For New Fund VW Corrections: o North Castle Partners |||||||||||||||||||| Advertisement |||||||||||||||||||| Size does matter when it comes to bandwidth. In the online economy, the bigger the pipe the better. Which is why The Wall Street Journal Technology Summit is featuring keynotes by CEOs of three companies that help the Internet handle more data in less time: --David Huber of Corvis, the optical communications startup that recently set a Wall Street record for new issues by companies without revenues, raising $1.1 billion in its IPO at a market capitalization of $11 billion. --Scott Kriens of Juniper Networks, the young maker of high-speed Internet equipment whose shares have risen tenfold since IPO. --David Peterschmidt of Inktomi, the network-caching company with revenue growth of more than 25% for 10 consecutive quarters. Register today at http://info.wsj.com/techsummit/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Internet Network Frim Interxion Raises $173 Million Series B AMSTERDAM -- Interxion Holding, which provides carrier neutral Internet exchange centers, raised EUR 200 million ($173 million) in a Series B financing round. New investors, including GS Capital Partners 2000 and Whitehall Real Estate Funds, both sponsored by Goldman Sachs; DLJ Real Estate Capital Partners II; CSFB Private Equity; CSFB Real Estate Investment Banking; CSFB Technology Group; Enron Broadband Services, a subsidiary of Enron; Continuum Group; and Aman Ventures participated in the round. Previous investors including Baker Communications Fund, Navis Partners V, Morgan Stanley Dean Witter, and Bear Stearns Merchant Banking also contributed. The company said it will use the capital to continue to develop its Internet exchange centers across Europe and new service offerings and to increase staffing. http://www.interxion.com/ _____________________________________________ o Government Rejects One Argument in Napster Appeal NEW YORK -- The United States Copyright Office and the Department of Justice have rejected one facet of Napster's defense that claims it is protected by the Home Audio Recording Act. Record labels and music industry organizations have charged Napster, operator of a site for sharing copyrighted music files in MP3 format, with copyright infringement. In an advisory brief filed with the United States District Court for the Northern District of California, the Copyright Office stated the "Audio Home Recording Act does not protect Napster from the plaintiff's claims of copyright infringement." The U.S. Copyright Office and the Justice Department argue that the Audio Home Recording Act addresses a different phenomenon, specifically the use of DAT recorders used for home taping. "We have great respect for the Department of Justice, but in this instance we believe their position is incorrect, " said Napster's attorney David Boies. In a statement Mr. Boies also noted that the government did not address Napster's liability and the precedents cited in Napster's appeal. A&M Records and other record labels, the Recording Industry Association of America, and the National Music Publishers Association have filed the suit against Napster. The company is backed by Hummer Winblad Venture Partners and individual investors. http://www.napster.com/ _____________________________________________ o AppleSoup Becomes Flycode After Apple Computer Complains SAN FRANCISCO -- AppleSoup, which develops software for a peer-to-peer network of distribution and file sharing for video, said it changed its name to Flycode after receiving a 'cease and desist' letter from Apple Computer. Apple Computer's letter claimed the name AppleSoup infringed on its trademark. In a copy of the letter provided by Flycode, a law firm representing Apple demands that the company discontinue use of the AppleSoup name by July 28, 2000. Calls to Apple Computer for comment were not returned. Flycode, founded by two co-founders of Napster, has raised $2.5 million in seed funding from individual investors including Bill Krause, president of LWK Ventures; Frank Biondi, chairman of Biondi Reiss Capital Management; Joon Yun, an investment analyst at Palo Alto Investors and a founding partner of Targesome; and the Jack Valenti family. http://www.flycode.com/ _____________________________________________ o Affiliates of Citicorp Venture Capital To Anchor New Fund LONDON -- Digital Networks, which recently launched as a venture capital group, said it secured anchor investments from affiliates of Citicorp Venture Capital, an investment branch of Citigroup. The Digital Networks Group is raising a EUR 75 million ($60.6 million) fund. The fund will invest in early and late stage European digital infrastructure companies providing software, services, and hardware to companies involved in the media, communications, or information technology sectors. The average investment size will range between $867,000 to $8.7 million. Telephone +44-20-816-8890. _____________________________________________ o Juniper Financial Holds $94 Million Series B Funding WILMINGTON, Del. -- Juniper Financial, an online financial services company that offers banking and personal financial services, said it raised $94 million in its Series B round of funding. New investor J.W. Seligman led the round, which included other new investors Aether Systems, Fifth Third Bancorp, Kemper Ventures, Kingdon Capital, Maverick Capital, Sonera, Total Technology Ventures, and previous investors Benchmark Capital and individual investors. The round brings the company's total funding to $114 million. Sonera Plaza president and CEO Harri Hollmen and Total Technology Ventures managing partner Tom Smith will join the company's board. The company will use the funding for launching its products and services this fall and for company expansion. Juniper Financial focuses on credit card, checking, and bill payment services with a focus on Internet and wireless technology. http://www.juniper.com/ _____________________________________________ o Palladium Equity Partners Closes $300 Million Fund NEW YORK -- Palladium Equity Partners said it closed a new fund, Palladium Equity Partners II, for $300 million. The fund will invest in basic industries and focus on companies in the automotive, chemical, food, healthcare, media, plastics, and packaging industries. Palladium has invested in two companies so far through its new fund: Wise Snacks, a snack food company, and Physicians WebLink. Telephone 212-218-5153. ======= New Money ======= o Oracle ASP Appshop Closes Series A Round with $17 Million FREMONT, Calif. -- Appshop, an ASP of Oracle applications providing IT infrastructure for small and mid-size companies, said it raised $17 million in Series A funding led by Menlo Ventures. El Dorado Ventures, Osprey Ventures, RSA Ventures and Stanford University also contributed to the round. Menlo Ventures managing partner Douglas Carlisle has joined the board of directors. The company said the funds will support the development of its ASP hosting facilities, marketing, and the roll-out of national sales and service. http://www.appshop.com/ _____________________________________________ o Digital Music Provider FullAudio Gets $15 Million Round Two CHICAGO -- FullAudio, a digital music subscription service, said it raised $15 million in its second round of funding. The round was led by Venture Strategy Partners and included investments from New Enterprise Associates and Kettle Partners. The company said the funds will be used for the further development of FullAudio's secure subscription service, including the technical advancement and design of FullAudio's service platform, which it expects to introduce early next year. FullAudio secured $4.5 million in first round financing in December 1999 led by Stewart Alsop of New Enterprise Associates that included investments from Chicago based Kettle Partners, GRP Records and N2K founder Larry Rosen, former WebTV and TiVo CEO Randy Komisar, and IDEO Ventures. Tony Conrad of Venture Strategy Partners will join Stewart Alsop, Lee Rosenberg of Kettle Partners, Mr. Komisar, and Mr. Rosen on the FullAudio board. http://www.fullaudio.com/ _____________________________________________ o ICP Company MetStream Closes $4 Million Series A PORTLAND, Ore. -- MetStream Communications, an integrated communications service provider targeting residential communities with broadband services, said it closed its Series A round with $4 million from Vertex and Integrated Electrical Services. The company said it plans to use the money for hiring staff in Portland and Seattle. MetStream provides digital television, video-on-demand, Internet access, hosted IP applications, and telephony services mainly to apartment and condominium communities. http://www.metstream.com/ _____________________________________________ o NC Virtual Systems Raises $5 Million First Round WARSAW -- NC Virtual Systems, which provides software for security, subscriber management, and billing for ASPs, said it raised $5 million in its first round of funding. The round was led by Copernicus Capital Management, a venture capital fund focusing on investments in central Europe. Other investors in the round include Actron International, Central Poland Fund, Intel Capital, ISAL Amlat Investments, the Poland Investment Fund, and Israeli investor Star-West Capital. The company said it will use the funding to accelerate research and development, and create an international marketing campaign. Neil Milne, chief executive officer of Copernicus Capital Management, and a representative from Star-West Capital will both take seats on the company's board of directors. Telephone +49-22-826-8580. http://www.copernicus.pl/ _____________________________________________ o Net Infrastructure Firm Waveset Gets $7.3 Million Round One AUSTIN, Texas -- Waveset Technologies, a provider of Internet infrastructure software, said it closed its first round of funding with $7.3 million. Participating investors included Austin Ventures, Origin Partners, seed investor AV Labs, and individual investors Martin Neath, president and COO of Works.com; and Bill Wood, special limited partner at Austin Ventures. The funding will go towards business and product development, and marketing initiatives. Chris Grafft of Austin Ventures, Marc Yagjian of Origin Partners, and Bill Wood of Austin Ventures will join the board of directors. http://www.waveset.com/ _____________________________________________ o Network Storage Firm Panasas Raises $10 Million Led by MDV MENLO PARK, Calif. -- Mohr, Davidow Ventures (MDV), an early stage venture capital firm, said it has led an investment round of $10 million in Panasas, a network storage company. In addition to the investment, MDV co-managing partner Jon Feiber and MDV East Coast office partner Michael Sheridan will join the Panasas' board of directors. http://www.panasas.com/ _____________________________________________ o Online Medical Resource Veritas Raises $8 Million Round One CAMBRIDGE, Mass. -- Veritas Medicine, an online medical resource developed to provide patients, physicians, and other health care professionals with information about clinical trials and innovative treatments, said it has raised $8 million in its first round of funding. The round was funded by Burrill & Company, BioAsias Biotechnology Development Fund II, Cambridge Incubator, and Seaflower Ventures. Along with the preparation for the October launch of its online resource, the funds will be used for marketing and distribution, expanding the number of diseases profiled, and product enhancement. Telephone 781-674-0216. _____________________________________________ o Ownership Services Firm Allmystuff Gets $10 Million Series A AUSTIN, Texas -- Allmystuff, which provides product ownership services for durable goods companies, said it raised $10 million in its Series A round of funding. TL Ventures led this first round, which follows a seed round provided by AV Labs and Polaris Ventures. Dell Ventures and Austin Ventures also joined in this Series A round. As a result of the funding, Guy Hoffman, a venture partner at TL Ventures and former chief executive officer of Deja.com, and Manish Mehta, the principal at Dell Ventures, will join the Allmystuff's board of directors. Allmystuff's technology allows companies to create Web pages that contain product information, self-help tools, warranty trackers, and other product data for their customers. http://www.allmystuff.com/ _____________________________________________ o Security Consultant Espiria Gets $6 Million Series A MINNEAPOLIS -- Espiria, an information security consulting firm, said it raised $6 million in Series A funding. Wheatley Partners led the round, which included Dalewood Associates, Family Financial Strategies, and Jumpstart Capital. Wheatley Partners general partner Seth Lieber and Jumpstart Capital founder and general partner Shawn Kreloff have joined the company's board of directors. The company will use the funding for market expansion and to further develop its services. Espiria provides business planning, security consulting, technology deployment, and managed services. http://www.espiria.com/ _____________________________________________ o Sun & GigaPixel Co-Founders Invest in Multimedia Company SANTA CLARA, Calif. -- QuArc, a provider of digital multimedia technology, said it raised $5 million in funding from private investors. Investors in the round included the co-founder of Sun Microsystems, Andreas Bechtolsheim and George Haber, co-founder of Gigapixel. Mr. Bechtolsheim will take a seat on the company's board of directors. Mr. Haber has been named president, CEO, and a member of the company's board of directors. Sorin Cismas, company founder, will serve as chief technology officer and chairman of the company's board of directors. QuArc develops and markets high bandwidth memory controllers and high definition MPEG-2 decoders. http://www.quarc.com/ _____________________________________________ o Supplier Integration Firm RioLabs Has $6 Million First Round DENVER -- RioLabs, which provides supplier integration technology, said it raised $6 million in its first institutional round of funding. Barnard & Co. led the round, which included Sequel Venture Partners and previous individual seed round investors including Pete Estler, founder of iBelay; Ernest Jacquet, managing director of Boston's Parthenon Capital; and Rich Patch, a former vice president with Sybase. Barnard & Co.'s Steve Change will join the company's board of directors. The company will use the funding for company development, sales and marketing, and North American expansion. RioLabs links enterprise information sources with exchanges or direct trading services for business-to-business Internet commerce marketplaces. http://www.riolabs.com/ _____________________________________________ o Web Network Bla-bla Gets $3.25 Million More in Seed Round NEW YORK -- Bla-bla, an online portal for independent content, said it received an additional $3.25 million in its seed round of financing, bringing the total raised to date for the round to $7.65 million. The round has is still open. Bla-bla said it will use the funding for general company growth and expansion. Investors in this round include Silicon Alley Venture Partners, Hudson Venture Partners, Liberty View Equity Partners, SBIC, Youngtree Partners, and Stonehenge Capital. Bla-bla said its network has over 230 sites and is adding 40 sites per month. http://www.bla-bla.com/ _____________________________________________ o Web Security Firm Ingrian Systems Gets $4 Million Round One REDWOOD CITY, Calif. -- Ingrian Systems, which is developing scalable Internet security products that will increase the speed of transactions, said it has secured $4 million in its first round of funding from a group of investors. The round included Andy Bechtolsheim and Bill Joy, co-founders of of Sun Microsystems, and Martin Hellman, professor emeritus of electrical engineering at Stanford University. Other investors in the round included Andrew Dumke, general partner of Pacific Mezzanine Fund; John Hamm, the managing director of Internet Capital Group; Greg Chabrier, most recently vice president of business development for VALinux; and Sardina, the co-founder of Tasmania Network Systems, which was acquired by Cisco last year. http://www.ingrian.com/ _____________________________________________ o Wireless Firm Red Jade Gets $10 Million in Initial Funding PALO ALTO, Calif. -- Ericsson said it has made a $7 million investment in Red Jade, a developer of wireless entertainment products. Red Jade also received an additional $3 million from IT Provider, a Swedish venture capital firm. In addition to financial support, Ericsson Business Innovation will support Red Jade with product design and development, marketing, manufacturing, and distribution. http://www.redjade.com/ _____________________________________________ o Advice Site AskForFree.com Completes First Round of Funding CUPERTINO, Calif. -- Al Shugart International (ASI) said AskForFree.com, which offers free advice in a variety of categories, completed its first round of funding for an undisclosed amount. The round was led by Shugart Venture Fund 2, the venture arm of ASI, with participation from Angel Investors. Jon van Bronkhorst of Shugart Venture Funds will join the board of directors. http://www.askforfree.com/ _____________________________________________ o Data Replication Firm Cogenia Raises $1 Million First Round SUNNYVALE, Calif. -- Cogenia, which specializes in data replication technology for the wireless data industry, said it has closed its Series A round of funding at $1 million. The Jain Family Trust, Crest Communications Holdings, Satwik Ventures, the Pillsbury Madison and Sutro Venture Fund, and several individual investors provided the funds. Cogenia was founded by chairman Ashok Jain, CEO Scott Andrews, and CTO Doug Terry. Telephone 650-279-0242. _____________________________________________ o Document Exchange Raises $30 Million Led by Apax Partners NEW YORK -- Bolero.net, which provides an online data exchange for electronic trading communities, said it raised $30 million in its most recent round of funding. The round was led by Apax Partners. The company said it will use the funding for implementation efforts across the Bolero.net affiliated network, and development of new products and services for the company's clients. Tim Wright, and Richard Lenane, both of Apax Partners, will take seats on the company's board of directors. Bolero.net acts as a neutral third party to ensure secure delivery and receipt of the information and provides a legal structure that binds all users together. http://www.bolero.net/ _____________________________________________ o IXEurope Raises $56.8 Million Second Funding Round LONDON -- IXEurope, which provides co-location and facilities management services, said it raised $56.8 million in its second round of funding. A group of investors including European Acquisition Capital (EAC), IXEurope's majority shareholder; Banc of America Equity Partners; J. P. Morgan Capital; First Union Capital Partners; and some of EAC's fund investors participated in the round. The company said it will use the funding to increase its number of co-location sites from three to eight by the end of the year. The expansion will involve development in France, Germany, and Switzerland. http://www.ixeurope.com/ _____________________________________________ o $15 Million Round Two for Latin E-Commerce Enabler Decidir BUENOS AIRES -- Decidir.com, a business-to-business portal and infrastructure service that provides credit risk information and payment platforms for conducting e-commerce in Latin America, said it raised $15 million in second round funding. New investors GE Capital, HSBC-Tower Fund, and SCP Private Equity Partners, a U.S. fund associated with Safeguard Scientifics, were joined in the round by previous investors Citicorp Venture Capital Latin America, CVC Opportunity, CIMA Investments, and International Real Returns. The company, which has offices in Argentina, Brazil, Mexico, Chile, and Miami, will use the funds to complete its regional expansion and to develop new tools and services. Decidir offers an authentication product for secure e-commerce transactions and has developed databases of financial, legal, credit, and import/export information of businesses and individuals in Latin America. http://www.decidir.com/ _____________________________________________ o Broadband Wireless Firm nBand Closes $14 Million Series B SUNNYVALE, Calif. -- nBand Communications, a broadband wireless technology company, said it closed its Series B funding round with $14 million led by VantagePoint Venture Partners. Original investors Axis Communications, Sunrise Capital Fund, and several private investors also participated. VantagePoint partner Matt Ocko joined nBand's board of directors. The company will use the funds toward hiring its engineering and sales teams, product development, and marketing. http://www.nband.com/ _____________________________________________ o CascadeWorks Raises $8 Million in Second Round of Funding SAN FRANCISCO -- CascadeWorks, which provides Web-hosted applications for managing Internet procurement services, said it raised $8 million in its second round of financing led by New Enterprise Associates (NEA). The funding will be used to accelerate product development and sales and marketing. Chip Linehan, partner at NEA, will join CascadeWorks' board of directors. CascadeWorks raised $1.1 million in January from individual investors. http://www.cascadeworks.com/ _____________________________________________ o E-business Firm Event Zero Gets $20 Million Round Two ARLINGTON, Mass. -- Event Zero, a provider of Internet and wireless systems for businesses, said it raised $20 million in its second round of funding led by First Union Capital Partners. Previous investors Shawmut Capital Partners, Trident Capital, Integral Capital Partners, and Sparkventures, also participated in the round. The funds will be used to support infrastructure expansion in the Boston, New York, and San Francisco offices, as well as to enhance service offerings. Event Zero clients include CBS Employer Services, BankPass.com, and Brainshark. http://www.eventzero.com/ _____________________________________________ o Mobile Net Firm Mobilocity Raises $21 Million Second Round NEW YORK -- Mobilocity, a builder of mobile Internet businesses, said it has raised $21 million in its second round of funding led by Morgan Stanley Dean Witter Private Equity. The round also included investments from J.P. Morgan Capital; LabMorgan, the e-finance unit of J.P. Morgan; Siemens Business Services Ventures; Cambridge Samsung Partners; Telligent Capital; Comdisco Ventures; Usheron Ventures; and Morrison & Foerster. The funding will be used to continue Mobilocity's growth in the U.S., fuel its expansion into Europe and Asia, and further develop its Mobility Lab. Mobilocity named Noah Walley, General Partner of Morgan Stanley Dean Witter Venture Partners, to its board. Mr. Walley joins a board comprised of executives from LabMorgan, Cambridge Samsung Partners, and LCC International. Prior investors in Mobilocity include LCC International; Cambridge Samsung Partners; WS Investment; and individual investors, including current and former executives of Donaldson Lufkin & Jenrette, Goldman Sachs, Morgan Stanley Dean Witter, CIBC World Markets, and Chase Manhattan Bank. http://www.mobilocity.net/ _____________________________________________ o VoDSL Provider Woodwind Closes $12.2 Million Second Round GERMANTOWN, Md. -- Woodwind Communication Systems, a provider of integrated access devices for broadband services such as voice over digital subscriber lines, said it completed its second round with $12.2 million. The round included new investors Alta Partners, SpaceVest, and Sterling Venture Partners, and original investors Boulder Venture and Novak Biddle Venture Partners. The company will use the funds for marketing its broadband products. http://www.woodwindcom.com/ _____________________________________________ o Freelancer Marketplace Guru.com Raises $44 Million C Round SAN FRANCISCO -- Guru.com, a marketplace connecting freelance professionals with contract projects, said it has raised $44 million in its Series C round of financing led by Investor AB. The round included investments by August Capital, Credit Suisse First Boston, Greylock, Tarrant Venture Partners, and WR Hambrecht. American Express and Red Hat also made investments in this round in a strategic alliance that will provide American Express with small business and financial products through Guru.com and will combine Red Hat and Guru.com's resources in order to build a project marketplace for the open source Linux community. The company said it will use the funds for product and technological development, running its day-to-day operations, and to expand its senior management team. Guru.com has raised a total of $63 million in financing in the past year. The company also named David Lee, a managing director of Investor Growth Capital, to its board. Investor Growth Capital is a venture arm of Investor AB, Sweden's largest holding company. http://www.guru.com/ _____________________________________________ o Net Messaging Provider @Once Closes $8.1 Million Series C PORTLAND, Ore. -- @Once, an Internet messaging provider, said it has raised $8.1 million in its Series C round of funding from Olympic Venture Partners (OVP) and previous individual investors. As a result of the funding, David Chen, OVP Partner, will take a seat on the company's board of directors. @Once's services allow clients to learn about their customers preferences and conduct targeted direct e-mail campaigns. http://www.@once.com/ _____________________________________________ o Data Storage Company 3Ware Secures $43 Million in Series D MOUNTAIN VIEW, Calif. -- 3Ware, which provides data storage, back up, security, and management for Internet applications, said it has secured $43 million in its Series D round of funding. Investors in the round include NeoCarta Ventures, Franklin Templeton, New Enterprise Associates, Quantum Technology Ventures, VantagePoint Venture Partners, Veritas Software, as well as several strategic partners. The company said it will use the funds to improve its services. http://www.3ware.com/ _____________________________________________ o eNIC Gets $4 Million and Commitment for $21 Million More SEATTLE -- eNIC, a top-level Internet domain name registry, said it received a strategic financing commitment of $25 million from Malaysian-based investment holding company MOL.com Berhad. eNIC has received $4 million so far. The remaining investment of $21 million will be made upon approval from the Malaysian Securities Commission and the Foreign Exchange Department of the Malaysian Central Bank. The funding will be used for marketing, sales, and mergers and acquisitions. http://www.enic.com/ _____________________________________________ o New Forum Gets $6 Million, Lamar Alexander Joins Board CONSHOHOCKEN, Pa. -- New Forum Publishers, an Internet-based provider of proprietary interactive educational content, said it has raised $6 million in funding from Walter W. Buckley Jr., president of Buckley Muething Capital Management, and Walter W. Buckley III, the president and CEO of Internet Capital Group. The company said it will use the financing for sales and marketing and to expand its product line. The company also announced it has appointed Lamar Alexander, a candidate for U.S. president in 1996 and 2000, to its board of directors. Mr. Alexander served as Secretary of Education under President George W. Bush from 1991 to 1993. He also co-founded Simplexis, an online educational service provider focusing on K-12 schools and their suppliers. http://www.newforum.com/ _____________________________________________ o Mobile Communications Software Firm Ecutel Gets $6 Million ALEXANDRIA, Va. -- Core Capital Partners said it had led a $6 million investment in mobile Internet communications software company Ecutel. Other investors included Intel, Updata Capital, McDonnell and Associates, Steve Walker and Associates, and Avansis. Ecutel will use the funding for sales and marketing. http://www.ecutel.com/ _____________________________________________ o Translation Software Firm Trados Receives $4 Million ALEXANDRIA, Va. -- Trados, a provider of software tools for translation professionals, said it received $4 million in a round of financing. AdAstra Erste Beteiligungs GmbH was the sole investor for the round. The financing will be used for marketing, sales, and product development. Previous investors include Mercury Private Equity, a subsidiary of Merrill Lynch & Co., and First Union Capital Partners. http://www.trados.com/ ======= New Products ======= o Info, Resource Site for Minority Businesses Announces Launch NEW YORK -- MinorityInterest Network, which provides online information, services, and resources to minority-owned businesses, their employees, customers and related community organizations, announced the launch of the beta version of its Web site. MinorityInterest Network is backed by CEA Latin American Partners, Zero.net, and individual investors. http://www.minorityinterest.com/ _____________________________________________ o Online Business Info Provider RhondaWorks Launches PALO ALTO, Calif. -- RhondaWorks, a provider of online and offline information, advice, and tools for small businesses and entrepreneurs, said it has launched. The company will offer an online interactive business planning center that aims to enable and assist entrepreneurs in starting up and growing their businesses. The RhondaWorks team includes both publishing and Internet veterans led by chief operating officer Jim Schulte, formerly the editor-in-chief of USATODAY.com, and Rhonda Abrams, founder and CEO of RhondaWorks. The company is backed by individual investors. http://www.rhondaworks.com/ _____________________________________________ o Gilat-To-Home Becomes StarBand Communications MCLEAN, Va. -- Gilat-To-Home, which provides consumer focused two-way satellite broadband Internet service, said it changed its name to StarBand Communications. The company said the change in name represented its new category Intenet high-speed delivery, which it plans to launch this fall. StarBand is backed by Gilat Satellite Networks, Microsoft, EchoStar Communications, and ING Furman Selz Investments. http://www.starband.net/ _____________________________________________ o Local Busines App Firm Dbusiness.com Now LocalBusiness.com FORT LAUDERDALE, Fla. -- Dbusiness.com, an Internet provider of local business applications, local news and intelligence, tools, and research resources for small and medium-sized businesses, said it has changed its name to LocalBusiness.com. The company, which recently acquired request-for-proposal provider TrueAdvantage, said the name change reflects its focus on local business applications and services. LocalBusiness.com is backed by U.S. Equity Partners, TMCT Ventures, and Tribune Ventures. http://www.localbusiness.com/ ======= M&A ======= o Contact Center Firm !hey Software Merges with icontact.com NORTH ANDOVER, Mass. -- !hey software, a provider of contact center and voice technologies, and icontact.com, a personalized online communication software firm, said the companies have merged to form new company !hey. Terms of the merger were not disclosed. Duncan Mackay, president and CEO of !hey software, will remain as president and CEO of the new company. Investors in !hey include Telecom-Internet Investors, a subsidiary of Telecom Ventures, eCOM Partners, Broadband Ventures, Goldman Sachs, and individuals. http://www.heyinc.com/ _____________________________________________ o Tech Licensing Firm UVentures Buys Datamonitor's QX Health NEW YORK -- UniversityVentures, a marketplace for the technology licensing industry, said it has acquired Datamonitor's QX Health technology assets and changed its name to UVentures. The terms of the acquisition were not disclosed. UVentures said the acquisition will broaden its global technology transfer marketplace and enhance its content and service offerings. UVentures is backed by individual investors. http://www.uventures.com/ _____________________________________________ o BarterNet Acquires Majority Interest in BXI Exchange FOSTER CITY, Calif. -- BarterNet, a marketplace for businesses to trade products and services, said it has acquired a controlling interest in BXI Exchange, a retail barter exchange in the U.S. with a roster of 20,000 businesses in 85 markets throughout the United States. Financial terms of the transaction were not disclosed. BarterNet was previously a minority shareholder. BarterNet is backed by Wand Partners, Alignment Capital, and the partners of Parthenon Capital. http://www.barternet.com/ ======= New Directors ======= o Supply Chain B2B SupplyLinks Adds Curry to Board SAN FRANCISCO -- SupplyLinks, an Internet business-to-business supply chain network, said it appointed W. Roger Curry to its board of directors. Mr. Curry was the president and CEO of Consolidated Freightways and a former colleague of SupplyLinks CEO David I. Beatson. After being appointed president and CEO of Emery Worldwide in 1994, Mr. Curry brought Mr. Beatson on board as vice president of sales and marketing. SupplyLink's board consists of Mr. Beatson, Mitch Weseley, president and CEO of Global Logistics Technologies, and Tim Sensenig, managing director of New Meadows Venture Capital Partners. SupplyLinks is funded by New Meadows Venture Partners and G-Log. http://www.supplylinks.com/ _____________________________________________ o Former FCC Director Joins Hispanic Sports' Board SAN DIEGO -- Former Federal Communications Commission director Francisco Montero joined the board of directors for Hispanic Sports, a company that acquires the exclusive Spanish-language radio, television, and Internet broadcast rights to professional U.S. sports teams and leagues. Mr. Montero is a partner with the Washington D.C. law firm of Shaw Pittman Potts & Trowbridge in its telecommunications and technology practice group. Hispanic Sports is backed by Bencap Partners and recently closed an undisclosed seed round of funding. The company is in the process of raising its first funding round. Telephone 619-920-7609. _____________________________________________ o Money Management Services Provider eBalance Adds to Board SAN RAMON, Calif, -- eBalance, which provides market research to financial institutions by offering online money management services to individual consumers, said it named Mark A. Johnson to its board of directors, bringing the board to five members. Mr. Johnson was former vice chairman of CheckFree, an Internet billing and payment service. eBalance is funded by Signia, Alliant Partners and Internet Angels. http://www.ebalance.com/ _____________________________________________ o ARM Holdings COO Joins NCipher Board of Directors WOBURN, Mass. -- nCipher Corporation, a developer of security products for e-commerce and Public Key Infrastructure (PKI) applications, said it has appointed ARM Holdings chief operating officer Jamie Urquhart to its board of directors. Mr. Urquhart joins nCipher founders and executive directors Alex and Nicko van Someren and fellow board members Ossama Hassanein of Newbury Ventures, Richard Gourlay of Top Technology, and Roger Maggs of Celtic House Investment Partners. nCipher also announced the completion of a round of funding in which Deutsche Bank became a shareholder. The majority of nCipher's existing institutional investors also increased their stockholdings. The terms for this recent round of funding have not been disclosed. Ncipher has received funding from Celtic House Investment Partners, Newbridge Networks, Newbury Ventures, Security Dynamics Technology, and Top Technology. http://www.ncipher.com/ ======= New People ======= o Mobilestop Hires Former Ericsson Exec. As President, CEO MIAMI -- Mobilestop, which provides an e-commerce platform for wireless carriers, said it has appointed Hakan Wretsell as its new president and CEO. Mr. Wretsell is former executive vice president and general manager of the Americas division at Ericsson Mobile Phones, and was vice president of Ericsson Mobile Phones Latin America. He will replace Arnthor Halldorsson, who now assumes the position of executive vice president of development. Mobilestop has received venture capital from Swedish firm Novestra, Time Vision, Artic Ventures, Talenta-Internet and individual investors. The firm is based here and has offices in Buenos Aires, Luxembourg, Oslo, Reykjavik, Sao Paolo, Seattle, and Stockholm. http://www.mobilestop.com/ _____________________________________________ o DailyShopper Network Names Ex-L.A. Times VP President & COO SEATTLE -- DailyShopper Network, which provides online promotion services for traditional retailers, said it named Carol Perruso as its president and COO. Ms. Perruso was most recently president of latimes.com and vice president of the Los Angeles Times. Ms. Perruso succeeds company co-founder and former president Michael Skinner, who is no longer with the company. DailyShopper Network is backed by Madrona Venture Group and Voyager Capital. http://www.dailyshopper.net/ _____________________________________________ o XML App Firm Vordel Names Former Siemens Exec as CEO DUBLIN -- Vordel, a provider of Talk XML, which delivers applications that enable enterprises to establish secure communication channels to organizations in their business networks, named David Ryan as chief executive officer. Prior to joining Vordel, Mr. Ryan was chief executive officer of Siemens Business Services in Ireland and was acting chief executive officer of SSE, the Siemens Internet security firm. Vordel is backed by individual and institutional investors. http://www.vordel.com/ _____________________________________________ o Former Internet Capital Group Exec Named CEO of XYAN.com KING OF PRUSSIA, Pa. -- XYAN.com, an online resource for comprehensive digital content management and document production, said it has named Richard G. Bunker Jr., former managing director and chief technology officer of Internet Capital Group, as chief executive officer and president. Mr. Bunker, who was a member XYAN.com's board of directors, replaces John H. Foster, who will remain as chairman of the company's executive committee. Mr. Bunker, who will no longer serve on XYAN's board, is also former president and CEO of Reality Online, a provider of online investing products, hosting, and tech support for financial services firms. He was previously senior vice president and chief information officer of SEI Investments. XYAN is funded by venture capital firm Foster Management. http://www.xyan.com/ _____________________________________________ o Authentication Provider BioNetrix Names Ex-Previo Chief CEO VIENNA, Va. -- BioNetrix Systems, a provider of personal authentication security, said John Ticer has been named CEO, replacing co-founder Peter Bianco who will become vice chairman and executive vice president of marketing and business development. Ticer was formerly CEO of Previo, a computer systems management company. BioNetrix investors include Carlyle Venture Partners, Columbia Capital, the Dinner Club, and individual investor Steve Walker. http://www.bionetrix.com/ _____________________________________________ o Newmediary.com Hires Former Adsmart CEO as President, CEO NEWTON, Mass. -- Newmediary.com, a network of online marketplaces for e-commerce services, named John Federman as president and CEO. Mr. Federman joins Newmediary.com from Engage Technologies, where he served as executive vice president of worldwide sales and business development. Prior to joining Engage, Mr. Federman was the CEO and president of Adsmart, a CMGI-backed Internet advertising network. Newmediary has secured venture capital from Advanced Technology Ventures, CommonWealth Capital, and Still River Fund. http://www.newmediary.com/ _____________________________________________ o U.K. Internet Graphics Firm ZY.com Appoints New CEO MENLO PARK, Calif. -- ZY.com, a U.K.-based provider of Web graphics and Web page building services, said it appointed Tony Vine-Lott as chief executive officer. Mr. Lott previously served as a managing director at Barclays. ZY.com is backed by ICE Securities and undisclosed institutional investors. The company said it is exploring the possibility of undertaking an initial public offering later this year on a European exchange and is also considering a U.S. listing. http://www.zy.com/ _____________________________________________ o Virtue Names Freshmarketing.net Co-Founder as President NATICK, Mass. -- Virtue Ltd., a 3-D graphics software provider, said it appointed Lori Dustin as president of its U.S. subsidiary. Dustin formerly co-founded and was CEO for freshmarketing.net, an Internet marketing firm. Virtue Ltd. is backed by Technoplast Technologies, Technorov Holdings, and Yardworth B.V. http://www.virtue3d.com/ ======= VC Fund News ======= o Pacifica Fund Gets $25 Million to Build Early Stage Fund REDWOOD SHORES, Calif. -- Pacifica Fund has raised $25 million and anticipates raising an additional $10 million to establish an investment fund focused on early stage companies. Investors include global corporations, private individuals, and a management consulting firm. The fund will focus on first round capitalization, making investments in the range of $500,000 to $1,250,000 with additional participation in subsequent rounds. The general partners, who have operational experience in both Global 500 and small venture companies, expect to make between 15 and 20 deals with the new fund. Pacifica Fund invests in communications technologies and services, business infrastructure transformation, and basic enabling technologies for emerging IT platforms. http://www.pacificafund.com/ _____________________________________________ o TechnoCap Raises Additional $74.4 Million For New Fund MONTREAL -- TechnoCap, a venture capital firm, said it raised an additional C$110 million ($74.4 million), bringing its total capital to C$210 million. Investors in the firms most recent fundraising include Bombardier Trust, Desjardins Pension Fund, the Solidarity Fund, and TechnoAnge. http://www.technocap.com/ ======= VW Corrections ======= o North Castle Partners NEW YORK -- A story in the September 8 issue of VentureWire misspelled the last name of the former Nabisco CEO who is a new general partner at North Castle Partners. She is Ellen R. Marram, not Miram. |||||||||||||||||||| Advertisement |||||||||||||||||||| What is the future for the business-to-consumer model, the business-to-business model, and the path to profitability? Find out at Healthcare Outlook. October 31, 2000 Palace Hotel - San Francisco, California For more information and registration, go to: http://tpsite.com/tp/conf/ho2000/default.html ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://www.venturewire.com/register/vw This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. _____________________________________________ TO SUBSCRIBE go to: http://www.venturewire.com/register/vw To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Tuesday, September 12, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/1345. ===================================== ====================================================== VENTUREWIRE --- Tuesday, September 12, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Internet Network Frim Interxion Raises $173 Million Series B o Government Rejects One Argument in Napster Appeal o AppleSoup Becomes Flycode After Apple Computer Complains o Affiliates of Citicorp Venture Capital To Anchor New Fund o Juniper Financial Holds $94 Million Series B Funding o Palladium Equity Partners Closes $300 Million Fund |||||||||||||||||||| Advertisement |||||||||||||||||||| vcapital is the place to find funding for your business. That's because vcapital offers you access to over 370 venture capital firms representing over $70 billion in capital under management. Plus, vcapital gives you access to educational tools and resources to better position your executive summary, along with personalized assistance and guidance from venture capital consultants. What's it all mean? Success. Your success. So stop spending time chasing after funding. Turn to vcapital for your best deal today. http://www.vcapital.com ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Oracle ASP Appshop Closes Series A Round with $17 Million o Digital Music Provider FullAudio Gets $15 Million Round Two o ICP Company MetStream Closes $4 Million Series A o NC Virtual Systems Raises $5 Million First Round o Net Infrastructure Firm Waveset Gets $7.3 Million Round One o Network Storage Firm Panasas Raises $10 Million Led by MDV o Online Medical Resource Veritas Raises $8 Million Round One o Ownership Services Firm Allmystuff Gets $10 Million Series A o Security Consultant Espiria Gets $6 Million Series A o Sun & GigaPixel Co-Founders Invest in Multimedia Company o Supplier Integration Firm RioLabs Has $6 Million First Round o Web Network Bla-bla Gets $3.25 Million More in Seed Round o Web Security Firm Ingrian Systems Gets $4 Million Round One o Wireless Firm Red Jade Gets $10 Million in Initial Funding o Advice Site AskForFree.com Completes First Round of Funding o Data Replication Firm Cogenia Raises $1 Million First Round o Document Exchange Raises $30 Million Led by Apax Partners o IXEurope Raises $56.8 Million Second Funding Round o $15 Million Round Two for Latin E-Commerce Enabler Decidir o Broadband Wireless Firm nBand Closes $14 Million Series B o CascadeWorks Raises $8 Million in Second Round of Funding o E-business Firm Event Zero Gets $20 Million Round Two o Mobile Net Firm Mobilocity Raises $21 Million Second Round o VoDSL Provider Woodwind Closes $12.2 Million Second Round o Freelancer Marketplace Guru.com Raises $44 Million C Round o Net Messaging Provider @Once Closes $8.1 Million Series C o Data Storage Company 3Ware Secures $43 Million in Series D o eNIC Gets $4 Million and Commitment for $21 Million More o New Forum Gets $6 Million, Lamar Alexander Joins Board o Mobile Communications Software Firm Ecutel Gets $6 Million o Translation Software Firm Trados Receives $4 Million New Products: o Info, Resource Site for Minority Businesses Announces Launch o Online Business Info Provider RhondaWorks Launches o Gilat-To-Home Becomes StarBand Communications o Local Busines App Firm Dbusiness.com Now LocalBusiness.com M&A: o Contact Center Firm !hey Software Merges with icontact.com o Tech Licensing Firm UVentures Buys Datamonitor's QX Health o BarterNet Acquires Majority Interest in BXI Exchange New Directors: o Supply Chain B2B SupplyLinks Adds Curry to Board o Former FCC Director Joins Hispanic Sports' Board o Money Management Services Provider eBalance Adds to Board o ARM Holdings COO Joins NCipher Board of Directors New People: o Mobilestop Hires Former Ericsson Exec. As President, CEO o DailyShopper Network Names Ex-L.A. Times VP President & COO o XML App Firm Vordel Names Former Siemens Exec as CEO o Former Internet Capital Group Exec Named CEO of XYAN.com o Authentication Provider BioNetrix Names Ex-Previo Chief CEO o Newmediary.com Hires Former Adsmart CEO as President, CEO o U.K. Internet Graphics Firm ZY.com Appoints New CEO o Virtue Names Freshmarketing.net Co-Founder as President VC Fund News: o Pacifica Fund Gets $25 Million to Build Early Stage Fund o TechnoCap Raises Additional $74.4 Million For New Fund VW Corrections: o North Castle Partners |||||||||||||||||||| Advertisement |||||||||||||||||||| Size does matter when it comes to bandwidth. In the online economy, the bigger the pipe the better. Which is why The Wall Street Journal Technology Summit is featuring keynotes by CEOs of three companies that help the Internet handle more data in less time: --David Huber of Corvis, the optical communications startup that recently set a Wall Street record for new issues by companies without revenues, raising $1.1 billion in its IPO at a market capitalization of $11 billion. --Scott Kriens of Juniper Networks, the young maker of high-speed Internet equipment whose shares have risen tenfold since IPO. --David Peterschmidt of Inktomi, the network-caching company with revenue growth of more than 25% for 10 consecutive quarters. Register today at http://info.wsj.com/techsummit/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Internet Network Frim Interxion Raises $173 Million Series B AMSTERDAM -- Interxion Holding, which provides carrier neutral Internet exchange centers, raised EUR 200 million ($173 million) in a Series B financing round. New investors, including GS Capital Partners 2000 and Whitehall Real Estate Funds, both sponsored by Goldman Sachs; DLJ Real Estate Capital Partners II; CSFB Private Equity; CSFB Real Estate Investment Banking; CSFB Technology Group; Enron Broadband Services, a subsidiary of Enron; Continuum Group; and Aman Ventures participated in the round. Previous investors including Baker Communications Fund, Navis Partners V, Morgan Stanley Dean Witter, and Bear Stearns Merchant Banking also contributed. The company said it will use the capital to continue to develop its Internet exchange centers across Europe and new service offerings and to increase staffing. http://www.interxion.com/ _____________________________________________ o Government Rejects One Argument in Napster Appeal NEW YORK -- The United States Copyright Office and the Department of Justice have rejected one facet of Napster's defense that claims it is protected by the Home Audio Recording Act. Record labels and music industry organizations have charged Napster, operator of a site for sharing copyrighted music files in MP3 format, with copyright infringement. In an advisory brief filed with the United States District Court for the Northern District of California, the Copyright Office stated the "Audio Home Recording Act does not protect Napster from the plaintiff's claims of copyright infringement." The U.S. Copyright Office and the Justice Department argue that the Audio Home Recording Act addresses a different phenomenon, specifically the use of DAT recorders used for home taping. "We have great respect for the Department of Justice, but in this instance we believe their position is incorrect, " said Napster's attorney David Boies. In a statement Mr. Boies also noted that the government did not address Napster's liability and the precedents cited in Napster's appeal. A&M Records and other record labels, the Recording Industry Association of America, and the National Music Publishers Association have filed the suit against Napster. The company is backed by Hummer Winblad Venture Partners and individual investors. http://www.napster.com/ _____________________________________________ o AppleSoup Becomes Flycode After Apple Computer Complains SAN FRANCISCO -- AppleSoup, which develops software for a peer-to-peer network of distribution and file sharing for video, said it changed its name to Flycode after receiving a 'cease and desist' letter from Apple Computer. Apple Computer's letter claimed the name AppleSoup infringed on its trademark. In a copy of the letter provided by Flycode, a law firm representing Apple demands that the company discontinue use of the AppleSoup name by July 28, 2000. Calls to Apple Computer for comment were not returned. Flycode, founded by two co-founders of Napster, has raised $2.5 million in seed funding from individual investors including Bill Krause, president of LWK Ventures; Frank Biondi, chairman of Biondi Reiss Capital Management; Joon Yun, an investment analyst at Palo Alto Investors and a founding partner of Targesome; and the Jack Valenti family. http://www.flycode.com/ _____________________________________________ o Affiliates of Citicorp Venture Capital To Anchor New Fund LONDON -- Digital Networks, which recently launched as a venture capital group, said it secured anchor investments from affiliates of Citicorp Venture Capital, an investment branch of Citigroup. The Digital Networks Group is raising a EUR 75 million ($60.6 million) fund. The fund will invest in early and late stage European digital infrastructure companies providing software, services, and hardware to companies involved in the media, communications, or information technology sectors. The average investment size will range between $867,000 to $8.7 million. Telephone +44-20-816-8890. _____________________________________________ o Juniper Financial Holds $94 Million Series B Funding WILMINGTON, Del. -- Juniper Financial, an online financial services company that offers banking and personal financial services, said it raised $94 million in its Series B round of funding. New investor J.W. Seligman led the round, which included other new investors Aether Systems, Fifth Third Bancorp, Kemper Ventures, Kingdon Capital, Maverick Capital, Sonera, Total Technology Ventures, and previous investors Benchmark Capital and individual investors. The round brings the company's total funding to $114 million. Sonera Plaza president and CEO Harri Hollmen and Total Technology Ventures managing partner Tom Smith will join the company's board. The company will use the funding for launching its products and services this fall and for company expansion. Juniper Financial focuses on credit card, checking, and bill payment services with a focus on Internet and wireless technology. http://www.juniper.com/ _____________________________________________ o Palladium Equity Partners Closes $300 Million Fund NEW YORK -- Palladium Equity Partners said it closed a new fund, Palladium Equity Partners II, for $300 million. The fund will invest in basic industries and focus on companies in the automotive, chemical, food, healthcare, media, plastics, and packaging industries. Palladium has invested in two companies so far through its new fund: Wise Snacks, a snack food company, and Physicians WebLink. Telephone 212-218-5153. ======= New Money ======= o Oracle ASP Appshop Closes Series A Round with $17 Million FREMONT, Calif. -- Appshop, an ASP of Oracle applications providing IT infrastructure for small and mid-size companies, said it raised $17 million in Series A funding led by Menlo Ventures. El Dorado Ventures, Osprey Ventures, RSA Ventures and Stanford University also contributed to the round. Menlo Ventures managing partner Douglas Carlisle has joined the board of directors. The company said the funds will support the development of its ASP hosting facilities, marketing, and the roll-out of national sales and service. http://www.appshop.com/ _____________________________________________ o Digital Music Provider FullAudio Gets $15 Million Round Two CHICAGO -- FullAudio, a digital music subscription service, said it raised $15 million in its second round of funding. The round was led by Venture Strategy Partners and included investments from New Enterprise Associates and Kettle Partners. The company said the funds will be used for the further development of FullAudio's secure subscription service, including the technical advancement and design of FullAudio's service platform, which it expects to introduce early next year. FullAudio secured $4.5 million in first round financing in December 1999 led by Stewart Alsop of New Enterprise Associates that included investments from Chicago based Kettle Partners, GRP Records and N2K founder Larry Rosen, former WebTV and TiVo CEO Randy Komisar, and IDEO Ventures. Tony Conrad of Venture Strategy Partners will join Stewart Alsop, Lee Rosenberg of Kettle Partners, Mr. Komisar, and Mr. Rosen on the FullAudio board. http://www.fullaudio.com/ _____________________________________________ o ICP Company MetStream Closes $4 Million Series A PORTLAND, Ore. -- MetStream Communications, an integrated communications service provider targeting residential communities with broadband services, said it closed its Series A round with $4 million from Vertex and Integrated Electrical Services. The company said it plans to use the money for hiring staff in Portland and Seattle. MetStream provides digital television, video-on-demand, Internet access, hosted IP applications, and telephony services mainly to apartment and condominium communities. http://www.metstream.com/ _____________________________________________ o NC Virtual Systems Raises $5 Million First Round WARSAW -- NC Virtual Systems, which provides software for security, subscriber management, and billing for ASPs, said it raised $5 million in its first round of funding. The round was led by Copernicus Capital Management, a venture capital fund focusing on investments in central Europe. Other investors in the round include Actron International, Central Poland Fund, Intel Capital, ISAL Amlat Investments, the Poland Investment Fund, and Israeli investor Star-West Capital. The company said it will use the funding to accelerate research and development, and create an international marketing campaign. Neil Milne, chief executive officer of Copernicus Capital Management, and a representative from Star-West Capital will both take seats on the company's board of directors. Telephone +49-22-826-8580. http://www.copernicus.pl/ _____________________________________________ o Net Infrastructure Firm Waveset Gets $7.3 Million Round One AUSTIN, Texas -- Waveset Technologies, a provider of Internet infrastructure software, said it closed its first round of funding with $7.3 million. Participating investors included Austin Ventures, Origin Partners, seed investor AV Labs, and individual investors Martin Neath, president and COO of Works.com; and Bill Wood, special limited partner at Austin Ventures. The funding will go towards business and product development, and marketing initiatives. Chris Grafft of Austin Ventures, Marc Yagjian of Origin Partners, and Bill Wood of Austin Ventures will join the board of directors. http://www.waveset.com/ _____________________________________________ o Network Storage Firm Panasas Raises $10 Million Led by MDV MENLO PARK, Calif. -- Mohr, Davidow Ventures (MDV), an early stage venture capital firm, said it has led an investment round of $10 million in Panasas, a network storage company. In addition to the investment, MDV co-managing partner Jon Feiber and MDV East Coast office partner Michael Sheridan will join the Panasas' board of directors. http://www.panasas.com/ _____________________________________________ o Online Medical Resource Veritas Raises $8 Million Round One CAMBRIDGE, Mass. -- Veritas Medicine, an online medical resource developed to provide patients, physicians, and other health care professionals with information about clinical trials and innovative treatments, said it has raised $8 million in its first round of funding. The round was funded by Burrill & Company, BioAsias Biotechnology Development Fund II, Cambridge Incubator, and Seaflower Ventures. Along with the preparation for the October launch of its online resource, the funds will be used for marketing and distribution, expanding the number of diseases profiled, and product enhancement. Telephone 781-674-0216. _____________________________________________ o Ownership Services Firm Allmystuff Gets $10 Million Series A AUSTIN, Texas -- Allmystuff, which provides product ownership services for durable goods companies, said it raised $10 million in its Series A round of funding. TL Ventures led this first round, which follows a seed round provided by AV Labs and Polaris Ventures. Dell Ventures and Austin Ventures also joined in this Series A round. As a result of the funding, Guy Hoffman, a venture partner at TL Ventures and former chief executive officer of Deja.com, and Manish Mehta, the principal at Dell Ventures, will join the Allmystuff's board of directors. Allmystuff's technology allows companies to create Web pages that contain product information, self-help tools, warranty trackers, and other product data for their customers. http://www.allmystuff.com/ _____________________________________________ o Security Consultant Espiria Gets $6 Million Series A MINNEAPOLIS -- Espiria, an information security consulting firm, said it raised $6 million in Series A funding. Wheatley Partners led the round, which included Dalewood Associates, Family Financial Strategies, and Jumpstart Capital. Wheatley Partners general partner Seth Lieber and Jumpstart Capital founder and general partner Shawn Kreloff have joined the company's board of directors. The company will use the funding for market expansion and to further develop its services. Espiria provides business planning, security consulting, technology deployment, and managed services. http://www.espiria.com/ _____________________________________________ o Sun & GigaPixel Co-Founders Invest in Multimedia Company SANTA CLARA, Calif. -- QuArc, a provider of digital multimedia technology, said it raised $5 million in funding from private investors. Investors in the round included the co-founder of Sun Microsystems, Andreas Bechtolsheim and George Haber, co-founder of Gigapixel. Mr. Bechtolsheim will take a seat on the company's board of directors. Mr. Haber has been named president, CEO, and a member of the company's board of directors. Sorin Cismas, company founder, will serve as chief technology officer and chairman of the company's board of directors. QuArc develops and markets high bandwidth memory controllers and high definition MPEG-2 decoders. http://www.quarc.com/ _____________________________________________ o Supplier Integration Firm RioLabs Has $6 Million First Round DENVER -- RioLabs, which provides supplier integration technology, said it raised $6 million in its first institutional round of funding. Barnard & Co. led the round, which included Sequel Venture Partners and previous individual seed round investors including Pete Estler, founder of iBelay; Ernest Jacquet, managing director of Boston's Parthenon Capital; and Rich Patch, a former vice president with Sybase. Barnard & Co.'s Steve Change will join the company's board of directors. The company will use the funding for company development, sales and marketing, and North American expansion. RioLabs links enterprise information sources with exchanges or direct trading services for business-to-business Internet commerce marketplaces. http://www.riolabs.com/ _____________________________________________ o Web Network Bla-bla Gets $3.25 Million More in Seed Round NEW YORK -- Bla-bla, an online portal for independent content, said it received an additional $3.25 million in its seed round of financing, bringing the total raised to date for the round to $7.65 million. The round has is still open. Bla-bla said it will use the funding for general company growth and expansion. Investors in this round include Silicon Alley Venture Partners, Hudson Venture Partners, Liberty View Equity Partners, SBIC, Youngtree Partners, and Stonehenge Capital. Bla-bla said its network has over 230 sites and is adding 40 sites per month. http://www.bla-bla.com/ _____________________________________________ o Web Security Firm Ingrian Systems Gets $4 Million Round One REDWOOD CITY, Calif. -- Ingrian Systems, which is developing scalable Internet security products that will increase the speed of transactions, said it has secured $4 million in its first round of funding from a group of investors. The round included Andy Bechtolsheim and Bill Joy, co-founders of of Sun Microsystems, and Martin Hellman, professor emeritus of electrical engineering at Stanford University. Other investors in the round included Andrew Dumke, general partner of Pacific Mezzanine Fund; John Hamm, the managing director of Internet Capital Group; Greg Chabrier, most recently vice president of business development for VALinux; and Sardina, the co-founder of Tasmania Network Systems, which was acquired by Cisco last year. http://www.ingrian.com/ _____________________________________________ o Wireless Firm Red Jade Gets $10 Million in Initial Funding PALO ALTO, Calif. -- Ericsson said it has made a $7 million investment in Red Jade, a developer of wireless entertainment products. Red Jade also received an additional $3 million from IT Provider, a Swedish venture capital firm. In addition to financial support, Ericsson Business Innovation will support Red Jade with product design and development, marketing, manufacturing, and distribution. http://www.redjade.com/ _____________________________________________ o Advice Site AskForFree.com Completes First Round of Funding CUPERTINO, Calif. -- Al Shugart International (ASI) said AskForFree.com, which offers free advice in a variety of categories, completed its first round of funding for an undisclosed amount. The round was led by Shugart Venture Fund 2, the venture arm of ASI, with participation from Angel Investors. Jon van Bronkhorst of Shugart Venture Funds will join the board of directors. http://www.askforfree.com/ _____________________________________________ o Data Replication Firm Cogenia Raises $1 Million First Round SUNNYVALE, Calif. -- Cogenia, which specializes in data replication technology for the wireless data industry, said it has closed its Series A round of funding at $1 million. The Jain Family Trust, Crest Communications Holdings, Satwik Ventures, the Pillsbury Madison and Sutro Venture Fund, and several individual investors provided the funds. Cogenia was founded by chairman Ashok Jain, CEO Scott Andrews, and CTO Doug Terry. Telephone 650-279-0242. _____________________________________________ o Document Exchange Raises $30 Million Led by Apax Partners NEW YORK -- Bolero.net, which provides an online data exchange for electronic trading communities, said it raised $30 million in its most recent round of funding. The round was led by Apax Partners. The company said it will use the funding for implementation efforts across the Bolero.net affiliated network, and development of new products and services for the company's clients. Tim Wright, and Richard Lenane, both of Apax Partners, will take seats on the company's board of directors. Bolero.net acts as a neutral third party to ensure secure delivery and receipt of the information and provides a legal structure that binds all users together. http://www.bolero.net/ _____________________________________________ o IXEurope Raises $56.8 Million Second Funding Round LONDON -- IXEurope, which provides co-location and facilities management services, said it raised $56.8 million in its second round of funding. A group of investors including European Acquisition Capital (EAC), IXEurope's majority shareholder; Banc of America Equity Partners; J. P. Morgan Capital; First Union Capital Partners; and some of EAC's fund investors participated in the round. The company said it will use the funding to increase its number of co-location sites from three to eight by the end of the year. The expansion will involve development in France, Germany, and Switzerland. http://www.ixeurope.com/ _____________________________________________ o $15 Million Round Two for Latin E-Commerce Enabler Decidir BUENOS AIRES -- Decidir.com, a business-to-business portal and infrastructure service that provides credit risk information and payment platforms for conducting e-commerce in Latin America, said it raised $15 million in second round funding. New investors GE Capital, HSBC-Tower Fund, and SCP Private Equity Partners, a U.S. fund associated with Safeguard Scientifics, were joined in the round by previous investors Citicorp Venture Capital Latin America, CVC Opportunity, CIMA Investments, and International Real Returns. The company, which has offices in Argentina, Brazil, Mexico, Chile, and Miami, will use the funds to complete its regional expansion and to develop new tools and services. Decidir offers an authentication product for secure e-commerce transactions and has developed databases of financial, legal, credit, and import/export information of businesses and individuals in Latin America. http://www.decidir.com/ _____________________________________________ o Broadband Wireless Firm nBand Closes $14 Million Series B SUNNYVALE, Calif. -- nBand Communications, a broadband wireless technology company, said it closed its Series B funding round with $14 million led by VantagePoint Venture Partners. Original investors Axis Communications, Sunrise Capital Fund, and several private investors also participated. VantagePoint partner Matt Ocko joined nBand's board of directors. The company will use the funds toward hiring its engineering and sales teams, product development, and marketing. http://www.nband.com/ _____________________________________________ o CascadeWorks Raises $8 Million in Second Round of Funding SAN FRANCISCO -- CascadeWorks, which provides Web-hosted applications for managing Internet procurement services, said it raised $8 million in its second round of financing led by New Enterprise Associates (NEA). The funding will be used to accelerate product development and sales and marketing. Chip Linehan, partner at NEA, will join CascadeWorks' board of directors. CascadeWorks raised $1.1 million in January from individual investors. http://www.cascadeworks.com/ _____________________________________________ o E-business Firm Event Zero Gets $20 Million Round Two ARLINGTON, Mass. -- Event Zero, a provider of Internet and wireless systems for businesses, said it raised $20 million in its second round of funding led by First Union Capital Partners. Previous investors Shawmut Capital Partners, Trident Capital, Integral Capital Partners, and Sparkventures, also participated in the round. The funds will be used to support infrastructure expansion in the Boston, New York, and San Francisco offices, as well as to enhance service offerings. Event Zero clients include CBS Employer Services, BankPass.com, and Brainshark. http://www.eventzero.com/ _____________________________________________ o Mobile Net Firm Mobilocity Raises $21 Million Second Round NEW YORK -- Mobilocity, a builder of mobile Internet businesses, said it has raised $21 million in its second round of funding led by Morgan Stanley Dean Witter Private Equity. The round also included investments from J.P. Morgan Capital; LabMorgan, the e-finance unit of J.P. Morgan; Siemens Business Services Ventures; Cambridge Samsung Partners; Telligent Capital; Comdisco Ventures; Usheron Ventures; and Morrison & Foerster. The funding will be used to continue Mobilocity's growth in the U.S., fuel its expansion into Europe and Asia, and further develop its Mobility Lab. Mobilocity named Noah Walley, General Partner of Morgan Stanley Dean Witter Venture Partners, to its board. Mr. Walley joins a board comprised of executives from LabMorgan, Cambridge Samsung Partners, and LCC International. Prior investors in Mobilocity include LCC International; Cambridge Samsung Partners; WS Investment; and individual investors, including current and former executives of Donaldson Lufkin & Jenrette, Goldman Sachs, Morgan Stanley Dean Witter, CIBC World Markets, and Chase Manhattan Bank. http://www.mobilocity.net/ _____________________________________________ o VoDSL Provider Woodwind Closes $12.2 Million Second Round GERMANTOWN, Md. -- Woodwind Communication Systems, a provider of integrated access devices for broadband services such as voice over digital subscriber lines, said it completed its second round with $12.2 million. The round included new investors Alta Partners, SpaceVest, and Sterling Venture Partners, and original investors Boulder Venture and Novak Biddle Venture Partners. The company will use the funds for marketing its broadband products. http://www.woodwindcom.com/ _____________________________________________ o Freelancer Marketplace Guru.com Raises $44 Million C Round SAN FRANCISCO -- Guru.com, a marketplace connecting freelance professionals with contract projects, said it has raised $44 million in its Series C round of financing led by Investor AB. The round included investments by August Capital, Credit Suisse First Boston, Greylock, Tarrant Venture Partners, and WR Hambrecht. American Express and Red Hat also made investments in this round in a strategic alliance that will provide American Express with small business and financial products through Guru.com and will combine Red Hat and Guru.com's resources in order to build a project marketplace for the open source Linux community. The company said it will use the funds for product and technological development, running its day-to-day operations, and to expand its senior management team. Guru.com has raised a total of $63 million in financing in the past year. The company also named David Lee, a managing director of Investor Growth Capital, to its board. Investor Growth Capital is a venture arm of Investor AB, Sweden's largest holding company. http://www.guru.com/ _____________________________________________ o Net Messaging Provider @Once Closes $8.1 Million Series C PORTLAND, Ore. -- @Once, an Internet messaging provider, said it has raised $8.1 million in its Series C round of funding from Olympic Venture Partners (OVP) and previous individual investors. As a result of the funding, David Chen, OVP Partner, will take a seat on the company's board of directors. @Once's services allow clients to learn about their customers preferences and conduct targeted direct e-mail campaigns. http://www.@once.com/ _____________________________________________ o Data Storage Company 3Ware Secures $43 Million in Series D MOUNTAIN VIEW, Calif. -- 3Ware, which provides data storage, back up, security, and management for Internet applications, said it has secured $43 million in its Series D round of funding. Investors in the round include NeoCarta Ventures, Franklin Templeton, New Enterprise Associates, Quantum Technology Ventures, VantagePoint Venture Partners, Veritas Software, as well as several strategic partners. The company said it will use the funds to improve its services. http://www.3ware.com/ _____________________________________________ o eNIC Gets $4 Million and Commitment for $21 Million More SEATTLE -- eNIC, a top-level Internet domain name registry, said it received a strategic financing commitment of $25 million from Malaysian-based investment holding company MOL.com Berhad. eNIC has received $4 million so far. The remaining investment of $21 million will be made upon approval from the Malaysian Securities Commission and the Foreign Exchange Department of the Malaysian Central Bank. The funding will be used for marketing, sales, and mergers and acquisitions. http://www.enic.com/ _____________________________________________ o New Forum Gets $6 Million, Lamar Alexander Joins Board CONSHOHOCKEN, Pa. -- New Forum Publishers, an Internet-based provider of proprietary interactive educational content, said it has raised $6 million in funding from Walter W. Buckley Jr., president of Buckley Muething Capital Management, and Walter W. Buckley III, the president and CEO of Internet Capital Group. The company said it will use the financing for sales and marketing and to expand its product line. The company also announced it has appointed Lamar Alexander, a candidate for U.S. president in 1996 and 2000, to its board of directors. Mr. Alexander served as Secretary of Education under President George W. Bush from 1991 to 1993. He also co-founded Simplexis, an online educational service provider focusing on K-12 schools and their suppliers. http://www.newforum.com/ _____________________________________________ o Mobile Communications Software Firm Ecutel Gets $6 Million ALEXANDRIA, Va. -- Core Capital Partners said it had led a $6 million investment in mobile Internet communications software company Ecutel. Other investors included Intel, Updata Capital, McDonnell and Associates, Steve Walker and Associates, and Avansis. Ecutel will use the funding for sales and marketing. http://www.ecutel.com/ _____________________________________________ o Translation Software Firm Trados Receives $4 Million ALEXANDRIA, Va. -- Trados, a provider of software tools for translation professionals, said it received $4 million in a round of financing. AdAstra Erste Beteiligungs GmbH was the sole investor for the round. The financing will be used for marketing, sales, and product development. Previous investors include Mercury Private Equity, a subsidiary of Merrill Lynch & Co., and First Union Capital Partners. http://www.trados.com/ ======= New Products ======= o Info, Resource Site for Minority Businesses Announces Launch NEW YORK -- MinorityInterest Network, which provides online information, services, and resources to minority-owned businesses, their employees, customers and related community organizations, announced the launch of the beta version of its Web site. MinorityInterest Network is backed by CEA Latin American Partners, Zero.net, and individual investors. http://www.minorityinterest.com/ _____________________________________________ o Online Business Info Provider RhondaWorks Launches PALO ALTO, Calif. -- RhondaWorks, a provider of online and offline information, advice, and tools for small businesses and entrepreneurs, said it has launched. The company will offer an online interactive business planning center that aims to enable and assist entrepreneurs in starting up and growing their businesses. The RhondaWorks team includes both publishing and Internet veterans led by chief operating officer Jim Schulte, formerly the editor-in-chief of USATODAY.com, and Rhonda Abrams, founder and CEO of RhondaWorks. The company is backed by individual investors. http://www.rhondaworks.com/ _____________________________________________ o Gilat-To-Home Becomes StarBand Communications MCLEAN, Va. -- Gilat-To-Home, which provides consumer focused two-way satellite broadband Internet service, said it changed its name to StarBand Communications. The company said the change in name represented its new category Intenet high-speed delivery, which it plans to launch this fall. StarBand is backed by Gilat Satellite Networks, Microsoft, EchoStar Communications, and ING Furman Selz Investments. http://www.starband.net/ _____________________________________________ o Local Busines App Firm Dbusiness.com Now LocalBusiness.com FORT LAUDERDALE, Fla. -- Dbusiness.com, an Internet provider of local business applications, local news and intelligence, tools, and research resources for small and medium-sized businesses, said it has changed its name to LocalBusiness.com. The company, which recently acquired request-for-proposal provider TrueAdvantage, said the name change reflects its focus on local business applications and services. LocalBusiness.com is backed by U.S. Equity Partners, TMCT Ventures, and Tribune Ventures. http://www.localbusiness.com/ ======= M&A ======= o Contact Center Firm !hey Software Merges with icontact.com NORTH ANDOVER, Mass. -- !hey software, a provider of contact center and voice technologies, and icontact.com, a personalized online communication software firm, said the companies have merged to form new company !hey. Terms of the merger were not disclosed. Duncan Mackay, president and CEO of !hey software, will remain as president and CEO of the new company. Investors in !hey include Telecom-Internet Investors, a subsidiary of Telecom Ventures, eCOM Partners, Broadband Ventures, Goldman Sachs, and individuals. http://www.heyinc.com/ _____________________________________________ o Tech Licensing Firm UVentures Buys Datamonitor's QX Health NEW YORK -- UniversityVentures, a marketplace for the technology licensing industry, said it has acquired Datamonitor's QX Health technology assets and changed its name to UVentures. The terms of the acquisition were not disclosed. UVentures said the acquisition will broaden its global technology transfer marketplace and enhance its content and service offerings. UVentures is backed by individual investors. http://www.uventures.com/ _____________________________________________ o BarterNet Acquires Majority Interest in BXI Exchange FOSTER CITY, Calif. -- BarterNet, a marketplace for businesses to trade products and services, said it has acquired a controlling interest in BXI Exchange, a retail barter exchange in the U.S. with a roster of 20,000 businesses in 85 markets throughout the United States. Financial terms of the transaction were not disclosed. BarterNet was previously a minority shareholder. BarterNet is backed by Wand Partners, Alignment Capital, and the partners of Parthenon Capital. http://www.barternet.com/ ======= New Directors ======= o Supply Chain B2B SupplyLinks Adds Curry to Board SAN FRANCISCO -- SupplyLinks, an Internet business-to-business supply chain network, said it appointed W. Roger Curry to its board of directors. Mr. Curry was the president and CEO of Consolidated Freightways and a former colleague of SupplyLinks CEO David I. Beatson. After being appointed president and CEO of Emery Worldwide in 1994, Mr. Curry brought Mr. Beatson on board as vice president of sales and marketing. SupplyLink's board consists of Mr. Beatson, Mitch Weseley, president and CEO of Global Logistics Technologies, and Tim Sensenig, managing director of New Meadows Venture Capital Partners. SupplyLinks is funded by New Meadows Venture Partners and G-Log. http://www.supplylinks.com/ _____________________________________________ o Former FCC Director Joins Hispanic Sports' Board SAN DIEGO -- Former Federal Communications Commission director Francisco Montero joined the board of directors for Hispanic Sports, a company that acquires the exclusive Spanish-language radio, television, and Internet broadcast rights to professional U.S. sports teams and leagues. Mr. Montero is a partner with the Washington D.C. law firm of Shaw Pittman Potts & Trowbridge in its telecommunications and technology practice group. Hispanic Sports is backed by Bencap Partners and recently closed an undisclosed seed round of funding. The company is in the process of raising its first funding round. Telephone 619-920-7609. _____________________________________________ o Money Management Services Provider eBalance Adds to Board SAN RAMON, Calif, -- eBalance, which provides market research to financial institutions by offering online money management services to individual consumers, said it named Mark A. Johnson to its board of directors, bringing the board to five members. Mr. Johnson was former vice chairman of CheckFree, an Internet billing and payment service. eBalance is funded by Signia, Alliant Partners and Internet Angels. http://www.ebalance.com/ _____________________________________________ o ARM Holdings COO Joins NCipher Board of Directors WOBURN, Mass. -- nCipher Corporation, a developer of security products for e-commerce and Public Key Infrastructure (PKI) applications, said it has appointed ARM Holdings chief operating officer Jamie Urquhart to its board of directors. Mr. Urquhart joins nCipher founders and executive directors Alex and Nicko van Someren and fellow board members Ossama Hassanein of Newbury Ventures, Richard Gourlay of Top Technology, and Roger Maggs of Celtic House Investment Partners. nCipher also announced the completion of a round of funding in which Deutsche Bank became a shareholder. The majority of nCipher's existing institutional investors also increased their stockholdings. The terms for this recent round of funding have not been disclosed. Ncipher has received funding from Celtic House Investment Partners, Newbridge Networks, Newbury Ventures, Security Dynamics Technology, and Top Technology. http://www.ncipher.com/ ======= New People ======= o Mobilestop Hires Former Ericsson Exec. As President, CEO MIAMI -- Mobilestop, which provides an e-commerce platform for wireless carriers, said it has appointed Hakan Wretsell as its new president and CEO. Mr. Wretsell is former executive vice president and general manager of the Americas division at Ericsson Mobile Phones, and was vice president of Ericsson Mobile Phones Latin America. He will replace Arnthor Halldorsson, who now assumes the position of executive vice president of development. Mobilestop has received venture capital from Swedish firm Novestra, Time Vision, Artic Ventures, Talenta-Internet and individual investors. The firm is based here and has offices in Buenos Aires, Luxembourg, Oslo, Reykjavik, Sao Paolo, Seattle, and Stockholm. http://www.mobilestop.com/ _____________________________________________ o DailyShopper Network Names Ex-L.A. Times VP President & COO SEATTLE -- DailyShopper Network, which provides online promotion services for traditional retailers, said it named Carol Perruso as its president and COO. Ms. Perruso was most recently president of latimes.com and vice president of the Los Angeles Times. Ms. Perruso succeeds company co-founder and former president Michael Skinner, who is no longer with the company. DailyShopper Network is backed by Madrona Venture Group and Voyager Capital. http://www.dailyshopper.net/ _____________________________________________ o XML App Firm Vordel Names Former Siemens Exec as CEO DUBLIN -- Vordel, a provider of Talk XML, which delivers applications that enable enterprises to establish secure communication channels to organizations in their business networks, named David Ryan as chief executive officer. Prior to joining Vordel, Mr. Ryan was chief executive officer of Siemens Business Services in Ireland and was acting chief executive officer of SSE, the Siemens Internet security firm. Vordel is backed by individual and institutional investors. http://www.vordel.com/ _____________________________________________ o Former Internet Capital Group Exec Named CEO of XYAN.com KING OF PRUSSIA, Pa. -- XYAN.com, an online resource for comprehensive digital content management and document production, said it has named Richard G. Bunker Jr., former managing director and chief technology officer of Internet Capital Group, as chief executive officer and president. Mr. Bunker, who was a member XYAN.com's board of directors, replaces John H. Foster, who will remain as chairman of the company's executive committee. Mr. Bunker, who will no longer serve on XYAN's board, is also former president and CEO of Reality Online, a provider of online investing products, hosting, and tech support for financial services firms. He was previously senior vice president and chief information officer of SEI Investments. XYAN is funded by venture capital firm Foster Management. http://www.xyan.com/ _____________________________________________ o Authentication Provider BioNetrix Names Ex-Previo Chief CEO VIENNA, Va. -- BioNetrix Systems, a provider of personal authentication security, said John Ticer has been named CEO, replacing co-founder Peter Bianco who will become vice chairman and executive vice president of marketing and business development. Ticer was formerly CEO of Previo, a computer systems management company. BioNetrix investors include Carlyle Venture Partners, Columbia Capital, the Dinner Club, and individual investor Steve Walker. http://www.bionetrix.com/ _____________________________________________ o Newmediary.com Hires Former Adsmart CEO as President, CEO NEWTON, Mass. -- Newmediary.com, a network of online marketplaces for e-commerce services, named John Federman as president and CEO. Mr. Federman joins Newmediary.com from Engage Technologies, where he served as executive vice president of worldwide sales and business development. Prior to joining Engage, Mr. Federman was the CEO and president of Adsmart, a CMGI-backed Internet advertising network. Newmediary has secured venture capital from Advanced Technology Ventures, CommonWealth Capital, and Still River Fund. http://www.newmediary.com/ _____________________________________________ o U.K. Internet Graphics Firm ZY.com Appoints New CEO MENLO PARK, Calif. -- ZY.com, a U.K.-based provider of Web graphics and Web page building services, said it appointed Tony Vine-Lott as chief executive officer. Mr. Lott previously served as a managing director at Barclays. ZY.com is backed by ICE Securities and undisclosed institutional investors. The company said it is exploring the possibility of undertaking an initial public offering later this year on a European exchange and is also considering a U.S. listing. http://www.zy.com/ _____________________________________________ o Virtue Names Freshmarketing.net Co-Founder as President NATICK, Mass. -- Virtue Ltd., a 3-D graphics software provider, said it appointed Lori Dustin as president of its U.S. subsidiary. Dustin formerly co-founded and was CEO for freshmarketing.net, an Internet marketing firm. Virtue Ltd. is backed by Technoplast Technologies, Technorov Holdings, and Yardworth B.V. http://www.virtue3d.com/ ======= VC Fund News ======= o Pacifica Fund Gets $25 Million to Build Early Stage Fund REDWOOD SHORES, Calif. -- Pacifica Fund has raised $25 million and anticipates raising an additional $10 million to establish an investment fund focused on early stage companies. Investors include global corporations, private individuals, and a management consulting firm. The fund will focus on first round capitalization, making investments in the range of $500,000 to $1,250,000 with additional participation in subsequent rounds. The general partners, who have operational experience in both Global 500 and small venture companies, expect to make between 15 and 20 deals with the new fund. Pacifica Fund invests in communications technologies and services, business infrastructure transformation, and basic enabling technologies for emerging IT platforms. http://www.pacificafund.com/ _____________________________________________ o TechnoCap Raises Additional $74.4 Million For New Fund MONTREAL -- TechnoCap, a venture capital firm, said it raised an additional C$110 million ($74.4 million), bringing its total capital to C$210 million. Investors in the firms most recent fundraising include Bombardier Trust, Desjardins Pension Fund, the Solidarity Fund, and TechnoAnge. http://www.technocap.com/ ======= VW Corrections ======= o North Castle Partners NEW YORK -- A story in the September 8 issue of VentureWire misspelled the last name of the former Nabisco CEO who is a new general partner at North Castle Partners. She is Ellen R. Marram, not Miram. |||||||||||||||||||| Advertisement |||||||||||||||||||| What is the future for the business-to-consumer model, the business-to-business model, and the path to profitability? Find out at Healthcare Outlook. October 31, 2000 Palace Hotel - San Francisco, California For more information and registration, go to: http://tpsite.com/tp/conf/ho2000/default.html ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://www.venturewire.com/register/vw This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. _____________________________________________ TO SUBSCRIBE go to: http://www.venturewire.com/register/vw To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

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VentureWire, Friday, November 3, 2000

====================================================== VENTUREWIRE --- Friday, November 3, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Gateway Still On Board After IBM Says No To Transmeta Chip o Health Site Drkoop.com to Acquire Young Adult Site drDrew o UCLA Says It Funded Napster o ASP NetworkOSS Closes Series A at $16.5 Million |||||||||||||||||||| Advertisement |||||||||||||||||||| Motley Fool CEO- 41 weeks, Yahoo VP- 45 weeks... Still think traditional search firms know Internet talent? Don't let your valuation suffer as you wait for a candidate. VentureWorx' search professionals have completed 400+ assign- ments-from placing CEOs at leading technology companies to building entire management and advisory teams for startups. 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Contact Jonathan Long at 704.377.4100 or http://www.ventureworx.com/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Integreated Semiconductor Firm Avaz in $15 Million Round One o B2B-Matrix Gets $500,000 from eSamsung USA in Round One o Content Firm StreamSage Lands $250,000 From Duncaster o Optical Network Firm Dyotec in $3 Million Round One o Shalom.com Puts $5.5 Million in Telecom's E-ntouch Round One o Component Platform iSuppli Raises $30 Million Second Round o Net Telephony Firm Callserve Has $11.9 Million Round Two o Wireless Firm Argogroup Raises $20 Million Second Round o $49.6 Million Fourth Round for Broadband Firm Tantivy o FairEx International Financial Systems Raises $10 Million o HotOrigin, Irish Technology Incubator, Raises $2.7 Million o SanDisk Invests $7.2 Million in Digital Imaging Firm Divio o Cube Consulting Gets $3 Million from Bizzbuild, Durlacher o Online Marketing Firm USAData Raises $6 Million Round Three o Analytic Software Firm SafeLogic Raises GBP 400,000 o Mitiska Announces $6.2 Million in Third Quarter Investment o Consortium Invests $1.5 Million in Mobile Tech Firm Mgage New Products: o Internet Architecture Management Firm FastTide Launches New Deals: o Food Gift Company Harry and David Invests in eVineyard.com M&A: o E-mail, Messaging Firm Commtouch Buys Wingra for $17 Million o Prescription Processing Application Firm TechRx Buys Flux o BtoBfactory Acquires Latin American Investment Firm BtoBen o eLearning Firm Intellinex Buys PC Skills Trainer Teach.com o Utilities Service Blink.com Acquires Bookmark Firm Coolsync o ClearCross Acquires Atrion in Stock Swap New Directors: o CharterHub Names Ex-Canadian Airlines Executive to Board o Online Address Service Ukibi Names Board of Directors New People: o Telco Software Firm Watchmark Names Former GTE Exec as CEO VC Fund News: o CDC Launches Accelerator With $85.9 Million Investment VC Personnel: o Grotech Adds Former Legg Mason Director as Partner o Technology Incubator eHatchery Adds Two to Board VW Corrections: o Broadstorm Telecommunications o eBenefits o Kymata o Mobileum |||||||||||||||||||| Advertisement |||||||||||||||||||| Showcase your company to 100 CEOs of the hottest start-ups in pervasive computing and hundreds of senior venture capitalists at Technology Outlook 2000, December 4-5 in San Francisco. Corporate Sponsorship of Technology Outlook 2000 provides unparalleled opportunities to gain exposure and establish business relationships with the rising stars of the pervasive computing industry. At Technologic Partners' conferences: * Private companies get funding * Investors realize opportunities * Sponsors develop new client relationships To learn more about how sponsoring Technologic Partners conferences can meet your objectives, contact Jack Cowie at cowie@technologicp.com for more information. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Gateway Still On Board After IBM Says No To Transmeta Chip SAN DIEGO -- Computer manufacturer and retailer Gateway said it is still on track to use chip design company Transmeta's microprocessor in an Internet appliance it is developing with America Online. IBM announced this week it will not use Transmeta's Crusoe chip on its ThinkPad 240. IBM said it never committed to using Transmeta in its 240 laptop, and only used the chip in its demonstration model. IBM, which did not comment on why it decided against the Transmeta chip, said it is still considering using Transmeta in future ThinkPad models and has not called off its plans to manufacture the chip. Gateway, which said it has not deviated from the plans it announced in May, said it opted for Transmeta's Crusoe processor because of its small size, long battery life, and low operating temperature. Gateway also said it selected Transmeta's Mobile Linux as the operating system for its products. Transmeta plans to hold its IPO next week to raise a maximum of $194 million. Transmeta did not return calls for comment. The five-year old Transmeta is backed by America Online, Compaq Electronics, Compaq Computer, First International Computer, Five Points Capital, Deutsche Bank, Gateway, Invemed Associates, Phoenix Technologies, Soros Fund Management, Tudor Investment, Van Wagoner Capital Management, Vulcan Ventures, and individual investors. http://www.transmeta.com/ _____________________________________________ o Health Site Drkoop.com to Acquire Young Adult Site drDrew AUSTIN, Texas -- Drkoop.com, a publicly traded Internet health site, said it acquired the assets of drDrew.com, a struggling online lifestyle community for 14- to 24-year-olds, that had laid off most of its staff. Drkoop.com bought all of drDrew.com's assets from Sherwood Partners, a corporate restructuring and business advisory firm, for $150,000 in cash and 1.58 million shares of common stock, worth approximately $1.4 million. The sites will continue operating independently and there will be some basic content integration. Drew Pinsky, founder of drDrew.com, will be an advisor to drkoop.com. drDrew.com backers included Softbank Venture Capital, Freedom Communications, Garage.com, Mentor Venture Partners, and individuals. Drkoop.com, which has also been in some difficult financial straits recently, received a cash infusion from private investors in August including Prime Ventures, JF Shea Ventures, Cramer-Rosenthal-McGlynn, RMC Capital, ComVest Venture Partners, Eco Associates, and NetStar Ventures. http://www.drdrew.com/ http://www.drkoop.com/ _____________________________________________ o UCLA Says It Funded Napster LOS ANGELES -- The University of California at Los Angeles confirmed it is an investor in Napster, the embattled music exchange software company being sued for copyright infringement by the Recording Industry Association of America. A UCLA spokesperson said the school has invested $25,000 into the business to date. The news was first reported in the Wall Street Journal, which cited internal Napster documents prepared as part of the deal with Bertelsmann to drop its suit against Napster announced earlier this week. The Journal report also disclosed that the rock group Limp Bizkit is an investor in Napster. The band's representatives did not return calls for this story. Napster's other investors are Hummer Winblad Venture Partners and various individuals. http://www.napster.com/ _____________________________________________ o ASP NetworkOSS Closes Series A at $16.5 Million NEW YORK -- NetworkOSS, which provides Internet services and business applications to the world-wide communications industry, closed its Series A funding after receiving $3.5 million from El Dorado Ventures; Datamat, an Italian Internet and mobile communications technology company; Kiwi; and other investors. NetworkOSS received $13 million earlier in the round from Sevin Rosen Funds, Datamat, and Crescendo Ventures, bringing the Series A total to $16.5 million. NetworkOSS will use the funds to expand its customer base and its communication industry partnerships in the United States and Europe. Mr. Scott Jarus, former senior vice president of operations at RCN Telecom and current president and COO of OnSite Access, is joining the NetworkOSS board as its fifth member. http://www.networkoss.com/ ======= New Money ======= o Integreated Semiconductor Firm Avaz in $15 Million Round One SAN BRUNO, Calif. -- VantagePoint Venture Partners said it participated in the $15 million first-round financing of Avaz, an Irvine, Calif.-based company that designs, develops, and markets integrated semiconductor and software technologies for voice-over-IP networks. Other details were not released. _____________________________________________ o B2B-Matrix Gets $500,000 from eSamsung USA in Round One SAN JOSE, Calif. -- B2B-Matrix, which designs, architects, and deploys collaboration systems for enterprise and business-to-business collaboration, said it received $500,000 in its first of funding from venture firm eSamsung USA. B2B-Matrix develops, markets, and supports distributed infrastructure for synchronous/asynchronous ad hoc collaboration within and across enterprises. Chad J. Cooper of eSamsung USA took a seat on the board of directors. http://www.b2b-matrix.com/ _____________________________________________ o Content Firm StreamSage Lands $250,000 From Duncaster WASHINGTON -- Duncaster Investments announced that it has made a $250,000 seed-stage investment in StreamSage, a company that is developing a tool to manage and customize multimedia Web site content. With these funds, StreamSage will move its office and expand its staff to complete the beta version of its product. Richard Blake, the sole principal of Duncaster Investments, will join StreamSage's board of directors. http://www.streamstage.com/ _____________________________________________ o Optical Network Firm Dyotec in $3 Million Round One SAN BRUNO, Calif. -- Dyotec Networks, a developer of optical networking systems, has received $3 million in first round funding. VantagePoint Venture Partners participated in the round, but other aspects of the deal were not released. Dyotec's products enable carriers to manage, monitor, and maintain their IP backbone networks by using optical cross-connect switches and transport systems. http://www.dyotec.com/ _____________________________________________ o Shalom.com Puts $5.5 Million in Telecom's E-ntouch Round One NEW YORK -- Incubator Shalom.com said it invested in $5.5 million in E-ntouch, an Israeli startup, in its first round of funding. E-ntouch develops advanced distributed software applications to control traffic and configurations within telecommunications networks. The company will use the funds for product development, to hire additional staff, and to begin operations in the United States. http://www.shalom.com/ _____________________________________________ o Component Platform iSuppli Raises $30 Million Second Round EL SEGUNDO, Calif. -- iSuppli, a supply network for electronic component procurement and delivery, said it raised $30 million in its second round of funding, led by Tyco Ventures. Loewenthal Capital Management and Tailwind Capital Partners also participated, as did previous investors CMEA Ventures, NeoCarta Ventures and AC Ventures. The company will use the funds for business expansion and to fund strategic acquisitions. http://www.isuppli.com/ _____________________________________________ o Net Telephony Firm Callserve Has $11.9 Million Round Two LONDON -- Callserve, which provides online telecommunications services, said it raised $11.9 million in its second round of funding. Investors in the round included Casenove Private Equity, Jupiter International Group, TH Lee.Putnam Internet Partners, and the eVestment Company. The company said it will use the funding to accelerate the roll-out of its international infrastructure and marketing company. The company said it will use its European strategy as the template for its implementation in the U.S. http://www.callserve.com/ _____________________________________________ o Wireless Firm Argogroup Raises $20 Million Second Round ELSTEAD, U.K. -- Argogroup, which develops software to deliver content to wireless phones, WAP, or i-Mode without having to change their mobile site, said it raised $20 million in second round funding. The round included investments from 3i and Apax Partners. The company also announced a co-marketing agreement with Lucent Technologies to enable developers from both Lucent and Argogroup to integrate the company's products with Lucent's wireless technology. The company has raised a total of $30 million. http://www.argogroup.com/ _____________________________________________ o $49.6 Million Fourth Round for Broadband Firm Tantivy MELBOURNE, Calif. -- Tantivy Communications, a provider of portable broadband technology, said it completed a $49.6 million fourth round of financing, led by Bowman Capital. Additional investors included Bay Hill Partners, Chase H&Q, Intel, Morgan Stanley Dean Witter, New Enterprise Associates, North Bridge Venture Partners, Novak Biddle Venture Partners, Riggs Capital Partners, Redback Networks, Stephens Inc., Westway Capital, Wheatley Partners and Venrock Associates. All participants in the round were previous investors. The company will use the financing for product trials and to prepare its products for launch. Tantivy creates silicon and software for consumer devices and infrastructure equipment. The company has raised $72.2 million to date. http://www.tantivy.com/ _____________________________________________ o FairEx International Financial Systems Raises $10 Million SINGAPORE -- FairEx International Financial Systems, which provides technology for online trading of international currencies, futures, and commodities, said it raised SGD 17.5 million ($10 million) in venture capital funding. The round was raised from 3i and eVentures, the venture capital arm of the Bank of Singapore. The company said it will use the funding to expand its research and development operations and open operation centers in different time zones. FairEx enables users to conduct real-time online transactions. http://www.fairex.com/ _____________________________________________ o HotOrigin, Irish Technology Incubator, Raises $2.7 Million DUBLIN -- AIB, the largest financial institution in Ireland, said it made an investment of EUR 3.2 million ($2.7 million) in Irish technology incubator, HotOrigin. Through the investment, part of a strategic partnership between the two firms, HotOrigin will introduce AIB to relevant e-commerce companies. HotOrigin was established in March, and has incubated six companies including Unison, An Post, and property portal anscotfirst.com. http://www.hotorigin.com/ _____________________________________________ o SanDisk Invests $7.2 Million in Digital Imaging Firm Divio SUNNYVALE, Calif. -- Publicly-traded SanDisk, which develops flash memory-based products, said it invested $7.2 million in Divio, a manufacturer of digital imaging compression technology and products. Divio said the investment was not part of a formal round. Under terms of the deal, SanDisk will take a 10% stake in the company and have a seat on the board of directors. Divio's previous investors are Investar Capital, Newbury Ventures, Pac-Link Management, and Star Capital Group. http://www.divio.com/ _____________________________________________ o Cube Consulting Gets $3 Million from Bizzbuild, Durlacher LONDON -- Bizzbuild.com, an e-commerce management, development and investment group, said it and Durlacher, an investment and securities group focused on emerging technology and media, invested GBP 2 million ($3 million) in Cube Consulting, an Internet consulting startup. Bizzbuild has invested an initial GBP1.5 million and Durlacher invested GBP 500,000 in exchange for a combined stake of just under 12%. Bizzbuild and Durlacher have also obtained an option to invest up to GBP 8 million more to take their combined stake to 40%. http://www.bizzbuild.com/ _____________________________________________ o Online Marketing Firm USAData Raises $6 Million Round Three NEW YORK -- USAData, an online marketing services provider, said it completed a third round of financing with $6 million from Acxiom, a real-time, multi-channel customer data integration company. USAData will use the proceeds to accelerate its development of Web applications for conducting sales and marketing processes online. The Acxiom investment expands upon a strategic alliance between USAData and Acxiom announced earlier this year. Acxiom will receive a seat on the board of directors. USAData received $11.7 million from SI Venture Fund in June. The company also raised $2.6 million in its initial round in February 1999. http://www.usadata.com/ _____________________________________________ o Analytic Software Firm SafeLogic Raises GBP 400,000 LONDON -- NewMedia Spark, which provides early stage capital investments for new technology companies, said it invested GBP 400,000 ($578,290) in SafeLogic, a developer of software for the analysis and verification of large systems in the electronics, automotive, and aerospace sectors. The company said it will use the funding to speed its development processes, and for sales and marketing. As a result of its investment, director of the Stockholm office of NewMedia Spark Peter Lindgren will take a seat on the SafeLogic board of directors. http://www.safelogic.com/ _____________________________________________ o Mitiska Announces $6.2 Million in Third Quarter Investment TERNAT, Belgium -- Mitiska Net Fund Europe, a Belgian venture capital fund, said it invested EUR 7.2 million ($6.2 million) in the third quarter. The company said it invested in Fordaq, an online platform for wood industry specialists, and WH Selfinvest, an online telephone broker. The company also said it invested in a third company, which it would not disclose. The fund said it has invested $22 million to date, or 36.3% of its $61.4 million in available capital. The fund invests between $3 million and $5 million per company, and makes average investments per round of between $429,000 and $2.6 million. http://www.netfundeurope.com/ _____________________________________________ o Consortium Invests $1.5 Million in Mobile Tech Firm Mgage STOCKHOLM -- Mgage Systems, which develops, markets, and sells applications for mobile Internet service providers, raised SEK 15 million ($1.5 million), according to investor InnovationsKapital. The round included investments from InnovationsKapital, Trident, and Kaupthing, an Icelandic investment bank. The company will use the funding to develop new products and services. http://www.mgage.com/ ======= New Products ======= o Internet Architecture Management Firm FastTide Launches MCLEAN, Va. -- FastTide, which provides content delivery and Internet infrastructure management, said the company has launched. FastTide's proprietary technology integrates multiple Internet architectures and uses the viewer's browsers to select the best route for content to travel at any given moment. Since it was founded in May 1999, the company has raised $8.5 million from Capital Investors and individual investors. The company said it is raising its second round of funding. http://www.fasttide.com/ ======= New Deals ======= o Food Gift Company Harry and David Invests in eVineyard.com PORTLAND -- eVineyard.com, an online winestore, said it has secured an undisclosed investment from Harry and David, a food gift company owned by Bear Creek. The investment was made as part of a joint marketing partnership agreement between the two companies. In early 2001, the two companies will launch a gift program pairing eVineyard's wines with selected gifts from Harry and David. As part of the agreement Bill Williams, president and CEO of Bear Creek, has taken a seat on Vineyard's board of directors. eVineyard is backed by Osprey Ventures, ITech, Angel Investors, and undisclosed individuals. http://www.evineyard.com/ ======= M&A ======= o E-mail, Messaging Firm Commtouch Buys Wingra for $17 Million MOUNTAIN VIEW, Calif. -- Commtouch, a publicly traded company that provides outsourced e-mail and integrated messaging services, said it signed a definitive agreement to acquire Wingra Technologies, a developer of messaging integration and migration services for enterprises that want to transition from an existing to a new messaging platform. Commtouch will issue approximately 1.25 million ordinary shares, worth approximately $16,875,000. Commtouch plans to maintain and expand Wingra's operations in Madison, Wisconsin. Wingra will operate as a wholly-owned subsidiary and keep its current management team in place. The combined company will offer an e-mail and messaging service that includes a migration service. Commtouch expects the additional revenue from Wingra in 2001 to be between $6 million and $8 million. Wingra is backed by individual investors. http://www.commtouch.com/ http://www.wingra.com/ _____________________________________________ o Prescription Processing Application Firm TechRx Buys Flux PITTSBURGH -- TechRx, which provides prescription fulfillment software applications for the pharmacy industry, said it has acquired Flux Technology Solutions, the developer of an Internet enabled application for mail service prescription processing. The financial terms of the agreement were not disclosed. In May, DCH Health, a vertical application service provider serving pharmacies, announced it was acquiring Flux Technology. TechRx officials said that the DCH agreement fell through and was never consummated. TechRx is backed by Cardinal Health Partners. http://www.techrx.com/ _____________________________________________ o BtoBfactory Acquires Latin American Investment Firm BtoBen BUENOS AIRES -- Btobfactory, a unit of Spain's Banco Santander Central Hispano (BSCH), said it bought Internet incubator BtoBen.com, which focuses on business-to-business companies in Latin America, for an undisclosed amount. BtoBfactory also plans to invest $30 million in the company within the next year. BtoBen.com is backed by Next International. http://www.btoben.com/ http://www.btobfactory.com/ _____________________________________________ o eLearning Firm Intellinex Buys PC Skills Trainer Teach.com NEW YORK -- Online learning firm Intellinex, a stand-alone business launched in October 2000 by Ernst & Young, said it acquired Teach.com, a provider of online business and PC skills training courseware. Terms were not disclosed. Teach.com's 90 employees and president and CEO Elizabeth Tomaszewicz will remain with the company. Ms. Tomaszewicz will be a member of the company's management team. Teach.com is backed by individual investors. http://www.teach.com/ http://www.intellinex.com/ _____________________________________________ o Utilities Service Blink.com Acquires Bookmark Firm Coolsync NEW YORK -- Blink.com, a Web utilities provider, has acquired Coolsync, a bookmark management service for an undisclosed amount of cash. As a result of the deal, Blink.com will expand the features it offers at its Webite utilities community. Blink said it will not retain Coolsync's staff of less than ten employees. Coolsync's founders, Subra Kumaraswamy, Steve Souders, and Ganapthy Chockalingam will not join Blink's board. In the spring of 2000 Blink received an undisclosed amount of Series B funding from investors including Sandler Capital Management and Tudor Investment Corporation. http://www.blink.com/ http://www.coolsync.com/ _____________________________________________ o ClearCross Acquires Atrion in Stock Swap NEW YORK -- New York-based ClearCross, provider of Internet tools for global trade, said it will acquire Reston, Virginia-based Atrion International, a provider of Internet management technology for trade regulation logistics, for an undisclosed amount of stock. The new company will retain the name ClearCross. Although the New York office will remain open, headquarters will be based in Reston. Bruce Johnson, current CEO of Atrion, will be the CEO of the merged company. Richard Giordanella, current CEO and chairman of ClearCross, will be chairman of the new board, whose membership is still being determined. ClearCross received $50 million in Series D financing in June led by Softbank and Oak Investment Partners. Atrion International received $5 million in first round financing in October from KnorrCapital Partner and Sofinov. http://www.myatrion.com/ http://www.clearcross.com/ ======= New Directors ======= o CharterHub Names Ex-Canadian Airlines Executive to Board TORONTO -- Charterhub, which runs an Internet site for reserving charter business flights, has appointed its seventh board member, Mr. Douglas Carty, former senior vice president and CFO of Canadian Airlines. Mr. Carty joined Canadian Airlines in 1990 and was named to senior vice president and CFO in 1996. CharterHub has received in-house investments and is currently closing its first round of financing. http://www.charterhub.com/ _____________________________________________ o Online Address Service Ukibi Names Board of Directors NEW YORK -- Ukibi, a business-to-business provider of networked address book services, announced the completion of its board of directors. Ukibi co-founder and CTO Sebastien Luneau and Mars Capital president Alexandre Mars will join Jean-Louis Gass,e, co-founder of Be, a software platform developer, and Jean-David Chamboredon, CTO of Europatweb, on the board. Ukibi is an application service provider offering proprietary software, StayInSync, to Web portals, Web sites, PDA manufacturers, mobile phone companies, and Web/WAP applications. The company is backed by Europatweb, the industrial Internet arm of the Arnault Group, and Mars Capital. http://www.ukibi.com/ ======= New People ======= o Telco Software Firm Watchmark Names Former GTE Exec as CEO BELLEVUE, Wash. -- WatchMark, a software developer for wireless telecommunications service providers, said it appointed Todd Eliason as chief executive officer. Mr. Eliason most recently served as president of national operations marketing for GTE. WatchMark's investors include Argo Global Capital, Lucent Technologies, Origin Partners, and Pequot Capital. http://www.watchmark.com/ ======= VC Fund News ======= o CDC Launches Accelerator With $85.9 Million Investment PARIS -- The Caisse de Depots Group, a French financial group which provides banking and investment services, said it launched a new information technology accelerator, CDC Kineon, with an investment of EUR 100 million ($85.9 million). The accelerator will co-invest with other financial institutions including, but not limited to, Partcom, CDC Innovation, and Up&Up, the venture partners within the Caisse de Depots Group. The accelerator is focusing its attention on electronic signature, archiving, and non-financial exchange technologies. The company said Yann Boaretto, inspector general of finance, has been appointed president of CDC Kineon. http://www.caissedesdepots.fr/ ======= VC Personnel ======= o Grotech Adds Former Legg Mason Director as Partner RESTON, Va. -- Grotech Capital, an investment firm that focuses on the mid-Atlantic region, said it added Douglas M. Schmidt as a partner. Mr Schmidt will join Frank A. Adams, managing general partner, and Patrick J. Kerins, general partner, and will focus on technology investments in Washington D.C., Virginia, and Maryland. Prior to joining the company, Mr. Schmidt was managing director of investment firm Legg Mason, where he was head of its information technology services group. Grotech currently has $1 billion in capital under management. http://www.grotech.com/ _____________________________________________ o Technology Incubator eHatchery Adds Two to Board ATLANTA -- eHatchery, a technology incubator, said it added Michael Coles and David Hayden to its board of managers, the company's version of a board of directors. Mr. Coles is the founder of the Great American Cookie Company, and is currently vice-chairman of Charter Bank and Trust, which is now part of Synovus. Mr. Hayden founded Critical Path in 1997 and currently serves as the company's chairman. eHatchery is backed by idealab!; United Parcel Service; Donaldson, Lufkin & Jenrette; and Cox Enterprises. http://www.ehatchery.com/ ======= VW Corrections ======= o Broadstorm Telecommunications NEW YORK -- Due to incomplete information released by VantagePoint Venture Partners, a story in Monday's VentureWire concerning Broadstorm Telecommunications incorrectly stated the amount of financing the company received in its first round. The company received $5 million, not $2.5 million, in that round. Vulcan Ventures was also a participant in the financing. _____________________________________________ o eBenefits NEW YORK -- An item in yesterday's VentureWire about eBenefits appointing a new CEO incorrectly stated that their software and services are free. eBenefits charges a monthly fee, which can cost between $30 and $200, depending upon the number of employees that the client retains. _____________________________________________ o Kymata NEW YORK -- An item in Thursday's VentureWire about Kymata's fourth round of funding mistated the amount of funding raised in the round. The company received $67 million in the round. _____________________________________________ o Mobileum NEW YORK -- An item in Monday's VentureWire about Mobileum's $45 million Series A funding round neglected to list Doll Capital Management as a co-lead investor in the company. |||||||||||||||||||| Advertisement |||||||||||||||||||| Computers in our pockets, our cars, our kitchens, our showers? When it happens, there's little doubt that IBM and Intel will have had something to do with it. Come hear what these industry powerhouses are doing in this field from Claude Leglise, VP of the Intel Architecture Group & GM of Intel's Home Products Group, and from Michel Mayer, GM of Pervasive Computing at IBM at: Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=20001102 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. This copy of VentureWire and the information within it, however, may not be reproduced, saved, or otherwise copied into a database without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Friday, November 3, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/2994. ===================================== ====================================================== VENTUREWIRE --- Friday, November 3, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Gateway Still On Board After IBM Says No To Transmeta Chip o Health Site Drkoop.com to Acquire Young Adult Site drDrew o UCLA Says It Funded Napster o ASP NetworkOSS Closes Series A at $16.5 Million |||||||||||||||||||| Advertisement |||||||||||||||||||| Motley Fool CEO- 41 weeks, Yahoo VP- 45 weeks... Still think traditional search firms know Internet talent? Don't let your valuation suffer as you wait for a candidate. VentureWorx' search professionals have completed 400+ assign- ments-from placing CEOs at leading technology companies to building entire management and advisory teams for startups. Whether recruiting top talent or developing bulletproof strat- egy and PR, let VentureWorx' knowledge work for you. Contact Jonathan Long at 704.377.4100 or http://www.ventureworx.com/ ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Integreated Semiconductor Firm Avaz in $15 Million Round One o B2B-Matrix Gets $500,000 from eSamsung USA in Round One o Content Firm StreamSage Lands $250,000 From Duncaster o Optical Network Firm Dyotec in $3 Million Round One o Shalom.com Puts $5.5 Million in Telecom's E-ntouch Round One o Component Platform iSuppli Raises $30 Million Second Round o Net Telephony Firm Callserve Has $11.9 Million Round Two o Wireless Firm Argogroup Raises $20 Million Second Round o $49.6 Million Fourth Round for Broadband Firm Tantivy o FairEx International Financial Systems Raises $10 Million o HotOrigin, Irish Technology Incubator, Raises $2.7 Million o SanDisk Invests $7.2 Million in Digital Imaging Firm Divio o Cube Consulting Gets $3 Million from Bizzbuild, Durlacher o Online Marketing Firm USAData Raises $6 Million Round Three o Analytic Software Firm SafeLogic Raises GBP 400,000 o Mitiska Announces $6.2 Million in Third Quarter Investment o Consortium Invests $1.5 Million in Mobile Tech Firm Mgage New Products: o Internet Architecture Management Firm FastTide Launches New Deals: o Food Gift Company Harry and David Invests in eVineyard.com M&A: o E-mail, Messaging Firm Commtouch Buys Wingra for $17 Million o Prescription Processing Application Firm TechRx Buys Flux o BtoBfactory Acquires Latin American Investment Firm BtoBen o eLearning Firm Intellinex Buys PC Skills Trainer Teach.com o Utilities Service Blink.com Acquires Bookmark Firm Coolsync o ClearCross Acquires Atrion in Stock Swap New Directors: o CharterHub Names Ex-Canadian Airlines Executive to Board o Online Address Service Ukibi Names Board of Directors New People: o Telco Software Firm Watchmark Names Former GTE Exec as CEO VC Fund News: o CDC Launches Accelerator With $85.9 Million Investment VC Personnel: o Grotech Adds Former Legg Mason Director as Partner o Technology Incubator eHatchery Adds Two to Board VW Corrections: o Broadstorm Telecommunications o eBenefits o Kymata o Mobileum |||||||||||||||||||| Advertisement |||||||||||||||||||| Showcase your company to 100 CEOs of the hottest start-ups in pervasive computing and hundreds of senior venture capitalists at Technology Outlook 2000, December 4-5 in San Francisco. Corporate Sponsorship of Technology Outlook 2000 provides unparalleled opportunities to gain exposure and establish business relationships with the rising stars of the pervasive computing industry. At Technologic Partners' conferences: * Private companies get funding * Investors realize opportunities * Sponsors develop new client relationships To learn more about how sponsoring Technologic Partners conferences can meet your objectives, contact Jack Cowie at cowie@technologicp.com for more information. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Gateway Still On Board After IBM Says No To Transmeta Chip SAN DIEGO -- Computer manufacturer and retailer Gateway said it is still on track to use chip design company Transmeta's microprocessor in an Internet appliance it is developing with America Online. IBM announced this week it will not use Transmeta's Crusoe chip on its ThinkPad 240. IBM said it never committed to using Transmeta in its 240 laptop, and only used the chip in its demonstration model. IBM, which did not comment on why it decided against the Transmeta chip, said it is still considering using Transmeta in future ThinkPad models and has not called off its plans to manufacture the chip. Gateway, which said it has not deviated from the plans it announced in May, said it opted for Transmeta's Crusoe processor because of its small size, long battery life, and low operating temperature. Gateway also said it selected Transmeta's Mobile Linux as the operating system for its products. Transmeta plans to hold its IPO next week to raise a maximum of $194 million. Transmeta did not return calls for comment. The five-year old Transmeta is backed by America Online, Compaq Electronics, Compaq Computer, First International Computer, Five Points Capital, Deutsche Bank, Gateway, Invemed Associates, Phoenix Technologies, Soros Fund Management, Tudor Investment, Van Wagoner Capital Management, Vulcan Ventures, and individual investors. http://www.transmeta.com/ _____________________________________________ o Health Site Drkoop.com to Acquire Young Adult Site drDrew AUSTIN, Texas -- Drkoop.com, a publicly traded Internet health site, said it acquired the assets of drDrew.com, a struggling online lifestyle community for 14- to 24-year-olds, that had laid off most of its staff. Drkoop.com bought all of drDrew.com's assets from Sherwood Partners, a corporate restructuring and business advisory firm, for $150,000 in cash and 1.58 million shares of common stock, worth approximately $1.4 million. The sites will continue operating independently and there will be some basic content integration. Drew Pinsky, founder of drDrew.com, will be an advisor to drkoop.com. drDrew.com backers included Softbank Venture Capital, Freedom Communications, Garage.com, Mentor Venture Partners, and individuals. Drkoop.com, which has also been in some difficult financial straits recently, received a cash infusion from private investors in August including Prime Ventures, JF Shea Ventures, Cramer-Rosenthal-McGlynn, RMC Capital, ComVest Venture Partners, Eco Associates, and NetStar Ventures. http://www.drdrew.com/ http://www.drkoop.com/ _____________________________________________ o UCLA Says It Funded Napster LOS ANGELES -- The University of California at Los Angeles confirmed it is an investor in Napster, the embattled music exchange software company being sued for copyright infringement by the Recording Industry Association of America. A UCLA spokesperson said the school has invested $25,000 into the business to date. The news was first reported in the Wall Street Journal, which cited internal Napster documents prepared as part of the deal with Bertelsmann to drop its suit against Napster announced earlier this week. The Journal report also disclosed that the rock group Limp Bizkit is an investor in Napster. The band's representatives did not return calls for this story. Napster's other investors are Hummer Winblad Venture Partners and various individuals. http://www.napster.com/ _____________________________________________ o ASP NetworkOSS Closes Series A at $16.5 Million NEW YORK -- NetworkOSS, which provides Internet services and business applications to the world-wide communications industry, closed its Series A funding after receiving $3.5 million from El Dorado Ventures; Datamat, an Italian Internet and mobile communications technology company; Kiwi; and other investors. NetworkOSS received $13 million earlier in the round from Sevin Rosen Funds, Datamat, and Crescendo Ventures, bringing the Series A total to $16.5 million. NetworkOSS will use the funds to expand its customer base and its communication industry partnerships in the United States and Europe. Mr. Scott Jarus, former senior vice president of operations at RCN Telecom and current president and COO of OnSite Access, is joining the NetworkOSS board as its fifth member. http://www.networkoss.com/ ======= New Money ======= o Integreated Semiconductor Firm Avaz in $15 Million Round One SAN BRUNO, Calif. -- VantagePoint Venture Partners said it participated in the $15 million first-round financing of Avaz, an Irvine, Calif.-based company that designs, develops, and markets integrated semiconductor and software technologies for voice-over-IP networks. Other details were not released. _____________________________________________ o B2B-Matrix Gets $500,000 from eSamsung USA in Round One SAN JOSE, Calif. -- B2B-Matrix, which designs, architects, and deploys collaboration systems for enterprise and business-to-business collaboration, said it received $500,000 in its first of funding from venture firm eSamsung USA. B2B-Matrix develops, markets, and supports distributed infrastructure for synchronous/asynchronous ad hoc collaboration within and across enterprises. Chad J. Cooper of eSamsung USA took a seat on the board of directors. http://www.b2b-matrix.com/ _____________________________________________ o Content Firm StreamSage Lands $250,000 From Duncaster WASHINGTON -- Duncaster Investments announced that it has made a $250,000 seed-stage investment in StreamSage, a company that is developing a tool to manage and customize multimedia Web site content. With these funds, StreamSage will move its office and expand its staff to complete the beta version of its product. Richard Blake, the sole principal of Duncaster Investments, will join StreamSage's board of directors. http://www.streamstage.com/ _____________________________________________ o Optical Network Firm Dyotec in $3 Million Round One SAN BRUNO, Calif. -- Dyotec Networks, a developer of optical networking systems, has received $3 million in first round funding. VantagePoint Venture Partners participated in the round, but other aspects of the deal were not released. Dyotec's products enable carriers to manage, monitor, and maintain their IP backbone networks by using optical cross-connect switches and transport systems. http://www.dyotec.com/ _____________________________________________ o Shalom.com Puts $5.5 Million in Telecom's E-ntouch Round One NEW YORK -- Incubator Shalom.com said it invested in $5.5 million in E-ntouch, an Israeli startup, in its first round of funding. E-ntouch develops advanced distributed software applications to control traffic and configurations within telecommunications networks. The company will use the funds for product development, to hire additional staff, and to begin operations in the United States. http://www.shalom.com/ _____________________________________________ o Component Platform iSuppli Raises $30 Million Second Round EL SEGUNDO, Calif. -- iSuppli, a supply network for electronic component procurement and delivery, said it raised $30 million in its second round of funding, led by Tyco Ventures. Loewenthal Capital Management and Tailwind Capital Partners also participated, as did previous investors CMEA Ventures, NeoCarta Ventures and AC Ventures. The company will use the funds for business expansion and to fund strategic acquisitions. http://www.isuppli.com/ _____________________________________________ o Net Telephony Firm Callserve Has $11.9 Million Round Two LONDON -- Callserve, which provides online telecommunications services, said it raised $11.9 million in its second round of funding. Investors in the round included Casenove Private Equity, Jupiter International Group, TH Lee.Putnam Internet Partners, and the eVestment Company. The company said it will use the funding to accelerate the roll-out of its international infrastructure and marketing company. The company said it will use its European strategy as the template for its implementation in the U.S. http://www.callserve.com/ _____________________________________________ o Wireless Firm Argogroup Raises $20 Million Second Round ELSTEAD, U.K. -- Argogroup, which develops software to deliver content to wireless phones, WAP, or i-Mode without having to change their mobile site, said it raised $20 million in second round funding. The round included investments from 3i and Apax Partners. The company also announced a co-marketing agreement with Lucent Technologies to enable developers from both Lucent and Argogroup to integrate the company's products with Lucent's wireless technology. The company has raised a total of $30 million. http://www.argogroup.com/ _____________________________________________ o $49.6 Million Fourth Round for Broadband Firm Tantivy MELBOURNE, Calif. -- Tantivy Communications, a provider of portable broadband technology, said it completed a $49.6 million fourth round of financing, led by Bowman Capital. Additional investors included Bay Hill Partners, Chase H&Q, Intel, Morgan Stanley Dean Witter, New Enterprise Associates, North Bridge Venture Partners, Novak Biddle Venture Partners, Riggs Capital Partners, Redback Networks, Stephens Inc., Westway Capital, Wheatley Partners and Venrock Associates. All participants in the round were previous investors. The company will use the financing for product trials and to prepare its products for launch. Tantivy creates silicon and software for consumer devices and infrastructure equipment. The company has raised $72.2 million to date. http://www.tantivy.com/ _____________________________________________ o FairEx International Financial Systems Raises $10 Million SINGAPORE -- FairEx International Financial Systems, which provides technology for online trading of international currencies, futures, and commodities, said it raised SGD 17.5 million ($10 million) in venture capital funding. The round was raised from 3i and eVentures, the venture capital arm of the Bank of Singapore. The company said it will use the funding to expand its research and development operations and open operation centers in different time zones. FairEx enables users to conduct real-time online transactions. http://www.fairex.com/ _____________________________________________ o HotOrigin, Irish Technology Incubator, Raises $2.7 Million DUBLIN -- AIB, the largest financial institution in Ireland, said it made an investment of EUR 3.2 million ($2.7 million) in Irish technology incubator, HotOrigin. Through the investment, part of a strategic partnership between the two firms, HotOrigin will introduce AIB to relevant e-commerce companies. HotOrigin was established in March, and has incubated six companies including Unison, An Post, and property portal anscotfirst.com. http://www.hotorigin.com/ _____________________________________________ o SanDisk Invests $7.2 Million in Digital Imaging Firm Divio SUNNYVALE, Calif. -- Publicly-traded SanDisk, which develops flash memory-based products, said it invested $7.2 million in Divio, a manufacturer of digital imaging compression technology and products. Divio said the investment was not part of a formal round. Under terms of the deal, SanDisk will take a 10% stake in the company and have a seat on the board of directors. Divio's previous investors are Investar Capital, Newbury Ventures, Pac-Link Management, and Star Capital Group. http://www.divio.com/ _____________________________________________ o Cube Consulting Gets $3 Million from Bizzbuild, Durlacher LONDON -- Bizzbuild.com, an e-commerce management, development and investment group, said it and Durlacher, an investment and securities group focused on emerging technology and media, invested GBP 2 million ($3 million) in Cube Consulting, an Internet consulting startup. Bizzbuild has invested an initial GBP1.5 million and Durlacher invested GBP 500,000 in exchange for a combined stake of just under 12%. Bizzbuild and Durlacher have also obtained an option to invest up to GBP 8 million more to take their combined stake to 40%. http://www.bizzbuild.com/ _____________________________________________ o Online Marketing Firm USAData Raises $6 Million Round Three NEW YORK -- USAData, an online marketing services provider, said it completed a third round of financing with $6 million from Acxiom, a real-time, multi-channel customer data integration company. USAData will use the proceeds to accelerate its development of Web applications for conducting sales and marketing processes online. The Acxiom investment expands upon a strategic alliance between USAData and Acxiom announced earlier this year. Acxiom will receive a seat on the board of directors. USAData received $11.7 million from SI Venture Fund in June. The company also raised $2.6 million in its initial round in February 1999. http://www.usadata.com/ _____________________________________________ o Analytic Software Firm SafeLogic Raises GBP 400,000 LONDON -- NewMedia Spark, which provides early stage capital investments for new technology companies, said it invested GBP 400,000 ($578,290) in SafeLogic, a developer of software for the analysis and verification of large systems in the electronics, automotive, and aerospace sectors. The company said it will use the funding to speed its development processes, and for sales and marketing. As a result of its investment, director of the Stockholm office of NewMedia Spark Peter Lindgren will take a seat on the SafeLogic board of directors. http://www.safelogic.com/ _____________________________________________ o Mitiska Announces $6.2 Million in Third Quarter Investment TERNAT, Belgium -- Mitiska Net Fund Europe, a Belgian venture capital fund, said it invested EUR 7.2 million ($6.2 million) in the third quarter. The company said it invested in Fordaq, an online platform for wood industry specialists, and WH Selfinvest, an online telephone broker. The company also said it invested in a third company, which it would not disclose. The fund said it has invested $22 million to date, or 36.3% of its $61.4 million in available capital. The fund invests between $3 million and $5 million per company, and makes average investments per round of between $429,000 and $2.6 million. http://www.netfundeurope.com/ _____________________________________________ o Consortium Invests $1.5 Million in Mobile Tech Firm Mgage STOCKHOLM -- Mgage Systems, which develops, markets, and sells applications for mobile Internet service providers, raised SEK 15 million ($1.5 million), according to investor InnovationsKapital. The round included investments from InnovationsKapital, Trident, and Kaupthing, an Icelandic investment bank. The company will use the funding to develop new products and services. http://www.mgage.com/ ======= New Products ======= o Internet Architecture Management Firm FastTide Launches MCLEAN, Va. -- FastTide, which provides content delivery and Internet infrastructure management, said the company has launched. FastTide's proprietary technology integrates multiple Internet architectures and uses the viewer's browsers to select the best route for content to travel at any given moment. Since it was founded in May 1999, the company has raised $8.5 million from Capital Investors and individual investors. The company said it is raising its second round of funding. http://www.fasttide.com/ ======= New Deals ======= o Food Gift Company Harry and David Invests in eVineyard.com PORTLAND -- eVineyard.com, an online winestore, said it has secured an undisclosed investment from Harry and David, a food gift company owned by Bear Creek. The investment was made as part of a joint marketing partnership agreement between the two companies. In early 2001, the two companies will launch a gift program pairing eVineyard's wines with selected gifts from Harry and David. As part of the agreement Bill Williams, president and CEO of Bear Creek, has taken a seat on Vineyard's board of directors. eVineyard is backed by Osprey Ventures, ITech, Angel Investors, and undisclosed individuals. http://www.evineyard.com/ ======= M&A ======= o E-mail, Messaging Firm Commtouch Buys Wingra for $17 Million MOUNTAIN VIEW, Calif. -- Commtouch, a publicly traded company that provides outsourced e-mail and integrated messaging services, said it signed a definitive agreement to acquire Wingra Technologies, a developer of messaging integration and migration services for enterprises that want to transition from an existing to a new messaging platform. Commtouch will issue approximately 1.25 million ordinary shares, worth approximately $16,875,000. Commtouch plans to maintain and expand Wingra's operations in Madison, Wisconsin. Wingra will operate as a wholly-owned subsidiary and keep its current management team in place. The combined company will offer an e-mail and messaging service that includes a migration service. Commtouch expects the additional revenue from Wingra in 2001 to be between $6 million and $8 million. Wingra is backed by individual investors. http://www.commtouch.com/ http://www.wingra.com/ _____________________________________________ o Prescription Processing Application Firm TechRx Buys Flux PITTSBURGH -- TechRx, which provides prescription fulfillment software applications for the pharmacy industry, said it has acquired Flux Technology Solutions, the developer of an Internet enabled application for mail service prescription processing. The financial terms of the agreement were not disclosed. In May, DCH Health, a vertical application service provider serving pharmacies, announced it was acquiring Flux Technology. TechRx officials said that the DCH agreement fell through and was never consummated. TechRx is backed by Cardinal Health Partners. http://www.techrx.com/ _____________________________________________ o BtoBfactory Acquires Latin American Investment Firm BtoBen BUENOS AIRES -- Btobfactory, a unit of Spain's Banco Santander Central Hispano (BSCH), said it bought Internet incubator BtoBen.com, which focuses on business-to-business companies in Latin America, for an undisclosed amount. BtoBfactory also plans to invest $30 million in the company within the next year. BtoBen.com is backed by Next International. http://www.btoben.com/ http://www.btobfactory.com/ _____________________________________________ o eLearning Firm Intellinex Buys PC Skills Trainer Teach.com NEW YORK -- Online learning firm Intellinex, a stand-alone business launched in October 2000 by Ernst & Young, said it acquired Teach.com, a provider of online business and PC skills training courseware. Terms were not disclosed. Teach.com's 90 employees and president and CEO Elizabeth Tomaszewicz will remain with the company. Ms. Tomaszewicz will be a member of the company's management team. Teach.com is backed by individual investors. http://www.teach.com/ http://www.intellinex.com/ _____________________________________________ o Utilities Service Blink.com Acquires Bookmark Firm Coolsync NEW YORK -- Blink.com, a Web utilities provider, has acquired Coolsync, a bookmark management service for an undisclosed amount of cash. As a result of the deal, Blink.com will expand the features it offers at its Webite utilities community. Blink said it will not retain Coolsync's staff of less than ten employees. Coolsync's founders, Subra Kumaraswamy, Steve Souders, and Ganapthy Chockalingam will not join Blink's board. In the spring of 2000 Blink received an undisclosed amount of Series B funding from investors including Sandler Capital Management and Tudor Investment Corporation. http://www.blink.com/ http://www.coolsync.com/ _____________________________________________ o ClearCross Acquires Atrion in Stock Swap NEW YORK -- New York-based ClearCross, provider of Internet tools for global trade, said it will acquire Reston, Virginia-based Atrion International, a provider of Internet management technology for trade regulation logistics, for an undisclosed amount of stock. The new company will retain the name ClearCross. Although the New York office will remain open, headquarters will be based in Reston. Bruce Johnson, current CEO of Atrion, will be the CEO of the merged company. Richard Giordanella, current CEO and chairman of ClearCross, will be chairman of the new board, whose membership is still being determined. ClearCross received $50 million in Series D financing in June led by Softbank and Oak Investment Partners. Atrion International received $5 million in first round financing in October from KnorrCapital Partner and Sofinov. http://www.myatrion.com/ http://www.clearcross.com/ ======= New Directors ======= o CharterHub Names Ex-Canadian Airlines Executive to Board TORONTO -- Charterhub, which runs an Internet site for reserving charter business flights, has appointed its seventh board member, Mr. Douglas Carty, former senior vice president and CFO of Canadian Airlines. Mr. Carty joined Canadian Airlines in 1990 and was named to senior vice president and CFO in 1996. CharterHub has received in-house investments and is currently closing its first round of financing. http://www.charterhub.com/ _____________________________________________ o Online Address Service Ukibi Names Board of Directors NEW YORK -- Ukibi, a business-to-business provider of networked address book services, announced the completion of its board of directors. Ukibi co-founder and CTO Sebastien Luneau and Mars Capital president Alexandre Mars will join Jean-Louis Gass,e, co-founder of Be, a software platform developer, and Jean-David Chamboredon, CTO of Europatweb, on the board. Ukibi is an application service provider offering proprietary software, StayInSync, to Web portals, Web sites, PDA manufacturers, mobile phone companies, and Web/WAP applications. The company is backed by Europatweb, the industrial Internet arm of the Arnault Group, and Mars Capital. http://www.ukibi.com/ ======= New People ======= o Telco Software Firm Watchmark Names Former GTE Exec as CEO BELLEVUE, Wash. -- WatchMark, a software developer for wireless telecommunications service providers, said it appointed Todd Eliason as chief executive officer. Mr. Eliason most recently served as president of national operations marketing for GTE. WatchMark's investors include Argo Global Capital, Lucent Technologies, Origin Partners, and Pequot Capital. http://www.watchmark.com/ ======= VC Fund News ======= o CDC Launches Accelerator With $85.9 Million Investment PARIS -- The Caisse de Depots Group, a French financial group which provides banking and investment services, said it launched a new information technology accelerator, CDC Kineon, with an investment of EUR 100 million ($85.9 million). The accelerator will co-invest with other financial institutions including, but not limited to, Partcom, CDC Innovation, and Up&Up, the venture partners within the Caisse de Depots Group. The accelerator is focusing its attention on electronic signature, archiving, and non-financial exchange technologies. The company said Yann Boaretto, inspector general of finance, has been appointed president of CDC Kineon. http://www.caissedesdepots.fr/ ======= VC Personnel ======= o Grotech Adds Former Legg Mason Director as Partner RESTON, Va. -- Grotech Capital, an investment firm that focuses on the mid-Atlantic region, said it added Douglas M. Schmidt as a partner. Mr Schmidt will join Frank A. Adams, managing general partner, and Patrick J. Kerins, general partner, and will focus on technology investments in Washington D.C., Virginia, and Maryland. Prior to joining the company, Mr. Schmidt was managing director of investment firm Legg Mason, where he was head of its information technology services group. Grotech currently has $1 billion in capital under management. http://www.grotech.com/ _____________________________________________ o Technology Incubator eHatchery Adds Two to Board ATLANTA -- eHatchery, a technology incubator, said it added Michael Coles and David Hayden to its board of managers, the company's version of a board of directors. Mr. Coles is the founder of the Great American Cookie Company, and is currently vice-chairman of Charter Bank and Trust, which is now part of Synovus. Mr. Hayden founded Critical Path in 1997 and currently serves as the company's chairman. eHatchery is backed by idealab!; United Parcel Service; Donaldson, Lufkin & Jenrette; and Cox Enterprises. http://www.ehatchery.com/ ======= VW Corrections ======= o Broadstorm Telecommunications NEW YORK -- Due to incomplete information released by VantagePoint Venture Partners, a story in Monday's VentureWire concerning Broadstorm Telecommunications incorrectly stated the amount of financing the company received in its first round. The company received $5 million, not $2.5 million, in that round. Vulcan Ventures was also a participant in the financing. _____________________________________________ o eBenefits NEW YORK -- An item in yesterday's VentureWire about eBenefits appointing a new CEO incorrectly stated that their software and services are free. eBenefits charges a monthly fee, which can cost between $30 and $200, depending upon the number of employees that the client retains. _____________________________________________ o Kymata NEW YORK -- An item in Thursday's VentureWire about Kymata's fourth round of funding mistated the amount of funding raised in the round. The company received $67 million in the round. _____________________________________________ o Mobileum NEW YORK -- An item in Monday's VentureWire about Mobileum's $45 million Series A funding round neglected to list Doll Capital Management as a co-lead investor in the company. |||||||||||||||||||| Advertisement |||||||||||||||||||| Computers in our pockets, our cars, our kitchens, our showers? When it happens, there's little doubt that IBM and Intel will have had something to do with it. Come hear what these industry powerhouses are doing in this field from Claude Leglise, VP of the Intel Architecture Group & GM of Intel's Home Products Group, and from Michel Mayer, GM of Pervasive Computing at IBM at: Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=20001102 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. This copy of VentureWire and the information within it, however, may not be reproduced, saved, or otherwise copied into a database without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

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VentureWire, Wednesday, October 18, 2000

====================================================== VENTUREWIRE --- Wednesday, October 18, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Jamcracker Raises $100 Million Plus in Second Round o Broadcom To Buy Optical Firm Allayer in $264 Million Deal o SonicWall Buys Net Security Firm Phobos For $258.9 Million o Broadband Firm Edgix Gets $50 Million Round Two |||||||||||||||||||| Advertisement |||||||||||||||||||| UpShot.com is a Web-based sales force automation solution that can be easily deployed. Access it anytime, anywhere, even from your Palm or Internet phone. For a six-month free trial, sign up with UpShot.com now. To learn more, visit us at http://upshot.com/cgi-upsite/referral.asp?ReferralID=MKT0000000332 Or call us at (888) 700-8774. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Customer Feedback Technology Firm Gets $15 Million Round One o Internet Security Firm Raises $15.6 Million in First Round o Optical Networking Firm Quake Raises $12 Million Round One o B2B E-Commerce Service Firm MegaMags Adds $1 Million Seed o Intranet Application Firm Planet Intra Closes First Round o Marketing Info Firm NetUsability Gets $2 Million Seed o Visual Info Firm IdeaLogix Secures $1.7 Million First Round o Web Browser Tech Firm VisualTop Gets $1 Million First Round o Wireless Information Firm Let Me Know Raises $3.5 Million o DoubleClick, Flatiron, Chase Put $7.7 Million in Return Path o Online Software Market SoftViaNet Gets $915,000 First Round o Data Service Firm Sonic Telecom Gets $9.8 Million Round Two o Metreo, Online Profit Management Service, Raises $10 Million o Online Learning Firm KnowledgeNet Has $30 Million Round Four o Wireless Infrastructure Firm, Broadbeam, Gets $29 Million o Dynamic Logic, e-Marketing Analysis Firm, Raises $5 Million o Infinity Outdoor Takes $5 Million Equity Stake in Kintera o Workplace Apps Provider CoVia Raises $25 Million Series E o Cell Innovation Takes 7.7% Interest In Swedish Firm Snapsend o Member Management Firm MEI Software Secures $1.2 Million o Mobile Computing Software Developer Callisto Gets Funds New Products: o Wireless Messaging Platform Provider ShareSpan Launches o Web Greeting Card Site Ecards Changes Name, Broadens Market o The Carmen Group Launches B2G Incubator DCVentureNet o Staff Management Site TurboStaff Now Called LiquidMedium M&A: o Online Vintner Wine.com to Acquire European Wine Exchange o Optical Firm Tellium Acquires Astarte Fiber Networks o SimplyDone Acquires Scheduling Firm ClickOfTime o Healthcare IT Firm HealthNet Buys Two Transcend Divisions o Mass Medium Acquires Incentive Marketer Powerdime New Directors: o Ex-Nat'l Security Advisor Poindexter Joins Saffron's Board o E-Business Consultant NetNumina Adds Granum Partner to Board o Routing Platform Firm Gotham Names Winphoria CEO to Board o CEO Of Relativity Joins Technology Firm BlueBolt's Board o IT Firm Kernel Group Adds Updata Partner to Board o Novarra Appoints Former U.S. Robotics Exec. To Board o OpsXchange Names New Executive VP and Director New People: o Mixed Media Services Firm How2TV Names New President and CEO o User Relationship Tech Firm APPower! Names President o E-Marketing Services Firm Impower Names AT&T Exec President o Integration Technology Firm Evoke Names New President, COO o Sales Software Firm UpShot Names President and CEO o Former Andersen Consulting Exec is Rebel.com President, COO o Online News Site The Deal Promotes Exec to President o Online Risk Management Service Provider Names First CEO o Executive Jet Service eBizJets Names First CEO VC Fund News: o New Israeli Fund Delta Ventures Launches With $60 Million o Velocity Capital Raises $7 Million, Targets Northwest Firms o Nash, Sells & Partners Changes Name and Raises New Fund VC Personnel: o Ignition Names Former NextLink CEO As Managing Director o Atlanta Investor Henagan Joins SSM Ventures As Partner o Bay Partners Names Kana VP as General Partner o Anila Names Recruiting Firm Exec as Venture Partner |||||||||||||||||||| Advertisement |||||||||||||||||||| CHANGING SUPPLY CHAINS A typical hospital buys $50 million in supplies from 22,000 suppliers annually. On average there is a 75% price discrep- ancy for identical products. Paper invoices cost 30 times as much as electronic invoices. Room for improvement? Perhaps. We've convened an expert panel at Healthcare Outlook 2000 to help us understand where the changes will come from and who the big winners will be: Dr. Gilbert H. Kliman, General Partner, InterWest Partners Dr.David M. Auerbach, Principal, Decision Health Sundeep Bhan, Chairman,President, & CEO, Medsite.com Anne De Gheest, President & CEO, medpool.com Daren C. Marhula, Sr. Research Analyst, Healthcare, U.S. Bancorp Piper Jaffray For a full agenda, and to register: http://tpsite.com/tp/conf/ho2000/?vw=20001018 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Jamcracker Raises $100 Million Plus in Second Round SUNNYVALE, Calif. -- Jamcracker, a Web-based provider of IT and business applications, said it raised more than $100 million in second-round funding. The funding includes $85 million in preferred financing, led by affiliates of Soros Private Equity Partners, and more than $15 million in equipment financing. Pivotal Asset Management, e4e, The Rolling Thunder Networks, Morgan Stanley Dean Witter, Goldman Sachs, Credit Suisse First Boston, Robertson Stephens, and Bay Partners also contributed funds. Internet Capital Group, Navis Partners, and First Analysis, all prior investors, provided financing as well. The equipment financing was led by GATX Ventures, with participation from Western Technology Investment, Third Coast Capital, Transamerica Business Credit, and Sand Hill Capital. Jamcracker, which received $42 million in its first round, will use the funds for product development, to extend its core platform and support infrastructure, to open new headquarters and regional offices, and to purchase hardware and software. Neal Moszkowski, a Soros partner, joined Jamcracker's board. http://www.jamcracker.com/ _____________________________________________ o Broadcom To Buy Optical Firm Allayer in $264 Million Deal SAN JOSE, Calif. -- Broadcom, a publicly traded company provider of integrated circuits enabling broadband communications, said it is acquiring Allayer Communications, a provider of optical networking technology, in a deal worth about $264 million. Under the terms of the agreement, Broadcom will issue in aggregate about 1.23 million shares of its Class A common stock in exchange for all of Allayer's outstanding shares. An additional 300,000 shares of Broadcom could be issued to Allayer's shareholders if certain performance goals are met. Allayer has received funding from Acer Capital, VenGlobal Capital Fund, Greylock, and individual investors. http://www.allayer.com/ http://www.broadcom.com/ _____________________________________________ o SonicWall Buys Net Security Firm Phobos For $258.9 Million SUNNYVALE, Calif. -- SonicWall, an Internet security technology provider, said it has entered into an agreement to acquire Phobos, a privately-held Internet security infrastructure manufacturer based in Salt Lake City. Under the terms of the agreement, approximately 12.2 million shares and options of SonicWall and $50 million in cash will be exchanged for all outstanding shares, options and warrants of Phobos. Based on SonicWall's closing price of $17.13 on Tuesday, the cash and stock exchange would have an aggregate value of $258.9 million. Of the $50 million, $20 million is contingent upon Phobos achieving certain revenue targets. Phobos has received funding from Millennium Technology Ventures and Blackstone Group Holdings and its affiliates. http://www.sonicwall.com/ _____________________________________________ o Broadband Firm Edgix Gets $50 Million Round Two NEW YORK -- Edgix, which provides infrastructure services to broadband access providers, said Chase Capital Partners led its $50 million Series B financing. Existing investors Battery Ventures and Venrock Associates contributed to the funding. The company also announced the launch of edgeMedia, its flagship managed caching service. http://www.edgix.com/ ======= New Money ======= o Customer Feedback Technology Firm Gets $15 Million Round One PALO ALTO, Calif. -- BetaSphere, a provider of Web-based customer feedback software for marketers and developers, said it received $15 million in its first round of funding. Chase Equity Partners and GE Equity participated in this round. The company will use the funds to expand into new markets. The company created the Feedback Manager Server, which integrates customer feedback into product marketing and development. http://www.betasphere.com/ _____________________________________________ o Internet Security Firm Raises $15.6 Million in First Round RESEARCH TRIANGLE PARK, N.C. -- NetOctave, a developer of silicon-based Internet security services targeted at system vendors in the network equipment and server markets, said it secured $15.6 million in its first round of financing. New investors include Intel Communications Fund, which invests in companies which support programs and initiatives in voice and data communications, and Intersouth Partners, an early-stage venture fund. Seed investors Kitty Hawk Capital, MCNC, North Carolina Enterprise, and Wakefield Group also joined this round. NetOctave spun off from Celotek, a WAN network security company, in July 2000. http://www.netoctave.com/ _____________________________________________ o Optical Networking Firm Quake Raises $12 Million Round One SAN JOSE, Calif. -- Quake Technologies, a fabless semiconductor company developing physical layer chips for high speed optical networking applications, said it has raised $12 million in financing from Mohr Davidow Ventures (MDV). MDV partners Robert Chaplinsky and Jim Smith will join Quake's board of directors. The company raised $3 million in seed funds from Brian Potiva, chief executive officer of ADVA Optical, JDS Uniphase, and undisclosed individual investors. http://www.quaketech.com/ _____________________________________________ o B2B E-Commerce Service Firm MegaMags Adds $1 Million Seed MINNEAPOLIS -- MegaMags, a business-to-business Internet commerce service provider that offers customized magazine newsstands for Internet sites, said it received an additional $1 million in its seed round of financing. The company has received funding from lead investor Quatris Fund, a fund which invests in primarily Internet commerce products and services, enterprise applications, convergent media, communications, and networking ventures. Additional funding came from MegaMags' founders and existing individual investors. MegaMags has raised $2 million to date and is currently seeking Series A funding of $4 million to $7 million. http://www.megamagsinc.net/ _____________________________________________ o Intranet Application Firm Planet Intra Closes First Round MOUNTAIN VIEW, Calif. -- Planet Intra, an Intranet software application developer, said it closed on an undisclosed amount of first round funding led by Indocean Chase Capital Advisors, an affiliate of Chase Capital Partners. AsiaTechGroup, Itochu, Linc Media, and Zain Technologies also participated in the round. Planet Intra will use the funding to further its expansion into European and Asia Pacific markets and to develop software applications. Planet Intra's application enables a medium size business or division of a large company to collaborate on projects, documents, schedules and contacts. http://www.planetintra.com/ _____________________________________________ o Marketing Info Firm NetUsability Gets $2 Million Seed LONDON -- New online marketing fund, eVerger, said it provided $2 million in seed funding for London-based marketing information firm, NetUsability. NetUsability is developing a product enabling companies to record customer experience through a virtual focus group. eVerger was established in April with $100 million by the Aegis Group and Warburg Pincus. Andrew Burke, former chief operating officer of eVentures, heads the new fund, which expects to have a network of investments in twelve countries by the end of 2001. http://www.everger.com/ _____________________________________________ o Visual Info Firm IdeaLogix Secures $1.7 Million First Round BROOKLINE, Mass. -- IdeaLogix, a visual information management company, said it has secured $1.7 million in its first round of funding from individual investors. The company, which is developing hardware and software products for capturing, storing, analyzing and streaming video information, said it will use the funds to develop its technology platform and products. http://www.idealogix.com/ _____________________________________________ o Web Browser Tech Firm VisualTop Gets $1 Million First Round NEW YORK -- VisualTop, a developer of Web site navigation technology, said it closed its first round of financing with $1 million from Tel-Aviv based Giza Venture Capital. VisualTop said it will use the money for research and development and to launch its product, Navixo, scheduled for later this fall. The company is in the process of raising an additional $2 million to $3 million dollars. A representative of Giza will receive a seat on VisualTop's four-member board of directors. http://www.navixo.com/ _____________________________________________ o Wireless Information Firm Let Me Know Raises $3.5 Million TEL AVIV -- Let Me Know Technology, a provider of mass synchronized distribution of information through online and wireless devices, said it raised $3.5 million in its first round of funding. The round was financed by investors including the Aria Venture Fund and Formula Ventures. The company said it will use the funding to support its marketing and development activities, concentrating on Asian and European markets. Roni Zor, with the Aria Venture Fund, will take a seat on the Let Me Know board of directors as a result of the funding. http://www.letmeknow-technology.com/ _____________________________________________ o DoubleClick, Flatiron, Chase Put $7.7 Million in Return Path NEW YORK -- DoubleClick, a provider of ad delivery technology, along with Flatiron Partners and Chase Capital Partners, will invest $7.7 million in Return Path, an e-mail management and change-of-address service. The investment will close Return Path's second round of funding. DoubleClick has the option over the next year to invest up to $10 million in the company. Return Path will use the funding to expand its service for its corporate and consumer clients. Return Path and DoubleClick have formed a channel partnership through which DoubleClick will offer Return Path's services to its e-mail clients. Jonathan Shapiro, DoubleClick's senior vice president of data services, and Phil Summe, from Flatiron Partners, will join Return Path's board of directors. http://www.doubleclick.net/ http://www.returnpath.net/ _____________________________________________ o Online Software Market SoftViaNet Gets $915,000 First Round LONDON -- SoftViaNet, which operates an online software retail site, said it raised FFR 7 million ($915,000) in its first round of funding. The round included investments from TriNova, based in Lyons, and individual investors including a prominent former Exxon manager. The company, which sells the downloadable software online, said it will use the funding to translate its Web site into German and Spanish. The company already operates English- and French-language versions of the site. An undiclosed individual investor will take a seat on the company's board of directors as a result of the financing. http://www.softbynet.com/ _____________________________________________ o Data Service Firm Sonic Telecom Gets $9.8 Million Round Two CHANTILLY, Va. -- Sonic Telecom, a global data services provider, said it has raised $9.8 million in its second round of funding from Broadwing Communications, Incentis, Saudi Cable Co., MasTec, Robin Hood Ventures, and several individual investors. Viatel also participated, acquiring additional shares under an existing agreement. Sonic Telecom said it will use the funding for expansion of its international sales force and for its global marketing and customer care. http://www.sonictelecom.com/ _____________________________________________ o Metreo, Online Profit Management Service, Raises $10 Million PALO ALTO, Calif. -- Metreo, which provides online profit management services, said it raised $10 million in its Series B funding. The round included investments from Sequoia Capital, Prospect Venture Partners, and the Mentor Capital Group. The company said it will use the funding to continue development and marketing activities for its product. All three investment companies have representatives on the company's board of directors. http://www.metreo.com/ _____________________________________________ o Online Learning Firm KnowledgeNet Has $30 Million Round Four SCOTTSDALE, Ariz. -- KnowledgeNet.com, a provider of online learning products, said it received $30 million in fourth round funding from new investor Cisco Systems as well as existing investors Morgenthaler Partners, Sierra Ventures, Trinity Ventures, and Berkeley International Capital. Thomas Kelly, vice president of Cisco's worldwide training group, will join KnowledgeNet's board of directors as a board observer. The company will use the funds to develop its Internet-based training technology, sales, and marketing. http://www.knowledgenet.com/ _____________________________________________ o Wireless Infrastructure Firm, Broadbeam, Gets $29 Million PRINCETON, N.J. -- Broadbeam, a provider of wireless infrastructure provider, said it secured $29 million in a round of financing led by ABS Capital Partners with Nassau Capital, The Co-Investment 2000 Fund, StarVest Partners, Allegra Partners, and Dime Capital Partners contributing. Timothy T. Weglicki, a partner of ABS Capital Partners, joined the board of directors. The funds will be used for product development, sales, and marketing. http://www.broadbeam.com/ _____________________________________________ o Dynamic Logic, e-Marketing Analysis Firm, Raises $5 Million NEW YORK -- Dynamic Logic, which provides analysis on online marketing effectiveness, said it raised $5 million in its Series C round of funding. The round was funded entirely by eVerger, a $100 million fund formed by the Aegis Group and Warburg Communications. The company said it will use the funding for new marketing initiatives, additional researchers, and customer support. eVerger will take a seat on the company's board of directors as a result of its investment. http://www.everger.com/ http://www.dynamiclogic.com/ _____________________________________________ o Infinity Outdoor Takes $5 Million Equity Stake in Kintera SAN DIEGO -- Kintera, which provides Internet fundraising services to charitable non-profit educational and political organizations, said Infinity Outdoor, a North American outdoor advertising company, will take an equity stake in the company. Kintera will issue $5 million worth of its preferred stock to Infinity Outdoor, a wholly owned subsidiary of publicly-traded Infinity Broadcasting, in exchange for $5 million in Infinity Outdoor advertising displays. Kintera's backers include Prudential Securities and individual investors. http://www.kintera.com/ http://www.infoutdoor.com/ _____________________________________________ o Workplace Apps Provider CoVia Raises $25 Million Series E MOUNTAIN VIEW, Calif. -- CoVia, a provider of interactive workplace applications, said it has raised over $25 million in its Series E round of funding led by new investor American Express Financial. Pogue Capital, also a new investor, and previous investors Adobe Ventures, Granite Ventures, SAP, Viridian Capital, and Dain Rauscher Wessels joined several late stage and crossover fund investors to invest in this round. CoVia said it will use the funding for expansion. http://www.covia.com/ _____________________________________________ o Cell Innovation Takes 7.7% Interest In Swedish Firm Snapsend STOCKHOLM -- Cell Innocation, Cell Network's venture capital arm, said it is investing in Swedish firm Snapsend, an Internet digital photo service. Cell Innovation said it has taken a 7.7% equity interest in Snapsend, which has also received funding from Wikow Invest, Core Ventures, AU-system, and Element Park. http://www.snapsend.se/ _____________________________________________ o Member Management Firm MEI Software Secures $1.2 Million RESTON, Va. -- MEI Software Systems, a provider of application software and member management systems for associations and member-based organizations, said it has secured $1.2 million from previous investors Nextgen and MidAtlantic Ventures. The company said it will use the funds to develop new products and customer support initiatives. http://www.meisoft.com/ _____________________________________________ o Mobile Computing Software Developer Callisto Gets Funds WHEATON, Ill. -- Callisto Software, a developer of mobile computing management software, said it secured an undisclosed amount of additional venture capital from previous investors ARCH Venture Partners, The Ohio Partners, which is headed by former CompuServe president and CEO Maury Cox. The funds will be used to expand sales, marketing, and product development. http://www.callisto.com/ ======= New Products ======= o Wireless Messaging Platform Provider ShareSpan Launches STAMFORD, Conn. -- ShareSpan, a developer of a content aggregation, management, and distribution platform that supports wireless browsers and devices, announced its launch. ShareSpan received $300,000 in seed funding from its parent company Heynetwork.com, which has since spun off the company. ShareSpan is also backed by Redwood Partners, Riverside Management Group, and individual investors. http://www.sharespan.com/ _____________________________________________ o Web Greeting Card Site Ecards Changes Name, Broadens Market TORONTO -- Ecards.com, which has been operating as an Internet greeting card site, said it has changed its name to Blab.com and expanded its offerings in the entertainment market. The company cited several reasons for the change: Ecards conflicted with another Web site called E-cards, so the companies settled on "amicable" terms, agreeing that Ecard visitors will be redirected to Blab.com. The company said that in addition to offering cards, it has added new features to its Web site such as trivia games and services that enable customers to make their own invitations and award certificates. Blab.com is funded by individual investors. http://www.blab.com/ _____________________________________________ o The Carmen Group Launches B2G Incubator DCVentureNet WASHINGTON, D.C. -- The Carmen Group, a professional advocacy and government relations firm, said it launched DCVentureNet. A wholly owned subsidiary of The Carmen Group, DCVentureNet will provide business-to-government office facilities, financial backing, and technical support. Stephen Goldsmith, former Mayor of Indianapolis, will act as managing director of DCVentureNet. The subsidiary's board includes Raul J. Fernandez, president and CEO of Proxicom; Abe Pollin, chairman of Washington Sports & Entertainment; Joe Wright, vice chairman of Terremark Worldwide; Carol Anderson, managing director of TSG International; and H. Patrick Swygert, president of Howard University. DCVentureNet plans to incubate around twelve companies. http://www.dcventurenet.com/ _____________________________________________ o Staff Management Site TurboStaff Now Called LiquidMedium PLEASANTON, Calif. -- TurboStaff, which provides business-to-business workforce management technology, said it changed its name to LiquidMedium to better reflect its services. LiquidMedium provides electronic sourcing, purchase orders, order tracking, timesheet submission and approval, and payments. The company is funded by individual investors. http://www.liquidmedium.com/ ======= M&A ======= o Online Vintner Wine.com to Acquire European Wine Exchange NAPA, Calif. -- Wine.com said it has signed an agreement to acquire European Wine Exchange (EWX), an electronic commerce company aimed at both the business-to-business and business-to-consumer market in Germany. The EWX site will be integrated into the wine.com U.S. site in 2001, and will serve the German wine market via the URL www.wine.de. EWX co-founder Tarek El Din will continue as the managing director of wine.com's German efforts. His partner, Marc Steiner, will remain with the company in an advisory role. Wine.com and WineShopper.com recently announced they were merging. Wine.com is backed by TH Lee. Putnam Internet Partners, New Millennium Partners, GE Capital, MediaOne Ventures, Inroads Partners, Alpine Technology Ventures and Applied Technology. http://www.wine.com/ _____________________________________________ o Optical Firm Tellium Acquires Astarte Fiber Networks OCEANPORT, N.J. -- Tellium, a provider of intelligent optical switches, said it acquired Boulder-based Astarte Fiber Networks, which designs and manufactures photonic fiber-optic matrix switching systems used in high-speed optical networks. Details of the deal were not disclosed. Tellium said the Astarte acquisition was intended to support the development of the company's all optical switch. Tellium is backed by investors including Accel Partners, Blue Rock Capital Investors, Cisco Systems, Oak Investment Partners, Ortel, Pequot Capital, SAIC Telcordia, Thomas Weisel Partners, and Worldview Technology Partners. http://www.starswitch.com/ http://www.tellium.com/ _____________________________________________ o SimplyDone Acquires Scheduling Firm ClickOfTime LOS ANGELES -- SimplyDone Business Solutions said it acquired online scheduling company ClickOfTime. SimplyDone offers online services such as appointment scheduling, Web catalogs, pricing estimators, and customer relationship management tools to the service industry. Terms of the deal were undisclosed. The company is laying off an undisclosed number of staff, but Jay Goss, ClickOfTime's chief executive officer, will remain as senior director of customer support. SimplyDone is funded by Idealab Capital Partners and SBC Interactive. http://www.simplydone.com/ http://www.clickoftime.com/ _____________________________________________ o Healthcare IT Firm HealthNet Buys Two Transcend Divisions DALLAS -- Provider HealthNet Services, which provides information services to the healthcare industry, said it acquired Co-Sourcing and CodeRemote, two divisions of publicly-traded Transcend Services, in an undisclosed cash transaction. Both companies provide electronic medical record management. Provider is funded by Credit Agricole Indosuez, Navis Partners, Ferrer Freeman & Thompson, and Gryphon Capital. http://www.phns.com/ _____________________________________________ o Mass Medium Acquires Incentive Marketer Powerdime NEW YORK -- Mass Medium, parent company of Milesource.com, said it acquired incentive marketer Powerdime.com. Terms of the deal were undisclosed. Milesource, also an incentive marketer, enables members to earn points when they purchase from the Web site or refer someone to the site. Powerdime members will automatically be transferred to Milesource, where they can redeem their points. Milesource has offered employment to all Powerdime staff and CEO Brian Kreiter will remain part of the management team. MileSource is funded by BCI Partners. http://www.milesource.com/ http://www.powerdime.com/ ======= New Directors ======= o Ex-Nat'l Security Advisor Poindexter Joins Saffron's Board RESEARCH TRIANGLE PARK, N.C. -- Saffron Technology, a provider of software that keeps track of customer preferences to enable vendors tailor their products and offerings, said it has appointed Vice Admiral (VADM) John M. Poindexter to its board of directors. VADM Poindexter, who was national security advisor under former President Reagan, serves as senior vice president of information systems at Syntek, a professional services firm. Saffron is backed by the Aurora Funds and individual investors. http://www.saffrontech.com/ _____________________________________________ o E-Business Consultant NetNumina Adds Granum Partner to Board BOSTON -- NetNumina Solutions, an online business systems integrator and consultant, said it named Peter Williams as the fifth member of its board of directors. Mr. Williams is managing partner of Granum Partners, a private equity fund specializing in early stage communications ventures. The company completed its first round of financing in May. The company is backed by Greylock, BancBoston Venture Partners, TA Associates, Allaire, and BEA Systems. http://www.netnumina.com/ _____________________________________________ o Routing Platform Firm Gotham Names Winphoria CEO to Board ACTON, MA -- Gotham Networks, which is developing a switching and routing platform, said it named Michael Champa, president and CEO of networking startup Winphoria Networks, to the sixth seat on its board of directors. The company was founded in July 1999 with funding from Charles River Ventures and Bessemer Ventures. Crescendo Ventures and Comdisco Ventures joined the original investors in Gotham's second round financing last month, bringing its total funding to $33 million. http://www.gothamnetworks.com/ _____________________________________________ o CEO Of Relativity Joins Technology Firm BlueBolt's Board DURHAM, N.C. -- BlueBolt Networks, a technology company that focuses on the interior design industry, said it has appointed Vivek Wadhwa, founder and chief executive officer of Relativity Technologies, to its board of directors. BlueBolt is backed by Wakefield Group and Gray Ventures. The company said it is seeking its second round of funding, set to close late in the fourth quarter. http://www.bluebolt.com/ _____________________________________________ o IT Firm Kernel Group Adds Updata Partner to Board AUSTIN -- The Kernel Group, which designs, deploys, and manages infrastructures, said it added Updata Venture partner Tim H. Meyers to its board of directors. TKG recently raised $4 million in its first round from Updata Venture Partners and also added venture partner John H. Burton to its board. The company plans to expand and develop its two products, Bare Metal Restore, a data recovery software, and AutoTrace, which identifies defects in a software product. http://www.tkg.com/ _____________________________________________ o Novarra Appoints Former U.S. Robotics Exec. To Board DEERFIELD, Ill. -- Novarra, a provider of wireless Internet commerce technology, said it has appointed Semir D. Sirazi, former senior executive at U.S. Robotics, to its board of directors. Mr. Sirazi has made a significant investment in Novarra, and is a strategic adviser to the company. Novarra, formerly InfoSpeed, is backed by JK&B Capital, Skyscraper Ventures, and Kettle Partners. http://www.novarra.com/ _____________________________________________ o OpsXchange Names New Executive VP and Director SAN FRANCISCO -- OpsXchange, which provides e-procurement services to real estate operators and suppliers, said it named Howard Hoover as the company's executive vice president and to its board of directors. Mr. Hoover previously co-founded American Residential Services/American Mechanical Services. Investors for OpsXchange include SAP Ventures, Cohen & Steers Capital Management, and Vortex Partners. http://www.opsxchange.com/ ======= New People ======= o Mixed Media Services Firm How2TV Names New President and CEO LOS ANGELES -- How2TV, a rich media services provider for manufacturers, bricks-and-mortar retailers, and e-commerce sites, said it named Herio R. Arcangeli Jr. as president and CEO. Mr. Arcangeli previously served as vice president/general manager in the consumer products division for Yamaha Corp. of America. He replaces founder Rick Carroll, who will remain as chairman of the board of directors. How2TV creates mixed-media instruction packages for retailers and manufacturers containing graphics and diagrams that help customers assemble or operate products they have purchased. The company is backed by Chase Capital Partners, Chase Capital Entertainment Partners, Thomas Weisel Partners, Staenberg Private Capital, and individual investors including Michael Karlin of S1 Technologies, Gregg Freishtat of VerticalOne, Jeff Levy of Relevant Knowledge, Jack Jolley of Quadra Finance, and others. http://www.how2tv.com/ _____________________________________________ o User Relationship Tech Firm APPower! Names President SAN MATEO, Calif. -- APPower!, a provider of user relationship management technologies which creates open lines of communication between software application users and software vendors and publishers, said that R.J. Van Stetson has been named the company's first president. Mr. Van Stetson most recently served as vice president of marketing and dedicated sales for a telecommunications broadband data startup. The company has raised more than $2.5 million in its first round, led by Jerusalem Global Ventures along with The Scientist Organization, both Israeli firms. APPower!'s Research and Development center is located in Tel Aviv. The company said it hopes to begin its second round of financing within the next few weeks. http://www.appowerinc.com/ _____________________________________________ o E-Marketing Services Firm Impower Names AT&T Exec President PRINCETON, N.J. -- Impower, an electronic marketing services firm, said it has appointed former vice president of consumer e-business at AT&T, Karen Varhley, to the position of president. She will replace Eric Zilling, who has been named chief vision officer. Mr. Zilling was part of the founding management team of Impower. Both will report to Donn Rappaport, the chairman and chief executive officer. Impower is backed by Counsel Corp. of Toronto, which invested $15 million in the company in November 1999. http://www.impower.com/ _____________________________________________ o Integration Technology Firm Evoke Names New President, COO SAN FRANCISCO -- Evoke Software, which provides integration technology for online businesses, said it named Rick Cortese as president and chief operating officer, both new positions for the company. Mr. Cortese was previously president and chief executive officer for Experian's information solutions division, which provides information to credit reporting and direct marketing industries. Evoke Software is backed by Signal Equity, GE Equity, Wheatley Partners, Axiom Venture Partners, and RRE Investors. http://www.evokesoft.com/ _____________________________________________ o Sales Software Firm UpShot Names President and CEO MOUNTAIN VIEW, Calif. -- UpShot.com, which develops sales-force automation software for sales teams, announced that it has named Robert K. Reid as president and CEO. Reid replaces UpShot founder Keith Raffel, who will continue with the company as chairman. Mr. Reid was previously president of the Concur Commerce Network. UpShot's backers include ABN AMRO Private Equity, Ensley Partners, FrontLine Capital Group, New England Partners, Advanced Technology Ventures, Alloy Ventures, Worldview Technology Partners, and individual investors including Bob Finocchio, chairman of Informix; Ken Oshman, chief executive officer of Echelon; Tom Proulx, chief executive officer of Netpulse; and Ben Rosen, chairman of Compaq Computer. http://www.upshot.com/ _____________________________________________ o Former Andersen Consulting Exec is Rebel.com President, COO OTTAWA -- Rebel.com, a provider of business networking technology, said it appointed Solly Patrontasch as president and chief operating officer. Mr. Patrontasch was a partner in the Ottawa office of Andersen Consulting responsible for business development. Mr. Patrontasch replaces Michael Mansfield, former president and COO, who will remain with the company as an executive advisor and member of the board of directors. Rebel.com is backed by individual investors. http://www.rebel.com/ _____________________________________________ o Online News Site The Deal Promotes Exec to President NEW YORK -- The Deal, a media company that provides news to the financial, corporate, and legal markets, said it has promoted Kevin Worth from chief strategic officer to the company's first president. Prior to joining the company, Mr. Worth was a senior executive at American Lawyer Media, a media company focused on the legal market. The Deal is funded by U.S. Equity Partners. http://www.thedeal.com/ _____________________________________________ o Online Risk Management Service Provider Names First CEO NEW YORK -- Sakonnet Technology, a provider of online risk management services to companies trading in commodities said it named Stephen Sinacore as its first chief executive officer. Mr. Sinacore previously served as managing director and head of European fixed income trading at Greenwich Captial, the fixed-income trading subsidiary of Royal Bank of Scotland. Sakonnet Technology is backed by individual investors. http://www.sknt.com/ _____________________________________________ o Executive Jet Service eBizJets Names First CEO HINGHAM, Mass. -- EBizJets, an executive jet transportation services company, said it appointed John I. Williams, Jr. as its first chief executive officer. Mr. Williams, an instrument-rated pilot, previously served as president and CEO of Biztravel.com, a travel Web site, and as a vice president for American Express. eBizJets is a portfolio company of CSFB Private Equity, the private investment arm of the global Credit Suisse Group. http://www.ebizjets.com/ ======= VC Fund News ======= o New Israeli Fund Delta Ventures Launches With $60 Million TEL AVIV -- Delta Ventures announced the close of its first fund. The new Israeli venture capital firm raised $60 milllion from investors including Nomura International and Poalim Capital Markets. The company said the seed fund will make investments in communications, semiconductors, and electronics companies. The firm said it will make investments primarily within Israel. http://www.delta-ventures.com/ _____________________________________________ o Velocity Capital Raises $7 Million, Targets Northwest Firms SEATTLE -- Velocity Capital announced it has raised $7 million in its venture capital fund for Velocity Capital Partners. The fund targets early-stage Northwest companies seeking pre-venture funding before raising a larger funding round. The firm said it intends to invest between $100,000 and $500,000 in 20 companies. So far, Velocity, which was founded by managing partner David Alhadeff, currently has in its portfolio Worldcatch.com, PlyMedia, PlayNetwork and SeasonTicket.com. Additionally, Velocity announced it has teamed up with Sequoia Capital to identify and invest in Northwest-based opportunities. The company's backers include Whitney & Co. and The Mathew G. Norton Company, as well as executives from Northwest-based technology and non-technology companies. http://www.velocitygroup.com/ _____________________________________________ o Nash, Sells & Partners Changes Name and Raises New Fund LONDON -- Nash, Sells, and Partners, an English venture capital firm, said it is changing its name. The company said that the new name of the firm will be Sovereign Capital, beginning November 1. The firm also said it is raising a new fund. http://www.nashsells.co.uk/ ======= VC Personnel ======= o Ignition Names Former NextLink CEO As Managing Director KIRKLAND, Wash. -- Ignition, an investment company designed to fund, mentor, and build wireless startups, said it named Steve Hooper joined the firm full time as managing director and partner. Mr. Hooper, who helped found Ignition earlier this year, formerly served as chief executive officer of NextLink Communications, Teledesic, McCaw Cellular Communications, and AT&T Wireless Services. Ignition has made three investments in etrieve, UIEvolution, and Avogadro. Ignition has also, through its Ignition Venture Fund, made more passive investments in companies including TellMe, Everypath, Nimble, and mDiversity. http://www.ignitioncorp.com/ _____________________________________________ o Atlanta Investor Henagan Joins SSM Ventures As Partner MEMPHIS -- SSM Ventures, a Southern venture capital firm with a $156 million in capital, said Bill Henagan joined the firm as a general partner. Mr. Henagan, who has invested in and advised early stage information technology companies in the Atlanta area, is one of the funding members of Atlanta Technology Angels. SSM said it plans to open an office in Atlanta early next year and begin a new fund this Fall. The venture capital firm invests in online businesses and related infrastructure. http://www.ssmventures.com/ _____________________________________________ o Bay Partners Names Kana VP as General Partner CUPERTINO, Calif. -- Bay Partners, a venture capital firm that invests in early-stage data networking, wireless, and software fundamental technology companies, said it named Chris Noble as general partner. Mr. Noble was most recently the vice president of marketing at Kana Communications and is on the board of directors of three Bay Partners' portfolio companies: Jarna, iSpheres, and RightFreight. http://www.baypartners.com/ _____________________________________________ o Anila Names Recruiting Firm Exec as Venture Partner PALO ALTO, Calif. -- Anila Fund, which provides early stage funding to optical and broadband companies, said Gary Schlageter has joined the company as venture partner. Mr. Schlageter is founder and manager of Open Systems Consultants, an executive recruiting firm for data and telecommunications companies. The company said Mr. Schlageter will help Anila hire management teams for their portfolio companies. Prior to joining Open Systems, Mr. Schlageter was founder and vice president of marketing at RouterWare, a data communications protocol company. http://www.anila.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| ComputerLetter For 15 years, the best analysis of trends and companies in digital technology. Sample issue available at: http://technologicpartners.com/tp/cl/?vw=20001018 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Wednesday, October 18, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/2454. ===================================== ====================================================== VENTUREWIRE --- Wednesday, October 18, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Jamcracker Raises $100 Million Plus in Second Round o Broadcom To Buy Optical Firm Allayer in $264 Million Deal o SonicWall Buys Net Security Firm Phobos For $258.9 Million o Broadband Firm Edgix Gets $50 Million Round Two |||||||||||||||||||| Advertisement |||||||||||||||||||| UpShot.com is a Web-based sales force automation solution that can be easily deployed. Access it anytime, anywhere, even from your Palm or Internet phone. For a six-month free trial, sign up with UpShot.com now. To learn more, visit us at http://upshot.com/cgi-upsite/referral.asp?ReferralID=MKT0000000332 Or call us at (888) 700-8774. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o Customer Feedback Technology Firm Gets $15 Million Round One o Internet Security Firm Raises $15.6 Million in First Round o Optical Networking Firm Quake Raises $12 Million Round One o B2B E-Commerce Service Firm MegaMags Adds $1 Million Seed o Intranet Application Firm Planet Intra Closes First Round o Marketing Info Firm NetUsability Gets $2 Million Seed o Visual Info Firm IdeaLogix Secures $1.7 Million First Round o Web Browser Tech Firm VisualTop Gets $1 Million First Round o Wireless Information Firm Let Me Know Raises $3.5 Million o DoubleClick, Flatiron, Chase Put $7.7 Million in Return Path o Online Software Market SoftViaNet Gets $915,000 First Round o Data Service Firm Sonic Telecom Gets $9.8 Million Round Two o Metreo, Online Profit Management Service, Raises $10 Million o Online Learning Firm KnowledgeNet Has $30 Million Round Four o Wireless Infrastructure Firm, Broadbeam, Gets $29 Million o Dynamic Logic, e-Marketing Analysis Firm, Raises $5 Million o Infinity Outdoor Takes $5 Million Equity Stake in Kintera o Workplace Apps Provider CoVia Raises $25 Million Series E o Cell Innovation Takes 7.7% Interest In Swedish Firm Snapsend o Member Management Firm MEI Software Secures $1.2 Million o Mobile Computing Software Developer Callisto Gets Funds New Products: o Wireless Messaging Platform Provider ShareSpan Launches o Web Greeting Card Site Ecards Changes Name, Broadens Market o The Carmen Group Launches B2G Incubator DCVentureNet o Staff Management Site TurboStaff Now Called LiquidMedium M&A: o Online Vintner Wine.com to Acquire European Wine Exchange o Optical Firm Tellium Acquires Astarte Fiber Networks o SimplyDone Acquires Scheduling Firm ClickOfTime o Healthcare IT Firm HealthNet Buys Two Transcend Divisions o Mass Medium Acquires Incentive Marketer Powerdime New Directors: o Ex-Nat'l Security Advisor Poindexter Joins Saffron's Board o E-Business Consultant NetNumina Adds Granum Partner to Board o Routing Platform Firm Gotham Names Winphoria CEO to Board o CEO Of Relativity Joins Technology Firm BlueBolt's Board o IT Firm Kernel Group Adds Updata Partner to Board o Novarra Appoints Former U.S. Robotics Exec. To Board o OpsXchange Names New Executive VP and Director New People: o Mixed Media Services Firm How2TV Names New President and CEO o User Relationship Tech Firm APPower! Names President o E-Marketing Services Firm Impower Names AT&T Exec President o Integration Technology Firm Evoke Names New President, COO o Sales Software Firm UpShot Names President and CEO o Former Andersen Consulting Exec is Rebel.com President, COO o Online News Site The Deal Promotes Exec to President o Online Risk Management Service Provider Names First CEO o Executive Jet Service eBizJets Names First CEO VC Fund News: o New Israeli Fund Delta Ventures Launches With $60 Million o Velocity Capital Raises $7 Million, Targets Northwest Firms o Nash, Sells & Partners Changes Name and Raises New Fund VC Personnel: o Ignition Names Former NextLink CEO As Managing Director o Atlanta Investor Henagan Joins SSM Ventures As Partner o Bay Partners Names Kana VP as General Partner o Anila Names Recruiting Firm Exec as Venture Partner |||||||||||||||||||| Advertisement |||||||||||||||||||| CHANGING SUPPLY CHAINS A typical hospital buys $50 million in supplies from 22,000 suppliers annually. On average there is a 75% price discrep- ancy for identical products. Paper invoices cost 30 times as much as electronic invoices. Room for improvement? Perhaps. We've convened an expert panel at Healthcare Outlook 2000 to help us understand where the changes will come from and who the big winners will be: Dr. Gilbert H. Kliman, General Partner, InterWest Partners Dr.David M. Auerbach, Principal, Decision Health Sundeep Bhan, Chairman,President, & CEO, Medsite.com Anne De Gheest, President & CEO, medpool.com Daren C. Marhula, Sr. Research Analyst, Healthcare, U.S. Bancorp Piper Jaffray For a full agenda, and to register: http://tpsite.com/tp/conf/ho2000/?vw=20001018 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Jamcracker Raises $100 Million Plus in Second Round SUNNYVALE, Calif. -- Jamcracker, a Web-based provider of IT and business applications, said it raised more than $100 million in second-round funding. The funding includes $85 million in preferred financing, led by affiliates of Soros Private Equity Partners, and more than $15 million in equipment financing. Pivotal Asset Management, e4e, The Rolling Thunder Networks, Morgan Stanley Dean Witter, Goldman Sachs, Credit Suisse First Boston, Robertson Stephens, and Bay Partners also contributed funds. Internet Capital Group, Navis Partners, and First Analysis, all prior investors, provided financing as well. The equipment financing was led by GATX Ventures, with participation from Western Technology Investment, Third Coast Capital, Transamerica Business Credit, and Sand Hill Capital. Jamcracker, which received $42 million in its first round, will use the funds for product development, to extend its core platform and support infrastructure, to open new headquarters and regional offices, and to purchase hardware and software. Neal Moszkowski, a Soros partner, joined Jamcracker's board. http://www.jamcracker.com/ _____________________________________________ o Broadcom To Buy Optical Firm Allayer in $264 Million Deal SAN JOSE, Calif. -- Broadcom, a publicly traded company provider of integrated circuits enabling broadband communications, said it is acquiring Allayer Communications, a provider of optical networking technology, in a deal worth about $264 million. Under the terms of the agreement, Broadcom will issue in aggregate about 1.23 million shares of its Class A common stock in exchange for all of Allayer's outstanding shares. An additional 300,000 shares of Broadcom could be issued to Allayer's shareholders if certain performance goals are met. Allayer has received funding from Acer Capital, VenGlobal Capital Fund, Greylock, and individual investors. http://www.allayer.com/ http://www.broadcom.com/ _____________________________________________ o SonicWall Buys Net Security Firm Phobos For $258.9 Million SUNNYVALE, Calif. -- SonicWall, an Internet security technology provider, said it has entered into an agreement to acquire Phobos, a privately-held Internet security infrastructure manufacturer based in Salt Lake City. Under the terms of the agreement, approximately 12.2 million shares and options of SonicWall and $50 million in cash will be exchanged for all outstanding shares, options and warrants of Phobos. Based on SonicWall's closing price of $17.13 on Tuesday, the cash and stock exchange would have an aggregate value of $258.9 million. Of the $50 million, $20 million is contingent upon Phobos achieving certain revenue targets. Phobos has received funding from Millennium Technology Ventures and Blackstone Group Holdings and its affiliates. http://www.sonicwall.com/ _____________________________________________ o Broadband Firm Edgix Gets $50 Million Round Two NEW YORK -- Edgix, which provides infrastructure services to broadband access providers, said Chase Capital Partners led its $50 million Series B financing. Existing investors Battery Ventures and Venrock Associates contributed to the funding. The company also announced the launch of edgeMedia, its flagship managed caching service. http://www.edgix.com/ ======= New Money ======= o Customer Feedback Technology Firm Gets $15 Million Round One PALO ALTO, Calif. -- BetaSphere, a provider of Web-based customer feedback software for marketers and developers, said it received $15 million in its first round of funding. Chase Equity Partners and GE Equity participated in this round. The company will use the funds to expand into new markets. The company created the Feedback Manager Server, which integrates customer feedback into product marketing and development. http://www.betasphere.com/ _____________________________________________ o Internet Security Firm Raises $15.6 Million in First Round RESEARCH TRIANGLE PARK, N.C. -- NetOctave, a developer of silicon-based Internet security services targeted at system vendors in the network equipment and server markets, said it secured $15.6 million in its first round of financing. New investors include Intel Communications Fund, which invests in companies which support programs and initiatives in voice and data communications, and Intersouth Partners, an early-stage venture fund. Seed investors Kitty Hawk Capital, MCNC, North Carolina Enterprise, and Wakefield Group also joined this round. NetOctave spun off from Celotek, a WAN network security company, in July 2000. http://www.netoctave.com/ _____________________________________________ o Optical Networking Firm Quake Raises $12 Million Round One SAN JOSE, Calif. -- Quake Technologies, a fabless semiconductor company developing physical layer chips for high speed optical networking applications, said it has raised $12 million in financing from Mohr Davidow Ventures (MDV). MDV partners Robert Chaplinsky and Jim Smith will join Quake's board of directors. The company raised $3 million in seed funds from Brian Potiva, chief executive officer of ADVA Optical, JDS Uniphase, and undisclosed individual investors. http://www.quaketech.com/ _____________________________________________ o B2B E-Commerce Service Firm MegaMags Adds $1 Million Seed MINNEAPOLIS -- MegaMags, a business-to-business Internet commerce service provider that offers customized magazine newsstands for Internet sites, said it received an additional $1 million in its seed round of financing. The company has received funding from lead investor Quatris Fund, a fund which invests in primarily Internet commerce products and services, enterprise applications, convergent media, communications, and networking ventures. Additional funding came from MegaMags' founders and existing individual investors. MegaMags has raised $2 million to date and is currently seeking Series A funding of $4 million to $7 million. http://www.megamagsinc.net/ _____________________________________________ o Intranet Application Firm Planet Intra Closes First Round MOUNTAIN VIEW, Calif. -- Planet Intra, an Intranet software application developer, said it closed on an undisclosed amount of first round funding led by Indocean Chase Capital Advisors, an affiliate of Chase Capital Partners. AsiaTechGroup, Itochu, Linc Media, and Zain Technologies also participated in the round. Planet Intra will use the funding to further its expansion into European and Asia Pacific markets and to develop software applications. Planet Intra's application enables a medium size business or division of a large company to collaborate on projects, documents, schedules and contacts. http://www.planetintra.com/ _____________________________________________ o Marketing Info Firm NetUsability Gets $2 Million Seed LONDON -- New online marketing fund, eVerger, said it provided $2 million in seed funding for London-based marketing information firm, NetUsability. NetUsability is developing a product enabling companies to record customer experience through a virtual focus group. eVerger was established in April with $100 million by the Aegis Group and Warburg Pincus. Andrew Burke, former chief operating officer of eVentures, heads the new fund, which expects to have a network of investments in twelve countries by the end of 2001. http://www.everger.com/ _____________________________________________ o Visual Info Firm IdeaLogix Secures $1.7 Million First Round BROOKLINE, Mass. -- IdeaLogix, a visual information management company, said it has secured $1.7 million in its first round of funding from individual investors. The company, which is developing hardware and software products for capturing, storing, analyzing and streaming video information, said it will use the funds to develop its technology platform and products. http://www.idealogix.com/ _____________________________________________ o Web Browser Tech Firm VisualTop Gets $1 Million First Round NEW YORK -- VisualTop, a developer of Web site navigation technology, said it closed its first round of financing with $1 million from Tel-Aviv based Giza Venture Capital. VisualTop said it will use the money for research and development and to launch its product, Navixo, scheduled for later this fall. The company is in the process of raising an additional $2 million to $3 million dollars. A representative of Giza will receive a seat on VisualTop's four-member board of directors. http://www.navixo.com/ _____________________________________________ o Wireless Information Firm Let Me Know Raises $3.5 Million TEL AVIV -- Let Me Know Technology, a provider of mass synchronized distribution of information through online and wireless devices, said it raised $3.5 million in its first round of funding. The round was financed by investors including the Aria Venture Fund and Formula Ventures. The company said it will use the funding to support its marketing and development activities, concentrating on Asian and European markets. Roni Zor, with the Aria Venture Fund, will take a seat on the Let Me Know board of directors as a result of the funding. http://www.letmeknow-technology.com/ _____________________________________________ o DoubleClick, Flatiron, Chase Put $7.7 Million in Return Path NEW YORK -- DoubleClick, a provider of ad delivery technology, along with Flatiron Partners and Chase Capital Partners, will invest $7.7 million in Return Path, an e-mail management and change-of-address service. The investment will close Return Path's second round of funding. DoubleClick has the option over the next year to invest up to $10 million in the company. Return Path will use the funding to expand its service for its corporate and consumer clients. Return Path and DoubleClick have formed a channel partnership through which DoubleClick will offer Return Path's services to its e-mail clients. Jonathan Shapiro, DoubleClick's senior vice president of data services, and Phil Summe, from Flatiron Partners, will join Return Path's board of directors. http://www.doubleclick.net/ http://www.returnpath.net/ _____________________________________________ o Online Software Market SoftViaNet Gets $915,000 First Round LONDON -- SoftViaNet, which operates an online software retail site, said it raised FFR 7 million ($915,000) in its first round of funding. The round included investments from TriNova, based in Lyons, and individual investors including a prominent former Exxon manager. The company, which sells the downloadable software online, said it will use the funding to translate its Web site into German and Spanish. The company already operates English- and French-language versions of the site. An undiclosed individual investor will take a seat on the company's board of directors as a result of the financing. http://www.softbynet.com/ _____________________________________________ o Data Service Firm Sonic Telecom Gets $9.8 Million Round Two CHANTILLY, Va. -- Sonic Telecom, a global data services provider, said it has raised $9.8 million in its second round of funding from Broadwing Communications, Incentis, Saudi Cable Co., MasTec, Robin Hood Ventures, and several individual investors. Viatel also participated, acquiring additional shares under an existing agreement. Sonic Telecom said it will use the funding for expansion of its international sales force and for its global marketing and customer care. http://www.sonictelecom.com/ _____________________________________________ o Metreo, Online Profit Management Service, Raises $10 Million PALO ALTO, Calif. -- Metreo, which provides online profit management services, said it raised $10 million in its Series B funding. The round included investments from Sequoia Capital, Prospect Venture Partners, and the Mentor Capital Group. The company said it will use the funding to continue development and marketing activities for its product. All three investment companies have representatives on the company's board of directors. http://www.metreo.com/ _____________________________________________ o Online Learning Firm KnowledgeNet Has $30 Million Round Four SCOTTSDALE, Ariz. -- KnowledgeNet.com, a provider of online learning products, said it received $30 million in fourth round funding from new investor Cisco Systems as well as existing investors Morgenthaler Partners, Sierra Ventures, Trinity Ventures, and Berkeley International Capital. Thomas Kelly, vice president of Cisco's worldwide training group, will join KnowledgeNet's board of directors as a board observer. The company will use the funds to develop its Internet-based training technology, sales, and marketing. http://www.knowledgenet.com/ _____________________________________________ o Wireless Infrastructure Firm, Broadbeam, Gets $29 Million PRINCETON, N.J. -- Broadbeam, a provider of wireless infrastructure provider, said it secured $29 million in a round of financing led by ABS Capital Partners with Nassau Capital, The Co-Investment 2000 Fund, StarVest Partners, Allegra Partners, and Dime Capital Partners contributing. Timothy T. Weglicki, a partner of ABS Capital Partners, joined the board of directors. The funds will be used for product development, sales, and marketing. http://www.broadbeam.com/ _____________________________________________ o Dynamic Logic, e-Marketing Analysis Firm, Raises $5 Million NEW YORK -- Dynamic Logic, which provides analysis on online marketing effectiveness, said it raised $5 million in its Series C round of funding. The round was funded entirely by eVerger, a $100 million fund formed by the Aegis Group and Warburg Communications. The company said it will use the funding for new marketing initiatives, additional researchers, and customer support. eVerger will take a seat on the company's board of directors as a result of its investment. http://www.everger.com/ http://www.dynamiclogic.com/ _____________________________________________ o Infinity Outdoor Takes $5 Million Equity Stake in Kintera SAN DIEGO -- Kintera, which provides Internet fundraising services to charitable non-profit educational and political organizations, said Infinity Outdoor, a North American outdoor advertising company, will take an equity stake in the company. Kintera will issue $5 million worth of its preferred stock to Infinity Outdoor, a wholly owned subsidiary of publicly-traded Infinity Broadcasting, in exchange for $5 million in Infinity Outdoor advertising displays. Kintera's backers include Prudential Securities and individual investors. http://www.kintera.com/ http://www.infoutdoor.com/ _____________________________________________ o Workplace Apps Provider CoVia Raises $25 Million Series E MOUNTAIN VIEW, Calif. -- CoVia, a provider of interactive workplace applications, said it has raised over $25 million in its Series E round of funding led by new investor American Express Financial. Pogue Capital, also a new investor, and previous investors Adobe Ventures, Granite Ventures, SAP, Viridian Capital, and Dain Rauscher Wessels joined several late stage and crossover fund investors to invest in this round. CoVia said it will use the funding for expansion. http://www.covia.com/ _____________________________________________ o Cell Innovation Takes 7.7% Interest In Swedish Firm Snapsend STOCKHOLM -- Cell Innocation, Cell Network's venture capital arm, said it is investing in Swedish firm Snapsend, an Internet digital photo service. Cell Innovation said it has taken a 7.7% equity interest in Snapsend, which has also received funding from Wikow Invest, Core Ventures, AU-system, and Element Park. http://www.snapsend.se/ _____________________________________________ o Member Management Firm MEI Software Secures $1.2 Million RESTON, Va. -- MEI Software Systems, a provider of application software and member management systems for associations and member-based organizations, said it has secured $1.2 million from previous investors Nextgen and MidAtlantic Ventures. The company said it will use the funds to develop new products and customer support initiatives. http://www.meisoft.com/ _____________________________________________ o Mobile Computing Software Developer Callisto Gets Funds WHEATON, Ill. -- Callisto Software, a developer of mobile computing management software, said it secured an undisclosed amount of additional venture capital from previous investors ARCH Venture Partners, The Ohio Partners, which is headed by former CompuServe president and CEO Maury Cox. The funds will be used to expand sales, marketing, and product development. http://www.callisto.com/ ======= New Products ======= o Wireless Messaging Platform Provider ShareSpan Launches STAMFORD, Conn. -- ShareSpan, a developer of a content aggregation, management, and distribution platform that supports wireless browsers and devices, announced its launch. ShareSpan received $300,000 in seed funding from its parent company Heynetwork.com, which has since spun off the company. ShareSpan is also backed by Redwood Partners, Riverside Management Group, and individual investors. http://www.sharespan.com/ _____________________________________________ o Web Greeting Card Site Ecards Changes Name, Broadens Market TORONTO -- Ecards.com, which has been operating as an Internet greeting card site, said it has changed its name to Blab.com and expanded its offerings in the entertainment market. The company cited several reasons for the change: Ecards conflicted with another Web site called E-cards, so the companies settled on "amicable" terms, agreeing that Ecard visitors will be redirected to Blab.com. The company said that in addition to offering cards, it has added new features to its Web site such as trivia games and services that enable customers to make their own invitations and award certificates. Blab.com is funded by individual investors. http://www.blab.com/ _____________________________________________ o The Carmen Group Launches B2G Incubator DCVentureNet WASHINGTON, D.C. -- The Carmen Group, a professional advocacy and government relations firm, said it launched DCVentureNet. A wholly owned subsidiary of The Carmen Group, DCVentureNet will provide business-to-government office facilities, financial backing, and technical support. Stephen Goldsmith, former Mayor of Indianapolis, will act as managing director of DCVentureNet. The subsidiary's board includes Raul J. Fernandez, president and CEO of Proxicom; Abe Pollin, chairman of Washington Sports & Entertainment; Joe Wright, vice chairman of Terremark Worldwide; Carol Anderson, managing director of TSG International; and H. Patrick Swygert, president of Howard University. DCVentureNet plans to incubate around twelve companies. http://www.dcventurenet.com/ _____________________________________________ o Staff Management Site TurboStaff Now Called LiquidMedium PLEASANTON, Calif. -- TurboStaff, which provides business-to-business workforce management technology, said it changed its name to LiquidMedium to better reflect its services. LiquidMedium provides electronic sourcing, purchase orders, order tracking, timesheet submission and approval, and payments. The company is funded by individual investors. http://www.liquidmedium.com/ ======= M&A ======= o Online Vintner Wine.com to Acquire European Wine Exchange NAPA, Calif. -- Wine.com said it has signed an agreement to acquire European Wine Exchange (EWX), an electronic commerce company aimed at both the business-to-business and business-to-consumer market in Germany. The EWX site will be integrated into the wine.com U.S. site in 2001, and will serve the German wine market via the URL www.wine.de. EWX co-founder Tarek El Din will continue as the managing director of wine.com's German efforts. His partner, Marc Steiner, will remain with the company in an advisory role. Wine.com and WineShopper.com recently announced they were merging. Wine.com is backed by TH Lee. Putnam Internet Partners, New Millennium Partners, GE Capital, MediaOne Ventures, Inroads Partners, Alpine Technology Ventures and Applied Technology. http://www.wine.com/ _____________________________________________ o Optical Firm Tellium Acquires Astarte Fiber Networks OCEANPORT, N.J. -- Tellium, a provider of intelligent optical switches, said it acquired Boulder-based Astarte Fiber Networks, which designs and manufactures photonic fiber-optic matrix switching systems used in high-speed optical networks. Details of the deal were not disclosed. Tellium said the Astarte acquisition was intended to support the development of the company's all optical switch. Tellium is backed by investors including Accel Partners, Blue Rock Capital Investors, Cisco Systems, Oak Investment Partners, Ortel, Pequot Capital, SAIC Telcordia, Thomas Weisel Partners, and Worldview Technology Partners. http://www.starswitch.com/ http://www.tellium.com/ _____________________________________________ o SimplyDone Acquires Scheduling Firm ClickOfTime LOS ANGELES -- SimplyDone Business Solutions said it acquired online scheduling company ClickOfTime. SimplyDone offers online services such as appointment scheduling, Web catalogs, pricing estimators, and customer relationship management tools to the service industry. Terms of the deal were undisclosed. The company is laying off an undisclosed number of staff, but Jay Goss, ClickOfTime's chief executive officer, will remain as senior director of customer support. SimplyDone is funded by Idealab Capital Partners and SBC Interactive. http://www.simplydone.com/ http://www.clickoftime.com/ _____________________________________________ o Healthcare IT Firm HealthNet Buys Two Transcend Divisions DALLAS -- Provider HealthNet Services, which provides information services to the healthcare industry, said it acquired Co-Sourcing and CodeRemote, two divisions of publicly-traded Transcend Services, in an undisclosed cash transaction. Both companies provide electronic medical record management. Provider is funded by Credit Agricole Indosuez, Navis Partners, Ferrer Freeman & Thompson, and Gryphon Capital. http://www.phns.com/ _____________________________________________ o Mass Medium Acquires Incentive Marketer Powerdime NEW YORK -- Mass Medium, parent company of Milesource.com, said it acquired incentive marketer Powerdime.com. Terms of the deal were undisclosed. Milesource, also an incentive marketer, enables members to earn points when they purchase from the Web site or refer someone to the site. Powerdime members will automatically be transferred to Milesource, where they can redeem their points. Milesource has offered employment to all Powerdime staff and CEO Brian Kreiter will remain part of the management team. MileSource is funded by BCI Partners. http://www.milesource.com/ http://www.powerdime.com/ ======= New Directors ======= o Ex-Nat'l Security Advisor Poindexter Joins Saffron's Board RESEARCH TRIANGLE PARK, N.C. -- Saffron Technology, a provider of software that keeps track of customer preferences to enable vendors tailor their products and offerings, said it has appointed Vice Admiral (VADM) John M. Poindexter to its board of directors. VADM Poindexter, who was national security advisor under former President Reagan, serves as senior vice president of information systems at Syntek, a professional services firm. Saffron is backed by the Aurora Funds and individual investors. http://www.saffrontech.com/ _____________________________________________ o E-Business Consultant NetNumina Adds Granum Partner to Board BOSTON -- NetNumina Solutions, an online business systems integrator and consultant, said it named Peter Williams as the fifth member of its board of directors. Mr. Williams is managing partner of Granum Partners, a private equity fund specializing in early stage communications ventures. The company completed its first round of financing in May. The company is backed by Greylock, BancBoston Venture Partners, TA Associates, Allaire, and BEA Systems. http://www.netnumina.com/ _____________________________________________ o Routing Platform Firm Gotham Names Winphoria CEO to Board ACTON, MA -- Gotham Networks, which is developing a switching and routing platform, said it named Michael Champa, president and CEO of networking startup Winphoria Networks, to the sixth seat on its board of directors. The company was founded in July 1999 with funding from Charles River Ventures and Bessemer Ventures. Crescendo Ventures and Comdisco Ventures joined the original investors in Gotham's second round financing last month, bringing its total funding to $33 million. http://www.gothamnetworks.com/ _____________________________________________ o CEO Of Relativity Joins Technology Firm BlueBolt's Board DURHAM, N.C. -- BlueBolt Networks, a technology company that focuses on the interior design industry, said it has appointed Vivek Wadhwa, founder and chief executive officer of Relativity Technologies, to its board of directors. BlueBolt is backed by Wakefield Group and Gray Ventures. The company said it is seeking its second round of funding, set to close late in the fourth quarter. http://www.bluebolt.com/ _____________________________________________ o IT Firm Kernel Group Adds Updata Partner to Board AUSTIN -- The Kernel Group, which designs, deploys, and manages infrastructures, said it added Updata Venture partner Tim H. Meyers to its board of directors. TKG recently raised $4 million in its first round from Updata Venture Partners and also added venture partner John H. Burton to its board. The company plans to expand and develop its two products, Bare Metal Restore, a data recovery software, and AutoTrace, which identifies defects in a software product. http://www.tkg.com/ _____________________________________________ o Novarra Appoints Former U.S. Robotics Exec. To Board DEERFIELD, Ill. -- Novarra, a provider of wireless Internet commerce technology, said it has appointed Semir D. Sirazi, former senior executive at U.S. Robotics, to its board of directors. Mr. Sirazi has made a significant investment in Novarra, and is a strategic adviser to the company. Novarra, formerly InfoSpeed, is backed by JK&B Capital, Skyscraper Ventures, and Kettle Partners. http://www.novarra.com/ _____________________________________________ o OpsXchange Names New Executive VP and Director SAN FRANCISCO -- OpsXchange, which provides e-procurement services to real estate operators and suppliers, said it named Howard Hoover as the company's executive vice president and to its board of directors. Mr. Hoover previously co-founded American Residential Services/American Mechanical Services. Investors for OpsXchange include SAP Ventures, Cohen & Steers Capital Management, and Vortex Partners. http://www.opsxchange.com/ ======= New People ======= o Mixed Media Services Firm How2TV Names New President and CEO LOS ANGELES -- How2TV, a rich media services provider for manufacturers, bricks-and-mortar retailers, and e-commerce sites, said it named Herio R. Arcangeli Jr. as president and CEO. Mr. Arcangeli previously served as vice president/general manager in the consumer products division for Yamaha Corp. of America. He replaces founder Rick Carroll, who will remain as chairman of the board of directors. How2TV creates mixed-media instruction packages for retailers and manufacturers containing graphics and diagrams that help customers assemble or operate products they have purchased. The company is backed by Chase Capital Partners, Chase Capital Entertainment Partners, Thomas Weisel Partners, Staenberg Private Capital, and individual investors including Michael Karlin of S1 Technologies, Gregg Freishtat of VerticalOne, Jeff Levy of Relevant Knowledge, Jack Jolley of Quadra Finance, and others. http://www.how2tv.com/ _____________________________________________ o User Relationship Tech Firm APPower! Names President SAN MATEO, Calif. -- APPower!, a provider of user relationship management technologies which creates open lines of communication between software application users and software vendors and publishers, said that R.J. Van Stetson has been named the company's first president. Mr. Van Stetson most recently served as vice president of marketing and dedicated sales for a telecommunications broadband data startup. The company has raised more than $2.5 million in its first round, led by Jerusalem Global Ventures along with The Scientist Organization, both Israeli firms. APPower!'s Research and Development center is located in Tel Aviv. The company said it hopes to begin its second round of financing within the next few weeks. http://www.appowerinc.com/ _____________________________________________ o E-Marketing Services Firm Impower Names AT&T Exec President PRINCETON, N.J. -- Impower, an electronic marketing services firm, said it has appointed former vice president of consumer e-business at AT&T, Karen Varhley, to the position of president. She will replace Eric Zilling, who has been named chief vision officer. Mr. Zilling was part of the founding management team of Impower. Both will report to Donn Rappaport, the chairman and chief executive officer. Impower is backed by Counsel Corp. of Toronto, which invested $15 million in the company in November 1999. http://www.impower.com/ _____________________________________________ o Integration Technology Firm Evoke Names New President, COO SAN FRANCISCO -- Evoke Software, which provides integration technology for online businesses, said it named Rick Cortese as president and chief operating officer, both new positions for the company. Mr. Cortese was previously president and chief executive officer for Experian's information solutions division, which provides information to credit reporting and direct marketing industries. Evoke Software is backed by Signal Equity, GE Equity, Wheatley Partners, Axiom Venture Partners, and RRE Investors. http://www.evokesoft.com/ _____________________________________________ o Sales Software Firm UpShot Names President and CEO MOUNTAIN VIEW, Calif. -- UpShot.com, which develops sales-force automation software for sales teams, announced that it has named Robert K. Reid as president and CEO. Reid replaces UpShot founder Keith Raffel, who will continue with the company as chairman. Mr. Reid was previously president of the Concur Commerce Network. UpShot's backers include ABN AMRO Private Equity, Ensley Partners, FrontLine Capital Group, New England Partners, Advanced Technology Ventures, Alloy Ventures, Worldview Technology Partners, and individual investors including Bob Finocchio, chairman of Informix; Ken Oshman, chief executive officer of Echelon; Tom Proulx, chief executive officer of Netpulse; and Ben Rosen, chairman of Compaq Computer. http://www.upshot.com/ _____________________________________________ o Former Andersen Consulting Exec is Rebel.com President, COO OTTAWA -- Rebel.com, a provider of business networking technology, said it appointed Solly Patrontasch as president and chief operating officer. Mr. Patrontasch was a partner in the Ottawa office of Andersen Consulting responsible for business development. Mr. Patrontasch replaces Michael Mansfield, former president and COO, who will remain with the company as an executive advisor and member of the board of directors. Rebel.com is backed by individual investors. http://www.rebel.com/ _____________________________________________ o Online News Site The Deal Promotes Exec to President NEW YORK -- The Deal, a media company that provides news to the financial, corporate, and legal markets, said it has promoted Kevin Worth from chief strategic officer to the company's first president. Prior to joining the company, Mr. Worth was a senior executive at American Lawyer Media, a media company focused on the legal market. The Deal is funded by U.S. Equity Partners. http://www.thedeal.com/ _____________________________________________ o Online Risk Management Service Provider Names First CEO NEW YORK -- Sakonnet Technology, a provider of online risk management services to companies trading in commodities said it named Stephen Sinacore as its first chief executive officer. Mr. Sinacore previously served as managing director and head of European fixed income trading at Greenwich Captial, the fixed-income trading subsidiary of Royal Bank of Scotland. Sakonnet Technology is backed by individual investors. http://www.sknt.com/ _____________________________________________ o Executive Jet Service eBizJets Names First CEO HINGHAM, Mass. -- EBizJets, an executive jet transportation services company, said it appointed John I. Williams, Jr. as its first chief executive officer. Mr. Williams, an instrument-rated pilot, previously served as president and CEO of Biztravel.com, a travel Web site, and as a vice president for American Express. eBizJets is a portfolio company of CSFB Private Equity, the private investment arm of the global Credit Suisse Group. http://www.ebizjets.com/ ======= VC Fund News ======= o New Israeli Fund Delta Ventures Launches With $60 Million TEL AVIV -- Delta Ventures announced the close of its first fund. The new Israeli venture capital firm raised $60 milllion from investors including Nomura International and Poalim Capital Markets. The company said the seed fund will make investments in communications, semiconductors, and electronics companies. The firm said it will make investments primarily within Israel. http://www.delta-ventures.com/ _____________________________________________ o Velocity Capital Raises $7 Million, Targets Northwest Firms SEATTLE -- Velocity Capital announced it has raised $7 million in its venture capital fund for Velocity Capital Partners. The fund targets early-stage Northwest companies seeking pre-venture funding before raising a larger funding round. The firm said it intends to invest between $100,000 and $500,000 in 20 companies. So far, Velocity, which was founded by managing partner David Alhadeff, currently has in its portfolio Worldcatch.com, PlyMedia, PlayNetwork and SeasonTicket.com. Additionally, Velocity announced it has teamed up with Sequoia Capital to identify and invest in Northwest-based opportunities. The company's backers include Whitney & Co. and The Mathew G. Norton Company, as well as executives from Northwest-based technology and non-technology companies. http://www.velocitygroup.com/ _____________________________________________ o Nash, Sells & Partners Changes Name and Raises New Fund LONDON -- Nash, Sells, and Partners, an English venture capital firm, said it is changing its name. The company said that the new name of the firm will be Sovereign Capital, beginning November 1. The firm also said it is raising a new fund. http://www.nashsells.co.uk/ ======= VC Personnel ======= o Ignition Names Former NextLink CEO As Managing Director KIRKLAND, Wash. -- Ignition, an investment company designed to fund, mentor, and build wireless startups, said it named Steve Hooper joined the firm full time as managing director and partner. Mr. Hooper, who helped found Ignition earlier this year, formerly served as chief executive officer of NextLink Communications, Teledesic, McCaw Cellular Communications, and AT&T Wireless Services. Ignition has made three investments in etrieve, UIEvolution, and Avogadro. Ignition has also, through its Ignition Venture Fund, made more passive investments in companies including TellMe, Everypath, Nimble, and mDiversity. http://www.ignitioncorp.com/ _____________________________________________ o Atlanta Investor Henagan Joins SSM Ventures As Partner MEMPHIS -- SSM Ventures, a Southern venture capital firm with a $156 million in capital, said Bill Henagan joined the firm as a general partner. Mr. Henagan, who has invested in and advised early stage information technology companies in the Atlanta area, is one of the funding members of Atlanta Technology Angels. SSM said it plans to open an office in Atlanta early next year and begin a new fund this Fall. The venture capital firm invests in online businesses and related infrastructure. http://www.ssmventures.com/ _____________________________________________ o Bay Partners Names Kana VP as General Partner CUPERTINO, Calif. -- Bay Partners, a venture capital firm that invests in early-stage data networking, wireless, and software fundamental technology companies, said it named Chris Noble as general partner. Mr. Noble was most recently the vice president of marketing at Kana Communications and is on the board of directors of three Bay Partners' portfolio companies: Jarna, iSpheres, and RightFreight. http://www.baypartners.com/ _____________________________________________ o Anila Names Recruiting Firm Exec as Venture Partner PALO ALTO, Calif. -- Anila Fund, which provides early stage funding to optical and broadband companies, said Gary Schlageter has joined the company as venture partner. Mr. Schlageter is founder and manager of Open Systems Consultants, an executive recruiting firm for data and telecommunications companies. The company said Mr. Schlageter will help Anila hire management teams for their portfolio companies. Prior to joining Open Systems, Mr. Schlageter was founder and vice president of marketing at RouterWare, a data communications protocol company. http://www.anila.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| ComputerLetter For 15 years, the best analysis of trends and companies in digital technology. Sample issue available at: http://technologicpartners.com/tp/cl/?vw=20001018 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

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VentureWire, Friday, October 27, 2000

====================================================== VENTUREWIRE --- Friday, October 27, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Broadband Provider Altrio Holds First Round for $125 Million o European Strategic Partners Raises $718.2 Million New Fund o Reports: Modo Service Closes Weeks After Launch o Commerx Co-founders Resign, Remain on Board; COO Interim CEO |||||||||||||||||||| Advertisement |||||||||||||||||||| DODADS, GADGETS, AND GIZMOS, OH MY! Our pockets are overflowing with mobile phones, PDAs, and two-way pagers, and more products -- from Web pads to picture frames -- come with Internet connections. Consumer Devices, one of five expert panels at Technology Outlook 2000, will sort through the clutter to determine which devices have the best chances of finding mass-market audiences: Safi Qureshy, Chairman, AudioRamp Daniel H. Rimer, Partner, The Barksdale Group Kent Savage, President & CEO, Netpliance Michael Slater, President, PhotoTablet Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=20001026 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o News Firm Gannett Buys Stake in Media Company Space.com o Optical Networking Firm Edgeflow Gets $5.5 Million Round One o E-Commerce Network eScout.com Raises $25.5 Million Round Two o Infrastructure Software Firm eQview Has $3 Million Round One o Online Business Analysis Firm Raises $2.6 Million Round One o Info Service Traffic.com Secures $45 Million Third Round o Commercial Property B2B FacilityPro Gets $5 Million Series B o Gay.com Invests in Italian Gay Portal Gay.it o Online Bank Service Firm BNKR Raises $1.5 Million Round Two o Custom CD Provider DigitalSwift Raises Second Round o Launchworks Invests in Utility Management Firm E2MS o Semiconductor Materials Firm EpiWorks Adds $1 Million New Deals: o Oracle Trades Interactive TV Assets for Stakes in Two Firms o More Details on Sony and Candescent's $77.5 Million Pact M&A: o Red Cube Makes $20 Million Payment to Buy Majority of I-Link o Credence Systems Buys NewMillennia for $11.3 Million o Embarcadero Acquires Web Design Firm in $13 Million Deal o Q&A Firm Answers.com Acquires Real-time Help Firm Knowitall o Broadband Firm MegaPath Networks Purchases Phoenix Networks o Digital Video Firm Ligos Buys Digital I/O App Firm Sequoia o Sega to Acquire Family-Oriented Web Site FamilyWonder o UConnections.com Acquires Software Developer Alumnipride o Varimetrix Acquires European Distributor From Encee Systems New Directors: o Web App Software Firm Notara Adds Two to Board o Advent Partner Joins Board of Imaging Firm LightLab o Optical Firm LiquidLight Announces Board of Directors o Screen4me Adds President of Consumer Research Firm to Board o Wireless Tech Firm Altawave Adds Prodigy COO to Board New People: o Data Firm eData Names Ex-Andersen Consulting Exec as CEO o Telco Services Firm Zenfinity Names New CEO and Director VC Fund News: o Advent Venture Partners' New Fund Raises $232 Million o Village Ventures Launches Nashville Fund VC Personnel: o VS&A Communications Partners Names New Principal |||||||||||||||||||| Advertisement |||||||||||||||||||| Computers in our pockets, our cars, our kitchens, our showers? When it happens, there's little doubt that IBM and Intel will have had something to do with it. Come hear what these industry powerhouses are doing in this field from Claude Leglise, VP of the Intel Architecture Group & GM of Intel's Home Products Group, and from Michel Mayer, GM of Pervasive Computing at IBM at: Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=20001026 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Broadband Provider Altrio Holds First Round for $125 Million GLENDALE, Calif. -- Altrio Communications, a provider of broadband communications, said it raised $125 million in its first round of funding. Bessemer Holdings and Frontenac co-led the round, which included Bank of America Capital Investors; Grove Street Advisors; RBC Partners, the private equity unit of Royal Bank Financial Group; Soros Private Equity Partners; and SSB Capital Partners, the private investment unit of Salomon Smith Barney. Adam Godfey and Ed Park of Bessemer Holdings, James E. Crawford III and Walter C. Florence of Frontenac, and representatives of Soros Private Equity and SSB Capital Partners will join the company's board of directors. The company will use the funding to build its broadband communications network in the Los Angeles area. http://www.altrio.net/ _____________________________________________ o European Strategic Partners Raises $718.2 Million New Fund EDINBURGH, Scotland -- Standard Life Investments, a U.K. mutual investment company, said it completed the final closing of its new private equity fund, European Strategic Partners. The total commitments to the fund are now EUR 868 million ($718.2 million) from 40 investors in 12 countries. A third of the capital raised for the fund has already been committed to investments in 13 funds and 6 direct transactions. The fund will focus on the mid-market-buyout and the telecommunications and technology investment sectors. The fund is split 60% to 40% between investments in other funds and direct investment in companies. Telephone +44-131-245-5593. _____________________________________________ o Reports: Modo Service Closes Weeks After Launch NEW YORK -- Scout Electromedia, developer of a wireless handheld device and urban guide service, has closed down, according to multiple reports. Scout, which launched its Modo service last month with an extensive ad campaign, ceased operations after failing to secure additional funding, according to the reports. The company raised $18 million in May from idealab, Chase Capital Partners, Flatiron Partners, and TechFund Capital. Scout's corporate Web site, and the Modo site were both inaccessible today. _____________________________________________ o Commerx Co-founders Resign, Remain on Board; COO Interim CEO CHICAGO -- Commerx, which develops and operates electronic business networks, said its board of directors has accepted the resignations of co-founders Tim Stojka, chairman and CEO, and Nick Stojka, executive vice president. Both will retain their seats on the board of directors. Tim Stojka will continue to serve as chairman of the board. Commerx named COO Jeff Garwood as interim chief executive officer. Last week, Mr. Garwood announced his intention to resign as Commerx COO for a chief executive position with another company. He has agreed to remain at Commerx through a transitionary period. Commerx's electronic business networks enable manufacturing companies and their trading partners to optimize their supply chains. The company's investors include Capital Research and Management, divine interVentures, MC Capital, Mitsui & Co., Palantir Associates, Pivotal Asset Management, Ashland Distribution, Eastman Chemical, EP Partners, Huntsman, Mitsubishi International, MSC Industrial Direct, H. Nuehlstein & Co., Internet Capital Group, and individual investors. http://www.commerx.com/ ======= New Money ======= o News Firm Gannett Buys Stake in Media Company Space.com NEW YORK -- News and information company Gannett said it took an equity stake in Space.com, a media company dedicated to outer space and space related content. The equity exchange is part of a strategic partnership between the two companies. Space.com has acquired Space News newspaper and other media properties of Gannett. Gannett will invest an undisclosed amount of cash and provide services for Space.com. Earlier this month, Space.com laid off 22 of its 108 employees. Space.com is backed by Blue Chip Venture, Greylock, NBC, PaineWebber, SpaceVest, Venrock Associates, and individuals. http://www.space.com/ _____________________________________________ o Optical Networking Firm Edgeflow Gets $5.5 Million Round One KANATA, Ontario -- Edgeflow, a developer of optical networking services to the carrier and enterprise markets, said it raised $5.5 million in its first round from Sierra Ventures and Venture Coaches. The company will use the funds to continue development of its technology. http://www.edgeflow.com/ _____________________________________________ o E-Commerce Network eScout.com Raises $25.5 Million Round Two LEE'S SUMMIT, Mo. -- eScout.com, a Web-based Internet commerce and business network for independent businesses and banks, said it raised $25.5 million in its second round of financing. New investors include Allfirst Financial, Citizens Financial Group, Golden State Bancorp, Marquette Bancshares, Texas Financial Bancorp, and Utilicorp Communications Services. First round investors including Mayfield Fund, Oak Hill Venture Partners, Tarrant Venture Partners, A.G. Edwards Capital, and Commerce One also participated this round. The company will use the funds to accelerate the integration of its online service, eScout MarketPlace, into the back-end, legacy applications at its partner banks. EScout has raised $54 million to date. http://www.escout.com/ _____________________________________________ o Infrastructure Software Firm eQview Has $3 Million Round One ATLANTA -- eQview, which provides enterprise infrastructure software that enables companies to do business electronically, said it has raised $3 million in first round of funding from Cordova Ventures and individual investors. eQview said it will use the funding to develop its product, and for sales and marketing. The company plans to seek up to $20 million in additional funding early next year. http://www.eqview.com/ _____________________________________________ o Online Business Analysis Firm Raises $2.6 Million Round One LONDON -- IntelligentApps,which provides online analytical processing services, raised GBP 1.8 million ($2.6 million) in its first round of funding. The round was led by publicly-traded UK incubation firm NewMedia Spark and a consortium of individual investors. Among the individuals to invest in the company was Geoff Squire, founding managing director of Oracle UK and later executive vice president for Oracle. The company's technology was developed exclusively for the new Microsoft.net platform. The company said it will use the funding for business development. IntelligentApps also owns Knosys, which provides a front-end analytical application platform. http://www.intelligentapps.com/ _____________________________________________ o Info Service Traffic.com Secures $45 Million Third Round WAYNE, Pa. -- Traffic.com, which provides traffic information services, said it raised $45 million in its third round of funding. New investor Baker Capital led the round, which included other new investors DVCRF Ventures, Hearst Interactive Media, and PNC Financial Service's Group unit VentureBank@PNC. Previous investors Bessemer Venture Partners and TL Ventures also participated in this round. Baker Capital partner Larry Bettino will join the company's board of directors. The company will use the funding to launch its operations and expand its data center. Traffic.com provides prediction services and real-time traffic news. The company has also received backing from Internet Capital Group and Pennsylvania Early Stage Partners. http://www.traffic.com/ _____________________________________________ o Commercial Property B2B FacilityPro Gets $5 Million Series B ATLANTA -- FacilityPro.com, a business-to-business electronic marketplace for commercial property owners, managers and suppliers, said it has secured $5 million in its Series B round of funding from First Union Capital Partners. The funding brings the total of the company's Series B financing to $40 million. The round included Constellation Real Technologies and previous investor Austin Ventures. The company said it will use the funds to enhance and expand the capabilities of its online marketplace and hire additional consulting and operating personnel. FacilityPro has also received funding from Encompass Services. http://www.facilitypro.com/ _____________________________________________ o Gay.com Invests in Italian Gay Portal Gay.it SAN FRANCISCO -- Gay.com, a provider of products and services for gay men and women, said it made a strategic investment in Gay.it, a gay and lesbian portal based in Italy. Gay.com said the investment is part of its ongoing global expansion. The company acquired France-based Ooups.com, and launched news sites aimed at the gay community in the U.K. and Latin America. Gay.com is backed by Chase Capital Partners, Flatiron Partners, Baroda Ventures, Macluan Digital, Jesse.Hansen.CoVe, and IDG Ventures. http://www.gay.com/ http://www.gay.it/ _____________________________________________ o Online Bank Service Firm BNKR Raises $1.5 Million Round Two BUFFALO, N.Y. -- Rand Capital said it made a second investment in BNKR, which provides online banking capabilities to banks and credit unions. The return investment, a bridge loan of $200,000, is part of BNKR's $1.5 million second round. Minneapolis-based BNKR is also backed by Softbank affiliate Seed Capital Partners. BNKR provides banking marketing and application services. http://www.bnkr.com/ _____________________________________________ o Custom CD Provider DigitalSwift Raises Second Round ATLANTA -- DigitalSwift, a producer of custom CDs via its SwiftCD.com division, said it raised an undisclosed amount of second round funding. The round was led by Universal Investment & Manufacturing Co., whose chairman Hisham Araim will take a new seat on the board as a result of the investment. Financial consultant Gregory N. Gallagher also joined the board but is not an investor. The company will use the funds to expand its Atlanta office. http://www.swiftcd.com/ _____________________________________________ o Launchworks Invests in Utility Management Firm E2MS TORONTO -- Launchworks, which provides early stage capital to software and technology companies, said it invested $2 million in E2MS, which provides software and services that enables users to manage their gas, electrical, and water utility services. E2MS, which is also based here, will use the funds for marketing and expansion. http://www.launchworks.com/ http://www.e2ms.com/ _____________________________________________ o Semiconductor Materials Firm EpiWorks Adds $1 Million CHAMPAIGN, Ill. -- EpiWorks, which develops and manufacturers compound semiconductor materials, said it has secured an additional $1 million in its Series C funding from previous investor Open Prairie Ventures. The investment follows an earlier investment of $1.5 million by Open Prairie in March. The funds will support hiring. http://www.epiworks.com/ ======= New Deals ======= o Oracle Trades Interactive TV Assets for Stakes in Two Firms REDWOOD SHORES, Calif. -- nCube, which provides media streaming infrastructure, said database giant Oracle sold assets of its interactive television unit to nCube and broadband network service provider Thirdspace Living in exchange for minority equity stakes in both companies. Financial terms of the deals were undisclosed. Under the terms of the agreement, nCube and Thirdspace will jointly own the intellectual property of Oracle's interactive TV video server technology. The three companies will also work together to develop interactive TV products and services. Publicly traded broadband access provider Alcatel also invested its interactive TV intellectual property and cash for a minority stake in Thirdspace. nCube is backed by Oracle CEO Larry Ellison and other institutional and individual investors. http://www.ncube.com/ http://www.oracle.com/ _____________________________________________ o More Details on Sony and Candescent's $77.5 Million Pact TOKYO -- Flat panel display developer Candescent Technologies and Sony released details of their previously reported agreement to develop high voltage field emission display technology. Sony will pay a total of $77.5 million as a result of the agreement. Sony will invest $27.5 million in Candescent for an equity stake and will pay $50 million to license Candescent's technology. Additional funding will come from both companies over the life of their joint development agreement. Candescent has raised over $410 million from corporate, government, institutional, and venture capital sources. http://www.candescent.com/ http://www.world.sony.com/ ======= M&A ======= o Red Cube Makes $20 Million Payment to Buy Majority of I-Link ZURICH, Switzerland -- Red Cube International, a provider of Internet Protocol (IP) and Web-based communications services, said it is has made a first payment of $20 million in cash under its agreement to acquire a majority interest in publicly-traded I-Link, a provider of enhanced voice/data services. As part of its securities agreement to acquire all I-Link securities held by Winter Harbor, a Marriott holding company, Red Cube will make an additional cash payment of $15 million to complete the first closing of the transaction within the fourth quarter of 2000. A second closing involving payment by Red Cube of $25 million in cash is expected to be completed within the first quarter of 2001. Under the terms of the transaction, Red Cube agreed to pay Winter Harbor a total of $60 million in cash and $20 million in long-term, Red Cube share options in return for its majority interest in I-Link. Red Cube is backed by Rafaello Private Equity Investment, Credit Suisse Asset Management, Banc Pictet & Cie, and Swiss Re Investors in Europe. http://www.i-link.com/ http://www.redcube.com/ _____________________________________________ o Credence Systems Buys NewMillennia for $11.3 Million FREMONT, Calif. -- Credence Systems, a publicly-traded company that manufacturers automatic test equipment for the semiconductor industry, said it is acquiring NewMillennia Solutions (NMS), a provider of test strategies and products, for approximately $11.3 million. The purchase price includes $4 million that Credence provided as part of NewMillennia's Series A round in August. Before the acquisition, Credence held a 19.8% interest in NMS. Jim Ellis, founder, president and chief executive officer of NMS will become vice president and general manager of the NMS Division of Credence Systems. http://www.credence.com/ http://www.moduletest.com/ _____________________________________________ o Embarcadero Acquires Web Design Firm in $13 Million Deal SAN FRANCISCO -- Embarcadero Technologies, a publicly-traded provider of database lifecycle management software, said it acquired Advanced Software Technologies for $13 million in cash. Advanced Software Technologies develops software that designs, maintains, and re-engineers Java, C++, IDL and component-based applications. The company's 40 employees and CEO Greg Schottland will remain with the company in Colorado. Mr. Schottland's position is yet to be decided. Advanced Software Technologies is funded by Draper Fisher Jurvetson, Gateway Associates, Wasatch Venture Fund, and Zone Ventures. http://www.embarcadero.com/ http://www.advancedsw.com/ _____________________________________________ o Q&A Firm Answers.com Acquires Real-time Help Firm Knowitall PASADENA, Calif. -- Answers.com, a provider self-service question and answer technology, said it acquired Austin, Texas-based Knowitall.com, which provides real-time communication and collaboration products, for an undisclosed amount. Dewey Gaedcke, Knowitall's interim chief executive officer, will step down to focus on his position as president of Complete Data Solutions. Carl Samos, chief technology officer, and Lance McInnes, vice president of corporate development, will remain in their current positions with the new company. Knowitall's offices in Austin will remain as a sales and development office for Web-enabled customer interactive technology. Answers.com is backed by idealab! Knowitall is backed by Crest Financial, G51, and individual investors. http://www.answers.com/ http://www.knowitall.com/ _____________________________________________ o Broadband Firm MegaPath Networks Purchases Phoenix Networks PLEASANTON, Calif. -- MegaPath Networks, a national broadband services provider, said it has purchased Phoenix Networks, also a broadband services provider. Under the terms of the deal, MegaPath purchased the assets of Phoenix Networks in exchange for MegaPath stock. Phoenix Networks president and CEO, Dan Foster, will become MegaPath's chief marketing and sales officer. The companies plan to merge operations and administrative functions over the next 60 days. Phoenix DSL business customers will be immediately switched to MegaPath's systems and customer service. The company will maintain a St. Louis presence. MegaPath Networks' investors include Trident Capital and U.S. Venture Partners. Phoenix Networks is backed by individual investors. http://www.megapath.net/ http://www.phoenixnetworks.net/ _____________________________________________ o Digital Video Firm Ligos Buys Digital I/O App Firm Sequoia SAN FRANCISCO -- Ligos Technology, a developer of media stream management software, said it acquired Sequoia Advanced Technologies, a supplier of digital input/output (I/O) software and digital storage technology. Terms of the deal were undisclosed. Sequoia's staff will remain with the company and Sequoia co-founders and acting CEOs Rick Tewel and Tore Slotseldt will stay as part of the management team. Ligos is funded by Mercantile Capital Partners, Intel Capital, Lakeland Capital, Thomas Weisel Partners, Nomura Technology Fund, Oscar Capital New Ventures Fund, Permal Capital Management, and Westbury Equity Partners. Sequoia is self-funded. Telephone 415-249-0100. http://www.ligos.com/ _____________________________________________ o Sega to Acquire Family-Oriented Web Site FamilyWonder TOKYO -- Digital entertainment media giant Sega Group said it is in negotiations to acquire a 100% stake in FamilyWonder, an online retailer of children's products and a provider of family-oriented consumer information. Further financial deals were undisclosed. The company's Web site, current staff, and assets will be managed by Sega as a result of the acquisition. FamilyWonder's chief executive officer Charlie Baker will remain with the company. FamilyWonder is backed by MeriTech Capital Partners, RRE Ventures, Accel Partners, and U.S. Venture Partners. http://www.familywonder.com/ _____________________________________________ o UConnections.com Acquires Software Developer Alumnipride NEW YORK -- UConnections.com, an online resource for e-commerce and information tailored to local campus communities, said it has acquired Alumnipride, a software provider for national college and university alumni associations, for an undisclosed amount. UConnections.com has established a new division, University Services, to support development and sales of Alumnipride's Web site software. Alumnipride's founder, David Landau, will become executive vice president, corporate development for Uconnections.com. Alumnipride is also launching a new software product for national alumni associations that builds, hosts and maintains Web sites for their organizations. AlumniPride's staff has moved into the Uconnections.com's New York offices. Uconnections.com is backed by Allen & Company and KnowledgeCube. AlumniPride is backed by Seneca Ventures, Woodland Venture Fund, Dalewood Associates, the principals of Wheatley Partners, and the founders of Cheyenne Software. http://www.alumnipride.com/ http://www.uconnections.com/ _____________________________________________ o Varimetrix Acquires European Distributor From Encee Systems PALM BAY, Fla. -- Varimetrix, a developer of CAD/CAM technology for engineering and manufacturing industries, said it acquired its European distributor from Encee Systems for an undisclosed amount and opened a distribution site in Tokyo. The new European division will be staffed by Varimetrix personnel and will support existing partners in the U.K., Germany, Italy, Switzerland, Portugal, and Turkey. The Asian distributor is being established by the company's investor Shin Nippon Koki (SNK). Former SNK president Hizakasu Yamaguchi will serve as president of the Asian distributor. Varimetrix is backed by SNK and Samsung. http://www.vx.com/ http://www.encee.com/ ======= New Directors ======= o Web App Software Firm Notara Adds Two to Board NEW YORK -- Notara, a Web application software company, said it has appointed Neil Austrian, the chairman of iWon.com and former president and chief operating officer of NFL, to its board of directors. Mark Dowley, the president of the marketing communications group of McCann-Erikson WorldGroup and chairman and chief operating officer of Momentum Worldwide has also taken a seat on the board, Notara said. Notara is backed by Hummer Winbald Venture Partners, RRE Ventures, Bessemer Venture Partners, Nassau Capital, Sumitomo Corp, and the UK-based Prot,g, Group. http://www.notara.com/ _____________________________________________ o Advent Partner Joins Board of Imaging Firm LightLab WESTFORD, Mass. -- LightLab Imaging, a developer of optical coherence tomography systems for imaging applications, said it appointed William C. Mills III to its board of directors. Mr. Mills is a partner at investment firm Advent International, where he focuses on biotech investments. LightLab is backed by German-based optics company Calzeiss. http://www.lightlabimaging.com/ _____________________________________________ o Optical Firm LiquidLight Announces Board of Directors ATLANTA -- LiquidLight, a developer of optical networking technology, said it named the members of its board of directors. Appointees include Morgan M. Jones, General Partner with Battery Ventures; Fahri Diner, president, CEO and founder of Qtera, a wholly-owned subsidiary of Nortel Networks; Jim Orlando, principal with Battery Ventures; TC Nie, founder, CEO, and president of LiquidLight; and Scott Hardin, LiquidLight co-founder and vice president of marketing and sales. The company is backed by Battery Ventures and Dominion Ventures. http://www.liquidlightinc.com/ _____________________________________________ o Screen4me Adds President of Consumer Research Firm to Board ATLANTA -- Screen4me, a provider of privacy and permission tools and services that allow consumers to control the marketing materials they receive, said it named J. Walker Smith to its board of directors. Mr. Smith is president of Yankelovich Partners, a market research firm. Screen4me's investors include Robinson-Humphrey Company, Intelligent Systems and individuals from Brann RMG, Yankelovich Partners, Siebel Systems, Boston Consulting Group, and Holland & Knight. http://www.screen4me.com/ _____________________________________________ o Wireless Tech Firm Altawave Adds Prodigy COO to Board FREMONT, Calif. -- Wireless infrastructure builder Altawave said it appointed Gregory G. Williams to its board of directors. Mr. Williams is the chief operating officer at Prodigy Communications. Mr. Williams is also chairman of the Wireless Application Protocol (WAP) Forum board of directors. Altawave is backed by New Millennium Partners and Clarity Capital. http://www.altawave.com/ ======= New People ======= o Data Firm eData Names Ex-Andersen Consulting Exec as CEO BOCA RATON, Fla. -- EData, a provider of Internet-accessable data management services, said it has appointed former managing partner and founder of Andersen Consulting's CRM practice Dale Renner as its first chief executive office. Founder Hank Asher will remain on the eData board as founder and will continue to work on product design and technology. EData is funded by individual investors. http://www.edata.com/ _____________________________________________ o Telco Services Firm Zenfinity Names New CEO and Director ISELIN, N.J. -- Zenfinity, a provider of infrastructure services for telecommunications service providers, said it appointed Paul Shaneck as CEO and a director of the company. Mr. Shaneck , a former IBM executive, replaces Paras Shah, who provided the seed funding to launch Zenfinity and is now a member of its advisory board. The company's backers include Comstellar Technologies. http://www.zenfinityinc.com/ ======= VC Fund News ======= o Advent Venture Partners' New Fund Raises $232 Million LONDON -- Advent Venture Partners, a U.K.-based venture capital firm, said it has held a first closing of GBP 162 million ($232 million) for its new fund, Advent Private Equity Fund III. The fund is targeted at $375 million dollars, but the firm said it could raise up to $450 million. In line with Advent's investment strategy, the new fund will focus on investing between $5 million and $15 million in emerging growth technology companies in typically second round financings, with some pre-IPO and startup investments as well. The fund focuses primarily on investments in the United Kingdom and, to a lesser extent, other European Union countries and the United States. Since it was formed in 1981, Advent Venture Partners has raised $602 million, and invested in 160 companies. http://www.adventventures.com/ _____________________________________________ o Village Ventures Launches Nashville Fund WILLIAMSTOWN, Mass. -- Village Ventures, which manages a network of early-stage venture capital funds, said it is organizing a fund in Nashville, Tenn. The Nashville fund will be managed by Tuff Yen, a former partner with Hambrecht & Quist. The fund, which has yet to be named, will focus on early to mid-stage companies located in the Southeast. With the new fund, the Village Ventures network of funds now totals nine, with a typical fund size of between $10 million and $15 million. http://www.villageventures.com/ ======= VC Personnel ======= o VS&A Communications Partners Names New Principal NEW YORK -- VS&A Communications Partners III, an equity affiliate of media merchant bank Veronis Suhler, said it has named George Coles as a principal. Mr. Cole was most recently the managing director of First Union Securities' media and entertainment investment banking group. At VS&A, he will report to Jeffrey T. Stevenson, partner at Veronis Suhler, and president and managing general partner of VS&A Communications Partners. VS&A's has18 companies in its Funds I and II, and has made more than 80 add-on acquisitions. http://www.veronissuhler.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| CHANGING SUPPLY CHAINS A typical hospital buys $50 million in supplies from 22,000 suppliers annually. On average there is a 75% price discrep- ancy for identical products. Paper invoices cost 30 times as much as electronic invoices. Room for improvement? Perhaps. We've convened an expert panel at Healthcare Outlook 2000 to help us understand where the changes will come from and who the big winners will be: Dr. Gilbert H. Kliman, General Partner, InterWest Partners Dr.David M. Auerbach, Principal, Decision Health Sundeep Bhan, Chairman,President, & CEO, Medsite.com Anne De Gheest, President & CEO, medpool.com Daren C. Marhula, Sr. Research Analyst, Healthcare, U.S. Bancorp Piper Jaffray For a full agenda, and to register: http://tpsite.com/tp/conf/ho2000/?vw=20001026 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. Nothing that appears in VentureWire, however, may be reproduced, saved, or stored in a retrieval system without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners =====================================

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Subject: VentureWire, Friday, October 27, 2000 Sender: venturewire@venturewire.com Recipients: ['jdasovic@enron.com'] File: dasovich-j/all_documents/2777. ===================================== ====================================================== VENTUREWIRE --- Friday, October 27, 2000 ====================================================== Private Company Business News ------ Published Daily by Technologic Partners ------- http://technologicpartners.com ====================================================== Top Stories: o Broadband Provider Altrio Holds First Round for $125 Million o European Strategic Partners Raises $718.2 Million New Fund o Reports: Modo Service Closes Weeks After Launch o Commerx Co-founders Resign, Remain on Board; COO Interim CEO |||||||||||||||||||| Advertisement |||||||||||||||||||| DODADS, GADGETS, AND GIZMOS, OH MY! Our pockets are overflowing with mobile phones, PDAs, and two-way pagers, and more products -- from Web pads to picture frames -- come with Internet connections. Consumer Devices, one of five expert panels at Technology Outlook 2000, will sort through the clutter to determine which devices have the best chances of finding mass-market audiences: Safi Qureshy, Chairman, AudioRamp Daniel H. Rimer, Partner, The Barksdale Group Kent Savage, President & CEO, Netpliance Michael Slater, President, PhotoTablet Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=20001026 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| Also in This Issue: New Money: o News Firm Gannett Buys Stake in Media Company Space.com o Optical Networking Firm Edgeflow Gets $5.5 Million Round One o E-Commerce Network eScout.com Raises $25.5 Million Round Two o Infrastructure Software Firm eQview Has $3 Million Round One o Online Business Analysis Firm Raises $2.6 Million Round One o Info Service Traffic.com Secures $45 Million Third Round o Commercial Property B2B FacilityPro Gets $5 Million Series B o Gay.com Invests in Italian Gay Portal Gay.it o Online Bank Service Firm BNKR Raises $1.5 Million Round Two o Custom CD Provider DigitalSwift Raises Second Round o Launchworks Invests in Utility Management Firm E2MS o Semiconductor Materials Firm EpiWorks Adds $1 Million New Deals: o Oracle Trades Interactive TV Assets for Stakes in Two Firms o More Details on Sony and Candescent's $77.5 Million Pact M&A: o Red Cube Makes $20 Million Payment to Buy Majority of I-Link o Credence Systems Buys NewMillennia for $11.3 Million o Embarcadero Acquires Web Design Firm in $13 Million Deal o Q&A Firm Answers.com Acquires Real-time Help Firm Knowitall o Broadband Firm MegaPath Networks Purchases Phoenix Networks o Digital Video Firm Ligos Buys Digital I/O App Firm Sequoia o Sega to Acquire Family-Oriented Web Site FamilyWonder o UConnections.com Acquires Software Developer Alumnipride o Varimetrix Acquires European Distributor From Encee Systems New Directors: o Web App Software Firm Notara Adds Two to Board o Advent Partner Joins Board of Imaging Firm LightLab o Optical Firm LiquidLight Announces Board of Directors o Screen4me Adds President of Consumer Research Firm to Board o Wireless Tech Firm Altawave Adds Prodigy COO to Board New People: o Data Firm eData Names Ex-Andersen Consulting Exec as CEO o Telco Services Firm Zenfinity Names New CEO and Director VC Fund News: o Advent Venture Partners' New Fund Raises $232 Million o Village Ventures Launches Nashville Fund VC Personnel: o VS&A Communications Partners Names New Principal |||||||||||||||||||| Advertisement |||||||||||||||||||| Computers in our pockets, our cars, our kitchens, our showers? When it happens, there's little doubt that IBM and Intel will have had something to do with it. Come hear what these industry powerhouses are doing in this field from Claude Leglise, VP of the Intel Architecture Group & GM of Intel's Home Products Group, and from Michel Mayer, GM of Pervasive Computing at IBM at: Technology Outlook 2000: The future of pervasive computing December 4 and 5, San Francisco http://www.tpsite.com/tp/conf/to2000/?vw=20001026 A VentureWire investment conference. ||||||||||||||||||||||||||||||||||||||||||||||||||||||| ======= Top Stories ======= o Broadband Provider Altrio Holds First Round for $125 Million GLENDALE, Calif. -- Altrio Communications, a provider of broadband communications, said it raised $125 million in its first round of funding. Bessemer Holdings and Frontenac co-led the round, which included Bank of America Capital Investors; Grove Street Advisors; RBC Partners, the private equity unit of Royal Bank Financial Group; Soros Private Equity Partners; and SSB Capital Partners, the private investment unit of Salomon Smith Barney. Adam Godfey and Ed Park of Bessemer Holdings, James E. Crawford III and Walter C. Florence of Frontenac, and representatives of Soros Private Equity and SSB Capital Partners will join the company's board of directors. The company will use the funding to build its broadband communications network in the Los Angeles area. http://www.altrio.net/ _____________________________________________ o European Strategic Partners Raises $718.2 Million New Fund EDINBURGH, Scotland -- Standard Life Investments, a U.K. mutual investment company, said it completed the final closing of its new private equity fund, European Strategic Partners. The total commitments to the fund are now EUR 868 million ($718.2 million) from 40 investors in 12 countries. A third of the capital raised for the fund has already been committed to investments in 13 funds and 6 direct transactions. The fund will focus on the mid-market-buyout and the telecommunications and technology investment sectors. The fund is split 60% to 40% between investments in other funds and direct investment in companies. Telephone +44-131-245-5593. _____________________________________________ o Reports: Modo Service Closes Weeks After Launch NEW YORK -- Scout Electromedia, developer of a wireless handheld device and urban guide service, has closed down, according to multiple reports. Scout, which launched its Modo service last month with an extensive ad campaign, ceased operations after failing to secure additional funding, according to the reports. The company raised $18 million in May from idealab, Chase Capital Partners, Flatiron Partners, and TechFund Capital. Scout's corporate Web site, and the Modo site were both inaccessible today. _____________________________________________ o Commerx Co-founders Resign, Remain on Board; COO Interim CEO CHICAGO -- Commerx, which develops and operates electronic business networks, said its board of directors has accepted the resignations of co-founders Tim Stojka, chairman and CEO, and Nick Stojka, executive vice president. Both will retain their seats on the board of directors. Tim Stojka will continue to serve as chairman of the board. Commerx named COO Jeff Garwood as interim chief executive officer. Last week, Mr. Garwood announced his intention to resign as Commerx COO for a chief executive position with another company. He has agreed to remain at Commerx through a transitionary period. Commerx's electronic business networks enable manufacturing companies and their trading partners to optimize their supply chains. The company's investors include Capital Research and Management, divine interVentures, MC Capital, Mitsui & Co., Palantir Associates, Pivotal Asset Management, Ashland Distribution, Eastman Chemical, EP Partners, Huntsman, Mitsubishi International, MSC Industrial Direct, H. Nuehlstein & Co., Internet Capital Group, and individual investors. http://www.commerx.com/ ======= New Money ======= o News Firm Gannett Buys Stake in Media Company Space.com NEW YORK -- News and information company Gannett said it took an equity stake in Space.com, a media company dedicated to outer space and space related content. The equity exchange is part of a strategic partnership between the two companies. Space.com has acquired Space News newspaper and other media properties of Gannett. Gannett will invest an undisclosed amount of cash and provide services for Space.com. Earlier this month, Space.com laid off 22 of its 108 employees. Space.com is backed by Blue Chip Venture, Greylock, NBC, PaineWebber, SpaceVest, Venrock Associates, and individuals. http://www.space.com/ _____________________________________________ o Optical Networking Firm Edgeflow Gets $5.5 Million Round One KANATA, Ontario -- Edgeflow, a developer of optical networking services to the carrier and enterprise markets, said it raised $5.5 million in its first round from Sierra Ventures and Venture Coaches. The company will use the funds to continue development of its technology. http://www.edgeflow.com/ _____________________________________________ o E-Commerce Network eScout.com Raises $25.5 Million Round Two LEE'S SUMMIT, Mo. -- eScout.com, a Web-based Internet commerce and business network for independent businesses and banks, said it raised $25.5 million in its second round of financing. New investors include Allfirst Financial, Citizens Financial Group, Golden State Bancorp, Marquette Bancshares, Texas Financial Bancorp, and Utilicorp Communications Services. First round investors including Mayfield Fund, Oak Hill Venture Partners, Tarrant Venture Partners, A.G. Edwards Capital, and Commerce One also participated this round. The company will use the funds to accelerate the integration of its online service, eScout MarketPlace, into the back-end, legacy applications at its partner banks. EScout has raised $54 million to date. http://www.escout.com/ _____________________________________________ o Infrastructure Software Firm eQview Has $3 Million Round One ATLANTA -- eQview, which provides enterprise infrastructure software that enables companies to do business electronically, said it has raised $3 million in first round of funding from Cordova Ventures and individual investors. eQview said it will use the funding to develop its product, and for sales and marketing. The company plans to seek up to $20 million in additional funding early next year. http://www.eqview.com/ _____________________________________________ o Online Business Analysis Firm Raises $2.6 Million Round One LONDON -- IntelligentApps,which provides online analytical processing services, raised GBP 1.8 million ($2.6 million) in its first round of funding. The round was led by publicly-traded UK incubation firm NewMedia Spark and a consortium of individual investors. Among the individuals to invest in the company was Geoff Squire, founding managing director of Oracle UK and later executive vice president for Oracle. The company's technology was developed exclusively for the new Microsoft.net platform. The company said it will use the funding for business development. IntelligentApps also owns Knosys, which provides a front-end analytical application platform. http://www.intelligentapps.com/ _____________________________________________ o Info Service Traffic.com Secures $45 Million Third Round WAYNE, Pa. -- Traffic.com, which provides traffic information services, said it raised $45 million in its third round of funding. New investor Baker Capital led the round, which included other new investors DVCRF Ventures, Hearst Interactive Media, and PNC Financial Service's Group unit VentureBank@PNC. Previous investors Bessemer Venture Partners and TL Ventures also participated in this round. Baker Capital partner Larry Bettino will join the company's board of directors. The company will use the funding to launch its operations and expand its data center. Traffic.com provides prediction services and real-time traffic news. The company has also received backing from Internet Capital Group and Pennsylvania Early Stage Partners. http://www.traffic.com/ _____________________________________________ o Commercial Property B2B FacilityPro Gets $5 Million Series B ATLANTA -- FacilityPro.com, a business-to-business electronic marketplace for commercial property owners, managers and suppliers, said it has secured $5 million in its Series B round of funding from First Union Capital Partners. The funding brings the total of the company's Series B financing to $40 million. The round included Constellation Real Technologies and previous investor Austin Ventures. The company said it will use the funds to enhance and expand the capabilities of its online marketplace and hire additional consulting and operating personnel. FacilityPro has also received funding from Encompass Services. http://www.facilitypro.com/ _____________________________________________ o Gay.com Invests in Italian Gay Portal Gay.it SAN FRANCISCO -- Gay.com, a provider of products and services for gay men and women, said it made a strategic investment in Gay.it, a gay and lesbian portal based in Italy. Gay.com said the investment is part of its ongoing global expansion. The company acquired France-based Ooups.com, and launched news sites aimed at the gay community in the U.K. and Latin America. Gay.com is backed by Chase Capital Partners, Flatiron Partners, Baroda Ventures, Macluan Digital, Jesse.Hansen.CoVe, and IDG Ventures. http://www.gay.com/ http://www.gay.it/ _____________________________________________ o Online Bank Service Firm BNKR Raises $1.5 Million Round Two BUFFALO, N.Y. -- Rand Capital said it made a second investment in BNKR, which provides online banking capabilities to banks and credit unions. The return investment, a bridge loan of $200,000, is part of BNKR's $1.5 million second round. Minneapolis-based BNKR is also backed by Softbank affiliate Seed Capital Partners. BNKR provides banking marketing and application services. http://www.bnkr.com/ _____________________________________________ o Custom CD Provider DigitalSwift Raises Second Round ATLANTA -- DigitalSwift, a producer of custom CDs via its SwiftCD.com division, said it raised an undisclosed amount of second round funding. The round was led by Universal Investment & Manufacturing Co., whose chairman Hisham Araim will take a new seat on the board as a result of the investment. Financial consultant Gregory N. Gallagher also joined the board but is not an investor. The company will use the funds to expand its Atlanta office. http://www.swiftcd.com/ _____________________________________________ o Launchworks Invests in Utility Management Firm E2MS TORONTO -- Launchworks, which provides early stage capital to software and technology companies, said it invested $2 million in E2MS, which provides software and services that enables users to manage their gas, electrical, and water utility services. E2MS, which is also based here, will use the funds for marketing and expansion. http://www.launchworks.com/ http://www.e2ms.com/ _____________________________________________ o Semiconductor Materials Firm EpiWorks Adds $1 Million CHAMPAIGN, Ill. -- EpiWorks, which develops and manufacturers compound semiconductor materials, said it has secured an additional $1 million in its Series C funding from previous investor Open Prairie Ventures. The investment follows an earlier investment of $1.5 million by Open Prairie in March. The funds will support hiring. http://www.epiworks.com/ ======= New Deals ======= o Oracle Trades Interactive TV Assets for Stakes in Two Firms REDWOOD SHORES, Calif. -- nCube, which provides media streaming infrastructure, said database giant Oracle sold assets of its interactive television unit to nCube and broadband network service provider Thirdspace Living in exchange for minority equity stakes in both companies. Financial terms of the deals were undisclosed. Under the terms of the agreement, nCube and Thirdspace will jointly own the intellectual property of Oracle's interactive TV video server technology. The three companies will also work together to develop interactive TV products and services. Publicly traded broadband access provider Alcatel also invested its interactive TV intellectual property and cash for a minority stake in Thirdspace. nCube is backed by Oracle CEO Larry Ellison and other institutional and individual investors. http://www.ncube.com/ http://www.oracle.com/ _____________________________________________ o More Details on Sony and Candescent's $77.5 Million Pact TOKYO -- Flat panel display developer Candescent Technologies and Sony released details of their previously reported agreement to develop high voltage field emission display technology. Sony will pay a total of $77.5 million as a result of the agreement. Sony will invest $27.5 million in Candescent for an equity stake and will pay $50 million to license Candescent's technology. Additional funding will come from both companies over the life of their joint development agreement. Candescent has raised over $410 million from corporate, government, institutional, and venture capital sources. http://www.candescent.com/ http://www.world.sony.com/ ======= M&A ======= o Red Cube Makes $20 Million Payment to Buy Majority of I-Link ZURICH, Switzerland -- Red Cube International, a provider of Internet Protocol (IP) and Web-based communications services, said it is has made a first payment of $20 million in cash under its agreement to acquire a majority interest in publicly-traded I-Link, a provider of enhanced voice/data services. As part of its securities agreement to acquire all I-Link securities held by Winter Harbor, a Marriott holding company, Red Cube will make an additional cash payment of $15 million to complete the first closing of the transaction within the fourth quarter of 2000. A second closing involving payment by Red Cube of $25 million in cash is expected to be completed within the first quarter of 2001. Under the terms of the transaction, Red Cube agreed to pay Winter Harbor a total of $60 million in cash and $20 million in long-term, Red Cube share options in return for its majority interest in I-Link. Red Cube is backed by Rafaello Private Equity Investment, Credit Suisse Asset Management, Banc Pictet & Cie, and Swiss Re Investors in Europe. http://www.i-link.com/ http://www.redcube.com/ _____________________________________________ o Credence Systems Buys NewMillennia for $11.3 Million FREMONT, Calif. -- Credence Systems, a publicly-traded company that manufacturers automatic test equipment for the semiconductor industry, said it is acquiring NewMillennia Solutions (NMS), a provider of test strategies and products, for approximately $11.3 million. The purchase price includes $4 million that Credence provided as part of NewMillennia's Series A round in August. Before the acquisition, Credence held a 19.8% interest in NMS. Jim Ellis, founder, president and chief executive officer of NMS will become vice president and general manager of the NMS Division of Credence Systems. http://www.credence.com/ http://www.moduletest.com/ _____________________________________________ o Embarcadero Acquires Web Design Firm in $13 Million Deal SAN FRANCISCO -- Embarcadero Technologies, a publicly-traded provider of database lifecycle management software, said it acquired Advanced Software Technologies for $13 million in cash. Advanced Software Technologies develops software that designs, maintains, and re-engineers Java, C++, IDL and component-based applications. The company's 40 employees and CEO Greg Schottland will remain with the company in Colorado. Mr. Schottland's position is yet to be decided. Advanced Software Technologies is funded by Draper Fisher Jurvetson, Gateway Associates, Wasatch Venture Fund, and Zone Ventures. http://www.embarcadero.com/ http://www.advancedsw.com/ _____________________________________________ o Q&A Firm Answers.com Acquires Real-time Help Firm Knowitall PASADENA, Calif. -- Answers.com, a provider self-service question and answer technology, said it acquired Austin, Texas-based Knowitall.com, which provides real-time communication and collaboration products, for an undisclosed amount. Dewey Gaedcke, Knowitall's interim chief executive officer, will step down to focus on his position as president of Complete Data Solutions. Carl Samos, chief technology officer, and Lance McInnes, vice president of corporate development, will remain in their current positions with the new company. Knowitall's offices in Austin will remain as a sales and development office for Web-enabled customer interactive technology. Answers.com is backed by idealab! Knowitall is backed by Crest Financial, G51, and individual investors. http://www.answers.com/ http://www.knowitall.com/ _____________________________________________ o Broadband Firm MegaPath Networks Purchases Phoenix Networks PLEASANTON, Calif. -- MegaPath Networks, a national broadband services provider, said it has purchased Phoenix Networks, also a broadband services provider. Under the terms of the deal, MegaPath purchased the assets of Phoenix Networks in exchange for MegaPath stock. Phoenix Networks president and CEO, Dan Foster, will become MegaPath's chief marketing and sales officer. The companies plan to merge operations and administrative functions over the next 60 days. Phoenix DSL business customers will be immediately switched to MegaPath's systems and customer service. The company will maintain a St. Louis presence. MegaPath Networks' investors include Trident Capital and U.S. Venture Partners. Phoenix Networks is backed by individual investors. http://www.megapath.net/ http://www.phoenixnetworks.net/ _____________________________________________ o Digital Video Firm Ligos Buys Digital I/O App Firm Sequoia SAN FRANCISCO -- Ligos Technology, a developer of media stream management software, said it acquired Sequoia Advanced Technologies, a supplier of digital input/output (I/O) software and digital storage technology. Terms of the deal were undisclosed. Sequoia's staff will remain with the company and Sequoia co-founders and acting CEOs Rick Tewel and Tore Slotseldt will stay as part of the management team. Ligos is funded by Mercantile Capital Partners, Intel Capital, Lakeland Capital, Thomas Weisel Partners, Nomura Technology Fund, Oscar Capital New Ventures Fund, Permal Capital Management, and Westbury Equity Partners. Sequoia is self-funded. Telephone 415-249-0100. http://www.ligos.com/ _____________________________________________ o Sega to Acquire Family-Oriented Web Site FamilyWonder TOKYO -- Digital entertainment media giant Sega Group said it is in negotiations to acquire a 100% stake in FamilyWonder, an online retailer of children's products and a provider of family-oriented consumer information. Further financial deals were undisclosed. The company's Web site, current staff, and assets will be managed by Sega as a result of the acquisition. FamilyWonder's chief executive officer Charlie Baker will remain with the company. FamilyWonder is backed by MeriTech Capital Partners, RRE Ventures, Accel Partners, and U.S. Venture Partners. http://www.familywonder.com/ _____________________________________________ o UConnections.com Acquires Software Developer Alumnipride NEW YORK -- UConnections.com, an online resource for e-commerce and information tailored to local campus communities, said it has acquired Alumnipride, a software provider for national college and university alumni associations, for an undisclosed amount. UConnections.com has established a new division, University Services, to support development and sales of Alumnipride's Web site software. Alumnipride's founder, David Landau, will become executive vice president, corporate development for Uconnections.com. Alumnipride is also launching a new software product for national alumni associations that builds, hosts and maintains Web sites for their organizations. AlumniPride's staff has moved into the Uconnections.com's New York offices. Uconnections.com is backed by Allen & Company and KnowledgeCube. AlumniPride is backed by Seneca Ventures, Woodland Venture Fund, Dalewood Associates, the principals of Wheatley Partners, and the founders of Cheyenne Software. http://www.alumnipride.com/ http://www.uconnections.com/ _____________________________________________ o Varimetrix Acquires European Distributor From Encee Systems PALM BAY, Fla. -- Varimetrix, a developer of CAD/CAM technology for engineering and manufacturing industries, said it acquired its European distributor from Encee Systems for an undisclosed amount and opened a distribution site in Tokyo. The new European division will be staffed by Varimetrix personnel and will support existing partners in the U.K., Germany, Italy, Switzerland, Portugal, and Turkey. The Asian distributor is being established by the company's investor Shin Nippon Koki (SNK). Former SNK president Hizakasu Yamaguchi will serve as president of the Asian distributor. Varimetrix is backed by SNK and Samsung. http://www.vx.com/ http://www.encee.com/ ======= New Directors ======= o Web App Software Firm Notara Adds Two to Board NEW YORK -- Notara, a Web application software company, said it has appointed Neil Austrian, the chairman of iWon.com and former president and chief operating officer of NFL, to its board of directors. Mark Dowley, the president of the marketing communications group of McCann-Erikson WorldGroup and chairman and chief operating officer of Momentum Worldwide has also taken a seat on the board, Notara said. Notara is backed by Hummer Winbald Venture Partners, RRE Ventures, Bessemer Venture Partners, Nassau Capital, Sumitomo Corp, and the UK-based Prot,g, Group. http://www.notara.com/ _____________________________________________ o Advent Partner Joins Board of Imaging Firm LightLab WESTFORD, Mass. -- LightLab Imaging, a developer of optical coherence tomography systems for imaging applications, said it appointed William C. Mills III to its board of directors. Mr. Mills is a partner at investment firm Advent International, where he focuses on biotech investments. LightLab is backed by German-based optics company Calzeiss. http://www.lightlabimaging.com/ _____________________________________________ o Optical Firm LiquidLight Announces Board of Directors ATLANTA -- LiquidLight, a developer of optical networking technology, said it named the members of its board of directors. Appointees include Morgan M. Jones, General Partner with Battery Ventures; Fahri Diner, president, CEO and founder of Qtera, a wholly-owned subsidiary of Nortel Networks; Jim Orlando, principal with Battery Ventures; TC Nie, founder, CEO, and president of LiquidLight; and Scott Hardin, LiquidLight co-founder and vice president of marketing and sales. The company is backed by Battery Ventures and Dominion Ventures. http://www.liquidlightinc.com/ _____________________________________________ o Screen4me Adds President of Consumer Research Firm to Board ATLANTA -- Screen4me, a provider of privacy and permission tools and services that allow consumers to control the marketing materials they receive, said it named J. Walker Smith to its board of directors. Mr. Smith is president of Yankelovich Partners, a market research firm. Screen4me's investors include Robinson-Humphrey Company, Intelligent Systems and individuals from Brann RMG, Yankelovich Partners, Siebel Systems, Boston Consulting Group, and Holland & Knight. http://www.screen4me.com/ _____________________________________________ o Wireless Tech Firm Altawave Adds Prodigy COO to Board FREMONT, Calif. -- Wireless infrastructure builder Altawave said it appointed Gregory G. Williams to its board of directors. Mr. Williams is the chief operating officer at Prodigy Communications. Mr. Williams is also chairman of the Wireless Application Protocol (WAP) Forum board of directors. Altawave is backed by New Millennium Partners and Clarity Capital. http://www.altawave.com/ ======= New People ======= o Data Firm eData Names Ex-Andersen Consulting Exec as CEO BOCA RATON, Fla. -- EData, a provider of Internet-accessable data management services, said it has appointed former managing partner and founder of Andersen Consulting's CRM practice Dale Renner as its first chief executive office. Founder Hank Asher will remain on the eData board as founder and will continue to work on product design and technology. EData is funded by individual investors. http://www.edata.com/ _____________________________________________ o Telco Services Firm Zenfinity Names New CEO and Director ISELIN, N.J. -- Zenfinity, a provider of infrastructure services for telecommunications service providers, said it appointed Paul Shaneck as CEO and a director of the company. Mr. Shaneck , a former IBM executive, replaces Paras Shah, who provided the seed funding to launch Zenfinity and is now a member of its advisory board. The company's backers include Comstellar Technologies. http://www.zenfinityinc.com/ ======= VC Fund News ======= o Advent Venture Partners' New Fund Raises $232 Million LONDON -- Advent Venture Partners, a U.K.-based venture capital firm, said it has held a first closing of GBP 162 million ($232 million) for its new fund, Advent Private Equity Fund III. The fund is targeted at $375 million dollars, but the firm said it could raise up to $450 million. In line with Advent's investment strategy, the new fund will focus on investing between $5 million and $15 million in emerging growth technology companies in typically second round financings, with some pre-IPO and startup investments as well. The fund focuses primarily on investments in the United Kingdom and, to a lesser extent, other European Union countries and the United States. Since it was formed in 1981, Advent Venture Partners has raised $602 million, and invested in 160 companies. http://www.adventventures.com/ _____________________________________________ o Village Ventures Launches Nashville Fund WILLIAMSTOWN, Mass. -- Village Ventures, which manages a network of early-stage venture capital funds, said it is organizing a fund in Nashville, Tenn. The Nashville fund will be managed by Tuff Yen, a former partner with Hambrecht & Quist. The fund, which has yet to be named, will focus on early to mid-stage companies located in the Southeast. With the new fund, the Village Ventures network of funds now totals nine, with a typical fund size of between $10 million and $15 million. http://www.villageventures.com/ ======= VC Personnel ======= o VS&A Communications Partners Names New Principal NEW YORK -- VS&A Communications Partners III, an equity affiliate of media merchant bank Veronis Suhler, said it has named George Coles as a principal. Mr. Cole was most recently the managing director of First Union Securities' media and entertainment investment banking group. At VS&A, he will report to Jeffrey T. Stevenson, partner at Veronis Suhler, and president and managing general partner of VS&A Communications Partners. VS&A's has18 companies in its Funds I and II, and has made more than 80 add-on acquisitions. http://www.veronissuhler.com/ |||||||||||||||||||| Advertisement |||||||||||||||||||| CHANGING SUPPLY CHAINS A typical hospital buys $50 million in supplies from 22,000 suppliers annually. On average there is a 75% price discrep- ancy for identical products. Paper invoices cost 30 times as much as electronic invoices. Room for improvement? Perhaps. We've convened an expert panel at Healthcare Outlook 2000 to help us understand where the changes will come from and who the big winners will be: Dr. Gilbert H. Kliman, General Partner, InterWest Partners Dr.David M. Auerbach, Principal, Decision Health Sundeep Bhan, Chairman,President, & CEO, Medsite.com Anne De Gheest, President & CEO, medpool.com Daren C. Marhula, Sr. Research Analyst, Healthcare, U.S. Bancorp Piper Jaffray For a full agenda, and to register: http://tpsite.com/tp/conf/ho2000/?vw=20001026 ||||||||||||||||||||||||||||||||||||||||||||||||||||||| SEND TO A FRIEND To subscribe to VentureWire, tell your friends and colleagues to go to: http://venturewire.net/ This copy of VentureWire may be distributed freely, provided that the distribution is without charge, that the issue is distributed complete and unaltered, and that all copies retain the Technologic copyright notice. Nothing that appears in VentureWire, however, may be reproduced, saved, or stored in a retrieval system without the prior written consent of Technologic Partners. _____________________________________________ TO SUBSCRIBE go to: http://venturewire.net/ To CHANGE your address, send your old and new e-mail address to: change@venturewire.com To UNSUBSCRIBE, send e-mail to: listoff@venturewire.com Send COMMENTS, QUESTIONS, or NEWS ITEMS to: editor@venturewire.com Entire Contents Copyright 2000 by Technologic Partners VentureWire is a Service Mark of Technologic Partners ===================================== =====================================

m..schmidt@enron.com

Enron Mentions

SEC Seeks Information on Enron Dealings With Partnerships Recently Run by F= astow The Wall Street Journal, 10/23/01 Where Did the Value Go at Enron? New York Times, 10/23/01 FRONT PAGE - FIRST SECTION: SEC probes Enron over financial dealings=20 Financial Times; Oct 23, 2001 COMPANIES & FINANCE THE AMERICAS: Group full of surprises after failing to = open up=20 Financial Times; Oct 23, 2001 Enron Discloses SEC Inquiry=20 The Washington Post, Oct 23, 2001 Enron Suffers After Unclear Disclosure, New York Times Says Bloomberg, 10/23/01 SEC asks Enron for investing data Houston Chronicle, 10/23/01 Minnesota Mining and GM Climb In a Rally That Builds Late in Day The Wall Street Journal, 10/23/01 WORLD STOCK MARKETS: Wall St bargain hunters counter earnings gloom AMERICA= S=20 Financial Times; Oct 23, 2001 Milberg Weiss Announces Class Action Suit Against Enron Corp. Business Wire, 10/22/01 Enron To Host Conference Call Tues 9:30 am EDT Dow Jones News Service, 10/22/01 Janus Had Biggest Enron Stake at End of 2nd-Quarter (Update1) Bloomberg, 10/22/01 Enron Says SEC Asks About Related-Party Transactions (Update9) Bloomberg, 10/22/01 Trusts Keeping Enron Off Balance TheStreet.com, 10/22/01 Why Enron's Writedown Unnerves Some Investors TheStreet.com, 10/22/01 SEC Seeks Information on Enron Dealings With Partnerships Recently Run by F= astow By Rebecca Smith and John R. Emshwiller Staff Reporters of The Wall Street Journal 10/23/2001 The Wall Street Journal A3 (Copyright (c) 2001, Dow Jones & Company, Inc.) Enron Corp. said it has been contacted by the Securities and Exchange Commi= ssion seeking information on the energy giant's controversial dealings with= partnerships that were set up and run until recently by its chief financia= l officer, Andrew S. Fastow.=20 Following Enron's announcement yesterday morning of the SEC inquiry, the co= mpany's stock took another big slide, falling more than 20% in New York Sto= ck Exchange trading. As of 4 p.m., Enron shares were trading at $20.65, off= $5.40, knocking about $4 billion off Enron's market capitalization. Volume= topped the Big Board's most-active list at about 36 million shares. A week= ago, Enron stock was trading at about $33 a share. Subsequently, the compa= ny announced a $1.01 billion third-quarter write-off that produced a $618 m= illion loss. Analysts also voiced concerns yesterday about possible other bad news lurki= ng amid Enron's vast and extremely complex operations. The company has deal= ings with a number of related entities. Under certain circumstances, if Enr= on's credit rating and stock price fall far enough, the company would be ob= ligated to issue tens of millions of additional shares to these entities, d= iluting the holdings of current shareholders.=20 Enron has previously acknowledged the provisions but said its business is s= trong and it feels confident that there will be no defaults.=20 In a statement, Enron Chairman and Chief Executive Kenneth Lay said the com= pany "will cooperate fully" with the SEC inquiry and "look(s) forward to th= e opportunity to put any concern about these transactions to rest." Enron h= as consistently said that it believes its dealings with the Fastow-related = partnerships were proper and properly disclosed. The company has said it pu= t billions of dollars of assets and stock into partnership-related transact= ions as a way to hedge against fluctuating market conditions.=20 The SEC inquiry came from the agency's Fort Worth, Texas, regional office. = According to a person familiar with the matter, this would indicate that th= e inquiry comes from the SEC's enforcement arm, as opposed to its corporate= -finance section. The participation of the enforcement branch would indicat= e that the agency is looking into whether there were possible violations of= securities law. However, enforcement-branch inquiries often don't produce = any allegations of wrongdoing. It also appears that the SEC hasn't yet take= n the step of launching a formal investigation, which would be a sign that = the agency believes securities laws might have been violated. The SEC decli= ned to comment.=20 Certainly, there have been questions and concerns about those partnership t= ransactions, which contributed to a $1.2 billion reduction in shareholder e= quity last week as part of Enron's efforts to unwind the deals. Mr. Fastow,= who has declined repeated interview requests, resigned from the partnershi= ps, known as LJM Cayman LP and LJM2 Co-Investment LP, in late July in the f= ace of rising conflict-of-interest concerns by Wall Street analysts and maj= or company investors.=20 Since then, internal partnership documents have shown that Mr. Fastow and p= erhaps a handful of Enron associates made millions of dollars last year in = fees and capital increases as general partner of the LJM2, the larger of th= e two partnerships.=20 Mr. Fastow's partnership arrangement caused some unhappiness inside Enron, = according to people familiar with the matter. For instance, these people sa= y, sometime after the creation of the partnerships in 1999, Enron Treasurer= Jeffrey McMahon went to company president Jeffrey Skilling and complained = about potential conflicts of interest posed by Mr. Fastow's activities. Mr.= Skilling didn't share Mr. McMahon's concern, these people say, and Mr. McM= ahon requested and received reassignment to another post.=20 Mr. Skilling resigned as Enron president and chief executive in mid-August,= citing personal reasons and the fall in Enron's stock price, which peaked = at about $90 a share last year. Mr. McMahon and Mr. Skilling haven't respon= ded to repeated interview requests.=20 Investors are also concerned about potential problems arising in Enron's de= alings with other related entities. In some cases, Enron could be required = to issue large amounts of stock to noteholders in some of the entities if c= ertain so-called double trigger provisions occur.=20 For example, last July Enron helped create the Marlin Water Trust II, which= sold $915 million in notes that are due July 15, 2003. However, Enron can = be considered in default, in advance of that date, if its stock price falls= below $34.13 for three trading days and its senior debt is downgraded to b= elow investment grade by either Moody's Investors Service or Standard & Poo= r's.=20 Currently, Enron debt is still investment-grade at both ratings agencies an= d would have to be lowered by several notches to fall into a noninvestment = grade category. Last week, Moody's put Enron on review for a possible downg= rade. However, observers believe that even if Moody's lowers Enron's rating= , the company will still be investment-grade. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 October 23, 2001 Where Did the Value Go at Enron? By FLOYD NORRIS New York Times What really went on in some of the most opaque transactions with insiders e= ver seen? Wall Street has been puzzling over that since Enron (news/quote </redirect/= marketwatch/redirect.ctx?MW=3Dhttp://custom.marketwatch.com/custom/nyt-com/= html-companyprofile.asp&symb=3DENE>) released its quarterly earnings a week= ago. Yesterday shares in Enron plunged $5.40, to $20.65, after the company= said that the Securities and Exchange Commission was looking into the tran= sactions. The reaction was in some ways puzzling. Given the questions that have been = raised since the earnings announcement - some of them prominently featured = in The Wall Street Journal - it was likely that the S.E.C. would begin a pr= eliminary inquiry. Whether it will go farther than that is not clear, but if nothing else the = slide in Enron shares over the last week shows the hazards that can confron= t a company that allows word of a major reduction in its balance sheet valu= e to dribble out. Enron's shares rose 67 cents, to $33.84, last Tuesday, as= investors first reacted to the earnings announcement. But since then they = have fallen $13.19, or 39 percent. The $1.2 billion reduction in shareholders' equity was not mentioned in a n= ews release Enron issued on its quarterly earnings last Tuesday. It was bri= efly mentioned in a conference call with analysts, but many of the listener= s seem to have not noticed that, wrongly thinking Kenneth L. Lay, Enron's c= hairman and chief executive, was referring to a $1 billion write-off that w= as disclosed in the earnings release. When questions were asked in the following days, the explanations were less= than thorough. Enron explained that the reduction in shareholders' equity = was related to the termination of "structured finance vehicles" involving p= artnerships that had been controlled by the company's chief financial offic= er. "Both the debt and the equity people are looking for more clarity about how= the company goes about its business," said Ralph Pellecchia, a credit anal= yst at Fitch Investors Service. He added that the issue of the company's "c= redibility related to this transaction really seems to have a life of its o= wn." Enron declined yesterday to allow any officials to be interviewed about its= financial reports. But last night it said Mr. Lay would hold another confe= rence call with investors at 9:30 a.m. today.=20 The company's earlier disclosures regarding the partnerships baffled many a= nalysts. They referred to such things as "share settled costless collar arr= angements" and "derivative instruments which eliminated the contingent natu= re of existing restricted forward contracts." The disclosures said the comp= any entered into the transactions "to hedge certain merchant investments an= d other assets." It appears that Enron was able to report profits from them, even though the= underlying assets included investments that declined in value. The Wall St= reet Journal, citing reports the partnerships made to institutional investo= rs, has reported the partnerships did well enough to make large cash distri= butions to their investors. Enron officials in recent days have refused to = discuss the arrangements in any detail. One of the questions that the S.E.C. may look into is whether the terminati= on of those transactions should have been treated as a balance sheet item, = or whether it should have been taken as a loss that affected reported earni= ngs. An S.E.C. spokesman declined to comment. Under accounting rules, a company's transactions in its own shares cannot p= roduce profits or losses, whatever the effect on cash flow. So a company th= at sells its shares for $10 each, and buys them back at $50, or at $1, will= report no earnings effect. Enron said that the reduction to shareholders e= quity, and a related reduction in notes receivable, "is the result of Enron= 's termination of previously recorded contractual obligations to deliver En= ron shares in future periods." Stephen Moore, an analyst with Moody's Investors Service who has put Enron'= s debt on review for a possible downgrade, said that while some of the deta= ils were not clear, "Essentially, Enron's promise was that a certain amount= of Enron's shares would be worth $1 billion. The shares plummeted, and the= y were not" worth that much. Enron emphasizes its own version of earnings, which leaves out some expense= s, and directs attention away from its balance sheet, which is disclosed on= ly in S.E.C. filings, not in the earnings news release. The reduction in sh= areholders' equity would be shown only on the third-quarter balance sheet, = which has yet to be released. Earlier this year, Jeffrey Skilling, then Enron's chief executive, reacted = strongly when a questioner on a conference call challenged the failure to p= rovide balance sheet numbers when earnings were released. He called the que= stioner a common vulgarity that surprised many listeners. Mr. Skilling late= r resigned for what he said were personal reasons and Mr. Lay, the chairman= and former chief executive, took back the latter title. While Enron was riding high, its often difficult-to-understand reports were= generally seen as not being a problem. The company appeared to be the domi= nant force in the business of energy trading, and to be able to produce phe= nomenal profits. When Mr. Lay was reported as having played an important ro= le in formulating the Bush administration's energy policies, the aura was o= nly enhanced. In January, the shares traded for $84. But now, with some of the company's ventures clearly having run into proble= ms, it appears that investors are growing less willing to accept the compan= y's reports. That the partnership transactions were disclosed at all was be= cause of the involvement of the chief financial officer, and some have wond= ered if there might have been similar deals with others. Mr. Lay has promised to make the company's financial reports easier to unde= rstand, and last week's report was at first praised by some analysts for do= ing just that. In a news release yesterday, Mr. Lay said the company welcomed the S.E.C.'s= request for information. "We will cooperate fully with the S.E.C. and look= forward to the opportunity to put any concern about these transactions to = rest," he said. FRONT PAGE - FIRST SECTION: SEC probes Enron over financial dealings=20 Financial Times; Oct 23, 2001 By JULIE EARLE, JOHN LABATE and SHEILA MCNULTY Enron, the US energy giant, disclosed yesterday that the Securities and Exc= hange Commission had asked it to provide financial information at the start= of an informal inquiry.=20 The announcement follows a rapid sell-off in the stock in reaction to Enron= 's surprise revelation last week of a Dollars 1.2bn charge to equity to eli= minate the dilutive effects of closing one of its controversial financing v= ehicles.=20 In revealing the SEC call for more detailed information "regarding certain = related party transactions", Enron hopes to counter growing criticism that = it should be more transparent. "We welcome this request," said Kenneth Lay,= Enron chairman and chief executive officer. "We will co-operate fully with= the SEC and look forward to the opportunity to put any concern about these= transactions to rest."=20 The SEC probe into Enron's financial dealings is an informal one at this st= age, according to the company, and the request for documents is voluntary. = However, SEC probes often begin lightly as investigators gather information= on an issue.=20 Such a probe could turn into a formal investigation at any time. In that ca= se, regulators would be armed with subpoena powers and could demand certain= documents be handed over. The SEC would not confirm or deny the existence = of the Enron probe.=20 Mr Lay did not say which transactions the SEC was reviewing, although analy= sts believe they relate to Andrew Fastow, Enron chief financial officer, wh= o has been reported to have run a limited partnership that bought assets va= lued at hundreds of millions of dollars from Enron.=20 Analysts say the transactions, while controversial because of Mr Fastow's l= inks to the company, have been disclosed. What concerns them, however, is h= ow Enron valued the assets involved. www.ft.com/energy=20 Copyright: The Financial Times Limited COMPANIES & FINANCE THE AMERICAS: Group full of surprises after failing to = open up=20 Financial Times; Oct 23, 2001 By SHEILA MCNULTY Ronald Barone joked he would have to get plenty of rest ahead of Enron's re= sults last week, noting the US energy company's reputation for producing wh= at some analysts say is the most complicated of earnings reports.=20 The UBS Warburg analyst was, nevertheless, as ill-prepared as his peers for= the announcement of a Dollars 1.2bn charge to equity to eliminate the dilu= tive effects of closing one of its controversial financing vehicles.=20 The news overshadowed Enron's on-target 26 per cent increase in third-quart= er earnings per share, sending the stock plunging.=20 The Securities and Exchange Commission's subsequent request for more inform= ation about Enron's financial activities has reinforced analyst perceptions= that the company should have been more transparent in its reporting.=20 Curt Launer, of Credit Suisse First Boston, says expectations for more disc= losure had built up over the past two months. Kenneth Lay, Enron chairman, = had promised to be more forthcoming when he resumed the duties of chief exe= cutive following the resignation of Jeff Skilling in August.=20 While Mr Lay did improve Enron's disclosure by creating headings for new bu= siness segments and providing more detail within each of them, the Dollars = 1.2bn charge still caught the market off guard.=20 "It came as a surprise to us," said Stephen Moore, of Moody's Investors Ser= vice. "We should have been informed that it was there."=20 Mr Barone found it disturbing that Enron disclosed the charge in "a fleetin= g comment" during its conference call with analysts and did not mention it = in its nine-page news release.=20 "Despite progress in other areas, there appears to be much more work ahead = before the lingering credibility issues that have vexed this company in the= past are fully resolved," he said.=20 Enron contends that "we did disclose it in the conference call, and it was = one of the first points raised in the Q and A session (on the conference ca= ll)".=20 Mr Lay has pledged to co-operate with the SEC's request, which appears to b= e part of an informal inquiry rather than an official investigation. In the= meantime, he adds, Enron will focus on its core businesses.=20 That is something analysts say Enron has strayed too far away from. Ray Nil= es of Salomon Smith Barney says the company's core franchise - its wholesal= e business - is doing well. Most of Enron's problems have arisen from stepp= ing out of this area.=20 "They need to come clean on the financial effects of all of their off-balan= ce sheet financing," Mr Niles says. "Investors want to see clear, easy-to-u= nderstand financial information." Moody's has placed Enron's Dollars 13bn i= n debt securities on review for possible downgrade and Mr Moore believes th= ere is potential for more write-offs.=20 Enron is embroiled in a legal dispute with an Indian state electricity boar= d over a power project and is one of several energy traders facing question= s in California over accusations of a manipulation of power prices - a char= ge it denies.=20 Analysts say its UK businesses are not seeing big multiples, and Enron says= it only expects to take Dollars 200m in "goodwill" versus Dollars 5.7bn on= its books.=20 Copyright: The Financial Times Limited Enron Discloses SEC Inquiry=20 Information Request Involves Ties to Money-Losing Partnerships=20 Washington Post By Peter Behr Washington Post Staff Writer Tuesday, October 23, 2001; Page E03=20 Enron Corp. shares sank more than 20 percent yesterday after the Houston en= ergy company disclosed a Securities and Exchange Commission request for inf= ormation about Enron's ties to outside investment partnerships set up by th= e company's chief financial officer. The SEC would not comment on its action, which Enron spokesman Mark Palmer = called an "informal inquiry," not an investigation. "We welcome this reques= t," said Kenneth L. Lay, chairman and chief executive of the Houston-based = company. But the announcement jarred investors' confidence in the giant energy-tradi= ng company, already hurt by the unexpected resignation of chief executive J= effrey K. Skilling in August, and heavy losses from investments in broadban= d Internet and other technology ventures. "A lot of people threw in the towel today," said Anatol Feygin, an analyst = with J.P. Morgan in New York. The SEC request was made privately last Wednesday, the day after Enron repo= rted a $1 billion write-off of investment losses and restructuring charges = from unsuccessful technology ventures and other operations. The write-offs = left Enron with a $618 million loss in the third quarter (84 cents a share)= . The Wall Street Journal reported last week that $35 million of the write-of= f was tied to losses at limited partnerships established by Enron's chief f= inancial officer, Andrew Fastow, and run by him until July. Enron told investment analysts last week that it had repurchased 55 million= shares of its stock held by the partnerships that Fastow had directed, red= ucing shareholder equity by $1.2 billion. According to the Wall Street Journal, Fastow set up several investment part= nerships with the approval of Enron's board. The partnerships engaged in bi= llions of dollars in complex financial transactions involving Enron and mad= e major investments in power plants and other assets alongside Enron. An Enron shareholder has filed suit in Texas state court alleging that Enro= n's board violated its duty to the company by permitting the chief financia= l officer to engage in the outside transactions that allegedly earned milli= ons of dollars in fees for himself and other investors in the partnerships.= What Enron received from the relationships is not clear. Feygin said that the company had informed analysts about the limited partne= rships, which offered Enron a way to take positions in strategic but uncert= ain technology ventures without detailing the outcomes in its public financ= ial statements.=20 "In hindsight, that was an error in judgment. I don't think it was an error= in principle," the analyst said. Enron could have revealed the SEC inquiry last week but did not disclose it= until yesterday, and for many investors, that was the last straw, Feygin s= aid. The stock closed yesterday at $20.65, down $5.40, as 36 million shares chan= ged hands. Staff researcher Richard Drezen contributed to this report. Enron Suffers After Unclear Disclosure, New York Times Says 2001-10-23 06:31 (New York) Houston, Oct. 23 (Bloomberg) -- The U.S. Securities and Exchange Commission's decision to look into some Enron Corp. transactions and the company's recent decline in value show what can happen when a company lets a major reduction in its balance sheet dribble out, Floyd Norris of the New York Times reported in his column, citing analysts. Investors are concerned as to how Enron reduced shareholders' equity by $1.2 billion and why this was not mentioned in a news release the company issued with its quarterly earnings last Tuesday, the paper said. Enron Corp.'s shares fell 21 percent yesterday after the Houston-based company said the Securities and Exchange Commission requested information on partnerships run by Chief Financial Officer Andrew Fastow and other executives. Enron created partnerships and other affiliated companies to buy and sell assets such as power plants to lower the debt on its books. ``Both the debt and the equity people are looking for more clarity about how the company goes about its business,'' said Ralph Pellecchia, a credit analyst at Fitch Investors Service, according to the Times. (New York Times 10-23 1) Oct. 23, 2001 Houston Chronicle SEC asks Enron for investing data=20 Stock price declines as regulators seek details on partnerships=20 By LAURA GOLDBERG=20 Copyright 2001 Houston Chronicle=20 Shares in Enron Corp. fell almost 21 percent Monday after the company discl= osed federal securities regulators asked for details on investment partners= hips formerly run by its chief financial officer.=20 The request covers transactions between Enron and two private partnerships,= LJM Cayman and LJM2 Co-Investment, that did business with Enron.=20 The partnerships entered into complex financing and hedging arrangements wi= th Enron.=20 Enron declined to say if the SEC's request -- which it called voluntary and= said represents an "informal inquiry" -- included other issues.=20 The SEC request, made by fax Wednesday to Enron and followed up with a call= Thursday, comes as the Houston-based energy trader was already fighting to= put a series of problems behind it and regain credibility with investors a= nd analysts.=20 "It's further bad news, further question marks related to Enron in general = and this transaction specifically," Andre Meade, an analyst with Commerzban= k Securities in New York, said of the SEC request.=20 Some investors prefer to sit on the sidelines until the issue clears up, Me= ade said, adding: "The level of uncertainty with this stock has gotten pret= ty high."=20 An SEC spokesman declined comment.=20 Enron's Chief Financial Officer, Andrew Fastow, managed both of the LJM par= tnerships, according to SEC filings made by Enron last year.=20 Both partnerships are described as investment companies that primarily buy = or invest in businesses involved in energy and communications.=20 Fastow resigned his roles with the LJM partnerships in June amid criticism = and questions from some on Wall Street about a potential conflict of intere= st.=20 Investors worried Monday that Fastow's duty to Enron shareholders competed = with his duties to LJM, Meade said.=20 In a written statement Monday, Ken Lay, Enron's chairman and chief executiv= e officer, said the company welcomed the SEC's request.=20 "We will cooperate fully with the SEC and look forward to the opportunity t= o put any concern about these transactions to rest," said Lay, who reassume= d the duties of CEO after Jeff Skilling resigned unexpectedly in August.=20 Enron said its external and internal auditors and attorneys reviewed the ar= rangements, its board was fully informed of and approved the arrangements, = which were disclosed in Enron's SEC filings.=20 The issue drew renewed interest from investors and analysts after Enron rel= eased third-quarter earnings last Tuesday.=20 During the quarter, Enron took $1.01 billion in one-time charges to reflect= losses in its broadband, retail electricity and water investments.=20 The amount also included $35 million related to "early termination" of Enro= n's relationships with the LJM partnerships.=20 During a call with analysts the same day, Enron said it recorded a $1.2 bil= lion reduction to shareholder equity, or the shareholders' ownership stake = in the company, as part of the LJM termination.=20 Enron declined to answer questions Monday about the LJM entities, including= those about their relationship with Enron or Fastow's role with them.=20 The day after Enron's third-quarter earnings release, the Wall Street Journ= al ran the first of three articles highlighting the LJM partnerships, Fasto= w and Enron.=20 The Journal's Friday report said LJM2 "realized millions of dollars in prof= its in transactions it did with Enron," and that "Fastow, and possibility a= handful of partnership associates, realized more than $7 million last year= in management fees."=20 Shares in Enron, which closed last Tuesday at $33.84, ended the day Friday = at $26.05. Then Monday, shares in Enron dropped by $5.40 to close at $20.65= .=20 Anatol Feygin, an analyst with J.P. Morgan in New York, believes there were= no improprieties surrounding LJM.=20 "From inception, the LJM situation was obviously one that would raise eyebr= ows," said Feygin, adding Enron anticipated that and made sure proper legal= structures were in place.=20 The LJM entities are what's known as off-balance sheet financing vehicles, = he said. Generally, they allow a corporation to take on financial obligatio= ns without having to report them as liabilities.=20 Feygin also said it appeared Enron intended to give Fastow an "opportunity = to participate in the upside from these entities" to reward him.=20 Even though the LJM transactions have been disclosed by Enron, Meade noted = that they are complicated, difficult to follow and their implications tough= to understand.=20 In transactions detailed in an SEC filing made by Enron last year, LJM Caym= an received shares of Enron common stock and LJM2 acquired assets from Enro= n.=20 Another filing last year said LJM Cayman and/or LJM2 acquired various debt = and equity securities of certain Enron subsidiaries and affiliates.=20 Investors are also concerned about potential shareholder lawsuits as well a= s equity commitments facing Enron from two other financing vehicles called = Whitewing and Marlin, Jeff Dietert, an analyst with Simmons & Co. Internati= onal in Houston, wrote in a research note Monday.=20 If Enron should lose its current investment-grade quality debt rating, thos= e equity commitments from Whitewing and Marlin could trigger steps that wou= ld cause the value of Enron's current outstanding shares to become diluted.= =20 At least two shareholders have already sued Enron's board in state district= court, while two law firms filed suit on behalf of Enron shareholders Mond= ay in federal court seeking class-action status.=20 Carol Caole, an analyst with Prudential Securities in Houston, downgraded E= nron from a buy to a hold Monday primarily because of issues surrounding th= e credibility of Enron's management.=20 Several times over the past six months, Caole asked specific questions of s= enior Enron executives, she said. They denied problems existed, but six wee= ks to two months later it was revealed there were, indeed, issues, she said= .=20 Coale recently asked about an SEC investigation and was told there wasn't o= ne. But, she said, it turns out it's an "inquiry," not an investigation.=20 Abreast of the Market Minnesota Mining and GM Climb In a Rally That Builds Late in Day By Robert O'Brien Dow Jones Newswires 10/23/2001 The Wall Street Journal C2 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- During yesterday's Wall Street rally, investors responded with = accommodation toward the release of third-quarter earnings results and four= th-quarter forecasts.=20 Shares of Minnesota Mining & Manufacturing added $5.22, or 5.1%, to $107.39= after the manufacturing company released third-quarter earnings, which nar= rowly edged out analysts' projections, and spoke frankly of the challenges = the company continues to face this quarter in light of economic weakness. Despite this kind of hesitation about the economy's outlook, investors grav= itated toward some of the manufacturing and capital-equipment stocks that t= end to struggle during periods of weak economic activity. Shares of General= Motors, for example, added 1.21, or 2.9%, to 42.57, Alcoa gained 1.16, or = 3.7%, to 32.83, and Fluor, an engineering and construction company, rose 1.= 79, or 4.2%, to 44.77.=20 Stock averages initially struggled for direction, reflecting some skepticis= m about the sustainability of the market's recent success, before turning f= irmly higher in the final two hours of trading. Trading levels thinned out,= as well; on the New York Stock Exchange, less than 1.1 billion shares chan= ged hands, compared with 1.2 billion shares Friday, an options-expiration s= ession.=20 Nevertheless, market averages posted impressive gains. The Dow Jones Indust= rial Average improved 172.92 points, or 1.88%, to 9377.03. The Nasdaq Compo= site Index gained 36.77 points, or 2.2%, to 1708.08.=20 "We had another one of those days where there is a lack of liquidity, so an= y moves, in either direction, just get exaggerated," Bob Basel, senior trad= er at Salomon Smith Barney, said yesterday.=20 Shares of semiconductor companies, including makers of both chips and chip-= making equipment, rose sharply after a spending forecast from Intel, the le= ading chip maker, proved less grim than some experts had anticipated. The c= ompany said its capital spending could be cut 10% to 20% in 2002 from this = year's levels; that wouldn't be as severe as some chip industry experts had= forecast.=20 Shares of Applied Materials advanced 2.22, or 6.8%, to 34.77 on Nasdaq, whi= le KLA-Tencor gained 2.74, or 7.5%, to 39.25, and Lam Research improved 1.3= 6, or 7.8%, to 18.80, all on Nasdaq. Among chip makers, Analog Devices rose= 2.57, or 7.1%, to 38.74, LSI Logic gained 89 cents, or 5.6%, to 16.83, and= Texas Instruments tacked on 1.17, or 4.2%, to 28.91. For its part, Intel r= ose 1.15, or 4.8%, to 25.30 on Nasdaq.=20 Shares of Lexmark International dropped 5.58, or 11%, to 44.77. The Lexingt= on, Ky., maker of computer printers reported third-quarter results that mat= ched Wall Street's forecasts, but warned that it continues to face sluggish= demand in the fourth quarter.=20 SBC Communications declined 2.24, or 5.1%, to 41.40. The telecommunications= service provider reported third-quarter earnings that fell short of analys= ts' forecasts, and warned that the company won't show "meaningful growth" n= ext year.=20 Citrix Systems fell 4.14, or 16%, to 21.08 on Nasdaq. Dain Rauscher reduced= its rating on the Fort Lauderdale, Fla., maker of computer networking prod= ucts, saying the company faces competitive pressures from products introduc= ed by rival vendors.=20 Jabil Circuit eased 16 cents, or 0.7%, to 22.90. The St. Petersburg, Fla., = contract electronics maker adopted a so-called shareholder rights plan, whi= ch is aimed at preventing an acquirer from gaining control of the company.= =20 EMC advanced 68 cents, or 5.9%, to 12.19. The Hopkinton, Mass., maker of da= ta-storage systems signed what was described as a multibillion-dollar enter= prise storage agreement with Dell Computer. Dell improved 50 cents, or 2.1%= , to 24.55 on Nasdaq.=20 SeaChange International advanced 88 cents, or 3.6%, to 25.03 on Nasdaq, boo= sted by an upbeat research note from Dain Rauscher, which said the Maynard,= Mass., provider of video-on-demand technology figures to have posted an up= beat quarter.=20 Lucent Technologies declined 20 cents, or 2.8%, to 6.90. UBS Warburg, in a = research note, expressed some caution about the outlook for the telecommuni= cations equipment maker's quarterly results.=20 Emerson Electric gained 1.38, or 2.8%, to 50.27, even though the St. Louis = manufacturer, which makes electronics and telecommunications products, amon= g other product lines, reduced its earnings guidance for fiscal 2001.=20 Enron lost 5.40, or 21%, to 20.65, setting a 52-week low. The Houston energ= y trader, whose stock has weakened since recent articles in The Wall Street= Journal raised questions about the company's relationship with two limited= partnerships organized by its chief financial officer, said it had receive= d a request for information on Wednesday from the Securities and Exchange C= ommission regarding some of its transactions with those partnerships. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 WORLD STOCK MARKETS: Wall St bargain hunters counter earnings gloom AMERICA= S=20 Financial Times; Oct 23, 2001 By MARY CHUNG US equities rose sharply yesterday with bargain hunting in technology stock= s countering a slew of mostly disappointing corporate earnings and more ant= hrax scares.=20 Gains accelerated late in the session as the Dow Jones Industrial Average s= urged 172.92 to close at at 9,377.03 while the S&P 500 index added 16.42 at= 1,089.90. The Nasdaq Composite rose 36.78 at 1,708.09. Volume remained lig= ht with 1.1bn trades in the NYSE.=20 Investors were upbeat in spite of a lack of positive news, suggesting under= lying strength in the market and optimism for a rebound, some analysts said= . The indices were slightly rattled after news that two postal workers in W= ashington died after suffering symptoms consistent with anthrax, but the ma= rket quickly regained its footing.=20 "The market is acting very well. It's come an awful long way in a short tim= e and had to deal with anthrax," said Alfred Goldman, chief market strategi= st at AG Edwards. "The message is that investors and consumers and the coun= try are in a recovery mode."=20 Semiconductor stocks showed strength with Intel up 4.7 per cent at Dollars = 25.30 and Advanced Micro Devices 4.2 per cent at Dollars 9.58.=20 Microsoft rose 3.9 per cent at Dollars 60.16 before the launch this week of= its Windows XP operating system. Lexmark dropped 11 per cent at Dollars 44= .77 after the company reported third-quarter results that met estimates, bu= t warned of a fourth-quarter revenue shortfall. Applied Digital Solutions g= ained 66 per cent at 58 cents after the company said it had formed a subsid= iary to develop and market its ThermoLife thermoelectric generator product = powered by body heat.=20 3M gave a lift to Dow components, up 5.1 per cent at Dollars 107.39 after t= he maker of Post-it notes said quarterly earnings beat expectations by a pe= nny a share. The company forecast fourth-quarter profit would be in line wi= th analyst estimates.=20 SBC Communications was the biggest decliner within the Dow, down 5.1 per ce= nt to Dollars 41.40 after it said earnings failed to meet Wall Street conse= nsus estimates.=20 American Express gained 3.4 per cent to Dollars 30.32 despite reporting a 6= 0 per cent drop in third-quarter earnings.=20 Dow components Citigroup and JP MorganChase tacked on 2.5 per cent and 4.2 = per cent respectively. Shares in Alcoa were up 3.7 per cent at Dollars 32.8= 3 and ExxonMobil 1.4 per cent at Dollars 41.12.=20 Enron fell 20.7 per cent at Dollars 20.65 after the energy trading company = said the Securities and Exchange Commission requested it voluntarily provid= e information regarding certain transactions.=20 In Toronto the S&P 300 composite index fell just 0.08 per cent to 6,905.21 = at the close.=20 Copyright: The Financial Times Limited Milberg Weiss Announces Class Action Suit Against Enron Corp. 10/22/2001 Business Wire (Copyright (c) 2001, Business Wire) NEW YORK--(BUSINESS WIRE)--Oct. 22, 2001--The law firm of Milberg Weiss Ber= shad Hynes & Lerach LLP announces that a class action lawsuit was filed on = October 22, 2001, on behalf of purchasers of the common stock of Enron Corp= . ("Enron" or the "Company") (NYSE:ENE) between January 18, 2000 and Octobe= r 17, 2001, inclusive. A copy of the complaint filed in this action is avai= lable from the Court, or can be viewed on Milberg Weiss' website at: http:/= /www.milberg.com/enron/=20 The action, numbered H013630, is pending in the United States District Cour= t for the Southern District of Texas, Houston Division, located at 515 Rusk= Street, Houston TX 77002, against defendants Enron, Kenneth Lay, Jeffrey K= . Skilling and Andrew Fastow. The Honorable Melinda Harmon is the Judge pre= siding over the case. The Complaint alleges that defendants violated Sections 10(b) and 20(a) of = the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder,= by issuing a series of material misrepresentations to the market between J= anuary 18, 2000 and October 17, 2001, thereby artificially inflating the pr= ice of Enron common stock. Specifically, the complaint alleges that Enron i= ssued a series of statements concerning its business, financial results and= operations which failed to disclose (i) that the Company's Broadband Servi= ces Division was experiencing declining demand for bandwidth and the Compan= y's efforts to create a trading market for bandwidth were not meeting with = success as many of the market participants were not creditworthy; (ii) that= the Company's operating results were materially overstated as result of th= e Company failing to timely write-down the value of its investments with ce= rtain limited partnerships which were managed by the Company's chief financ= ial officer; and (iii) that Enron was failing to write-down impaired assets= on a timely basis in accordance with GAAP. On October 16, 2001, Enron surp= rised the market by announcing that the Company was taking non-recurring ch= arges of $1.01 billion after-tax, or ($1.11) loss per diluted share, in the= third quarter of 2001, the period ending September 30, 2001. Subsequently,= Enron revealed that a material portion of the charge related to the unwind= ing of investments with certain limited partnerships which were controlled = by Enron's chief financial officer and that the Company would be eliminatin= g more than $1 billion in shareholder equity as a result of its unwinding o= f the investments. As this news began to be assimilated by the market, the = price of Enron common stock dropped significantly. During the Class Period,= Enron insiders disposed of over $73 million of their personally-held Enron= common stock to unsuspecting investors.=20 If you bought the common stock of Enron between January 18, 2000 and Octobe= r 17, 2001, you may, no later than December 21, 2001, request that the Cour= t appoint you as lead plaintiff. A lead plaintiff is a representative party= that acts on behalf of other class members in directing the litigation. In= order to be appointed lead plaintiff, the Court must determine that the cl= ass member's claim is typical of the claims of other class members, and tha= t the class member will adequately represent the class. Under certain circu= mstances, one or more class members may together serve as "lead plaintiff."= Your ability to share in any recovery is not, however, affected by the dec= ision whether or not to serve as a lead plaintiff. You may retain Milberg W= eiss Bershad Hynes & Lerach LLP, or other counsel of your choice, to serve = as your counsel in this action.=20 Milberg Weiss Bershad Hynes & Lerach LLP, a 190-lawyer firm with offices in= New York City, San Diego, San Francisco, Los Angeles, Boca Raton, Seattle = and Philadelphia, is active in major litigations pending in federal and sta= te courts throughout the United States. Milberg Weiss has taken a leading r= ole in many important actions on behalf of defrauded investors, consumers, = and companies, as well as victims of World War II and other human rights vi= olations, and has been responsible for more than $30 billion in aggregate r= ecoveries. The Milberg Weiss Web site (http://www.milberg.com) has more inf= ormation about the firm.=20 If you wish to discuss this action with us, or have any questions concernin= g this notice or your rights and interests with regard to the case, please = contact the following attorneys:=20 Steven G. Schulman or Samuel H. Rudman One Pennsylvania Plaza, 49th fl. New= York, NY, 10119-0165=20 Phone number: (800) 320-5081 Email: Enroncase@milbergNY.com Website: http:/= /www.milberg.com=20 William S. Lerach or Darren J. Robbins 600 West Broadway1800 One America Pl= azaSan Diego, CA 92101-3356 Phone number: (800) 449-4900 CONTACT: Milberg Weiss Bershad Hynes & Lerach LLP Steven G. Schulman or Sam= uel H. Rudman 800/320-5081 Email: Enroncase@milbergNY.com Website: http://w= ww.milberg.com or William S. Lerach or Darren J. Robbins 800/449-4900=20 19:16 EDT OCTOBER 22, 2001=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron To Host Conference Call Tues 9:30 am EDT 10/22/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Corp. (ENE) will hold a conference call at 9:30= a.m. EDT Tuesday to address investor concerns, the company said in a press= release Monday.=20 Earlier Monday, a shareholder filed a derivative lawsuit against Enron alle= ging the board breached their fiduciary duties by allowing Chief Financial = Officer Andrew Fastow to create and run certain limited partnerships. Last week, Enron said it received a request for information about "certain = related party transactions" from the Securities and Exchange Commission.=20 On Oct. 16, Enron announced that it would take a $35 million charge relatin= g to the limited partnerships and revealed that the company had to repurcha= se 55 million of its shares in order to unwind its involvement in the partn= erships, thereby reducing the company's shareholder equity by $1.2 billion.= =20 Shares of Enron closed Monday at $20.65, down $5.40, or 20.7%, on New York = Stock Exchange volume of 36.4 million shares. Average daily volume is 5.8 m= illion shares. In intraday trading, the shares reached a 52-week low of $19= .67. The previous 52-week low was $24.46, reached on Sept. 27. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Janus Had Biggest Enron Stake at End of 2nd-Quarter (Update1) 2001-10-22 18:04 (New York) Janus Had Biggest Enron Stake at End of 2nd-Quarter (Update1) (Adds Stilwell shares at bottom.) Denver, Oct. 22 (Bloomberg) -- Janus Capital Corp., whose stock funds have lost more than a third of their value this year, may get another jolt from Enron Corp. As of June 30, Denver-based Janus was the biggest institutional holder of Enron, owning 42.8 million shares, or a 5.71 percent stake in the largest U.S. energy trading company, according to Thomson Financial/Carson. Enron shares have fallen 39 percent over the past four days on concern that the company's dealings with partnerships run by its chief financial officer contributed to investment losses. The Securities and Exchange Commission has asked for information on the partnerships, Enron said. Janus, which boosted its Enron stake in the past year in an effort to diversify its technology-heavy stock funds, is among a handful of firms including Putnam Investments, Alliance Capital Management, Barclays Global Investors and Fidelity Investments that owned more than 2 percent of the Houston-based company as of June 30, according to Bloomberg data. ``It was definitely a real growth darling,'' said Christine Benz, a senior analyst at Chicago-based fund tracker Morningstar Inc. ``In a year like 2000, when almost nothing was working for growth managers, Enron emerged as a story that a lot of growth managers could like.'' Fund Holdings According to Thomson Financial, 1,187 mutual funds, or 15.4 percent of all U.S. stock funds, owned a combined 207.9 million Enron shares as of June 30. Combined losses on the holdings amount to $2.7 billion since Tuesday. According to the latest available data compiled by Thomson, the biggest fund holders of Enron were: Janus Fund, with 2.15 percent; Janus Twenty Fund, with 1.19 percent; Alliance Premier Growth Fund, with 1.14 percent; American Century Ultra Fund, with 1.01 percent; Janus Mercury Fund, with 0.88 percent; Vanguard 500 Index Fund, with 0.82 percent; Fidelity Magellan Fund, with 0.73 percent; AIM Value Fund, with 0.6 percent; CREF Stock Account, with 0.58 percent; and, Putnam Investors Fund, with 0.52 percent. Janus Fund has lost 33.2 percent this year through Friday, while Janus Twenty Fund has lost 33.4 percent and Janus Mercury Fund has fallen 34 percent. A Janus spokeswoman wasn't immediately available to comment. Morningstar's Benz said she suspects Janus fund managers have already begun trimming their Enron positions. Enron shares had fallen 59 percent this year before last week's news on concerns about financial reporting and money-losing investments outside energy trading, such as trading space on broadband telecommunications networks and building water treatment plants. The stock fell $5.40, or 21 percent, to $20.65 in New York trading today. ``Anecdotal evidence that I'm hearing from the fund managers there is that they had been trimming pretty aggressively,'' said Benz. She added that it's ``difficult to make the assertion that they are in the clear.'' Janus Capital is owned by Kansas City, Missouri-based Stilwell Financial Inc., whose shares gained 73 cents today to $22.52. Stilwell shares have fallen 43 percent this year. Enron Says SEC Asks About Related-Party Transactions (Update9) 2001-10-22 18:30 (New York) Enron Says SEC Asks About Related-Party Transactions (Update9) (Adds information on conference call in 26th paragraph.) Houston, Oct. 22 (Bloomberg) -- Enron Corp.'s shares fell 21 percent after the Houston-based company said the Securities and Exchange Commission requested information on partnerships run by Chief Financial Officer Andrew Fastow and other executives. Enron, the largest energy trader, created partnerships and other affiliated companies to buy and sell assets such as power plants to lower the debt on its books. An investor sued Enron's board Wednesday, saying two partnerships cost the company $35 million and Fastow's leadership of them was a conflict of interest. Investors today said they were concerned that Enron may be forced to dismantle the affiliated companies by paying off the owners in cash or stock. Chief Executive Ken Lay said last week he may be have to ``unravel'' agreements that created the companies if Enron's debt ratings fall too far. ``We need confidence their long-term credit rating won't go below investment grade,'' said Roger Hamilton, an analyst at John Hancock's value funds, which own 600,000 Enron shares. Enron reduced shareholders' equity by $1.2 billion when it repurchased 55 million shares of two such partnerships controlled by Fastow, LJM Cayman and LMJ2 Co-Investment, the Wall Journal reported last week. Dismantling more of the affiliated companies and partnerships would cost Enron or its shareholders as much as $3 billion, Ray Niles, a Salomon Smith Barney analyst, wrote in a report to investors today. Shares Plunge Enron shares fell $5.40 to $20.65. They touched $19.67 during the day's trading, the lowest level since Jan. 15, 1998. The stock has fallen 75 percent this year amid concerns about failed investments in trading of space on fiber-optic communications networks and a water company, and the resignation of Jeff Skilling as CEO in August after seven months on the job. While Skilling said he resigned for personal reasons, investors say his departure led them to question whether the company was concealing problems, including possible liabilities from affiliated companies. On Tuesday, Enron surprised many investors when it reported a $618 million third-quarter loss, the result of writing off $1.01 billion in failed investments. Moody's Investors Service placed the company's debt on watch for possible downgrade. The company's debt is rated at investment grade by Fitch, Standard & Poor's and Moody's. The company received a faxed request for information from the SEC on Wednesday asking for information, spokesman Mark Palmer said, and will respond ``as soon as possible.'' ``We will cooperate fully with the SEC and look forward to the opportunity to put any concern about these transactions to rest,'' Lay, who is also Enron's chairman, said in a statement. Dilution Fears Enron has formed at least 18 companies to serve as financing vehicles for its projects, based on filings with the Texas secretary of state. Fastow and other Enron executives are named as the controlling partners or the board members in the companies. Some have bought Enron assets such as power plants, removing the debt for those projects from Enron's books. That allows Enron to keep cash earned from the main trading business from supporting what it views as secondary businesses, Standard & Poor's debt analyst Todd Shipman said. Enron brokers trades of electricity, natural gas and other commodities as well as owns power plants and natural-gas pipelines. Dismantling the affiliates would be costly. Whitewing Management, an affiliated company that has bought 14 Enron power plants and lists Fastow as managing director, holds 250,000 preferred shares of Enron. Enron may have to convert the preferred shares to common stock if share prices fall below a certain level and the credit rating drops below investment grade, according to company filings. That would dilute the value of common shareholders' investment. ``The concern is how many of these dilutive structures are out there?'' Shipman said. ``Investors are worried they might have to share their Enron earnings with a lot more people than they originally thought.'' Worrisome Financing Enron's auditors and attorneys reviewed the company's ``related party arrangements,'' the board approved them, and they were disclosed in SEC filings, Enron said in its statement. That hasn't eased concerns. The reduction of shareholder equity by $1.2 billion from the LJM partnerships is reason to worry about Enron's other financing vehicles, wrote Niles, the Salomon analyst. Enron also may take another $2.4 billion in losses from investments in the Dabhol power plant in India and projects in South America, he wrote. Bonds Fall Enron's 8 percent coupon bonds due in 2005 fell $34 per $1,000 face value to be offered at $1,022 today from $1,056 on Friday, traders said. Yield on the debt rose to 7.33 percent from 6.33 percent. Based on Bloomberg composite ratings, most of Enron's long- term debt is rated at BBB2 and BBB1, two or three levels above investment grade. Fastow continues to work, and Enron hasn't punished him, Palmer said. Fastow declined to be interviewed, spokeswoman Karen Denne said. SEC spokesman John Heine declined to comment on the agency's request to Enron. ``We believe everything that needed to be considered and done in connection with these transactions was considered and done,'' Lay said in the statement. Enron will hold a conference call to discuss investors' concerns at 9:30 a.m. New York time Tuesday. The call may be accessed through the ``Investors'' section of Enron's Web site at http://www.enron.com. --Russell Hubbard in the Princeton newsroom at 609-750-4651, or at rhubbard2@Bloomberg.net and Mark Johnson in the Princeton newsroom at (609) 750-4662, or mjohnson7@bloomberg.net, with reporting by Terry Flanagan/slb/alp/pjm/slb/*atr/alp/taw Trusts Keeping Enron Off Balance By Peter Eavis <mailto:peavis@thestreet.com> Senior Columnist TheStreet.com 10/22/2001 07:15 AM EDT URL: <http://www.thestreet.com/markets/detox/10002702.html> Enron (ENE:NYSE - news - commentary) stock plunged 20% last week after the = energy giant revealed that a complex financing deal caused a $1.2 billion h= it to its equity. But other big deals that have yet to receive much public = scrutiny could further damage the company's balance sheet.=20 In the spotlight last week were transactions done with investment partnersh= ips called LJM2 and LJM Cayman. An examination of the LJM2-related equity w= ritedown can be found here.=20 However, the LJM deals make up only part of Enron's sophisticated financing= arrangements. Also at issue are two large trusts that contain assets Enron= shifted from its balance sheet. These are the $1 billion Marlin Water Trus= t II and the $2.4 billion Osprey Trust, usually known as Whitewing.=20 The key risk for investors is how Enron chooses to repay these trusts if th= ey don't unwind as planned. The company may end up issuing stock to repay m= oney borrowed through the trusts. This would dilute existing shareholders. = Alternatively, Enron could resort to using cash raised through sales of on-= balance sheet assets. But this would hamper efforts to reduce debt and depr= ive the company's profitable business lines of much-needed capital.=20 Whitewing and a Prayer? Though set up by Enron, Marlin II and Whitewing are legally distinct from t= he company. Institutional investors bought notes issued by the trusts. The = $3.4 billion in proceeds from the notes flowed to Enron.=20 Both trusts are scheduled to unwind in 2003. Originally, Enron had hoped to= repay them by selling the trusts' underlying assets. This repayment method= would have had a minimal impact on Enron's balance sheet.=20 However, there's a potential problem brewing with this approach. The value = of the assets may be too low to raise sufficient funds to pay back the trus= t investors. Hence Enron's two unenviable options: issuing stock, or raisin= g cash from its own balance sheet.=20 Enron treasurer Ben Glisan concedes that assets in Marlin II won't be suffi= cient to pay it back. But he adds that proceeds from planned sales of on-ba= lance sheet assets will provide Enron with the necessary funds for Marlin I= I. When asked if Whitewing's assets are adequate for repayment, Glisan repl= ied: "We believe so."=20 In reference to the two trusts, Enron CEO Kenneth Lay said on a conference = call Tuesday: "We anticipate the sale of assets will be the primary source = of repayments."=20 Sterling Marlin TheStreet.com hasn't seen offering documentation for Whitewing; Enron didn'= t provide it when requested. But TSC has reviewed the Marlin II prospectus.= Here's how Marlin II works. Enron took water assets, primarily based in th= e U.K., off its balance sheet, and the Marlin II trust took a stake in them= . Meanwhile, Marlin II issued senior debt to investors, the proceeds of whi= ch went to Enron. The company didn't have to recognize these notes as debt = on its balance sheet, due to the structure of the trust. Marlin II replaced= a similar trust called Marlin that was set to mature at the end of this ye= ar.=20 Ideally, the aim was for Enron managers to maximize the value and profitabi= lity of the assets over the life of Marlin and Marlin II so it could sell t= hem off and pay down the trusts. To cover the risk that asset sales wouldn'= t raise enough money, Enron also pledged to issue as much new convertible p= referred stock as might be needed to pay off the notes.=20 As it happened, the water assets didn't perform well. In fact, Enron set up= Marlin II in July to succeed the original Marlin because it wanted to avoi= d paying off the first Marlin with convertible stock, or with cash from its= own balance sheet. This move risked angering the rating agencies that had = agreed not to treat Marlin as debt because of Enron's pledge to backstop it= with preferred stock. Suddenly, it seemed Enron was wriggling out of its c= ommitment to make good with stock.=20 Enron's Glisan responds that many of the investors in the first Marlin also= invested in Marlin II, illustrating that investors weren't upset by the ma= neuver.=20 Glisan says Enron almost certainly won't decide to issue stock to pay off M= arlin II. Instead, he adds, money from pending asset sales can be used to p= ay it off when it matures in July 2003. When asked if Enron might use the e= xpected $1.9 billion in proceeds from selling Portland General, the utility= based in Portland, Ore., Glisan replied: "That's a good one."=20 But using the Portland General windfall would run counter to Enron's freque= ntly stated strategy of selling off low-yielding assets and investing the p= roceeds in higher-yielding businesses. Portland General is almost certainly= a more profitable business than the U.K.'s Wessex Water, which is the domi= nant asset in Marlin II. In addition, doing so would mean Enron couldn't us= e all the Portland proceeds to pay off debt. Enron aims to get its debt-to-= total-capital ratio down to 40%, from the current 50%.=20 Maturity What about Whitewing, which matures in early 2003? Glisan lists Whitewing's= assets as: Central American gas distribution assets; turbines destined for= European power stations; interests in European power stations; and various= debt and equity participations in energy investments. Glisan says these as= sets can be sold to pay off the $2.4 billion in notes issued by the trust.= =20 But what would happen if the Whitewing assets can't fetch the necessary pri= ce? Enron could sell off more on-balance-sheet assets. But, again, this wou= ldn't help debt-reduction efforts, and it may be running short of large ass= ets that it can quickly sell.=20 Whitewing is backed with Enron convertible stock. But Enron may be reluctan= t to issue paper when its stock is so far below recent highs, and current s= hareholders may begrudge the prospect of further dilution.=20 Investors also need to keep their eyes on the early-repayment triggers of t= he trusts. In fact, the stock price-related element of the triggers has alr= eady been set off. For Whitewing, the stock has to fall below $59.78; for M= arlin II, the stock has to be under $34.13. However, something else has to = happen before the trust investors can claim their money back through asset = sales and stock issuance. Enron's credit rating must fall below investment = grade. That looks to be a long shot, since its rating is currently three no= tches above subinvestment grade. But it is something the market will watch = after Moody's said last week that it was putting Enron on review for a poss= ible downgrade.=20 Despite all the questions stemming from the trusts, Enron still seems keen = to use the structure. Last week, Barclays Capital was inviting investors to= subscribe to an Enron-related entity called the Besson Trust. This is bein= g set up to enable Enron "to monetize substantially all of its interests in= EOTT Energy Partners," an Enron affiliate that markets and transports crud= e oil. Expected proceeds from the deal are $227 million, according to the p= rospectus. Could Enron be setting up new trusts to pay off damaged old trus= ts?=20 Due to off-balance sheet financings like Marlin II and Whitewing, it's clea= r that uncertainty could weigh on Enron's battered stock for some time.=20 Why Enron's Writedown Unnerves Some Investors By Peter Eavis <mailto:peavis@thestreet.com> Senior Columnist TheStreet.com 10/22/2001 07:15 AM EDT URL: <http://www.thestreet.com/markets/detox/10002713.html> Enron is trying to improve disclosure to investors, but its decision to red= uce equity by $1.2 billion in the third quarter has created dismay and conf= usion in the market.=20 The action was disclosed in a dubiously discreet manner. More important, in= vestors are struggling to pinpoint how the shrinkage will affect Enron's ba= lance sheet, profits and earnings guidance.=20 Enron didn't provide answers to questions submitted on the equity reduction= .=20 Enron doesn't include a balance sheet in its earnings release, so the equit= y decrease couldn't be spotted in numbers supplied Tuesday. And even though= Enron did break out $1 billion in earnings charges in its release, the com= pany didn't feel it necessary to mention the equity write down anywhere in = the text.=20 Instead, the public first heard about it on a Tuesday conference call. CEO = Kenneth Lay said Enron had shrunk its equity as a result of terminating a s= o-called "structured finance arrangement." The Wall Street Journal later re= ported that Enron's counter-party in this transaction was an investment par= tnership called LJM2 Co-Investment, which has set up and run by Enron's fin= ance chief, Andrew Fastow.=20 This is what Lay said on the Tuesday call about the equity move: "In connec= tion with the early termination, shareholders' equity will be reduced appro= ximately $1.2 billion, with a corresponding significant reduction in the nu= mber of diluted shares outstanding." According to The Journal, Lay then sai= d Wednesday on another call that Enron had repurchased 55 million shares.= =20 Enron's supporters count Lay's mention of a reduction in the share count as= bullish, because it should boost earnings per share numbers in the future.= =20 But there are two possible problems with this theory.=20 First, Enron affirmed its previous earnings guidance that it expects to mak= e $2.15 per share in operating earnings next year. Critically, the company = did not say whether its guidance was given using a share count without the = 55 million shares or not. If the forecast does assume the exclusion of the = 55 million shares, the company should have upped its 2002 per-share earning= s forecast by around 6%, since that's the amount by which the share count w= ill be reduced. Enron needs to say what share count it's using in its guida= nce.=20 Second, it's almost impossible to determine where these shares were ever re= corded, casting a certain amount of doubt on Lay's assertion that the share= count will come down.=20 Why question the CEO? Well, in its 2000 annual report, Enron included some = disclosure of the 55 million shares connected with LJM2. It reads: "At Dece= mber 31, 2000, Enron had derivative instruments...on 54.8 million shares of= Enron common stock." The derivative instruments appear to be types of opti= ons, or agreements that give the counterparty the right to buy or sell stoc= k at agreed prices.=20 But these derivatives-linked shares don't show up where they should in the = annual report: in the table that breaks out the difference between the basi= c and diluted share counts. The line item in this table that shows options-= related shares totals only 43 million shares, which is close to the amount = of employee pay options that qualified for inclusion. Therefore, that numbe= r almost certainly doesn't include the 55 million LJM2-related shares. The = fact is, at least some of the 55 million derivatives-linked shares should b= e included if the derivatives were like normal options. That's because the = LJM2 derivatives appear to have been "in the money", or profitable for the = holders. Typically, all in-the-money options-based stock has to be included= in the diluted share count. And these LJM2 derivatives did appear to have = that status at the end of 2000. Back then, Enron stock was trading around $= 80, way above the average $68 level at which these derivatives made money f= or LJM2.=20 Maybe these weren't simple options and had other conditions attached that e= xcluded them from the diluted share count. That's what disclosure elsewhere= in the annual report appears to imply. Alternatively, the options were emb= edded somewhere else in the share count table or equity disclosure, though = it's hard think where.=20 Presumably, investors will get a full explanation in Enron's quarterly fina= ncial results filing with the Securities and Exchange Commission, due by th= e middle of November.

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Subject: Enron Mentions Sender: m..schmidt@enron.com Recipients: [] File: dasovich-j/deleted_items/1873. ===================================== SEC Seeks Information on Enron Dealings With Partnerships Recently Run by F= astow The Wall Street Journal, 10/23/01 Where Did the Value Go at Enron? New York Times, 10/23/01 FRONT PAGE - FIRST SECTION: SEC probes Enron over financial dealings=20 Financial Times; Oct 23, 2001 COMPANIES & FINANCE THE AMERICAS: Group full of surprises after failing to = open up=20 Financial Times; Oct 23, 2001 Enron Discloses SEC Inquiry=20 The Washington Post, Oct 23, 2001 Enron Suffers After Unclear Disclosure, New York Times Says Bloomberg, 10/23/01 SEC asks Enron for investing data Houston Chronicle, 10/23/01 Minnesota Mining and GM Climb In a Rally That Builds Late in Day The Wall Street Journal, 10/23/01 WORLD STOCK MARKETS: Wall St bargain hunters counter earnings gloom AMERICA= S=20 Financial Times; Oct 23, 2001 Milberg Weiss Announces Class Action Suit Against Enron Corp. Business Wire, 10/22/01 Enron To Host Conference Call Tues 9:30 am EDT Dow Jones News Service, 10/22/01 Janus Had Biggest Enron Stake at End of 2nd-Quarter (Update1) Bloomberg, 10/22/01 Enron Says SEC Asks About Related-Party Transactions (Update9) Bloomberg, 10/22/01 Trusts Keeping Enron Off Balance TheStreet.com, 10/22/01 Why Enron's Writedown Unnerves Some Investors TheStreet.com, 10/22/01 SEC Seeks Information on Enron Dealings With Partnerships Recently Run by F= astow By Rebecca Smith and John R. Emshwiller Staff Reporters of The Wall Street Journal 10/23/2001 The Wall Street Journal A3 (Copyright (c) 2001, Dow Jones & Company, Inc.) Enron Corp. said it has been contacted by the Securities and Exchange Commi= ssion seeking information on the energy giant's controversial dealings with= partnerships that were set up and run until recently by its chief financia= l officer, Andrew S. Fastow.=20 Following Enron's announcement yesterday morning of the SEC inquiry, the co= mpany's stock took another big slide, falling more than 20% in New York Sto= ck Exchange trading. As of 4 p.m., Enron shares were trading at $20.65, off= $5.40, knocking about $4 billion off Enron's market capitalization. Volume= topped the Big Board's most-active list at about 36 million shares. A week= ago, Enron stock was trading at about $33 a share. Subsequently, the compa= ny announced a $1.01 billion third-quarter write-off that produced a $618 m= illion loss. Analysts also voiced concerns yesterday about possible other bad news lurki= ng amid Enron's vast and extremely complex operations. The company has deal= ings with a number of related entities. Under certain circumstances, if Enr= on's credit rating and stock price fall far enough, the company would be ob= ligated to issue tens of millions of additional shares to these entities, d= iluting the holdings of current shareholders.=20 Enron has previously acknowledged the provisions but said its business is s= trong and it feels confident that there will be no defaults.=20 In a statement, Enron Chairman and Chief Executive Kenneth Lay said the com= pany "will cooperate fully" with the SEC inquiry and "look(s) forward to th= e opportunity to put any concern about these transactions to rest." Enron h= as consistently said that it believes its dealings with the Fastow-related = partnerships were proper and properly disclosed. The company has said it pu= t billions of dollars of assets and stock into partnership-related transact= ions as a way to hedge against fluctuating market conditions.=20 The SEC inquiry came from the agency's Fort Worth, Texas, regional office. = According to a person familiar with the matter, this would indicate that th= e inquiry comes from the SEC's enforcement arm, as opposed to its corporate= -finance section. The participation of the enforcement branch would indicat= e that the agency is looking into whether there were possible violations of= securities law. However, enforcement-branch inquiries often don't produce = any allegations of wrongdoing. It also appears that the SEC hasn't yet take= n the step of launching a formal investigation, which would be a sign that = the agency believes securities laws might have been violated. The SEC decli= ned to comment.=20 Certainly, there have been questions and concerns about those partnership t= ransactions, which contributed to a $1.2 billion reduction in shareholder e= quity last week as part of Enron's efforts to unwind the deals. Mr. Fastow,= who has declined repeated interview requests, resigned from the partnershi= ps, known as LJM Cayman LP and LJM2 Co-Investment LP, in late July in the f= ace of rising conflict-of-interest concerns by Wall Street analysts and maj= or company investors.=20 Since then, internal partnership documents have shown that Mr. Fastow and p= erhaps a handful of Enron associates made millions of dollars last year in = fees and capital increases as general partner of the LJM2, the larger of th= e two partnerships.=20 Mr. Fastow's partnership arrangement caused some unhappiness inside Enron, = according to people familiar with the matter. For instance, these people sa= y, sometime after the creation of the partnerships in 1999, Enron Treasurer= Jeffrey McMahon went to company president Jeffrey Skilling and complained = about potential conflicts of interest posed by Mr. Fastow's activities. Mr.= Skilling didn't share Mr. McMahon's concern, these people say, and Mr. McM= ahon requested and received reassignment to another post.=20 Mr. Skilling resigned as Enron president and chief executive in mid-August,= citing personal reasons and the fall in Enron's stock price, which peaked = at about $90 a share last year. Mr. McMahon and Mr. Skilling haven't respon= ded to repeated interview requests.=20 Investors are also concerned about potential problems arising in Enron's de= alings with other related entities. In some cases, Enron could be required = to issue large amounts of stock to noteholders in some of the entities if c= ertain so-called double trigger provisions occur.=20 For example, last July Enron helped create the Marlin Water Trust II, which= sold $915 million in notes that are due July 15, 2003. However, Enron can = be considered in default, in advance of that date, if its stock price falls= below $34.13 for three trading days and its senior debt is downgraded to b= elow investment grade by either Moody's Investors Service or Standard & Poo= r's.=20 Currently, Enron debt is still investment-grade at both ratings agencies an= d would have to be lowered by several notches to fall into a noninvestment = grade category. Last week, Moody's put Enron on review for a possible downg= rade. However, observers believe that even if Moody's lowers Enron's rating= , the company will still be investment-grade. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 October 23, 2001 Where Did the Value Go at Enron? By FLOYD NORRIS New York Times What really went on in some of the most opaque transactions with insiders e= ver seen? Wall Street has been puzzling over that since Enron (news/quote </redirect/= marketwatch/redirect.ctx?MW=3Dhttp://custom.marketwatch.com/custom/nyt-com/= html-companyprofile.asp&symb=3DENE>) released its quarterly earnings a week= ago. Yesterday shares in Enron plunged $5.40, to $20.65, after the company= said that the Securities and Exchange Commission was looking into the tran= sactions. The reaction was in some ways puzzling. Given the questions that have been = raised since the earnings announcement - some of them prominently featured = in The Wall Street Journal - it was likely that the S.E.C. would begin a pr= eliminary inquiry. Whether it will go farther than that is not clear, but if nothing else the = slide in Enron shares over the last week shows the hazards that can confron= t a company that allows word of a major reduction in its balance sheet valu= e to dribble out. Enron's shares rose 67 cents, to $33.84, last Tuesday, as= investors first reacted to the earnings announcement. But since then they = have fallen $13.19, or 39 percent. The $1.2 billion reduction in shareholders' equity was not mentioned in a n= ews release Enron issued on its quarterly earnings last Tuesday. It was bri= efly mentioned in a conference call with analysts, but many of the listener= s seem to have not noticed that, wrongly thinking Kenneth L. Lay, Enron's c= hairman and chief executive, was referring to a $1 billion write-off that w= as disclosed in the earnings release. When questions were asked in the following days, the explanations were less= than thorough. Enron explained that the reduction in shareholders' equity = was related to the termination of "structured finance vehicles" involving p= artnerships that had been controlled by the company's chief financial offic= er. "Both the debt and the equity people are looking for more clarity about how= the company goes about its business," said Ralph Pellecchia, a credit anal= yst at Fitch Investors Service. He added that the issue of the company's "c= redibility related to this transaction really seems to have a life of its o= wn." Enron declined yesterday to allow any officials to be interviewed about its= financial reports. But last night it said Mr. Lay would hold another confe= rence call with investors at 9:30 a.m. today.=20 The company's earlier disclosures regarding the partnerships baffled many a= nalysts. They referred to such things as "share settled costless collar arr= angements" and "derivative instruments which eliminated the contingent natu= re of existing restricted forward contracts." The disclosures said the comp= any entered into the transactions "to hedge certain merchant investments an= d other assets." It appears that Enron was able to report profits from them, even though the= underlying assets included investments that declined in value. The Wall St= reet Journal, citing reports the partnerships made to institutional investo= rs, has reported the partnerships did well enough to make large cash distri= butions to their investors. Enron officials in recent days have refused to = discuss the arrangements in any detail. One of the questions that the S.E.C. may look into is whether the terminati= on of those transactions should have been treated as a balance sheet item, = or whether it should have been taken as a loss that affected reported earni= ngs. An S.E.C. spokesman declined to comment. Under accounting rules, a company's transactions in its own shares cannot p= roduce profits or losses, whatever the effect on cash flow. So a company th= at sells its shares for $10 each, and buys them back at $50, or at $1, will= report no earnings effect. Enron said that the reduction to shareholders e= quity, and a related reduction in notes receivable, "is the result of Enron= 's termination of previously recorded contractual obligations to deliver En= ron shares in future periods." Stephen Moore, an analyst with Moody's Investors Service who has put Enron'= s debt on review for a possible downgrade, said that while some of the deta= ils were not clear, "Essentially, Enron's promise was that a certain amount= of Enron's shares would be worth $1 billion. The shares plummeted, and the= y were not" worth that much. Enron emphasizes its own version of earnings, which leaves out some expense= s, and directs attention away from its balance sheet, which is disclosed on= ly in S.E.C. filings, not in the earnings news release. The reduction in sh= areholders' equity would be shown only on the third-quarter balance sheet, = which has yet to be released. Earlier this year, Jeffrey Skilling, then Enron's chief executive, reacted = strongly when a questioner on a conference call challenged the failure to p= rovide balance sheet numbers when earnings were released. He called the que= stioner a common vulgarity that surprised many listeners. Mr. Skilling late= r resigned for what he said were personal reasons and Mr. Lay, the chairman= and former chief executive, took back the latter title. While Enron was riding high, its often difficult-to-understand reports were= generally seen as not being a problem. The company appeared to be the domi= nant force in the business of energy trading, and to be able to produce phe= nomenal profits. When Mr. Lay was reported as having played an important ro= le in formulating the Bush administration's energy policies, the aura was o= nly enhanced. In January, the shares traded for $84. But now, with some of the company's ventures clearly having run into proble= ms, it appears that investors are growing less willing to accept the compan= y's reports. That the partnership transactions were disclosed at all was be= cause of the involvement of the chief financial officer, and some have wond= ered if there might have been similar deals with others. Mr. Lay has promised to make the company's financial reports easier to unde= rstand, and last week's report was at first praised by some analysts for do= ing just that. In a news release yesterday, Mr. Lay said the company welcomed the S.E.C.'s= request for information. "We will cooperate fully with the S.E.C. and look= forward to the opportunity to put any concern about these transactions to = rest," he said. FRONT PAGE - FIRST SECTION: SEC probes Enron over financial dealings=20 Financial Times; Oct 23, 2001 By JULIE EARLE, JOHN LABATE and SHEILA MCNULTY Enron, the US energy giant, disclosed yesterday that the Securities and Exc= hange Commission had asked it to provide financial information at the start= of an informal inquiry.=20 The announcement follows a rapid sell-off in the stock in reaction to Enron= 's surprise revelation last week of a Dollars 1.2bn charge to equity to eli= minate the dilutive effects of closing one of its controversial financing v= ehicles.=20 In revealing the SEC call for more detailed information "regarding certain = related party transactions", Enron hopes to counter growing criticism that = it should be more transparent. "We welcome this request," said Kenneth Lay,= Enron chairman and chief executive officer. "We will co-operate fully with= the SEC and look forward to the opportunity to put any concern about these= transactions to rest."=20 The SEC probe into Enron's financial dealings is an informal one at this st= age, according to the company, and the request for documents is voluntary. = However, SEC probes often begin lightly as investigators gather information= on an issue.=20 Such a probe could turn into a formal investigation at any time. In that ca= se, regulators would be armed with subpoena powers and could demand certain= documents be handed over. The SEC would not confirm or deny the existence = of the Enron probe.=20 Mr Lay did not say which transactions the SEC was reviewing, although analy= sts believe they relate to Andrew Fastow, Enron chief financial officer, wh= o has been reported to have run a limited partnership that bought assets va= lued at hundreds of millions of dollars from Enron.=20 Analysts say the transactions, while controversial because of Mr Fastow's l= inks to the company, have been disclosed. What concerns them, however, is h= ow Enron valued the assets involved. www.ft.com/energy=20 Copyright: The Financial Times Limited COMPANIES & FINANCE THE AMERICAS: Group full of surprises after failing to = open up=20 Financial Times; Oct 23, 2001 By SHEILA MCNULTY Ronald Barone joked he would have to get plenty of rest ahead of Enron's re= sults last week, noting the US energy company's reputation for producing wh= at some analysts say is the most complicated of earnings reports.=20 The UBS Warburg analyst was, nevertheless, as ill-prepared as his peers for= the announcement of a Dollars 1.2bn charge to equity to eliminate the dilu= tive effects of closing one of its controversial financing vehicles.=20 The news overshadowed Enron's on-target 26 per cent increase in third-quart= er earnings per share, sending the stock plunging.=20 The Securities and Exchange Commission's subsequent request for more inform= ation about Enron's financial activities has reinforced analyst perceptions= that the company should have been more transparent in its reporting.=20 Curt Launer, of Credit Suisse First Boston, says expectations for more disc= losure had built up over the past two months. Kenneth Lay, Enron chairman, = had promised to be more forthcoming when he resumed the duties of chief exe= cutive following the resignation of Jeff Skilling in August.=20 While Mr Lay did improve Enron's disclosure by creating headings for new bu= siness segments and providing more detail within each of them, the Dollars = 1.2bn charge still caught the market off guard.=20 "It came as a surprise to us," said Stephen Moore, of Moody's Investors Ser= vice. "We should have been informed that it was there."=20 Mr Barone found it disturbing that Enron disclosed the charge in "a fleetin= g comment" during its conference call with analysts and did not mention it = in its nine-page news release.=20 "Despite progress in other areas, there appears to be much more work ahead = before the lingering credibility issues that have vexed this company in the= past are fully resolved," he said.=20 Enron contends that "we did disclose it in the conference call, and it was = one of the first points raised in the Q and A session (on the conference ca= ll)".=20 Mr Lay has pledged to co-operate with the SEC's request, which appears to b= e part of an informal inquiry rather than an official investigation. In the= meantime, he adds, Enron will focus on its core businesses.=20 That is something analysts say Enron has strayed too far away from. Ray Nil= es of Salomon Smith Barney says the company's core franchise - its wholesal= e business - is doing well. Most of Enron's problems have arisen from stepp= ing out of this area.=20 "They need to come clean on the financial effects of all of their off-balan= ce sheet financing," Mr Niles says. "Investors want to see clear, easy-to-u= nderstand financial information." Moody's has placed Enron's Dollars 13bn i= n debt securities on review for possible downgrade and Mr Moore believes th= ere is potential for more write-offs.=20 Enron is embroiled in a legal dispute with an Indian state electricity boar= d over a power project and is one of several energy traders facing question= s in California over accusations of a manipulation of power prices - a char= ge it denies.=20 Analysts say its UK businesses are not seeing big multiples, and Enron says= it only expects to take Dollars 200m in "goodwill" versus Dollars 5.7bn on= its books.=20 Copyright: The Financial Times Limited Enron Discloses SEC Inquiry=20 Information Request Involves Ties to Money-Losing Partnerships=20 Washington Post By Peter Behr Washington Post Staff Writer Tuesday, October 23, 2001; Page E03=20 Enron Corp. shares sank more than 20 percent yesterday after the Houston en= ergy company disclosed a Securities and Exchange Commission request for inf= ormation about Enron's ties to outside investment partnerships set up by th= e company's chief financial officer. The SEC would not comment on its action, which Enron spokesman Mark Palmer = called an "informal inquiry," not an investigation. "We welcome this reques= t," said Kenneth L. Lay, chairman and chief executive of the Houston-based = company. But the announcement jarred investors' confidence in the giant energy-tradi= ng company, already hurt by the unexpected resignation of chief executive J= effrey K. Skilling in August, and heavy losses from investments in broadban= d Internet and other technology ventures. "A lot of people threw in the towel today," said Anatol Feygin, an analyst = with J.P. Morgan in New York. The SEC request was made privately last Wednesday, the day after Enron repo= rted a $1 billion write-off of investment losses and restructuring charges = from unsuccessful technology ventures and other operations. The write-offs = left Enron with a $618 million loss in the third quarter (84 cents a share)= . The Wall Street Journal reported last week that $35 million of the write-of= f was tied to losses at limited partnerships established by Enron's chief f= inancial officer, Andrew Fastow, and run by him until July. Enron told investment analysts last week that it had repurchased 55 million= shares of its stock held by the partnerships that Fastow had directed, red= ucing shareholder equity by $1.2 billion. According to the Wall Street Journal, Fastow set up several investment part= nerships with the approval of Enron's board. The partnerships engaged in bi= llions of dollars in complex financial transactions involving Enron and mad= e major investments in power plants and other assets alongside Enron. An Enron shareholder has filed suit in Texas state court alleging that Enro= n's board violated its duty to the company by permitting the chief financia= l officer to engage in the outside transactions that allegedly earned milli= ons of dollars in fees for himself and other investors in the partnerships.= What Enron received from the relationships is not clear. Feygin said that the company had informed analysts about the limited partne= rships, which offered Enron a way to take positions in strategic but uncert= ain technology ventures without detailing the outcomes in its public financ= ial statements.=20 "In hindsight, that was an error in judgment. I don't think it was an error= in principle," the analyst said. Enron could have revealed the SEC inquiry last week but did not disclose it= until yesterday, and for many investors, that was the last straw, Feygin s= aid. The stock closed yesterday at $20.65, down $5.40, as 36 million shares chan= ged hands. Staff researcher Richard Drezen contributed to this report. Enron Suffers After Unclear Disclosure, New York Times Says 2001-10-23 06:31 (New York) Houston, Oct. 23 (Bloomberg) -- The U.S. Securities and Exchange Commission's decision to look into some Enron Corp. transactions and the company's recent decline in value show what can happen when a company lets a major reduction in its balance sheet dribble out, Floyd Norris of the New York Times reported in his column, citing analysts. Investors are concerned as to how Enron reduced shareholders' equity by $1.2 billion and why this was not mentioned in a news release the company issued with its quarterly earnings last Tuesday, the paper said. Enron Corp.'s shares fell 21 percent yesterday after the Houston-based company said the Securities and Exchange Commission requested information on partnerships run by Chief Financial Officer Andrew Fastow and other executives. Enron created partnerships and other affiliated companies to buy and sell assets such as power plants to lower the debt on its books. ``Both the debt and the equity people are looking for more clarity about how the company goes about its business,'' said Ralph Pellecchia, a credit analyst at Fitch Investors Service, according to the Times. (New York Times 10-23 1) Oct. 23, 2001 Houston Chronicle SEC asks Enron for investing data=20 Stock price declines as regulators seek details on partnerships=20 By LAURA GOLDBERG=20 Copyright 2001 Houston Chronicle=20 Shares in Enron Corp. fell almost 21 percent Monday after the company discl= osed federal securities regulators asked for details on investment partners= hips formerly run by its chief financial officer.=20 The request covers transactions between Enron and two private partnerships,= LJM Cayman and LJM2 Co-Investment, that did business with Enron.=20 The partnerships entered into complex financing and hedging arrangements wi= th Enron.=20 Enron declined to say if the SEC's request -- which it called voluntary and= said represents an "informal inquiry" -- included other issues.=20 The SEC request, made by fax Wednesday to Enron and followed up with a call= Thursday, comes as the Houston-based energy trader was already fighting to= put a series of problems behind it and regain credibility with investors a= nd analysts.=20 "It's further bad news, further question marks related to Enron in general = and this transaction specifically," Andre Meade, an analyst with Commerzban= k Securities in New York, said of the SEC request.=20 Some investors prefer to sit on the sidelines until the issue clears up, Me= ade said, adding: "The level of uncertainty with this stock has gotten pret= ty high."=20 An SEC spokesman declined comment.=20 Enron's Chief Financial Officer, Andrew Fastow, managed both of the LJM par= tnerships, according to SEC filings made by Enron last year.=20 Both partnerships are described as investment companies that primarily buy = or invest in businesses involved in energy and communications.=20 Fastow resigned his roles with the LJM partnerships in June amid criticism = and questions from some on Wall Street about a potential conflict of intere= st.=20 Investors worried Monday that Fastow's duty to Enron shareholders competed = with his duties to LJM, Meade said.=20 In a written statement Monday, Ken Lay, Enron's chairman and chief executiv= e officer, said the company welcomed the SEC's request.=20 "We will cooperate fully with the SEC and look forward to the opportunity t= o put any concern about these transactions to rest," said Lay, who reassume= d the duties of CEO after Jeff Skilling resigned unexpectedly in August.=20 Enron said its external and internal auditors and attorneys reviewed the ar= rangements, its board was fully informed of and approved the arrangements, = which were disclosed in Enron's SEC filings.=20 The issue drew renewed interest from investors and analysts after Enron rel= eased third-quarter earnings last Tuesday.=20 During the quarter, Enron took $1.01 billion in one-time charges to reflect= losses in its broadband, retail electricity and water investments.=20 The amount also included $35 million related to "early termination" of Enro= n's relationships with the LJM partnerships.=20 During a call with analysts the same day, Enron said it recorded a $1.2 bil= lion reduction to shareholder equity, or the shareholders' ownership stake = in the company, as part of the LJM termination.=20 Enron declined to answer questions Monday about the LJM entities, including= those about their relationship with Enron or Fastow's role with them.=20 The day after Enron's third-quarter earnings release, the Wall Street Journ= al ran the first of three articles highlighting the LJM partnerships, Fasto= w and Enron.=20 The Journal's Friday report said LJM2 "realized millions of dollars in prof= its in transactions it did with Enron," and that "Fastow, and possibility a= handful of partnership associates, realized more than $7 million last year= in management fees."=20 Shares in Enron, which closed last Tuesday at $33.84, ended the day Friday = at $26.05. Then Monday, shares in Enron dropped by $5.40 to close at $20.65= .=20 Anatol Feygin, an analyst with J.P. Morgan in New York, believes there were= no improprieties surrounding LJM.=20 "From inception, the LJM situation was obviously one that would raise eyebr= ows," said Feygin, adding Enron anticipated that and made sure proper legal= structures were in place.=20 The LJM entities are what's known as off-balance sheet financing vehicles, = he said. Generally, they allow a corporation to take on financial obligatio= ns without having to report them as liabilities.=20 Feygin also said it appeared Enron intended to give Fastow an "opportunity = to participate in the upside from these entities" to reward him.=20 Even though the LJM transactions have been disclosed by Enron, Meade noted = that they are complicated, difficult to follow and their implications tough= to understand.=20 In transactions detailed in an SEC filing made by Enron last year, LJM Caym= an received shares of Enron common stock and LJM2 acquired assets from Enro= n.=20 Another filing last year said LJM Cayman and/or LJM2 acquired various debt = and equity securities of certain Enron subsidiaries and affiliates.=20 Investors are also concerned about potential shareholder lawsuits as well a= s equity commitments facing Enron from two other financing vehicles called = Whitewing and Marlin, Jeff Dietert, an analyst with Simmons & Co. Internati= onal in Houston, wrote in a research note Monday.=20 If Enron should lose its current investment-grade quality debt rating, thos= e equity commitments from Whitewing and Marlin could trigger steps that wou= ld cause the value of Enron's current outstanding shares to become diluted.= =20 At least two shareholders have already sued Enron's board in state district= court, while two law firms filed suit on behalf of Enron shareholders Mond= ay in federal court seeking class-action status.=20 Carol Caole, an analyst with Prudential Securities in Houston, downgraded E= nron from a buy to a hold Monday primarily because of issues surrounding th= e credibility of Enron's management.=20 Several times over the past six months, Caole asked specific questions of s= enior Enron executives, she said. They denied problems existed, but six wee= ks to two months later it was revealed there were, indeed, issues, she said= .=20 Coale recently asked about an SEC investigation and was told there wasn't o= ne. But, she said, it turns out it's an "inquiry," not an investigation.=20 Abreast of the Market Minnesota Mining and GM Climb In a Rally That Builds Late in Day By Robert O'Brien Dow Jones Newswires 10/23/2001 The Wall Street Journal C2 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- During yesterday's Wall Street rally, investors responded with = accommodation toward the release of third-quarter earnings results and four= th-quarter forecasts.=20 Shares of Minnesota Mining & Manufacturing added $5.22, or 5.1%, to $107.39= after the manufacturing company released third-quarter earnings, which nar= rowly edged out analysts' projections, and spoke frankly of the challenges = the company continues to face this quarter in light of economic weakness. Despite this kind of hesitation about the economy's outlook, investors grav= itated toward some of the manufacturing and capital-equipment stocks that t= end to struggle during periods of weak economic activity. Shares of General= Motors, for example, added 1.21, or 2.9%, to 42.57, Alcoa gained 1.16, or = 3.7%, to 32.83, and Fluor, an engineering and construction company, rose 1.= 79, or 4.2%, to 44.77.=20 Stock averages initially struggled for direction, reflecting some skepticis= m about the sustainability of the market's recent success, before turning f= irmly higher in the final two hours of trading. Trading levels thinned out,= as well; on the New York Stock Exchange, less than 1.1 billion shares chan= ged hands, compared with 1.2 billion shares Friday, an options-expiration s= ession.=20 Nevertheless, market averages posted impressive gains. The Dow Jones Indust= rial Average improved 172.92 points, or 1.88%, to 9377.03. The Nasdaq Compo= site Index gained 36.77 points, or 2.2%, to 1708.08.=20 "We had another one of those days where there is a lack of liquidity, so an= y moves, in either direction, just get exaggerated," Bob Basel, senior trad= er at Salomon Smith Barney, said yesterday.=20 Shares of semiconductor companies, including makers of both chips and chip-= making equipment, rose sharply after a spending forecast from Intel, the le= ading chip maker, proved less grim than some experts had anticipated. The c= ompany said its capital spending could be cut 10% to 20% in 2002 from this = year's levels; that wouldn't be as severe as some chip industry experts had= forecast.=20 Shares of Applied Materials advanced 2.22, or 6.8%, to 34.77 on Nasdaq, whi= le KLA-Tencor gained 2.74, or 7.5%, to 39.25, and Lam Research improved 1.3= 6, or 7.8%, to 18.80, all on Nasdaq. Among chip makers, Analog Devices rose= 2.57, or 7.1%, to 38.74, LSI Logic gained 89 cents, or 5.6%, to 16.83, and= Texas Instruments tacked on 1.17, or 4.2%, to 28.91. For its part, Intel r= ose 1.15, or 4.8%, to 25.30 on Nasdaq.=20 Shares of Lexmark International dropped 5.58, or 11%, to 44.77. The Lexingt= on, Ky., maker of computer printers reported third-quarter results that mat= ched Wall Street's forecasts, but warned that it continues to face sluggish= demand in the fourth quarter.=20 SBC Communications declined 2.24, or 5.1%, to 41.40. The telecommunications= service provider reported third-quarter earnings that fell short of analys= ts' forecasts, and warned that the company won't show "meaningful growth" n= ext year.=20 Citrix Systems fell 4.14, or 16%, to 21.08 on Nasdaq. Dain Rauscher reduced= its rating on the Fort Lauderdale, Fla., maker of computer networking prod= ucts, saying the company faces competitive pressures from products introduc= ed by rival vendors.=20 Jabil Circuit eased 16 cents, or 0.7%, to 22.90. The St. Petersburg, Fla., = contract electronics maker adopted a so-called shareholder rights plan, whi= ch is aimed at preventing an acquirer from gaining control of the company.= =20 EMC advanced 68 cents, or 5.9%, to 12.19. The Hopkinton, Mass., maker of da= ta-storage systems signed what was described as a multibillion-dollar enter= prise storage agreement with Dell Computer. Dell improved 50 cents, or 2.1%= , to 24.55 on Nasdaq.=20 SeaChange International advanced 88 cents, or 3.6%, to 25.03 on Nasdaq, boo= sted by an upbeat research note from Dain Rauscher, which said the Maynard,= Mass., provider of video-on-demand technology figures to have posted an up= beat quarter.=20 Lucent Technologies declined 20 cents, or 2.8%, to 6.90. UBS Warburg, in a = research note, expressed some caution about the outlook for the telecommuni= cations equipment maker's quarterly results.=20 Emerson Electric gained 1.38, or 2.8%, to 50.27, even though the St. Louis = manufacturer, which makes electronics and telecommunications products, amon= g other product lines, reduced its earnings guidance for fiscal 2001.=20 Enron lost 5.40, or 21%, to 20.65, setting a 52-week low. The Houston energ= y trader, whose stock has weakened since recent articles in The Wall Street= Journal raised questions about the company's relationship with two limited= partnerships organized by its chief financial officer, said it had receive= d a request for information on Wednesday from the Securities and Exchange C= ommission regarding some of its transactions with those partnerships. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 WORLD STOCK MARKETS: Wall St bargain hunters counter earnings gloom AMERICA= S=20 Financial Times; Oct 23, 2001 By MARY CHUNG US equities rose sharply yesterday with bargain hunting in technology stock= s countering a slew of mostly disappointing corporate earnings and more ant= hrax scares.=20 Gains accelerated late in the session as the Dow Jones Industrial Average s= urged 172.92 to close at at 9,377.03 while the S&P 500 index added 16.42 at= 1,089.90. The Nasdaq Composite rose 36.78 at 1,708.09. Volume remained lig= ht with 1.1bn trades in the NYSE.=20 Investors were upbeat in spite of a lack of positive news, suggesting under= lying strength in the market and optimism for a rebound, some analysts said= . The indices were slightly rattled after news that two postal workers in W= ashington died after suffering symptoms consistent with anthrax, but the ma= rket quickly regained its footing.=20 "The market is acting very well. It's come an awful long way in a short tim= e and had to deal with anthrax," said Alfred Goldman, chief market strategi= st at AG Edwards. "The message is that investors and consumers and the coun= try are in a recovery mode."=20 Semiconductor stocks showed strength with Intel up 4.7 per cent at Dollars = 25.30 and Advanced Micro Devices 4.2 per cent at Dollars 9.58.=20 Microsoft rose 3.9 per cent at Dollars 60.16 before the launch this week of= its Windows XP operating system. Lexmark dropped 11 per cent at Dollars 44= .77 after the company reported third-quarter results that met estimates, bu= t warned of a fourth-quarter revenue shortfall. Applied Digital Solutions g= ained 66 per cent at 58 cents after the company said it had formed a subsid= iary to develop and market its ThermoLife thermoelectric generator product = powered by body heat.=20 3M gave a lift to Dow components, up 5.1 per cent at Dollars 107.39 after t= he maker of Post-it notes said quarterly earnings beat expectations by a pe= nny a share. The company forecast fourth-quarter profit would be in line wi= th analyst estimates.=20 SBC Communications was the biggest decliner within the Dow, down 5.1 per ce= nt to Dollars 41.40 after it said earnings failed to meet Wall Street conse= nsus estimates.=20 American Express gained 3.4 per cent to Dollars 30.32 despite reporting a 6= 0 per cent drop in third-quarter earnings.=20 Dow components Citigroup and JP MorganChase tacked on 2.5 per cent and 4.2 = per cent respectively. Shares in Alcoa were up 3.7 per cent at Dollars 32.8= 3 and ExxonMobil 1.4 per cent at Dollars 41.12.=20 Enron fell 20.7 per cent at Dollars 20.65 after the energy trading company = said the Securities and Exchange Commission requested it voluntarily provid= e information regarding certain transactions.=20 In Toronto the S&P 300 composite index fell just 0.08 per cent to 6,905.21 = at the close.=20 Copyright: The Financial Times Limited Milberg Weiss Announces Class Action Suit Against Enron Corp. 10/22/2001 Business Wire (Copyright (c) 2001, Business Wire) NEW YORK--(BUSINESS WIRE)--Oct. 22, 2001--The law firm of Milberg Weiss Ber= shad Hynes & Lerach LLP announces that a class action lawsuit was filed on = October 22, 2001, on behalf of purchasers of the common stock of Enron Corp= . ("Enron" or the "Company") (NYSE:ENE) between January 18, 2000 and Octobe= r 17, 2001, inclusive. A copy of the complaint filed in this action is avai= lable from the Court, or can be viewed on Milberg Weiss' website at: http:/= /www.milberg.com/enron/=20 The action, numbered H013630, is pending in the United States District Cour= t for the Southern District of Texas, Houston Division, located at 515 Rusk= Street, Houston TX 77002, against defendants Enron, Kenneth Lay, Jeffrey K= . Skilling and Andrew Fastow. The Honorable Melinda Harmon is the Judge pre= siding over the case. The Complaint alleges that defendants violated Sections 10(b) and 20(a) of = the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder,= by issuing a series of material misrepresentations to the market between J= anuary 18, 2000 and October 17, 2001, thereby artificially inflating the pr= ice of Enron common stock. Specifically, the complaint alleges that Enron i= ssued a series of statements concerning its business, financial results and= operations which failed to disclose (i) that the Company's Broadband Servi= ces Division was experiencing declining demand for bandwidth and the Compan= y's efforts to create a trading market for bandwidth were not meeting with = success as many of the market participants were not creditworthy; (ii) that= the Company's operating results were materially overstated as result of th= e Company failing to timely write-down the value of its investments with ce= rtain limited partnerships which were managed by the Company's chief financ= ial officer; and (iii) that Enron was failing to write-down impaired assets= on a timely basis in accordance with GAAP. On October 16, 2001, Enron surp= rised the market by announcing that the Company was taking non-recurring ch= arges of $1.01 billion after-tax, or ($1.11) loss per diluted share, in the= third quarter of 2001, the period ending September 30, 2001. Subsequently,= Enron revealed that a material portion of the charge related to the unwind= ing of investments with certain limited partnerships which were controlled = by Enron's chief financial officer and that the Company would be eliminatin= g more than $1 billion in shareholder equity as a result of its unwinding o= f the investments. As this news began to be assimilated by the market, the = price of Enron common stock dropped significantly. During the Class Period,= Enron insiders disposed of over $73 million of their personally-held Enron= common stock to unsuspecting investors.=20 If you bought the common stock of Enron between January 18, 2000 and Octobe= r 17, 2001, you may, no later than December 21, 2001, request that the Cour= t appoint you as lead plaintiff. A lead plaintiff is a representative party= that acts on behalf of other class members in directing the litigation. In= order to be appointed lead plaintiff, the Court must determine that the cl= ass member's claim is typical of the claims of other class members, and tha= t the class member will adequately represent the class. Under certain circu= mstances, one or more class members may together serve as "lead plaintiff."= Your ability to share in any recovery is not, however, affected by the dec= ision whether or not to serve as a lead plaintiff. You may retain Milberg W= eiss Bershad Hynes & Lerach LLP, or other counsel of your choice, to serve = as your counsel in this action.=20 Milberg Weiss Bershad Hynes & Lerach LLP, a 190-lawyer firm with offices in= New York City, San Diego, San Francisco, Los Angeles, Boca Raton, Seattle = and Philadelphia, is active in major litigations pending in federal and sta= te courts throughout the United States. Milberg Weiss has taken a leading r= ole in many important actions on behalf of defrauded investors, consumers, = and companies, as well as victims of World War II and other human rights vi= olations, and has been responsible for more than $30 billion in aggregate r= ecoveries. The Milberg Weiss Web site (http://www.milberg.com) has more inf= ormation about the firm.=20 If you wish to discuss this action with us, or have any questions concernin= g this notice or your rights and interests with regard to the case, please = contact the following attorneys:=20 Steven G. Schulman or Samuel H. Rudman One Pennsylvania Plaza, 49th fl. New= York, NY, 10119-0165=20 Phone number: (800) 320-5081 Email: Enroncase@milbergNY.com Website: http:/= /www.milberg.com=20 William S. Lerach or Darren J. Robbins 600 West Broadway1800 One America Pl= azaSan Diego, CA 92101-3356 Phone number: (800) 449-4900 CONTACT: Milberg Weiss Bershad Hynes & Lerach LLP Steven G. Schulman or Sam= uel H. Rudman 800/320-5081 Email: Enroncase@milbergNY.com Website: http://w= ww.milberg.com or William S. Lerach or Darren J. Robbins 800/449-4900=20 19:16 EDT OCTOBER 22, 2001=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron To Host Conference Call Tues 9:30 am EDT 10/22/2001 Dow Jones News Service (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Enron Corp. (ENE) will hold a conference call at 9:30= a.m. EDT Tuesday to address investor concerns, the company said in a press= release Monday.=20 Earlier Monday, a shareholder filed a derivative lawsuit against Enron alle= ging the board breached their fiduciary duties by allowing Chief Financial = Officer Andrew Fastow to create and run certain limited partnerships. Last week, Enron said it received a request for information about "certain = related party transactions" from the Securities and Exchange Commission.=20 On Oct. 16, Enron announced that it would take a $35 million charge relatin= g to the limited partnerships and revealed that the company had to repurcha= se 55 million of its shares in order to unwind its involvement in the partn= erships, thereby reducing the company's shareholder equity by $1.2 billion.= =20 Shares of Enron closed Monday at $20.65, down $5.40, or 20.7%, on New York = Stock Exchange volume of 36.4 million shares. Average daily volume is 5.8 m= illion shares. In intraday trading, the shares reached a 52-week low of $19= .67. The previous 52-week low was $24.46, reached on Sept. 27. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Janus Had Biggest Enron Stake at End of 2nd-Quarter (Update1) 2001-10-22 18:04 (New York) Janus Had Biggest Enron Stake at End of 2nd-Quarter (Update1) (Adds Stilwell shares at bottom.) Denver, Oct. 22 (Bloomberg) -- Janus Capital Corp., whose stock funds have lost more than a third of their value this year, may get another jolt from Enron Corp. As of June 30, Denver-based Janus was the biggest institutional holder of Enron, owning 42.8 million shares, or a 5.71 percent stake in the largest U.S. energy trading company, according to Thomson Financial/Carson. Enron shares have fallen 39 percent over the past four days on concern that the company's dealings with partnerships run by its chief financial officer contributed to investment losses. The Securities and Exchange Commission has asked for information on the partnerships, Enron said. Janus, which boosted its Enron stake in the past year in an effort to diversify its technology-heavy stock funds, is among a handful of firms including Putnam Investments, Alliance Capital Management, Barclays Global Investors and Fidelity Investments that owned more than 2 percent of the Houston-based company as of June 30, according to Bloomberg data. ``It was definitely a real growth darling,'' said Christine Benz, a senior analyst at Chicago-based fund tracker Morningstar Inc. ``In a year like 2000, when almost nothing was working for growth managers, Enron emerged as a story that a lot of growth managers could like.'' Fund Holdings According to Thomson Financial, 1,187 mutual funds, or 15.4 percent of all U.S. stock funds, owned a combined 207.9 million Enron shares as of June 30. Combined losses on the holdings amount to $2.7 billion since Tuesday. According to the latest available data compiled by Thomson, the biggest fund holders of Enron were: Janus Fund, with 2.15 percent; Janus Twenty Fund, with 1.19 percent; Alliance Premier Growth Fund, with 1.14 percent; American Century Ultra Fund, with 1.01 percent; Janus Mercury Fund, with 0.88 percent; Vanguard 500 Index Fund, with 0.82 percent; Fidelity Magellan Fund, with 0.73 percent; AIM Value Fund, with 0.6 percent; CREF Stock Account, with 0.58 percent; and, Putnam Investors Fund, with 0.52 percent. Janus Fund has lost 33.2 percent this year through Friday, while Janus Twenty Fund has lost 33.4 percent and Janus Mercury Fund has fallen 34 percent. A Janus spokeswoman wasn't immediately available to comment. Morningstar's Benz said she suspects Janus fund managers have already begun trimming their Enron positions. Enron shares had fallen 59 percent this year before last week's news on concerns about financial reporting and money-losing investments outside energy trading, such as trading space on broadband telecommunications networks and building water treatment plants. The stock fell $5.40, or 21 percent, to $20.65 in New York trading today. ``Anecdotal evidence that I'm hearing from the fund managers there is that they had been trimming pretty aggressively,'' said Benz. She added that it's ``difficult to make the assertion that they are in the clear.'' Janus Capital is owned by Kansas City, Missouri-based Stilwell Financial Inc., whose shares gained 73 cents today to $22.52. Stilwell shares have fallen 43 percent this year. Enron Says SEC Asks About Related-Party Transactions (Update9) 2001-10-22 18:30 (New York) Enron Says SEC Asks About Related-Party Transactions (Update9) (Adds information on conference call in 26th paragraph.) Houston, Oct. 22 (Bloomberg) -- Enron Corp.'s shares fell 21 percent after the Houston-based company said the Securities and Exchange Commission requested information on partnerships run by Chief Financial Officer Andrew Fastow and other executives. Enron, the largest energy trader, created partnerships and other affiliated companies to buy and sell assets such as power plants to lower the debt on its books. An investor sued Enron's board Wednesday, saying two partnerships cost the company $35 million and Fastow's leadership of them was a conflict of interest. Investors today said they were concerned that Enron may be forced to dismantle the affiliated companies by paying off the owners in cash or stock. Chief Executive Ken Lay said last week he may be have to ``unravel'' agreements that created the companies if Enron's debt ratings fall too far. ``We need confidence their long-term credit rating won't go below investment grade,'' said Roger Hamilton, an analyst at John Hancock's value funds, which own 600,000 Enron shares. Enron reduced shareholders' equity by $1.2 billion when it repurchased 55 million shares of two such partnerships controlled by Fastow, LJM Cayman and LMJ2 Co-Investment, the Wall Journal reported last week. Dismantling more of the affiliated companies and partnerships would cost Enron or its shareholders as much as $3 billion, Ray Niles, a Salomon Smith Barney analyst, wrote in a report to investors today. Shares Plunge Enron shares fell $5.40 to $20.65. They touched $19.67 during the day's trading, the lowest level since Jan. 15, 1998. The stock has fallen 75 percent this year amid concerns about failed investments in trading of space on fiber-optic communications networks and a water company, and the resignation of Jeff Skilling as CEO in August after seven months on the job. While Skilling said he resigned for personal reasons, investors say his departure led them to question whether the company was concealing problems, including possible liabilities from affiliated companies. On Tuesday, Enron surprised many investors when it reported a $618 million third-quarter loss, the result of writing off $1.01 billion in failed investments. Moody's Investors Service placed the company's debt on watch for possible downgrade. The company's debt is rated at investment grade by Fitch, Standard & Poor's and Moody's. The company received a faxed request for information from the SEC on Wednesday asking for information, spokesman Mark Palmer said, and will respond ``as soon as possible.'' ``We will cooperate fully with the SEC and look forward to the opportunity to put any concern about these transactions to rest,'' Lay, who is also Enron's chairman, said in a statement. Dilution Fears Enron has formed at least 18 companies to serve as financing vehicles for its projects, based on filings with the Texas secretary of state. Fastow and other Enron executives are named as the controlling partners or the board members in the companies. Some have bought Enron assets such as power plants, removing the debt for those projects from Enron's books. That allows Enron to keep cash earned from the main trading business from supporting what it views as secondary businesses, Standard & Poor's debt analyst Todd Shipman said. Enron brokers trades of electricity, natural gas and other commodities as well as owns power plants and natural-gas pipelines. Dismantling the affiliates would be costly. Whitewing Management, an affiliated company that has bought 14 Enron power plants and lists Fastow as managing director, holds 250,000 preferred shares of Enron. Enron may have to convert the preferred shares to common stock if share prices fall below a certain level and the credit rating drops below investment grade, according to company filings. That would dilute the value of common shareholders' investment. ``The concern is how many of these dilutive structures are out there?'' Shipman said. ``Investors are worried they might have to share their Enron earnings with a lot more people than they originally thought.'' Worrisome Financing Enron's auditors and attorneys reviewed the company's ``related party arrangements,'' the board approved them, and they were disclosed in SEC filings, Enron said in its statement. That hasn't eased concerns. The reduction of shareholder equity by $1.2 billion from the LJM partnerships is reason to worry about Enron's other financing vehicles, wrote Niles, the Salomon analyst. Enron also may take another $2.4 billion in losses from investments in the Dabhol power plant in India and projects in South America, he wrote. Bonds Fall Enron's 8 percent coupon bonds due in 2005 fell $34 per $1,000 face value to be offered at $1,022 today from $1,056 on Friday, traders said. Yield on the debt rose to 7.33 percent from 6.33 percent. Based on Bloomberg composite ratings, most of Enron's long- term debt is rated at BBB2 and BBB1, two or three levels above investment grade. Fastow continues to work, and Enron hasn't punished him, Palmer said. Fastow declined to be interviewed, spokeswoman Karen Denne said. SEC spokesman John Heine declined to comment on the agency's request to Enron. ``We believe everything that needed to be considered and done in connection with these transactions was considered and done,'' Lay said in the statement. Enron will hold a conference call to discuss investors' concerns at 9:30 a.m. New York time Tuesday. The call may be accessed through the ``Investors'' section of Enron's Web site at http://www.enron.com. --Russell Hubbard in the Princeton newsroom at 609-750-4651, or at rhubbard2@Bloomberg.net and Mark Johnson in the Princeton newsroom at (609) 750-4662, or mjohnson7@bloomberg.net, with reporting by Terry Flanagan/slb/alp/pjm/slb/*atr/alp/taw Trusts Keeping Enron Off Balance By Peter Eavis <mailto:peavis@thestreet.com> Senior Columnist TheStreet.com 10/22/2001 07:15 AM EDT URL: <http://www.thestreet.com/markets/detox/10002702.html> Enron (ENE:NYSE - news - commentary) stock plunged 20% last week after the = energy giant revealed that a complex financing deal caused a $1.2 billion h= it to its equity. But other big deals that have yet to receive much public = scrutiny could further damage the company's balance sheet.=20 In the spotlight last week were transactions done with investment partnersh= ips called LJM2 and LJM Cayman. An examination of the LJM2-related equity w= ritedown can be found here.=20 However, the LJM deals make up only part of Enron's sophisticated financing= arrangements. Also at issue are two large trusts that contain assets Enron= shifted from its balance sheet. These are the $1 billion Marlin Water Trus= t II and the $2.4 billion Osprey Trust, usually known as Whitewing.=20 The key risk for investors is how Enron chooses to repay these trusts if th= ey don't unwind as planned. The company may end up issuing stock to repay m= oney borrowed through the trusts. This would dilute existing shareholders. = Alternatively, Enron could resort to using cash raised through sales of on-= balance sheet assets. But this would hamper efforts to reduce debt and depr= ive the company's profitable business lines of much-needed capital.=20 Whitewing and a Prayer? Though set up by Enron, Marlin II and Whitewing are legally distinct from t= he company. Institutional investors bought notes issued by the trusts. The = $3.4 billion in proceeds from the notes flowed to Enron.=20 Both trusts are scheduled to unwind in 2003. Originally, Enron had hoped to= repay them by selling the trusts' underlying assets. This repayment method= would have had a minimal impact on Enron's balance sheet.=20 However, there's a potential problem brewing with this approach. The value = of the assets may be too low to raise sufficient funds to pay back the trus= t investors. Hence Enron's two unenviable options: issuing stock, or raisin= g cash from its own balance sheet.=20 Enron treasurer Ben Glisan concedes that assets in Marlin II won't be suffi= cient to pay it back. But he adds that proceeds from planned sales of on-ba= lance sheet assets will provide Enron with the necessary funds for Marlin I= I. When asked if Whitewing's assets are adequate for repayment, Glisan repl= ied: "We believe so."=20 In reference to the two trusts, Enron CEO Kenneth Lay said on a conference = call Tuesday: "We anticipate the sale of assets will be the primary source = of repayments."=20 Sterling Marlin TheStreet.com hasn't seen offering documentation for Whitewing; Enron didn'= t provide it when requested. But TSC has reviewed the Marlin II prospectus.= Here's how Marlin II works. Enron took water assets, primarily based in th= e U.K., off its balance sheet, and the Marlin II trust took a stake in them= . Meanwhile, Marlin II issued senior debt to investors, the proceeds of whi= ch went to Enron. The company didn't have to recognize these notes as debt = on its balance sheet, due to the structure of the trust. Marlin II replaced= a similar trust called Marlin that was set to mature at the end of this ye= ar.=20 Ideally, the aim was for Enron managers to maximize the value and profitabi= lity of the assets over the life of Marlin and Marlin II so it could sell t= hem off and pay down the trusts. To cover the risk that asset sales wouldn'= t raise enough money, Enron also pledged to issue as much new convertible p= referred stock as might be needed to pay off the notes.=20 As it happened, the water assets didn't perform well. In fact, Enron set up= Marlin II in July to succeed the original Marlin because it wanted to avoi= d paying off the first Marlin with convertible stock, or with cash from its= own balance sheet. This move risked angering the rating agencies that had = agreed not to treat Marlin as debt because of Enron's pledge to backstop it= with preferred stock. Suddenly, it seemed Enron was wriggling out of its c= ommitment to make good with stock.=20 Enron's Glisan responds that many of the investors in the first Marlin also= invested in Marlin II, illustrating that investors weren't upset by the ma= neuver.=20 Glisan says Enron almost certainly won't decide to issue stock to pay off M= arlin II. Instead, he adds, money from pending asset sales can be used to p= ay it off when it matures in July 2003. When asked if Enron might use the e= xpected $1.9 billion in proceeds from selling Portland General, the utility= based in Portland, Ore., Glisan replied: "That's a good one."=20 But using the Portland General windfall would run counter to Enron's freque= ntly stated strategy of selling off low-yielding assets and investing the p= roceeds in higher-yielding businesses. Portland General is almost certainly= a more profitable business than the U.K.'s Wessex Water, which is the domi= nant asset in Marlin II. In addition, doing so would mean Enron couldn't us= e all the Portland proceeds to pay off debt. Enron aims to get its debt-to-= total-capital ratio down to 40%, from the current 50%.=20 Maturity What about Whitewing, which matures in early 2003? Glisan lists Whitewing's= assets as: Central American gas distribution assets; turbines destined for= European power stations; interests in European power stations; and various= debt and equity participations in energy investments. Glisan says these as= sets can be sold to pay off the $2.4 billion in notes issued by the trust.= =20 But what would happen if the Whitewing assets can't fetch the necessary pri= ce? Enron could sell off more on-balance-sheet assets. But, again, this wou= ldn't help debt-reduction efforts, and it may be running short of large ass= ets that it can quickly sell.=20 Whitewing is backed with Enron convertible stock. But Enron may be reluctan= t to issue paper when its stock is so far below recent highs, and current s= hareholders may begrudge the prospect of further dilution.=20 Investors also need to keep their eyes on the early-repayment triggers of t= he trusts. In fact, the stock price-related element of the triggers has alr= eady been set off. For Whitewing, the stock has to fall below $59.78; for M= arlin II, the stock has to be under $34.13. However, something else has to = happen before the trust investors can claim their money back through asset = sales and stock issuance. Enron's credit rating must fall below investment = grade. That looks to be a long shot, since its rating is currently three no= tches above subinvestment grade. But it is something the market will watch = after Moody's said last week that it was putting Enron on review for a poss= ible downgrade.=20 Despite all the questions stemming from the trusts, Enron still seems keen = to use the structure. Last week, Barclays Capital was inviting investors to= subscribe to an Enron-related entity called the Besson Trust. This is bein= g set up to enable Enron "to monetize substantially all of its interests in= EOTT Energy Partners," an Enron affiliate that markets and transports crud= e oil. Expected proceeds from the deal are $227 million, according to the p= rospectus. Could Enron be setting up new trusts to pay off damaged old trus= ts?=20 Due to off-balance sheet financings like Marlin II and Whitewing, it's clea= r that uncertainty could weigh on Enron's battered stock for some time.=20 Why Enron's Writedown Unnerves Some Investors By Peter Eavis <mailto:peavis@thestreet.com> Senior Columnist TheStreet.com 10/22/2001 07:15 AM EDT URL: <http://www.thestreet.com/markets/detox/10002713.html> Enron is trying to improve disclosure to investors, but its decision to red= uce equity by $1.2 billion in the third quarter has created dismay and conf= usion in the market.=20 The action was disclosed in a dubiously discreet manner. More important, in= vestors are struggling to pinpoint how the shrinkage will affect Enron's ba= lance sheet, profits and earnings guidance.=20 Enron didn't provide answers to questions submitted on the equity reduction= .=20 Enron doesn't include a balance sheet in its earnings release, so the equit= y decrease couldn't be spotted in numbers supplied Tuesday. And even though= Enron did break out $1 billion in earnings charges in its release, the com= pany didn't feel it necessary to mention the equity write down anywhere in = the text.=20 Instead, the public first heard about it on a Tuesday conference call. CEO = Kenneth Lay said Enron had shrunk its equity as a result of terminating a s= o-called "structured finance arrangement." The Wall Street Journal later re= ported that Enron's counter-party in this transaction was an investment par= tnership called LJM2 Co-Investment, which has set up and run by Enron's fin= ance chief, Andrew Fastow.=20 This is what Lay said on the Tuesday call about the equity move: "In connec= tion with the early termination, shareholders' equity will be reduced appro= ximately $1.2 billion, with a corresponding significant reduction in the nu= mber of diluted shares outstanding." According to The Journal, Lay then sai= d Wednesday on another call that Enron had repurchased 55 million shares.= =20 Enron's supporters count Lay's mention of a reduction in the share count as= bullish, because it should boost earnings per share numbers in the future.= =20 But there are two possible problems with this theory.=20 First, Enron affirmed its previous earnings guidance that it expects to mak= e $2.15 per share in operating earnings next year. Critically, the company = did not say whether its guidance was given using a share count without the = 55 million shares or not. If the forecast does assume the exclusion of the = 55 million shares, the company should have upped its 2002 per-share earning= s forecast by around 6%, since that's the amount by which the share count w= ill be reduced. Enron needs to say what share count it's using in its guida= nce.=20 Second, it's almost impossible to determine where these shares were ever re= corded, casting a certain amount of doubt on Lay's assertion that the share= count will come down.=20 Why question the CEO? Well, in its 2000 annual report, Enron included some = disclosure of the 55 million shares connected with LJM2. It reads: "At Dece= mber 31, 2000, Enron had derivative instruments...on 54.8 million shares of= Enron common stock." The derivative instruments appear to be types of opti= ons, or agreements that give the counterparty the right to buy or sell stoc= k at agreed prices.=20 But these derivatives-linked shares don't show up where they should in the = annual report: in the table that breaks out the difference between the basi= c and diluted share counts. The line item in this table that shows options-= related shares totals only 43 million shares, which is close to the amount = of employee pay options that qualified for inclusion. Therefore, that numbe= r almost certainly doesn't include the 55 million LJM2-related shares. The = fact is, at least some of the 55 million derivatives-linked shares should b= e included if the derivatives were like normal options. That's because the = LJM2 derivatives appear to have been "in the money", or profitable for the = holders. Typically, all in-the-money options-based stock has to be included= in the diluted share count. And these LJM2 derivatives did appear to have = that status at the end of 2000. Back then, Enron stock was trading around $= 80, way above the average $68 level at which these derivatives made money f= or LJM2.=20 Maybe these weren't simple options and had other conditions attached that e= xcluded them from the diluted share count. That's what disclosure elsewhere= in the annual report appears to imply. Alternatively, the options were emb= edded somewhere else in the share count table or equity disclosure, though = it's hard think where.=20 Presumably, investors will get a full explanation in Enron's quarterly fina= ncial results filing with the Securities and Exchange Commission, due by th= e middle of November. =====================================

haasnews@haas.berkeley.edu

Social Venture Competition Expands into New National Partnership

Haas NewsWire September 4, 2001 ---------- CONTENTS * Social Venture Competition Expands into New National Partnership * Blue Martini CEO Zweben to Give Keynote at 2001 Knowledge Forum * Michael Katz to Serve as Deputy Assistant Attorney General for Economic Analysis * Leading Edge: The Future Comes to Haas * The First of Six New Faculty Profiles: Terrence Hendershott Joins the Manufacturing and Information Technology Group * Haas CEO Exchange to Air on PBS in September * Diane Dimeff Heads for Colorado as Assistant Dean for MBA Programs at CU Boulder * The Summer 2001 Issue of the California Management Review is Available * Haas in the News * Happening at Haas * Haas Celebrations ---------- SOCIAL VENTURE COMPETITION EXPANDS INTO NEW NATIONAL PARTNERSHIP The Haas School of Business and Columbia Business School have formed a joint partnership with The Goldman Sachs Foundation to expand the Haas Social Venture Competition into the National Social Venture Competition. The competition invites aspiring entrepreneurs to develop plans for businesses that have a clear, quantifiable social return as well as a healthy financial bottom line. The National Social Venture Competition originated in 1999 as a student-organized social venture competition at the Haas School of Business. In the past few years, the competition has attracted more than 100 teams from business schools across the United States and Europe. The new partnership with Columbia Business School and The Goldman Sachs Foundation will expand the competition's reach and scale. The Goldman Sachs Foundation will underwrite the competition with a gift of $1.5 million to help build a national platform for social entrepreneurship. "This innovative program is an important milestone in the social enterprise field and presents a unique opportunity to advocate high quality entrepreneurship education on a national scale," said Stephanie Bell-Rose, president of The Goldman Sachs Foundation. "The program underscores the Foundation's mission of supporting educational excellence by encouraging outstanding students to develop the tools that help them become the global leaders of tomorrow." "The National Social Venture Competition reflects the growing commitment of business leaders and entrepreneurs to foster profitable activities that address major social challenges, such as protecting the environment, preventing disease, and improving educational outcomes," said Laura Tyson, dean of the Haas School of Business. "Haas MBA students have done an outstanding job in launching a business plan competition to promote socially responsible business ventures. Our new partnership with Columbia University's business school and The Goldman Sachs Foundation will increase public awareness of these issues and encourage business students to employ the tools of business to create positive social change." Throughout the year, the entrepreneurship centers of the two business schools will coordinate with The Goldman Sachs Foundation to organize and promote national events in the San Francisco Bay Area and New York. The Eugene M. Lang Center for Entrepreneurship at Columbia Business School will host an inaugural symposium on October 5 in New York City. The symposium will feature a public dialogue with leaders in the social entrepreneurship arena to explore the growing demand and marketplace expectations for social ventures. Throughout the year, both schools will host additional events to encourage participation and evaluate submissions. Mentoring workshops will take place at Columbia Business School and the Haas School with prominent investors and alumni helping teams to perfect their business plans and presentations. The teams' executive summaries are due on January 18, 2002. The 2001/2002 national competition finals, hosted by the Haas School's Lester Center for Entrepreneurship and Innovation, will take place at UC Berkeley on April 5-6, 2002. "This unique and powerful partnership reflects Columbia's commitment to supporting entrepreneurship as a vehicle for social change," remarked Meyer Feldberg, dean of Columbia Business School. "Tomorrow's business leaders must grasp more than convention; they must also be prepared to develop and steer businesses of all sizes and types through a global economy that demands consideration not only of profit and shareholder value, but also of broader human interests." Teams in this year's competition can look to past participants in the Haas Social Venture Competition for inspiration in launching social ventures. Previous participants who have gone on to establish businesses include: + Sea Power & Associates (www.seapower.cc), winner of the 2001 Haas Social Venture Competition, harnesses ocean wave power to produce electricity for coastal communities in the Pacific. +Aprotea (www.aprotea.com) makes biochips to enhance drug discovery and won a prize for best management team in 2001. +Prisma Microfinance (www.prismamicrofinance.com) provides investor-funded micro-loans in developing countries and won a prize for the best analysis of its social return on investment. +Ripple Effects (www.rippleeffects.com), a winner of the 2000 competition, has already won nine major national product awards for its learning software. ---------- BLUE MARTINI CEO ZWEBEN TO GIVE KEYNOTE AT 2001 KNOWLEDGE FORUM The fifth annual UC Berkeley Forum on Knowledge and the Firm will explore "New Patterns of Management in the Knowledge Economy" in the Arthur Andersen Auditorium on September 21. Leading thinkers and practitioners in the field of knowledge management will discuss the new patterns of management that are emerging as companies experiment and adapt different ways to beat their competition. The Knowledge Forum is organized annually by the Institute of Management, Organization, and Innovation (IMIO) at the Haas School. This event is open to faculty, students, staff, alumni, and members of the public. The registration fee will be waived for faculty and UC Berkeley students. Students need to register by September 14. The keynote address will be given by Monte Zweben, chairman, president, and CEO of Blue Martini Software, which helps companies understand, target, and interact with their customers and business partners. Prior to founding Blue Martini, Zweben was vice president and general manager of PeopleSoft's manufacturing industry unit. In 1992 he co-founded Red Pepper Software Company, and was CEO, president, and chairman. Dean Laura Tyson will give the opening remarks, followed by three sessions of panelists featuring Ikujiro Nonaka, Xerox Distinguished Professor in Knowledge; David Teece, Mitsubishi Bank Professor of International Business and Finance and director of IMIO; Susan DeSanti, director, Office of Policy Planning, FTC; Seiji Horibuchi, president, VIZ Communications (Pokeman USA); and Saburo Kobayashi, general manager, Corporate Planning, Honda. For registration information, please visit http://groups.haas.berkeley.edu/imio/knowledge/index2001.htm. ---------- MICHAEL KATZ TO SERVE AS DEPUTY ASSISTANT ATTORNEY GENERAL FOR ECONOMIC ANALYSIS Michael Katz, the Edward J. and Mollie Arnold Professor of Business Administration, has been appointed the deputy assistant attorney general for economic analysis in the Antitrust Division of the Department of Justice. As deputy assistant attorney general, Katz will supervise all economic analysis within the Antitrust Division and direct the division's Economic Analysis Group. "Like the stereotypical economist, I look at Michael's appointment from two perspectives," says Ben Hermalin, associate dean of academic affairs. "On the one hand, I can't think of a Haas faculty member who'd be harder to lose for a year or two than Michael. On the other hand, I can't think of an economist I'd trust more to advise the nation on antitrust matters than Michael. I just hope the current administration has sufficient sense to listen to Michael and take his advice seriously." Since 1987, Katz has served as a professor at the Haas School of Business. In addition to researching on competitive strategy in systems markets, vertical integration, cooperative research and development, and antitrust in high-tech industries, he also directs the school's Center for Telecommunications and Digital Convergence. In 1989 and 1993, he was awarded the Earl F. Cheit Outstanding Teaching Award. From 1994 to 1996, Katz served as Chief Economist at the Federal Communications Commission, where he was responsible for integrating economic analysis into all aspects of Commission policy making. He formulated and implemented regulatory policies for all industries under the FCC's jurisdiction, including cable and broadcast television and local, long distance, and wireless telephony. In 1996 he was recognized with the FCC chairman's Special Achievement Award for his excellence in service at the commission. He graduated summa cum laude from Harvard University in 1978, where he was awarded a prize as the top graduate in economics. He received his Ph.D. from Oxford University in 1982. A frequent lecturer and author of numerous articles on antitrust and consumer issues, Katz is also co-editor of the California Management Review and the Journal of Economics and Management Strategy. "Michael Katz is a leading scholar with extensive experience in issues important to the Antitrust Division," said Charles A. James, assistant attorney general for antitrust. "His keen insight will be of great advantage to the department as we work to protect competition in today's global economy. We are privileged to have him join us." Carl Shapiro, the Transamerica Professor of Business Strategy and director of the Institute of Business and Economics Research (IBER), was the deputy assistant attorney general for Economics in the Antitrust Division from 1995 to 1996. ---------- LEADING EDGE: THE FUTURE COMES TO HAAS This year's Leading Edge Conference, titled "@ the intersection of business, technology, and leadership," will bring heavy hitters from the business and technology sectors to Haas to discuss the future of their industry. Scheduled for September 21 and 22, the Leading Edge Conference has traditionally been one of the largest of the student-run conferences at Haas. This year the conference will have 15 panel discussions with over 70 of the most influential minds in technology and business today, the EdgeXpo technology fair, and the opportunity to network and drop resumes with some of the top technology firms in the industry who will be making special appearances on campus for this event only. As part of the keynote schedule this year, the organizers are debuting the Edge Futurists' Forum -- a keynote discussion session about the future of technology between industry innovators from Sun Microsystems, Xerox Parc, and the Institute for the Future. This event includes distinguished visionaries such as John Gage, chief science officer of Sun Microsystems, and will be hosted by Business 2.0 President Ned Desmond. Brian Bogosian, president and CEO of Visto Corporation, will be the closing keynote speaker on Saturday evening. For more information on the conference or to register, please visit www.theleadingedge.org. ---------- THE FIRST OF SIX NEW FACULTY PROFILES: TERRENCE HENDERSHOTT JOINS THE MANUFACTURING AND INFORMATION TECHNOLOGY GROUP Terrence Hendershott has joined the Haas faculty as an assistant professor of manufacturing and information technology. Hendershott researches the information technology behind electronic stock markets. His previous position was as the Xerox Assistant Professor of Computers & Information Systems at the William E. Simon School of Business Administration at the University of Rochester. Hendershott earned his bachelors in mathematics and statistics at Miami University. He spent several years in industry, first as a senior analyst at Andersen Consulting then as an associate at Cornerstone Research. He went on to earn his Ph.D. in operations, information, and technology at the Graduate School of Business at Stanford University in 1999. In his dissertation at Stanford, Hendershott created a theoretical model of how electronic trading systems compete with stock exchanges. The largest electronic trading systems are electronic communications networks (ECNs), which are used for 30 to 40% of NASDAQ trades each day. Hendershott is now looking at the impact that ECNs have had on stock trading. This includes the expansion of trading outside the normal trading day, the cost of trading using ECNs, and how the use of ECNs affects price discovery. "While the use of ECNs has grown dramatically since the mid-90s, unless there is some structural change in trading behavior, I don't think we will see 24-hour trading anytime soon," says Hendershott. As a sideline to this work, Hendershott collaborates with his father, Patric, who is a professor of property economics and finance at the University of Aberdeen in Scotland, and his brother, Robert, who is an associate professor of finance at Santa Clara University. "The papers we wrote combined our interests in how the Internet is affecting the economy by examining real estate (malls in particular)," says Hendershott. "I expect I will continue to do some of these because they are fun and an excuse to interact with my father and brother more." Hendershott will teach an information technology strategy course during the Spring 2002 semester. His office is in F596, his phone number is 643-0619, and his e-mail address is hender@haas.berkeley.edu. ---------- HAAS CEO EXCHANGE TO AIR ON PBS IN SEPTEMBER CEO Exchange, the PBS television program hosted by the Haas School, will be broadcast in early September. Filmed in the Zellerbach Auditorium on April 11, 2001, the program featured Cisco's John Chambers and HP's Carly Fiorina along with host Jeff Greenfield and an audience of Haas students, faculty, staff, and alumni. The show will air on local public television stations this month, on the following dates: KQED, channel 9, Thursday, September 13, at 11:00 p.m. KRCB, channel 22, Tuesday, September 11, at 9:00 p.m. KTEH, channel 54, Thursday, September 13, at 10:00 p.m. and September 20 at 1:00 a.m. ---------- DIANE DIMEFF HEADS FOR COLORADO AS ASSISTANT DEAN FOR MBA PROGRAMS AT CU BOULDER After serving for 8 years as director of the Haas School's Evening MBA Program, Diane Dimeff has accepted a position at the University of Colorado at Boulder as the assistant dean for MBA Programs. She will be leaving Haas on Friday, September 28. "I'm very excited about the opportunity to help build and grow CU Boulder's MBA Programs, especially since Colorado has been a vacation destination for my family for so many years," says Dimeff. "It will be hard to leave Haas and UC Berkeley as I've been associated with the university for 30 years now, either as a student or as an employee. I'm very appreciative of the opportunity I've had to participate in the evolution of the Haas Evening MBA Program and thank the faculty, staff, students, alumni, and the administration for their support." Under Dimeff's direction, the Evening MBA Program has grown from a San Francisco satellite to a thriving on-campus program. Her major accomplishments: - applications to the Evening MBA Program increased by 128%, and enrollment increased by 58% - the average GMAT increased from 652 to 680 - the Evening MBA Program moved from San Francisco to the UCB campus - the core curriculum was reconfigured - the number of electives offered tripled - the comprehensive examination was replaced by the the mid-program academic retreat - the International Business Seminar was initiated "We wish Diane great success at the University of Colorado, Boulder -- despite her new school having as a mascot a shaggy, plodding, female buffalo named Ralphie instead of a sophisticated, nimble bear named Oski!" says Andrew Shogan, associate dean of instruction. ---------- THE SUMMER 2001 ISSUE OF THE CALIFORNIA MANAGEMENT REVIEW IS AVAILABLE The Summer 2001 issue of the California Management Review (CMR) is now available. CMR, which is published by the Haas School, serves as a bridge of communication between those who study management and those who practice it. This issue includes articles from two symposia, one by Haas marketing professor Russell Winer on Customer Relationship Management and one on Systems Dynamics. CMR articles in the Summer 2001 issue: System Dynamics Modeling: Tools for Learning in a Complex World John D. Sterman Tradeoffs in Responses to Work Pressure in the Service Industry Rogelio Oliva Past the Tipping Point: The Persistence of Firefighting in Product Development Nelson P. Repenning, Paulo Gon?alves, and Laura J. Black Nobody Ever Gets Credit for Fixing Problems that Never Happened: Creating and Sustaining Process Improvement Nelson P. Repenning and John D. Sterman A Framework for Customer Relationship Management Russell S. Winer Uncovering Patterns in Cybershopping Wendy W. Moe and Peter S. Fader The Customer Pyramid: Creating and Serving Profitable Customers Valarie A. Zeithaml, Roland T. Rust, and Katherine N. Lemon Haas students receive CMR on a complimentary basis. It is available in the program offices and student lounges. The alumni subscription rate is $35 and the foreign alumni rate is $50. All the subscription info is at CMR's web site: www.haas.berkeley.edu/cmr/. ---------- HAAS IN THE NEWS A study of market analysts' performance for the year 2000, which was co-authored by Brett Trueman, the Donald and Ruth Seiler Professor of Public Accounting and chair of the Haas Accounting Group, and Reuven Lehavy, assistant professor in the Haas Accounting Group, appeared in The American Enterprise Online in their September issue. Read the full article here: http://www.taemag.com/taesep01b.htm. Janet Yellen was mentioned in the Capital Markets Report on September 1 in an article about tax cuts and debt paydowns. The Seattle Times quoted Severin Borenstein, the E.T. Grether Professor in Public Policy and Business Administration, on September 1 in an article about the absence of power blackouts this summer. Ken Rosen, professor of the Haas Real Estate Group and chairman of the Fisher Center for Real Estate and Urban Economics, was featured in the Los Angeles Times on August 28 in an article about commercial real estate and in connection to Shorenstein Co. Read more here: http://latimes.com/templates/misc/printstory.jsp?slug=la%2D000069589aug28. The Financial Times mentioned Raymond Miles, professor emeritus and former dean, in its August 21 issue in an article about the future of Hewlett-Packard. Read the full article here: http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=010821007311. ---------- HAPPENING AT HAAS "Business Combinations and Goodwill -- What The New FASB Rulings Mean to You?" The methodology used to determine the amount of goodwill and identifiable intangible assets to be recorded in a business combination is undergoing a major change. A panel of experts will discuss the details of the FASB rulings. Friday, September 7, 2001 1:00 p.m. to 5:00 p.m. San Francisco Airport Marriott Price: $200 per person Contact: Dayna Haugh at 510-642-6334 or haugh@haas.berkeley.edu or visit http://www.haas.berkeley.edu/accounting Guest Speakers: Helen Munter, Deloitte & Touche; Kim Marie Boylan, Mayer, Brown & Platt; John Hertz, Intel; Jeff Jones, Deloitte &Touche; Peter Wheeler, Deloitte & Touche; and John Whittle, Corio. MBA SUMMER WORKSHOP: WINE AND CHEESE TASTING PARTY Please come and meet the entering first-year MBAs and join old friends from past years. Friday, September 7, 2001 Wells Fargo Room A nice selection of wines (favoring reds this year), cheeses, and other tasty treats funded from surplus revenues of the Summer Communications and Quantitative Methods Workshops. Be sure to bring an ID if you even look like you might POSSIBLY be under 21! MBAs, staff, and faculty invited. PACIFIC RIM FIRM NIGHT First- and second-year students mingle with representatives from a variety of companies at this business casual recruiting event. Bring your resume. Thursday, September 13, 2001 6:00 p.m. to 8:00 p.m. Consumption Function Friday, September 14, 2001 5:00 p.m. to 9:00 p.m. Haas Courtyard/B of A Forum PH.D. SEMINARS E.T. GRETHER MARKETING SEMINAR "Self-schema Matching and Attitude Change: Situational and Dispositional Determinants of Message Elaboration," by Christian Wheeler, Stanford University Thursday, September 6, 2001 3:30 p.m. to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. IDS270-INSTITUTIONAL ANALYSIS WORKSHOP "Foreign Direct Investment and Technology Transfer," by Garrick Blalock, UC Berkeley Thursday, September 6, 2001 4:00 p.m. to 6:00 p.m. Room C325, Cheit Hall For more information, contact Anita Stephens at stephens@haas.berkeley.edu. FINANCE SEMINAR "An Analysis of Shareholder Agreements" by Gilles Chemla, University of British Columbia Thursday, September 6, 2001 4:15 p.m. to 5:45 p.m. Room C110, Cheit Hall For more information, contact June Wong at june@haas.berkeley.edu. REAL ESTATE SEMINAR "Signaling-Screening Equilibrium in the Mortgage Market," by Danny Ben-Shahar, Interdisciplinary Center Herzliya Friday, September 7, 2001 11:00 a.m. Room C250, Cheit Hall For more information, contact Lynn Lobner at lyoung@haas.berkeley.edu. E.T. GRETHER MARKETING SEMINAR "Promoting to Multiple Agents: The Case of Direct-to-Consumer Drug Advertising," by Marta Wosinska, UC Berkeley Thursday, September 13, 2001 3:30 p.m. to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. ALUMNI EVENTS East Bay Chapter Haas Connection The East Bay Chapter of the Haas Alumni Network invites you to network and exchange ideas with fellow East Bay alumni and Haas students on the first Thursday of every month. Thursday, September 6, 2001 7:30 p.m. to 9:30 p.m. Pyramid Brewery, 901 Gilman Street (at Eighth Street) in Berkeley. Contact: Bill Vederman, East Bay Chapter President, vederman@alumni.haas.org. East Bay Chapter Family Picnic The East Bay Chapter of the Haas Alumni Network presents "Fun in the Montclair Sun," an informal afternoon pinic in the park. All Haas alums welcome. Saturday, September 15, 2001 3:00 p.m. to 5:00 p.m. Location: Montclair Park, Montclair Village (off Hwy 13 at Moraga or Park exits in Oakland). Contact and Phone: Leslie Fisher, 925-244-1233 or e-mail at lkfconsulting@hotmail.com. Soft drinks will be provided. Please bring your own food or snacks and a dessert to share. RSVP: Leslie Fisher at 925-244-1233 or lkfconsulting@hotmail.com. Please provide your name, email address, and number of people attending. ---------- HAAS CELEBRATIONS Birthdays David Stuckey, September 4 Alison Thompson, September 6 Yong No, September 9 Evelyn Graham, September 10 Dan Sullivan, September 13 The Haas NewsWire respects the wishes of staff and faculty who would not like their birthdays announced. Please e-mail a request to have your birthday marked "do not announce" on the central birthday list to Haasnews@haas.berkeley.edu. ---------- The Haas NewsWire is the electronic news weekly for the Haas community published every Monday by the Marketing and Communications Office at the Haas School. Send your news, feedback, and suggestions to haasnews@haas.berkeley.edu. Archived issues of Haas NewsWire are available online at http://www.haas.berkeley.edu/groups/newspubs/haasnews/archives/hncurrent.html. To subscribe to Haas NewsWire, address e-mail to majordomo@haas.berkeley.edu; in the body of the message type "subscribe haasnewswire" in the first line, and "end" in the second line. To unsubscribe to HNW, type "unsubscribe haasnewswire" in the first line, and "end" in the second line.

dasovich-j/deleted_items/1831.

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Subject: Social Venture Competition Expands into New National Partnership Sender: haasnews@haas.berkeley.edu Recipients: ['haasnewswire@haas.berkeley.edu'] File: dasovich-j/deleted_items/1831. ===================================== Haas NewsWire September 4, 2001 ---------- CONTENTS * Social Venture Competition Expands into New National Partnership * Blue Martini CEO Zweben to Give Keynote at 2001 Knowledge Forum * Michael Katz to Serve as Deputy Assistant Attorney General for Economic Analysis * Leading Edge: The Future Comes to Haas * The First of Six New Faculty Profiles: Terrence Hendershott Joins the Manufacturing and Information Technology Group * Haas CEO Exchange to Air on PBS in September * Diane Dimeff Heads for Colorado as Assistant Dean for MBA Programs at CU Boulder * The Summer 2001 Issue of the California Management Review is Available * Haas in the News * Happening at Haas * Haas Celebrations ---------- SOCIAL VENTURE COMPETITION EXPANDS INTO NEW NATIONAL PARTNERSHIP The Haas School of Business and Columbia Business School have formed a joint partnership with The Goldman Sachs Foundation to expand the Haas Social Venture Competition into the National Social Venture Competition. The competition invites aspiring entrepreneurs to develop plans for businesses that have a clear, quantifiable social return as well as a healthy financial bottom line. The National Social Venture Competition originated in 1999 as a student-organized social venture competition at the Haas School of Business. In the past few years, the competition has attracted more than 100 teams from business schools across the United States and Europe. The new partnership with Columbia Business School and The Goldman Sachs Foundation will expand the competition's reach and scale. The Goldman Sachs Foundation will underwrite the competition with a gift of $1.5 million to help build a national platform for social entrepreneurship. "This innovative program is an important milestone in the social enterprise field and presents a unique opportunity to advocate high quality entrepreneurship education on a national scale," said Stephanie Bell-Rose, president of The Goldman Sachs Foundation. "The program underscores the Foundation's mission of supporting educational excellence by encouraging outstanding students to develop the tools that help them become the global leaders of tomorrow." "The National Social Venture Competition reflects the growing commitment of business leaders and entrepreneurs to foster profitable activities that address major social challenges, such as protecting the environment, preventing disease, and improving educational outcomes," said Laura Tyson, dean of the Haas School of Business. "Haas MBA students have done an outstanding job in launching a business plan competition to promote socially responsible business ventures. Our new partnership with Columbia University's business school and The Goldman Sachs Foundation will increase public awareness of these issues and encourage business students to employ the tools of business to create positive social change." Throughout the year, the entrepreneurship centers of the two business schools will coordinate with The Goldman Sachs Foundation to organize and promote national events in the San Francisco Bay Area and New York. The Eugene M. Lang Center for Entrepreneurship at Columbia Business School will host an inaugural symposium on October 5 in New York City. The symposium will feature a public dialogue with leaders in the social entrepreneurship arena to explore the growing demand and marketplace expectations for social ventures. Throughout the year, both schools will host additional events to encourage participation and evaluate submissions. Mentoring workshops will take place at Columbia Business School and the Haas School with prominent investors and alumni helping teams to perfect their business plans and presentations. The teams' executive summaries are due on January 18, 2002. The 2001/2002 national competition finals, hosted by the Haas School's Lester Center for Entrepreneurship and Innovation, will take place at UC Berkeley on April 5-6, 2002. "This unique and powerful partnership reflects Columbia's commitment to supporting entrepreneurship as a vehicle for social change," remarked Meyer Feldberg, dean of Columbia Business School. "Tomorrow's business leaders must grasp more than convention; they must also be prepared to develop and steer businesses of all sizes and types through a global economy that demands consideration not only of profit and shareholder value, but also of broader human interests." Teams in this year's competition can look to past participants in the Haas Social Venture Competition for inspiration in launching social ventures. Previous participants who have gone on to establish businesses include: + Sea Power & Associates (www.seapower.cc), winner of the 2001 Haas Social Venture Competition, harnesses ocean wave power to produce electricity for coastal communities in the Pacific. +Aprotea (www.aprotea.com) makes biochips to enhance drug discovery and won a prize for best management team in 2001. +Prisma Microfinance (www.prismamicrofinance.com) provides investor-funded micro-loans in developing countries and won a prize for the best analysis of its social return on investment. +Ripple Effects (www.rippleeffects.com), a winner of the 2000 competition, has already won nine major national product awards for its learning software. ---------- BLUE MARTINI CEO ZWEBEN TO GIVE KEYNOTE AT 2001 KNOWLEDGE FORUM The fifth annual UC Berkeley Forum on Knowledge and the Firm will explore "New Patterns of Management in the Knowledge Economy" in the Arthur Andersen Auditorium on September 21. Leading thinkers and practitioners in the field of knowledge management will discuss the new patterns of management that are emerging as companies experiment and adapt different ways to beat their competition. The Knowledge Forum is organized annually by the Institute of Management, Organization, and Innovation (IMIO) at the Haas School. This event is open to faculty, students, staff, alumni, and members of the public. The registration fee will be waived for faculty and UC Berkeley students. Students need to register by September 14. The keynote address will be given by Monte Zweben, chairman, president, and CEO of Blue Martini Software, which helps companies understand, target, and interact with their customers and business partners. Prior to founding Blue Martini, Zweben was vice president and general manager of PeopleSoft's manufacturing industry unit. In 1992 he co-founded Red Pepper Software Company, and was CEO, president, and chairman. Dean Laura Tyson will give the opening remarks, followed by three sessions of panelists featuring Ikujiro Nonaka, Xerox Distinguished Professor in Knowledge; David Teece, Mitsubishi Bank Professor of International Business and Finance and director of IMIO; Susan DeSanti, director, Office of Policy Planning, FTC; Seiji Horibuchi, president, VIZ Communications (Pokeman USA); and Saburo Kobayashi, general manager, Corporate Planning, Honda. For registration information, please visit http://groups.haas.berkeley.edu/imio/knowledge/index2001.htm. ---------- MICHAEL KATZ TO SERVE AS DEPUTY ASSISTANT ATTORNEY GENERAL FOR ECONOMIC ANALYSIS Michael Katz, the Edward J. and Mollie Arnold Professor of Business Administration, has been appointed the deputy assistant attorney general for economic analysis in the Antitrust Division of the Department of Justice. As deputy assistant attorney general, Katz will supervise all economic analysis within the Antitrust Division and direct the division's Economic Analysis Group. "Like the stereotypical economist, I look at Michael's appointment from two perspectives," says Ben Hermalin, associate dean of academic affairs. "On the one hand, I can't think of a Haas faculty member who'd be harder to lose for a year or two than Michael. On the other hand, I can't think of an economist I'd trust more to advise the nation on antitrust matters than Michael. I just hope the current administration has sufficient sense to listen to Michael and take his advice seriously." Since 1987, Katz has served as a professor at the Haas School of Business. In addition to researching on competitive strategy in systems markets, vertical integration, cooperative research and development, and antitrust in high-tech industries, he also directs the school's Center for Telecommunications and Digital Convergence. In 1989 and 1993, he was awarded the Earl F. Cheit Outstanding Teaching Award. From 1994 to 1996, Katz served as Chief Economist at the Federal Communications Commission, where he was responsible for integrating economic analysis into all aspects of Commission policy making. He formulated and implemented regulatory policies for all industries under the FCC's jurisdiction, including cable and broadcast television and local, long distance, and wireless telephony. In 1996 he was recognized with the FCC chairman's Special Achievement Award for his excellence in service at the commission. He graduated summa cum laude from Harvard University in 1978, where he was awarded a prize as the top graduate in economics. He received his Ph.D. from Oxford University in 1982. A frequent lecturer and author of numerous articles on antitrust and consumer issues, Katz is also co-editor of the California Management Review and the Journal of Economics and Management Strategy. "Michael Katz is a leading scholar with extensive experience in issues important to the Antitrust Division," said Charles A. James, assistant attorney general for antitrust. "His keen insight will be of great advantage to the department as we work to protect competition in today's global economy. We are privileged to have him join us." Carl Shapiro, the Transamerica Professor of Business Strategy and director of the Institute of Business and Economics Research (IBER), was the deputy assistant attorney general for Economics in the Antitrust Division from 1995 to 1996. ---------- LEADING EDGE: THE FUTURE COMES TO HAAS This year's Leading Edge Conference, titled "@ the intersection of business, technology, and leadership," will bring heavy hitters from the business and technology sectors to Haas to discuss the future of their industry. Scheduled for September 21 and 22, the Leading Edge Conference has traditionally been one of the largest of the student-run conferences at Haas. This year the conference will have 15 panel discussions with over 70 of the most influential minds in technology and business today, the EdgeXpo technology fair, and the opportunity to network and drop resumes with some of the top technology firms in the industry who will be making special appearances on campus for this event only. As part of the keynote schedule this year, the organizers are debuting the Edge Futurists' Forum -- a keynote discussion session about the future of technology between industry innovators from Sun Microsystems, Xerox Parc, and the Institute for the Future. This event includes distinguished visionaries such as John Gage, chief science officer of Sun Microsystems, and will be hosted by Business 2.0 President Ned Desmond. Brian Bogosian, president and CEO of Visto Corporation, will be the closing keynote speaker on Saturday evening. For more information on the conference or to register, please visit www.theleadingedge.org. ---------- THE FIRST OF SIX NEW FACULTY PROFILES: TERRENCE HENDERSHOTT JOINS THE MANUFACTURING AND INFORMATION TECHNOLOGY GROUP Terrence Hendershott has joined the Haas faculty as an assistant professor of manufacturing and information technology. Hendershott researches the information technology behind electronic stock markets. His previous position was as the Xerox Assistant Professor of Computers & Information Systems at the William E. Simon School of Business Administration at the University of Rochester. Hendershott earned his bachelors in mathematics and statistics at Miami University. He spent several years in industry, first as a senior analyst at Andersen Consulting then as an associate at Cornerstone Research. He went on to earn his Ph.D. in operations, information, and technology at the Graduate School of Business at Stanford University in 1999. In his dissertation at Stanford, Hendershott created a theoretical model of how electronic trading systems compete with stock exchanges. The largest electronic trading systems are electronic communications networks (ECNs), which are used for 30 to 40% of NASDAQ trades each day. Hendershott is now looking at the impact that ECNs have had on stock trading. This includes the expansion of trading outside the normal trading day, the cost of trading using ECNs, and how the use of ECNs affects price discovery. "While the use of ECNs has grown dramatically since the mid-90s, unless there is some structural change in trading behavior, I don't think we will see 24-hour trading anytime soon," says Hendershott. As a sideline to this work, Hendershott collaborates with his father, Patric, who is a professor of property economics and finance at the University of Aberdeen in Scotland, and his brother, Robert, who is an associate professor of finance at Santa Clara University. "The papers we wrote combined our interests in how the Internet is affecting the economy by examining real estate (malls in particular)," says Hendershott. "I expect I will continue to do some of these because they are fun and an excuse to interact with my father and brother more." Hendershott will teach an information technology strategy course during the Spring 2002 semester. His office is in F596, his phone number is 643-0619, and his e-mail address is hender@haas.berkeley.edu. ---------- HAAS CEO EXCHANGE TO AIR ON PBS IN SEPTEMBER CEO Exchange, the PBS television program hosted by the Haas School, will be broadcast in early September. Filmed in the Zellerbach Auditorium on April 11, 2001, the program featured Cisco's John Chambers and HP's Carly Fiorina along with host Jeff Greenfield and an audience of Haas students, faculty, staff, and alumni. The show will air on local public television stations this month, on the following dates: KQED, channel 9, Thursday, September 13, at 11:00 p.m. KRCB, channel 22, Tuesday, September 11, at 9:00 p.m. KTEH, channel 54, Thursday, September 13, at 10:00 p.m. and September 20 at 1:00 a.m. ---------- DIANE DIMEFF HEADS FOR COLORADO AS ASSISTANT DEAN FOR MBA PROGRAMS AT CU BOULDER After serving for 8 years as director of the Haas School's Evening MBA Program, Diane Dimeff has accepted a position at the University of Colorado at Boulder as the assistant dean for MBA Programs. She will be leaving Haas on Friday, September 28. "I'm very excited about the opportunity to help build and grow CU Boulder's MBA Programs, especially since Colorado has been a vacation destination for my family for so many years," says Dimeff. "It will be hard to leave Haas and UC Berkeley as I've been associated with the university for 30 years now, either as a student or as an employee. I'm very appreciative of the opportunity I've had to participate in the evolution of the Haas Evening MBA Program and thank the faculty, staff, students, alumni, and the administration for their support." Under Dimeff's direction, the Evening MBA Program has grown from a San Francisco satellite to a thriving on-campus program. Her major accomplishments: - applications to the Evening MBA Program increased by 128%, and enrollment increased by 58% - the average GMAT increased from 652 to 680 - the Evening MBA Program moved from San Francisco to the UCB campus - the core curriculum was reconfigured - the number of electives offered tripled - the comprehensive examination was replaced by the the mid-program academic retreat - the International Business Seminar was initiated "We wish Diane great success at the University of Colorado, Boulder -- despite her new school having as a mascot a shaggy, plodding, female buffalo named Ralphie instead of a sophisticated, nimble bear named Oski!" says Andrew Shogan, associate dean of instruction. ---------- THE SUMMER 2001 ISSUE OF THE CALIFORNIA MANAGEMENT REVIEW IS AVAILABLE The Summer 2001 issue of the California Management Review (CMR) is now available. CMR, which is published by the Haas School, serves as a bridge of communication between those who study management and those who practice it. This issue includes articles from two symposia, one by Haas marketing professor Russell Winer on Customer Relationship Management and one on Systems Dynamics. CMR articles in the Summer 2001 issue: System Dynamics Modeling: Tools for Learning in a Complex World John D. Sterman Tradeoffs in Responses to Work Pressure in the Service Industry Rogelio Oliva Past the Tipping Point: The Persistence of Firefighting in Product Development Nelson P. Repenning, Paulo Gon?alves, and Laura J. Black Nobody Ever Gets Credit for Fixing Problems that Never Happened: Creating and Sustaining Process Improvement Nelson P. Repenning and John D. Sterman A Framework for Customer Relationship Management Russell S. Winer Uncovering Patterns in Cybershopping Wendy W. Moe and Peter S. Fader The Customer Pyramid: Creating and Serving Profitable Customers Valarie A. Zeithaml, Roland T. Rust, and Katherine N. Lemon Haas students receive CMR on a complimentary basis. It is available in the program offices and student lounges. The alumni subscription rate is $35 and the foreign alumni rate is $50. All the subscription info is at CMR's web site: www.haas.berkeley.edu/cmr/. ---------- HAAS IN THE NEWS A study of market analysts' performance for the year 2000, which was co-authored by Brett Trueman, the Donald and Ruth Seiler Professor of Public Accounting and chair of the Haas Accounting Group, and Reuven Lehavy, assistant professor in the Haas Accounting Group, appeared in The American Enterprise Online in their September issue. Read the full article here: http://www.taemag.com/taesep01b.htm. Janet Yellen was mentioned in the Capital Markets Report on September 1 in an article about tax cuts and debt paydowns. The Seattle Times quoted Severin Borenstein, the E.T. Grether Professor in Public Policy and Business Administration, on September 1 in an article about the absence of power blackouts this summer. Ken Rosen, professor of the Haas Real Estate Group and chairman of the Fisher Center for Real Estate and Urban Economics, was featured in the Los Angeles Times on August 28 in an article about commercial real estate and in connection to Shorenstein Co. Read more here: http://latimes.com/templates/misc/printstory.jsp?slug=la%2D000069589aug28. The Financial Times mentioned Raymond Miles, professor emeritus and former dean, in its August 21 issue in an article about the future of Hewlett-Packard. Read the full article here: http://globalarchive.ft.com/globalarchive/articles.html?print=true&id=010821007311. ---------- HAPPENING AT HAAS "Business Combinations and Goodwill -- What The New FASB Rulings Mean to You?" The methodology used to determine the amount of goodwill and identifiable intangible assets to be recorded in a business combination is undergoing a major change. A panel of experts will discuss the details of the FASB rulings. Friday, September 7, 2001 1:00 p.m. to 5:00 p.m. San Francisco Airport Marriott Price: $200 per person Contact: Dayna Haugh at 510-642-6334 or haugh@haas.berkeley.edu or visit http://www.haas.berkeley.edu/accounting Guest Speakers: Helen Munter, Deloitte & Touche; Kim Marie Boylan, Mayer, Brown & Platt; John Hertz, Intel; Jeff Jones, Deloitte &Touche; Peter Wheeler, Deloitte & Touche; and John Whittle, Corio. MBA SUMMER WORKSHOP: WINE AND CHEESE TASTING PARTY Please come and meet the entering first-year MBAs and join old friends from past years. Friday, September 7, 2001 Wells Fargo Room A nice selection of wines (favoring reds this year), cheeses, and other tasty treats funded from surplus revenues of the Summer Communications and Quantitative Methods Workshops. Be sure to bring an ID if you even look like you might POSSIBLY be under 21! MBAs, staff, and faculty invited. PACIFIC RIM FIRM NIGHT First- and second-year students mingle with representatives from a variety of companies at this business casual recruiting event. Bring your resume. Thursday, September 13, 2001 6:00 p.m. to 8:00 p.m. Consumption Function Friday, September 14, 2001 5:00 p.m. to 9:00 p.m. Haas Courtyard/B of A Forum PH.D. SEMINARS E.T. GRETHER MARKETING SEMINAR "Self-schema Matching and Attitude Change: Situational and Dispositional Determinants of Message Elaboration," by Christian Wheeler, Stanford University Thursday, September 6, 2001 3:30 p.m. to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. IDS270-INSTITUTIONAL ANALYSIS WORKSHOP "Foreign Direct Investment and Technology Transfer," by Garrick Blalock, UC Berkeley Thursday, September 6, 2001 4:00 p.m. to 6:00 p.m. Room C325, Cheit Hall For more information, contact Anita Stephens at stephens@haas.berkeley.edu. FINANCE SEMINAR "An Analysis of Shareholder Agreements" by Gilles Chemla, University of British Columbia Thursday, September 6, 2001 4:15 p.m. to 5:45 p.m. Room C110, Cheit Hall For more information, contact June Wong at june@haas.berkeley.edu. REAL ESTATE SEMINAR "Signaling-Screening Equilibrium in the Mortgage Market," by Danny Ben-Shahar, Interdisciplinary Center Herzliya Friday, September 7, 2001 11:00 a.m. Room C250, Cheit Hall For more information, contact Lynn Lobner at lyoung@haas.berkeley.edu. E.T. GRETHER MARKETING SEMINAR "Promoting to Multiple Agents: The Case of Direct-to-Consumer Drug Advertising," by Marta Wosinska, UC Berkeley Thursday, September 13, 2001 3:30 p.m. to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. ALUMNI EVENTS East Bay Chapter Haas Connection The East Bay Chapter of the Haas Alumni Network invites you to network and exchange ideas with fellow East Bay alumni and Haas students on the first Thursday of every month. Thursday, September 6, 2001 7:30 p.m. to 9:30 p.m. Pyramid Brewery, 901 Gilman Street (at Eighth Street) in Berkeley. Contact: Bill Vederman, East Bay Chapter President, vederman@alumni.haas.org. East Bay Chapter Family Picnic The East Bay Chapter of the Haas Alumni Network presents "Fun in the Montclair Sun," an informal afternoon pinic in the park. All Haas alums welcome. Saturday, September 15, 2001 3:00 p.m. to 5:00 p.m. Location: Montclair Park, Montclair Village (off Hwy 13 at Moraga or Park exits in Oakland). Contact and Phone: Leslie Fisher, 925-244-1233 or e-mail at lkfconsulting@hotmail.com. Soft drinks will be provided. Please bring your own food or snacks and a dessert to share. RSVP: Leslie Fisher at 925-244-1233 or lkfconsulting@hotmail.com. Please provide your name, email address, and number of people attending. ---------- HAAS CELEBRATIONS Birthdays David Stuckey, September 4 Alison Thompson, September 6 Yong No, September 9 Evelyn Graham, September 10 Dan Sullivan, September 13 The Haas NewsWire respects the wishes of staff and faculty who would not like their birthdays announced. Please e-mail a request to have your birthday marked "do not announce" on the central birthday list to Haasnews@haas.berkeley.edu. ---------- The Haas NewsWire is the electronic news weekly for the Haas community published every Monday by the Marketing and Communications Office at the Haas School. Send your news, feedback, and suggestions to haasnews@haas.berkeley.edu. Archived issues of Haas NewsWire are available online at http://www.haas.berkeley.edu/groups/newspubs/haasnews/archives/hncurrent.html. To subscribe to Haas NewsWire, address e-mail to majordomo@haas.berkeley.edu; in the body of the message type "subscribe haasnewswire" in the first line, and "end" in the second line. To unsubscribe to HNW, type "unsubscribe haasnewswire" in the first line, and "end" in the second line. =====================================

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Joining the Haas Network: New MBA, Undergraduate, and Ph.D.

Haas NewsWire August 27, 2001 _____ CONTENTS Joining the Haas Network: New MBA, Undergraduate, and Ph.D. Students Arrive at Haas Chancellor Berdahl Appoints Ben Hermalin Interim Dean All the 2001 YEAH Graduates Pursue Higher Education The Haas School Welcomes New Faculty New Staff Haas in the News Happening at Haas Haas Celebrations _____ JOINING THE HAAS NETWORK: NEW MBA, UNDERGRADUATE, AND PH.D. STUDENTS ARRIVE AT HAAS The Haas School is bubbling with activity this week as the new school year begins and incoming classes of students in four degree programs settle into their new routines. In keeping with tradition, the Undergraduate, Evening MBA, MBA, and Ph.D. programs have worked hard to admit select groups of students. "I am thrilled with the outstanding students we have admitted for this fall's entering class," says Pete Johnson, acting co-director of admissions for the full-time MBA program. "They are a talented and diverse group of people who bring a wealth of experiences with them to Haas." The full-time MBA class of 2003 includes 238 students, selected from an applicant pool of 3,259. Thirty-five percent of the new first-years are international students, representing 31 different countries. Seventy-four percent are bilingual and 62% are trilingual. On average, the members of the new MBA class have 5 years of professional work experience, and they bring a wealth of knowledge and experience to the Haas community. The class includes a producer from Fox Sports and NBC TV, a freelance director of plays and musicals, a design engineer from Porsche, and a former writer for "Let's Go" travel books. On the extracurricular side, the class includes members of the Peruvian National Rowing Team; the Kyoto University Ballroom Dancing Team; the 1994 National Taekwondo Champion; a four-time state cycling champion; and the winner of a 1999 New York Film Festival producer award for best drama. The new Evening MBA students distinguish themselves by their strong educational backgrounds. The Evening MBA class of 116 students represents 13 countries and the students have, on average, 7.1 years of post-university work experience. Thirty-five percent of the students hold Masters degrees and 9% have Ph.D.s. Thirty-three percent of the class is bilingual and 25% is trilingual. "This was a particularly competitive applicant pool, with a 60% increase in applications from last year," says Diane Dimeff, executive director of the Evening MBA Program. "We broke our previous record for applications by 30%, so we are especially excited about this group of new students and the depth and breadth of experience they bring to the classroom." The Evening MBA class includes a former submarine officer; the chief of Otorhinolaryngology (ear, nose, and throat specialist) at the Veterans Affairs Medical Center in San Francisco; a California water resources manager; an associate treasury program manager for the state of California; a researcher who helped establish a clinical program to provide experimental medicine for a viral liver disease; a competitive swimmer; a student who helped pay his way through school by fighting forest fires for two summers; and a student who interned in a high-pressure French restaurant in Paris. As one of the most popular undergraduate majors on campus, the Haas Undergraduate program always attracts the cream of the crop of continuing Cal and incoming transfer students. This year, off the 1,150 applicants to the Undergraduate Program, 214 have enrolled. Seventy-nine of the students transferred to UC Berkeley. For the UC Berkeley admits, the average GPA was 3.59. In the Ph.D. program 467 people applied to the program, but only 39 were admitted. Sixteen new Ph.D. students were enrolled, bringing the total for the program to 80. The average GMAT for the students is 730 and the average GPA is 3.82. There are 11 men and six women in the class. Ten of the students are international, hailing from eight different countries. "We have students from Asia, Europe, South America, New Zealand, and the US," says Jan Price Greenough, associate director of the Ph.D. Program. "They have compiled an impressive scholastic and professional record. We are very excited about their potential and promise and look forward to a very good class." _____ CHANCELLOR BERDAHL APPOINTS BEN HERMALIN INTERIM DEAN When Dean Laura Tyson announced that she would resign on December 31, 2001, Chancellor Robert Berdahl immediately announced that he would appoint Ben Hermalin as interim dean while the university runs a national search for a new dean of the Haas School. Associate Dean Ben Hermalin has been an integral part of Dean Tyson's administration at Haas since he was appointed associate dean in 1999. "Ben has worked closely with me and the rest of the Dean's Office on all of our initiatives, from the Pilot Program to the new degree programs, " says Tyson. "He has won the loyalty and support of both faculty and staff through his unique combination of boundless energy, fairness, attention to detail, intelligence, and good humor. He is committed to the well-being of the Haas School and has been an effective advocate for its interests on the campus." Hermalin, 39, is the Willis H. Booth Professor of Banking and Finance and has been with the Haas School since 1988. He has a joint appointment with the Department of Economics and is a co-founder and director of the private online academic publishing company Bepress. As associate dean Hermalin overseas all faculty recruitment and retention as well as merit raises and promotions for the Haas faculty. Working with Dean Tyson, Hermalin has helped to get permission from the campus administration to recruit more faculty members in a given year than is normally allowed and to meet competitive offers to current faculty. "Dean Tyson has built a good team, a strong organization, and an excellent staff. I hope to provide continuity and continue the school's initiatives," says Hermalin of his future role as interim dean. "Haas is very fortunate to have someone of Ben's stature, experience, and dedication willing to serve as interim dean," says Michael Katz, the Edward J. and Mollie Arnold Professor of Business Administration. "His ability to be equally comfortable in a three-piece suit and a Hawaiian shirt makes him ideally suited to face the diverse challenges of leading the school." His recent research has focused on telecom pricing with Katz. This fall he will teach a Ph.D. course in the economics department called, "Mechanism Design and Agency Theory." Hermalin holds a BA in Economics from Princeton and a Ph.D. in economics from the Massachusetts Institute of Technology. He is also on the Editorial Board for the American Economic Review and is co-editor of the Berkeley Electronic Journals in Economic Analysis & Policy. "Ben is an excellent squash player," says Dwight Jaffee, professor of banking and finance. "My hope is that his deanly duties will slow him down so that I can win more often." Tyson and Hermalin will work together throughout the fall with Andy Shogan, Jay Stowsky, and the school's professional staff to make the 2001-2002 academic year a successful one for the Haas School. _____ ALL OF THE 2001 YEAH GRADUATES PURSUE HIGHER EDUCATION In another sign of continuing success for the Young Entrepreneurs At Haas (YEAH) program all ten of the 2001 graduating high school seniors from the Young Entrepreneurs Program are continuing their education. "Our YEP students have taken to heart the principles and real-life lessons of entrepreneurship and finance, and followed their interest toward higher education," says Oscar Wolters-Duran, director of YEAH. "It's a real testimony to the quality of our Haas MBA mentors and the YEAH staff that so many of these youth, who often come from severely under-served schools, continue on to college. We are very pleased with the success of our students." The success of the Young Entrepreneurs Program and its sister program Business, Economics, Technology Achievement (BETA), is due in large part to the commitment and diligence of MBA and undergraduate students who work with the YEAH participants. Both YEP and BETA are primarily aimed at building strong academic habits and encouraging students to continue on to college by providing a clear link between entrepreneurial success and academic skills, achievement, and advancement. The 84 students in the 2001 YEP class hail from over 20 schools across the Oakland, Berkeley, and West Contra Costa school districts. YEP, which was founded in 1989, teaches basic business skills to 9th and 10th graders, and is supported by more than forty Haas MBA volunteer mentors/business coaches. YEAH is also creating an alumni network to support students through their last years of high school and the college admissions process. The BETA program, which began as a pilot program in 2000 serving five school sites/programs, will serve ten sites/programs in 2001 - 2002 and reach over 200 students. In BETA, the undergraduates encourage middle- and high-school students to research and plan for future careers, act as role models for aspirants to higher education, and help students see the relevance of their math coursework through business projects involving sales tax, tracking stock prices, and using area/perimeter to identify possible business sites. Undergraduate students who would like to work (and get paid) for the BETA program should contact Tanya Fraley at 510-643-4622. MBA students who would like to volunteer for the YEP Program should contact Ajuah Helton at 510-643-8906. For more information on all of YEAH's programs, visit www.haas.berkeley.edu/yeah/ <http://www.haas.berkeley.edu/yeah/>. 2001 YEP GRADUATES Ten high school seniors participated in YEP 2000 - 2001: + Waymando Brown, alumnus of YEP I and II, graduated from Skyline High School in June 1999, is enrolled at the College of Alameda, and hopes to transfer to UC Davis in 2002. + Ivan Chavez, alumnus of YEP I and II, graduated from Richmond High School in June 2001, and was admitted to San Francisco State University. + Nosa Ikponmwonba, alumnus of YEP I and II, graduated from Skyline High School in June 1999. He is currently a student at College of Alameda and hopes to transfer to UC Davis in 2002. +Jahmilah Jones, alumna of YEP I and II, graduated from Bishop O'Dowd High School in June 2001 and was admitted to Clark Atlanta University. +Obatala Mawusi, alumnus of YEP II, graduated from Luxor Academy in December 2000, at the age of sixteen, and has begun culinary studies at the California Culinary Academy in San Francisco. +Yetunde Onipede, alumna of YEP I and II, graduated from Holy Names High School in December 2000, and began studies at Merritt Community College this year. Yetunde hopes to transfer to UC Berkeley in 2003. +Lorrie Savage, alumna of YEP I, graduated from Bishop O'Dowd High School in June 2001 and was admitted to UC Berkeley. +Jacob Scott, alumnus of YEP I and II, graduated from Oakland Technical High School in December 2000 and was admitted to UC Berkeley. +Emily Teruya, alumna of YEP II, graduated with honors from Skyline High School in June 2001 and was admitted to UC Berkeley. +Thomas Woo, alumnus of YEP II, graduated with honors from Skyline High School in June 2001 and was admitted to UC Berkeley. _____ THE HAAS SCHOOL WELCOMES NEW FACULTY The Haas School of Business maintains its commitment to excellence with the addition of six new members to its faculty. After successfully concluding a nine-month search and conducting more than 400 interviews, the Haas ladder-track faculty now has 70 members, or roughly 64 full-time equivalents. The new faculty members are: + Terrence Henderschott, assistant professor in Management of Information Technology. + Christopher Hennessy, assistant professor in Finance. + Professor Barbara Mellers, professor in Marketing and Organizational Behavior and Industrial Relations. + Terrance Odean, Haas Ph.D. 97, assistant professor in Finance. + Philip Tetlock, professor of Organizational Behavior and Industrial Relations. + Professor Candace Yano, who is transferring to Haas after eight years with UC Berkeley's Department of Industrial Engineering and Operations Research. Over the next few months, the Haas NewsWire will introduce each new faculty member with a short profile. _____ NEW STAFF NEW ASSISTANT DIRECTOR FOR MAJOR GIFTS AND CORPORATE RELATIONS Jeff Rhode joins the Haas School development team as the new assistant director for Major Gifts and Corporate Relations. He has been working as an intern in the development office since earlier this summer. Prior to joining Haas, he worked as a sports writer for ESPN.com and ZuluSports.com. Rhode's communication, research, and writing skills make him a valuable addition to the school. Working on campus is a homecoming for Rhode as he earned an undergraduate degree in history and a Masters in education from UC Berkeley. He also holds a Masters in Sports and Fitness Management from the University of San Francisco. Currently, Jeff lives in San Francisco with his wife, Nada, who is also a Cal graduate. His phone number is 642-1907, his e-mail is rhode@haas.berkeley.edu, and his cubicle is in the dean's suite. NEW ACCOUNT MANAGER AND OFFICE MANAGER IN THE CAREER CENTER Mark Friedfeld comes to Haas from the University of Maryland's Smith School of Business. Friedfeld is the new account manager for financial services recruitment. He will be working closely with MBA and MFE students and building and maintaining contacts with companies across the finance industry. Prior to his work at the Smith School, Mark spent a few years as the director of marketing at the Princeton Review. His office is in the Recruitment Center on the 3rd floor. His phone number is 642-6588 and his e-mail address is friedfel@haas.berkeley.edu. Christine Blaine is the new office manager for Career Services. She was previously the general manager at Beth's Desserts. She brings a wealth of knowledge in the areas of operations, staffing, and budget management. Christine is located on the fourth floor in the Career Center. Her phone number is 643-7802 and her e-mail address is blaine@haas.berkeley.edu. _____ HAAS IN THE NEWS Hal Varian, dean of the School of Information Management and Systems and Haas professor, commented on President Bush's Administration's lack of interest in technology in Los Angeles Times on Aug. 27. Read the full article here: <http://latimes.com/templates/misc/printstory.jsp?slug=la%2D000069457aug27> Russ Winer, the J. Gary Shansby Professor of Marketing Strategy and the chair of the Marketing Group, was quoted extensively in The Industry Standard Online on Aug. 27 on the right metrics to use to measure the effectiveness of banner ads. Read the full article here: <http://www.thestandard.com/article/0,1902,28813,00.html> Severin Borenstein, E.T. Grether Professor in Public Policy and Business Administration, in the San Jose Mercury on Aug. 26 that the mild weather contributed more to California avoiding rolling blackouts, than conservation did. Read the full article at: <http://www0.mercurycenter.com/premium/front/docs/summerend26.htm> The Management of Technology program was mentioned in Electronic Buyer's News on Aug. 27 in connection with NEC support of the program. The study of market analyst's performance for the year 2000, which was co-authored by Brett Trueman, the Donald and Ruth Seiler Professor of Public Accounting and chair of the Haas Accounting Group, and Reuven Lehavy, assistant professor in the Haas Accounting Group, appeared in The American Enterprise Online on their September issue. Read the full article here: <http://www.taemag.com/taesep01b.htm> The Young Entrepreneurs at Haas (YEAH) program was mentioned in the San Jose Mercury on Aug. 24 in the article titled "2 east bay schools send most frosh to UC Berkeley." Read the complete article here: <http://www0.mercurycenter.com/premium/local/docs/cal24.htm> Severin Borenstein commented in the LA Times on Aug. 24 that the state should not run public power. Read more here: <http://latimes.com/templates/misc/printstory.jsp?slug=la%2D000068605aug24> Hal Varian and the book "Information Rules" which he co-wrote with Carl Shapiro were mentioned an article about the changing intellectual property of businesses and its effects on the economy in the Wall Street Journal on Aug. 23. On Aug. 23 the LA Times quoted David Vogel, George Quist Professor of Business Ethics, regarding the Microsoft lawsuit in the article "Lobbyists Tied to Microsoft Wrote Citizens' Letters." Read the full story here <http://latimes.com/news/printedition/la-000068380aug23.story> Janet Yellen, the Eugene E. and Catherine M. Trefethen Professor of Business Administration, was quoted in the Sacramento Bee on Aug. 22 and expressed her agreement with the Fed's recent short-term interest rate cut. Read more on this story here <http://www.sacbee.com/ib/news/ib_news01.html> Borenstein appeared in the Washington Post on Aug. 21 in an article about California deregulation. Read the article at <http://www.washingtonpost.com/wp-dyn/articles/A37193-2001Aug20.html> Borenstein also commented on the California energy crisis in the St. Louis Post-Dispatch on Aug. 20. Tyson appeared on CNN: Inside Politics on Aug. 20 and made remarks on how the Fed will behave in the future. Read the transcript at <http://www.cnn.com/TRANSCRIPTS/0108/20/ip.00.html> Dwight Jaffee, professor of banking and finance, was mentioned in San Francisco Chronicle on Aug. 19 and offered remarks on the accuracy of forecasts offered by technology research companies. For the full text see <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/08/19/BU138607.DTL> The article "Some Funds to Read Your Mind," in the New York Times mentioned Terrance Odean, assistant professor of finance, in an article about behavioral economics on Aug. 19. Borenstein was once again quoted in regards to the California power crisis on Aug. 19 in the Contra Costa Times. Read the complete article here: <http://www.contracostatimes.com/cgi-bin/emailfriend/emailfriend.cgi?mode=print&doc=http://www.contracostatimes.com/news/topstory/outlook_20010819.htm> The LA Times quoted John Myers, Professor Emeritus of the Haas Marketing Group, on Aug. 17 in an article about the safety of the free toys given by fast-food restaurants. Read more on this topic here: <http://latimes.com/business/la-000066664aug17.story> Trueman, appeared in CBS Marketwatch on Aug. 15, in the article "Beware of tech earnings 'dead zone'". Read the full article: <http://cbs.marketwatch.com/news/story.asp?siteID=mktw&guid=%7BF4F96E1B%2D798B%2D4276%2D8CE1%2D3FA7C324CC6B%7D> Ken Rosen, Haas Real Estate professor and Chairman of the Fisher Center for Real Estate and Urban Economics, was quoted in the San Francisco Chronicle on Aug. 12 in the article "Housing Prices Stay Hot." Read more here: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/08/12/BU194539.DTL> "Foundations for Success in the Knowledge Economy: Challenges and Opportunities in New Zealand," a lecture by David J. Teece, professor of international business and finance and director of the Institute of Management, Innovation, and Organization, was delivered live for 30 minutes on Sky TV on August 3, 2001, at the Knowledge Wave Conference. Teece also appeared on Testra Business (Channel 2) and his lecture was condensed and printed in the Christchurch Press, the Dominion, Radio New Zealand, and many other media outlets. Dean Laura Tyson's announcement about her resignation as dean was covered by the following papers below from Aug. 13-18. New York Times on Aug. 13 <http://www.nytimes.com/aponline/business/AP-Business-Dean-Resigns.html?searchpv=aponline&pagewanted=print> San Francisco Chronicle on Aug. 14 <http://www.sfgate.com/cgibin/article.cgi?file=/chronicle/archive/2001/08/14/BU119475.DTL> San Jose Mercury News on Aug. 14 <http://www0.mercurycenter.com/business/top/084361.htm> Oakland Tribune on Aug. 14 Contra Costa Times on Aug. 14 <http://www.contracostatimes.com/cgibin/emailfriend/emailfriend.cgi?mode=print&doc=http://www.contracostatimes.com/news/stories_news/tyson_20010814.htm> Business Week Online on Aug.15 <http://www.businessweek.com/bschools/content/aug2001/bs20010814_174.htm> Daily Californian on Aug. 15 <http://www.dailycal.org/article.asp?id=5891> The Berkeleyan on Aug. 16 San Francisco Business Times on Aug. 17 <http://sanfrancisco.bcentral.com/sanfrancisco/stories/2001/08/20/weekinbiz.html?t=printable> The Economist on Aug. 18 The Independent of London on Aug. 21 <http://www.independent.co.uk/story.jsp?story=89771>. _____ HAPPENING AT HAAS UC Berkeley Entrepreneurs Forum "What's the Frequency Kenneth?" featuring: Peter Buhl, partner, Nokia Ventures; Cliff Higgerson, partner, ComVentures; Patrick Lilley, CEO, Digital Transit; Amit Nagpal, senior consultant, Analysys Group; Greg Shirai, director, Handheld Products Handspring. Moderated by Keval Desai, associate, Onset Ventures. Thursday, August 30, 2001 6:30 p.m. Arthur Andersen Auditorium Registration: There are special rates for faculty and staff. Faculty and staff are encouraged to pre-register by E-mail. Note registration procedure for students: a) in person with cash or check in room F450, weekdays 9-11:30AM and 12:30 - 4PM. b) with Mc/Visa over the phone, please call (510) 642 4255 The fee for pre- registration is $5. There will be a $10 registration fee at the door. Note: On-site registration is subject to space available. Pre-registration for students and staff closes at 4PM on Tuesday, August 28 or earlier if it is sold out. For more information on the series, please visit <http://www.haas.berkeley.edu/lester/bef.html> and <http://www.haas.berkeley.edu/lester/aug01.html>. Business Combinations and Goodwill -- What The New FASB Rulings Mean to You? The methodology used to determine the amount of goodwill and identifiable intangible assets to be recorded in a business combination is undergoing a major change. A panel of experts will discuss the details of the FASB rulings. Friday, September 7, 2001 1:00 p.m. to 5:00 p.m. Location San Francisco Airport Marriott Price $200 per person ($160 if registered by August 29, 2001) Contact: Dayna Haugh at 510-642-6334 or haugh@haas.berkeley.edu or visit <http://www.haas.berkeley.edu/accounting> Guest Speakers: Helen Munter, Deloitte & Touche; Kim Marie Boylan, Mayer, Brown & Platt; John Hertz, Intel; Jeff Jones, Deloitte &Touche; Peter Wheeler, Deloitte & Touche; and John Whittle, Corio. Ph.D. Seminars E.T. GRETHER MARKETING SEMINAR "Private Labels, Price Rivalry, and Public Policy," by Tommy Gabrielsen, University of Bergen and Visiting UC Berkeley. Thursday, August 30, 2001 3:30 to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. IDS270-INSTITUTIONAL ANALYSIS WORKSHOP "The Science of Contract: Private Ordering," by Oliver Williamson, UC Berkeley Thursday, August 30, 2001 4:00 to 6:00 p.m. Room C325, Cheit Hall For more information, contact Anita Stephens at stephens@haas.berkeley.edu. REAL ESTATE SEMINAR Organizational Meeting Friday, August 31, 2001 11:00 a.m. to 12:30 p.m. Room C250, Cheit Hall For more information, contact Lynn Lobner at lyoung@haas.berkeley.edu. ACCOUNTING SEMINAR "Valuation of the Debt-Tax Shield," by Doron Nissim, Columbia University Friday, August 31, 2001 4:00 pm Room C325 Cheit Hall For more information, contact Lorraine Seiji at seiji@haas.berkeley.edu. E.T. GRETHER MARKETING SEMINAR "Self-schema Matching and Attitude Change: Situational and Dispositional Determinants of Message Elaboration," by Christian Wheeler, Stanford University Thursday, September 6, 2001 3:30 to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. IDS270-INSTITUTIONAL ANALYSIS WORKSHOP "Foreign Direct Investment and Technology Transfer," by Garrick Blalock, UC Berkeley Thursday, September 6, 2001 4:00 to 6:00 p.m. Room C325, Cheit Hall For more information, contact Anita Stephens at stephens@haas.berkeley.edu. REAL ESTATE SEMINAR "Signaling-Screening Equilibrium in the Mortgage Market," by Danny Ben-Shahar, Interdisciplinary Center Herzliya Friday, September 7, 2001 11:00 a.m. Room C250, Cheit Hall For more information, contact Lynn Lobner at lyoung@haas.berkeley.edu. _____ ALUMNI EVENTS Singapore Monthly Meeting Meetings for Haas alumni are held the last Tuesday of each month. Tuesday, August 28, 2001 7:00 p.m. to 9:00 p.m. Bar & Billiard Room, Raffles Hotels, Singapore No RSVP is required. Contact: Dirk Hofer +65-98191039 or via e-mail at dirk@strategytools.com. East Bay Chapter Haas Connection The East Bay Chapter of the Haas Alumni Network invites you to network and exchange ideas with fellow East Bay alumni and Haas students on the first Thursday of every month. Thursday, September 6, 2001 7:30 p.m. to 9:30 p.m. Location: Pyramid Brewery, 901 Gilman Street (at Eighth Street) in Berkeley. Contact: Bill Vederman, East Bay Chapter President, vederman@alumni.haas.org _____ HAAS CELEBRATIONS Birthdays Lee Forgue, Sept 1 David Stuckey, Sept. 4 Alison Thompson, Sept. 6 No Young, Sept. 9 _____ The Haas NewsWire respects the wishes of staff and faculty who would not like their birthdays announced. Please e-mail a request to have your birthday marked "do not announce" on the central birthday list to Haasnews@haas.berkeley.edu. The Haas NewsWire is the electronic news weekly for the Haas community published every Monday by the Marketing and Communications Office at the Haas School. Send your news, feedback, and suggestions to haasnews@haas.berkeley.edu. Archived issues of Haas NewsWire are available online at <http://www.haas.berkeley.edu/groups/newspubs/haasnews/archives/hncurrent.html>. To subscribe to Haas NewsWire, address e-mail to majordomo@haas.berkeley.edu; in the body of the message type "subscribe haasnewswire" in the first line, and "end" in the second line. To unsubscribe to HNW, type "unsubscribe haasnewswire" in the first line, and "end" in the second line.

dasovich-j/deleted_items/1053.

dasovich-j

Subject: Joining the Haas Network: New MBA, Undergraduate, and Ph.D. Sender: haasnews@haas.berkeley.edu Recipients: ['haasnewswire@haas.berkeley.edu'] File: dasovich-j/deleted_items/1053. ===================================== Haas NewsWire August 27, 2001 _____ CONTENTS Joining the Haas Network: New MBA, Undergraduate, and Ph.D. Students Arrive at Haas Chancellor Berdahl Appoints Ben Hermalin Interim Dean All the 2001 YEAH Graduates Pursue Higher Education The Haas School Welcomes New Faculty New Staff Haas in the News Happening at Haas Haas Celebrations _____ JOINING THE HAAS NETWORK: NEW MBA, UNDERGRADUATE, AND PH.D. STUDENTS ARRIVE AT HAAS The Haas School is bubbling with activity this week as the new school year begins and incoming classes of students in four degree programs settle into their new routines. In keeping with tradition, the Undergraduate, Evening MBA, MBA, and Ph.D. programs have worked hard to admit select groups of students. "I am thrilled with the outstanding students we have admitted for this fall's entering class," says Pete Johnson, acting co-director of admissions for the full-time MBA program. "They are a talented and diverse group of people who bring a wealth of experiences with them to Haas." The full-time MBA class of 2003 includes 238 students, selected from an applicant pool of 3,259. Thirty-five percent of the new first-years are international students, representing 31 different countries. Seventy-four percent are bilingual and 62% are trilingual. On average, the members of the new MBA class have 5 years of professional work experience, and they bring a wealth of knowledge and experience to the Haas community. The class includes a producer from Fox Sports and NBC TV, a freelance director of plays and musicals, a design engineer from Porsche, and a former writer for "Let's Go" travel books. On the extracurricular side, the class includes members of the Peruvian National Rowing Team; the Kyoto University Ballroom Dancing Team; the 1994 National Taekwondo Champion; a four-time state cycling champion; and the winner of a 1999 New York Film Festival producer award for best drama. The new Evening MBA students distinguish themselves by their strong educational backgrounds. The Evening MBA class of 116 students represents 13 countries and the students have, on average, 7.1 years of post-university work experience. Thirty-five percent of the students hold Masters degrees and 9% have Ph.D.s. Thirty-three percent of the class is bilingual and 25% is trilingual. "This was a particularly competitive applicant pool, with a 60% increase in applications from last year," says Diane Dimeff, executive director of the Evening MBA Program. "We broke our previous record for applications by 30%, so we are especially excited about this group of new students and the depth and breadth of experience they bring to the classroom." The Evening MBA class includes a former submarine officer; the chief of Otorhinolaryngology (ear, nose, and throat specialist) at the Veterans Affairs Medical Center in San Francisco; a California water resources manager; an associate treasury program manager for the state of California; a researcher who helped establish a clinical program to provide experimental medicine for a viral liver disease; a competitive swimmer; a student who helped pay his way through school by fighting forest fires for two summers; and a student who interned in a high-pressure French restaurant in Paris. As one of the most popular undergraduate majors on campus, the Haas Undergraduate program always attracts the cream of the crop of continuing Cal and incoming transfer students. This year, off the 1,150 applicants to the Undergraduate Program, 214 have enrolled. Seventy-nine of the students transferred to UC Berkeley. For the UC Berkeley admits, the average GPA was 3.59. In the Ph.D. program 467 people applied to the program, but only 39 were admitted. Sixteen new Ph.D. students were enrolled, bringing the total for the program to 80. The average GMAT for the students is 730 and the average GPA is 3.82. There are 11 men and six women in the class. Ten of the students are international, hailing from eight different countries. "We have students from Asia, Europe, South America, New Zealand, and the US," says Jan Price Greenough, associate director of the Ph.D. Program. "They have compiled an impressive scholastic and professional record. We are very excited about their potential and promise and look forward to a very good class." _____ CHANCELLOR BERDAHL APPOINTS BEN HERMALIN INTERIM DEAN When Dean Laura Tyson announced that she would resign on December 31, 2001, Chancellor Robert Berdahl immediately announced that he would appoint Ben Hermalin as interim dean while the university runs a national search for a new dean of the Haas School. Associate Dean Ben Hermalin has been an integral part of Dean Tyson's administration at Haas since he was appointed associate dean in 1999. "Ben has worked closely with me and the rest of the Dean's Office on all of our initiatives, from the Pilot Program to the new degree programs, " says Tyson. "He has won the loyalty and support of both faculty and staff through his unique combination of boundless energy, fairness, attention to detail, intelligence, and good humor. He is committed to the well-being of the Haas School and has been an effective advocate for its interests on the campus." Hermalin, 39, is the Willis H. Booth Professor of Banking and Finance and has been with the Haas School since 1988. He has a joint appointment with the Department of Economics and is a co-founder and director of the private online academic publishing company Bepress. As associate dean Hermalin overseas all faculty recruitment and retention as well as merit raises and promotions for the Haas faculty. Working with Dean Tyson, Hermalin has helped to get permission from the campus administration to recruit more faculty members in a given year than is normally allowed and to meet competitive offers to current faculty. "Dean Tyson has built a good team, a strong organization, and an excellent staff. I hope to provide continuity and continue the school's initiatives," says Hermalin of his future role as interim dean. "Haas is very fortunate to have someone of Ben's stature, experience, and dedication willing to serve as interim dean," says Michael Katz, the Edward J. and Mollie Arnold Professor of Business Administration. "His ability to be equally comfortable in a three-piece suit and a Hawaiian shirt makes him ideally suited to face the diverse challenges of leading the school." His recent research has focused on telecom pricing with Katz. This fall he will teach a Ph.D. course in the economics department called, "Mechanism Design and Agency Theory." Hermalin holds a BA in Economics from Princeton and a Ph.D. in economics from the Massachusetts Institute of Technology. He is also on the Editorial Board for the American Economic Review and is co-editor of the Berkeley Electronic Journals in Economic Analysis & Policy. "Ben is an excellent squash player," says Dwight Jaffee, professor of banking and finance. "My hope is that his deanly duties will slow him down so that I can win more often." Tyson and Hermalin will work together throughout the fall with Andy Shogan, Jay Stowsky, and the school's professional staff to make the 2001-2002 academic year a successful one for the Haas School. _____ ALL OF THE 2001 YEAH GRADUATES PURSUE HIGHER EDUCATION In another sign of continuing success for the Young Entrepreneurs At Haas (YEAH) program all ten of the 2001 graduating high school seniors from the Young Entrepreneurs Program are continuing their education. "Our YEP students have taken to heart the principles and real-life lessons of entrepreneurship and finance, and followed their interest toward higher education," says Oscar Wolters-Duran, director of YEAH. "It's a real testimony to the quality of our Haas MBA mentors and the YEAH staff that so many of these youth, who often come from severely under-served schools, continue on to college. We are very pleased with the success of our students." The success of the Young Entrepreneurs Program and its sister program Business, Economics, Technology Achievement (BETA), is due in large part to the commitment and diligence of MBA and undergraduate students who work with the YEAH participants. Both YEP and BETA are primarily aimed at building strong academic habits and encouraging students to continue on to college by providing a clear link between entrepreneurial success and academic skills, achievement, and advancement. The 84 students in the 2001 YEP class hail from over 20 schools across the Oakland, Berkeley, and West Contra Costa school districts. YEP, which was founded in 1989, teaches basic business skills to 9th and 10th graders, and is supported by more than forty Haas MBA volunteer mentors/business coaches. YEAH is also creating an alumni network to support students through their last years of high school and the college admissions process. The BETA program, which began as a pilot program in 2000 serving five school sites/programs, will serve ten sites/programs in 2001 - 2002 and reach over 200 students. In BETA, the undergraduates encourage middle- and high-school students to research and plan for future careers, act as role models for aspirants to higher education, and help students see the relevance of their math coursework through business projects involving sales tax, tracking stock prices, and using area/perimeter to identify possible business sites. Undergraduate students who would like to work (and get paid) for the BETA program should contact Tanya Fraley at 510-643-4622. MBA students who would like to volunteer for the YEP Program should contact Ajuah Helton at 510-643-8906. For more information on all of YEAH's programs, visit www.haas.berkeley.edu/yeah/ <http://www.haas.berkeley.edu/yeah/>. 2001 YEP GRADUATES Ten high school seniors participated in YEP 2000 - 2001: + Waymando Brown, alumnus of YEP I and II, graduated from Skyline High School in June 1999, is enrolled at the College of Alameda, and hopes to transfer to UC Davis in 2002. + Ivan Chavez, alumnus of YEP I and II, graduated from Richmond High School in June 2001, and was admitted to San Francisco State University. + Nosa Ikponmwonba, alumnus of YEP I and II, graduated from Skyline High School in June 1999. He is currently a student at College of Alameda and hopes to transfer to UC Davis in 2002. +Jahmilah Jones, alumna of YEP I and II, graduated from Bishop O'Dowd High School in June 2001 and was admitted to Clark Atlanta University. +Obatala Mawusi, alumnus of YEP II, graduated from Luxor Academy in December 2000, at the age of sixteen, and has begun culinary studies at the California Culinary Academy in San Francisco. +Yetunde Onipede, alumna of YEP I and II, graduated from Holy Names High School in December 2000, and began studies at Merritt Community College this year. Yetunde hopes to transfer to UC Berkeley in 2003. +Lorrie Savage, alumna of YEP I, graduated from Bishop O'Dowd High School in June 2001 and was admitted to UC Berkeley. +Jacob Scott, alumnus of YEP I and II, graduated from Oakland Technical High School in December 2000 and was admitted to UC Berkeley. +Emily Teruya, alumna of YEP II, graduated with honors from Skyline High School in June 2001 and was admitted to UC Berkeley. +Thomas Woo, alumnus of YEP II, graduated with honors from Skyline High School in June 2001 and was admitted to UC Berkeley. _____ THE HAAS SCHOOL WELCOMES NEW FACULTY The Haas School of Business maintains its commitment to excellence with the addition of six new members to its faculty. After successfully concluding a nine-month search and conducting more than 400 interviews, the Haas ladder-track faculty now has 70 members, or roughly 64 full-time equivalents. The new faculty members are: + Terrence Henderschott, assistant professor in Management of Information Technology. + Christopher Hennessy, assistant professor in Finance. + Professor Barbara Mellers, professor in Marketing and Organizational Behavior and Industrial Relations. + Terrance Odean, Haas Ph.D. 97, assistant professor in Finance. + Philip Tetlock, professor of Organizational Behavior and Industrial Relations. + Professor Candace Yano, who is transferring to Haas after eight years with UC Berkeley's Department of Industrial Engineering and Operations Research. Over the next few months, the Haas NewsWire will introduce each new faculty member with a short profile. _____ NEW STAFF NEW ASSISTANT DIRECTOR FOR MAJOR GIFTS AND CORPORATE RELATIONS Jeff Rhode joins the Haas School development team as the new assistant director for Major Gifts and Corporate Relations. He has been working as an intern in the development office since earlier this summer. Prior to joining Haas, he worked as a sports writer for ESPN.com and ZuluSports.com. Rhode's communication, research, and writing skills make him a valuable addition to the school. Working on campus is a homecoming for Rhode as he earned an undergraduate degree in history and a Masters in education from UC Berkeley. He also holds a Masters in Sports and Fitness Management from the University of San Francisco. Currently, Jeff lives in San Francisco with his wife, Nada, who is also a Cal graduate. His phone number is 642-1907, his e-mail is rhode@haas.berkeley.edu, and his cubicle is in the dean's suite. NEW ACCOUNT MANAGER AND OFFICE MANAGER IN THE CAREER CENTER Mark Friedfeld comes to Haas from the University of Maryland's Smith School of Business. Friedfeld is the new account manager for financial services recruitment. He will be working closely with MBA and MFE students and building and maintaining contacts with companies across the finance industry. Prior to his work at the Smith School, Mark spent a few years as the director of marketing at the Princeton Review. His office is in the Recruitment Center on the 3rd floor. His phone number is 642-6588 and his e-mail address is friedfel@haas.berkeley.edu. Christine Blaine is the new office manager for Career Services. She was previously the general manager at Beth's Desserts. She brings a wealth of knowledge in the areas of operations, staffing, and budget management. Christine is located on the fourth floor in the Career Center. Her phone number is 643-7802 and her e-mail address is blaine@haas.berkeley.edu. _____ HAAS IN THE NEWS Hal Varian, dean of the School of Information Management and Systems and Haas professor, commented on President Bush's Administration's lack of interest in technology in Los Angeles Times on Aug. 27. Read the full article here: <http://latimes.com/templates/misc/printstory.jsp?slug=la%2D000069457aug27> Russ Winer, the J. Gary Shansby Professor of Marketing Strategy and the chair of the Marketing Group, was quoted extensively in The Industry Standard Online on Aug. 27 on the right metrics to use to measure the effectiveness of banner ads. Read the full article here: <http://www.thestandard.com/article/0,1902,28813,00.html> Severin Borenstein, E.T. Grether Professor in Public Policy and Business Administration, in the San Jose Mercury on Aug. 26 that the mild weather contributed more to California avoiding rolling blackouts, than conservation did. Read the full article at: <http://www0.mercurycenter.com/premium/front/docs/summerend26.htm> The Management of Technology program was mentioned in Electronic Buyer's News on Aug. 27 in connection with NEC support of the program. The study of market analyst's performance for the year 2000, which was co-authored by Brett Trueman, the Donald and Ruth Seiler Professor of Public Accounting and chair of the Haas Accounting Group, and Reuven Lehavy, assistant professor in the Haas Accounting Group, appeared in The American Enterprise Online on their September issue. Read the full article here: <http://www.taemag.com/taesep01b.htm> The Young Entrepreneurs at Haas (YEAH) program was mentioned in the San Jose Mercury on Aug. 24 in the article titled "2 east bay schools send most frosh to UC Berkeley." Read the complete article here: <http://www0.mercurycenter.com/premium/local/docs/cal24.htm> Severin Borenstein commented in the LA Times on Aug. 24 that the state should not run public power. Read more here: <http://latimes.com/templates/misc/printstory.jsp?slug=la%2D000068605aug24> Hal Varian and the book "Information Rules" which he co-wrote with Carl Shapiro were mentioned an article about the changing intellectual property of businesses and its effects on the economy in the Wall Street Journal on Aug. 23. On Aug. 23 the LA Times quoted David Vogel, George Quist Professor of Business Ethics, regarding the Microsoft lawsuit in the article "Lobbyists Tied to Microsoft Wrote Citizens' Letters." Read the full story here <http://latimes.com/news/printedition/la-000068380aug23.story> Janet Yellen, the Eugene E. and Catherine M. Trefethen Professor of Business Administration, was quoted in the Sacramento Bee on Aug. 22 and expressed her agreement with the Fed's recent short-term interest rate cut. Read more on this story here <http://www.sacbee.com/ib/news/ib_news01.html> Borenstein appeared in the Washington Post on Aug. 21 in an article about California deregulation. Read the article at <http://www.washingtonpost.com/wp-dyn/articles/A37193-2001Aug20.html> Borenstein also commented on the California energy crisis in the St. Louis Post-Dispatch on Aug. 20. Tyson appeared on CNN: Inside Politics on Aug. 20 and made remarks on how the Fed will behave in the future. Read the transcript at <http://www.cnn.com/TRANSCRIPTS/0108/20/ip.00.html> Dwight Jaffee, professor of banking and finance, was mentioned in San Francisco Chronicle on Aug. 19 and offered remarks on the accuracy of forecasts offered by technology research companies. For the full text see <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/08/19/BU138607.DTL> The article "Some Funds to Read Your Mind," in the New York Times mentioned Terrance Odean, assistant professor of finance, in an article about behavioral economics on Aug. 19. Borenstein was once again quoted in regards to the California power crisis on Aug. 19 in the Contra Costa Times. Read the complete article here: <http://www.contracostatimes.com/cgi-bin/emailfriend/emailfriend.cgi?mode=print&doc=http://www.contracostatimes.com/news/topstory/outlook_20010819.htm> The LA Times quoted John Myers, Professor Emeritus of the Haas Marketing Group, on Aug. 17 in an article about the safety of the free toys given by fast-food restaurants. Read more on this topic here: <http://latimes.com/business/la-000066664aug17.story> Trueman, appeared in CBS Marketwatch on Aug. 15, in the article "Beware of tech earnings 'dead zone'". Read the full article: <http://cbs.marketwatch.com/news/story.asp?siteID=mktw&guid=%7BF4F96E1B%2D798B%2D4276%2D8CE1%2D3FA7C324CC6B%7D> Ken Rosen, Haas Real Estate professor and Chairman of the Fisher Center for Real Estate and Urban Economics, was quoted in the San Francisco Chronicle on Aug. 12 in the article "Housing Prices Stay Hot." Read more here: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/08/12/BU194539.DTL> "Foundations for Success in the Knowledge Economy: Challenges and Opportunities in New Zealand," a lecture by David J. Teece, professor of international business and finance and director of the Institute of Management, Innovation, and Organization, was delivered live for 30 minutes on Sky TV on August 3, 2001, at the Knowledge Wave Conference. Teece also appeared on Testra Business (Channel 2) and his lecture was condensed and printed in the Christchurch Press, the Dominion, Radio New Zealand, and many other media outlets. Dean Laura Tyson's announcement about her resignation as dean was covered by the following papers below from Aug. 13-18. New York Times on Aug. 13 <http://www.nytimes.com/aponline/business/AP-Business-Dean-Resigns.html?searchpv=aponline&pagewanted=print> San Francisco Chronicle on Aug. 14 <http://www.sfgate.com/cgibin/article.cgi?file=/chronicle/archive/2001/08/14/BU119475.DTL> San Jose Mercury News on Aug. 14 <http://www0.mercurycenter.com/business/top/084361.htm> Oakland Tribune on Aug. 14 Contra Costa Times on Aug. 14 <http://www.contracostatimes.com/cgibin/emailfriend/emailfriend.cgi?mode=print&doc=http://www.contracostatimes.com/news/stories_news/tyson_20010814.htm> Business Week Online on Aug.15 <http://www.businessweek.com/bschools/content/aug2001/bs20010814_174.htm> Daily Californian on Aug. 15 <http://www.dailycal.org/article.asp?id=5891> The Berkeleyan on Aug. 16 San Francisco Business Times on Aug. 17 <http://sanfrancisco.bcentral.com/sanfrancisco/stories/2001/08/20/weekinbiz.html?t=printable> The Economist on Aug. 18 The Independent of London on Aug. 21 <http://www.independent.co.uk/story.jsp?story=89771>. _____ HAPPENING AT HAAS UC Berkeley Entrepreneurs Forum "What's the Frequency Kenneth?" featuring: Peter Buhl, partner, Nokia Ventures; Cliff Higgerson, partner, ComVentures; Patrick Lilley, CEO, Digital Transit; Amit Nagpal, senior consultant, Analysys Group; Greg Shirai, director, Handheld Products Handspring. Moderated by Keval Desai, associate, Onset Ventures. Thursday, August 30, 2001 6:30 p.m. Arthur Andersen Auditorium Registration: There are special rates for faculty and staff. Faculty and staff are encouraged to pre-register by E-mail. Note registration procedure for students: a) in person with cash or check in room F450, weekdays 9-11:30AM and 12:30 - 4PM. b) with Mc/Visa over the phone, please call (510) 642 4255 The fee for pre- registration is $5. There will be a $10 registration fee at the door. Note: On-site registration is subject to space available. Pre-registration for students and staff closes at 4PM on Tuesday, August 28 or earlier if it is sold out. For more information on the series, please visit <http://www.haas.berkeley.edu/lester/bef.html> and <http://www.haas.berkeley.edu/lester/aug01.html>. Business Combinations and Goodwill -- What The New FASB Rulings Mean to You? The methodology used to determine the amount of goodwill and identifiable intangible assets to be recorded in a business combination is undergoing a major change. A panel of experts will discuss the details of the FASB rulings. Friday, September 7, 2001 1:00 p.m. to 5:00 p.m. Location San Francisco Airport Marriott Price $200 per person ($160 if registered by August 29, 2001) Contact: Dayna Haugh at 510-642-6334 or haugh@haas.berkeley.edu or visit <http://www.haas.berkeley.edu/accounting> Guest Speakers: Helen Munter, Deloitte & Touche; Kim Marie Boylan, Mayer, Brown & Platt; John Hertz, Intel; Jeff Jones, Deloitte &Touche; Peter Wheeler, Deloitte & Touche; and John Whittle, Corio. Ph.D. Seminars E.T. GRETHER MARKETING SEMINAR "Private Labels, Price Rivalry, and Public Policy," by Tommy Gabrielsen, University of Bergen and Visiting UC Berkeley. Thursday, August 30, 2001 3:30 to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. IDS270-INSTITUTIONAL ANALYSIS WORKSHOP "The Science of Contract: Private Ordering," by Oliver Williamson, UC Berkeley Thursday, August 30, 2001 4:00 to 6:00 p.m. Room C325, Cheit Hall For more information, contact Anita Stephens at stephens@haas.berkeley.edu. REAL ESTATE SEMINAR Organizational Meeting Friday, August 31, 2001 11:00 a.m. to 12:30 p.m. Room C250, Cheit Hall For more information, contact Lynn Lobner at lyoung@haas.berkeley.edu. ACCOUNTING SEMINAR "Valuation of the Debt-Tax Shield," by Doron Nissim, Columbia University Friday, August 31, 2001 4:00 pm Room C325 Cheit Hall For more information, contact Lorraine Seiji at seiji@haas.berkeley.edu. E.T. GRETHER MARKETING SEMINAR "Self-schema Matching and Attitude Change: Situational and Dispositional Determinants of Message Elaboration," by Christian Wheeler, Stanford University Thursday, September 6, 2001 3:30 to 5:00 p.m. Room F320 For more information, contact Laura Gardner at lgardner@haas.berkeley.edu. IDS270-INSTITUTIONAL ANALYSIS WORKSHOP "Foreign Direct Investment and Technology Transfer," by Garrick Blalock, UC Berkeley Thursday, September 6, 2001 4:00 to 6:00 p.m. Room C325, Cheit Hall For more information, contact Anita Stephens at stephens@haas.berkeley.edu. REAL ESTATE SEMINAR "Signaling-Screening Equilibrium in the Mortgage Market," by Danny Ben-Shahar, Interdisciplinary Center Herzliya Friday, September 7, 2001 11:00 a.m. Room C250, Cheit Hall For more information, contact Lynn Lobner at lyoung@haas.berkeley.edu. _____ ALUMNI EVENTS Singapore Monthly Meeting Meetings for Haas alumni are held the last Tuesday of each month. Tuesday, August 28, 2001 7:00 p.m. to 9:00 p.m. Bar & Billiard Room, Raffles Hotels, Singapore No RSVP is required. Contact: Dirk Hofer +65-98191039 or via e-mail at dirk@strategytools.com. East Bay Chapter Haas Connection The East Bay Chapter of the Haas Alumni Network invites you to network and exchange ideas with fellow East Bay alumni and Haas students on the first Thursday of every month. Thursday, September 6, 2001 7:30 p.m. to 9:30 p.m. Location: Pyramid Brewery, 901 Gilman Street (at Eighth Street) in Berkeley. Contact: Bill Vederman, East Bay Chapter President, vederman@alumni.haas.org _____ HAAS CELEBRATIONS Birthdays Lee Forgue, Sept 1 David Stuckey, Sept. 4 Alison Thompson, Sept. 6 No Young, Sept. 9 _____ The Haas NewsWire respects the wishes of staff and faculty who would not like their birthdays announced. Please e-mail a request to have your birthday marked "do not announce" on the central birthday list to Haasnews@haas.berkeley.edu. The Haas NewsWire is the electronic news weekly for the Haas community published every Monday by the Marketing and Communications Office at the Haas School. Send your news, feedback, and suggestions to haasnews@haas.berkeley.edu. Archived issues of Haas NewsWire are available online at <http://www.haas.berkeley.edu/groups/newspubs/haasnews/archives/hncurrent.html>. To subscribe to Haas NewsWire, address e-mail to majordomo@haas.berkeley.edu; in the body of the message type "subscribe haasnewswire" in the first line, and "end" in the second line. To unsubscribe to HNW, type "unsubscribe haasnewswire" in the first line, and "end" in the second line. =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Thurs, 5/31: A rush to duck power outages: About half of the state's electric users already have been exempted from rolling blackouts SD Union, Thurs, 5/31: Sempra chief: County may fare OK on outages SD Union, Thurs, 5/31: 'Plan B' gains key support in Assembly SD Union, Thurs, 5/31: FERC boss unfazed by Davis' lawsuit threat SD Union, Thurs, 5/31: Chula Vista names itself a municipal power entity SD Union (AP), Thurs, 5/31: Circuit breaker=20 Giddy investors in the power trade get their wires crossed SD Union (AP), Thurs, 5/31: After months of pressure, mayor agrees on power= =20 plant=20 SD Union, Wed, 5/30: Panel OKs weakened utility district bill SD Union, Wed, 5/30: Davis fails to sway Bush on price caps SD Union, Wed, 5/30: Head of FERC confident California suit will fail SD Union (AP), Wed, 5/30: Grid managers call Stage 2 alert, but hope to avo= id=20 blackouts=20 LA Times, Thurs, 5/31: FERC Chief Unfazed By Threat of Third Lawsuit LA Times, Thurs, 5/31: The Home Energy Drain SF Chron, Thurs, 5/31: Heat's on, but so are lights=20 100-degree temperatures aren't widespread, sparing the grid SF Chron, Thurs, 5/31: Municipal utilities warned=20 Governor says he'll seize excess electricity if prices don't come down SF Chron, Thurs, 5/31: Regulators want state trade-off for caps=20 Davis asked to give up control of power lines SF Chron, Thurs, 5/31: Plan would have biggest customers pay Edison's debt Mercury News, Thurs, 5/31: San Jose mayor changes course, endorses power= =20 plant Mercury News, Thurs, 5/31: State admits power-deal secrecy=20 Mercury News, Thurs, 5/31: California Gov. Davis blasts Bush energy policy= =20 Mercury News, Thurs, 5/31: Mayor sees the light on power plant (Editorial)= =20 OC Register, Thurs, 5/31: Building a new plant? More power to them OC Register, Thurs, 5/31: Watering down fun Many summer activities in O.C. will be diminished by the electricity crunch OC Register, Thurs, 5/31: Energy notebook San Jose mayor switches position, backs power plant OC Register, Thurs, 5/31: Deadline near on regional power grid=20 OC Register, Thurs, 5/31: Bush standing tall as Davis plays blame game = =20 (Commentary) Individual.com (Businesswire), Thurs, 5/31: Electrical Emergency Stepped Up= =20 to Stage Two;=20 Need for Energy Conservation is Critical =20 Individual.com (AP), Thurs, 5/31: Washington's Role Helped Spark=20 California's Power Crunch Individual.com (Businesswire), Thurs, 5/31: Energy Experts Say Solution to= =20 California Crisis is Inescapable/ Build More Power Plants and Ensure Competition NY Times, Thurs, 5/31: In California, Blackouts Spur A Search for Home=20 Remedies ---------------------------------------------------------------------------= --- ------------------------------------- A rush to duck power outages: About half of the state's electric users=20 already have been exempted from rolling blackouts. By Carrie Peyton, Terri Hardy and Clint Swett Bee Staff Writers (Published May 31, 2001)=20 Up and down California, businesses, government agencies, campuses and other= s=20 are scrambling to join the millions who will escape this summer's predicted= =20 waves of rolling blackouts.=20 Some have gotten state regulators to change blackout rules. Some have given= =20 different versions of their needs to utilities, changing their stories in= =20 ways that satisfy exemption standards. Some have persuaded legislators to= =20 propose laws just for them.=20 "People that have political power or economic power are going to find ways = of=20 getting exempted. It happens all the time," said Richard Bilas, one of five= =20 appointed members of the state Public Utilities Commission.=20 Every addition to the largely confidential list of those exempt from outage= s=20 boosts the frequency of blackouts for everyone else.=20 While a few thousand institutions -- including hospitals, fire departments= =20 and prisons -- are deemed "essential" users who should not be blacked out,= =20 nearly half the state is spared outages because millions more share circuit= s=20 with those exempt facilities.=20 In Sacramento, for example, the electric utility will not cut power to a=20 water treatment facility along the American River for fear of endangering= =20 water quality. But sheltering that circuit also spares the sprawling=20 California State University, Sacramento, campus nearby.=20 If exemptions grow, "at some point, you lose the ability to reliably have= =20 rolling blackouts," said PUC commissioner Carl Wood. He has estimated that= =20 fewer than 1,000 more institutions can be exempted without compromising the= =20 system that rolls outages from one part of the state to the next when the= =20 electric grid can't supply power for everyone.=20 With close to half of the state sitting out outages, "that means the other= =20 half is going to get blacked out twice as often. It's basically unfair to t= he=20 rest of the community," said Paul Perkovic, who sits on the board of the=20 Montara Sanitary District, which provides sewer, garbage and other services= =20 to a San Mateo County community.=20 Perkovic urged the PUC last week to make more government agencies, includin= g=20 his tiny district, eligible for blackouts, arguing that they should be=20 prepared for other emergencies anyway.=20 The deluge of exemption requests has created a dilemma of values and number= s.=20 Should nursing homes be placed on the essential list? What about outpatient= =20 surgical clinics or transit agencies or schools? And when, if ever, should= =20 someone review existing exemptions to see if they're still needed?=20 Utilities and regulators say they try to apply the rules fairly. But=20 inconsistencies appear, and the rules keep changing as the realization sink= s=20 in that many more blackouts could await California.=20 The state's two biggest utilities are close in size, but one shields about = 25=20 percent more customers than the other from outages.=20 The Sacramento Municipal Utility District, which sets its own outage=20 standards, exempts only 21 of its 530,000 customers.=20 Pacific Gas and Electric Co., which applies rules set by the PUC, is much= =20 more generous, giving 2,600 of its 4.8 million customers the "get out of=20 blackouts free card."=20 Southern California Edison is even more open handed in its interpretation o= f=20 the same rules, doling out 3,600 exemptions among its 4.3 million customers= .=20 The roads to getting an exemption are varied. There are at least three plac= es=20 to start for those who want to stay cool and bright when all around are goi= ng=20 dark.=20 Businesses or governments can apply to their utility, which determines=20 whether they fit rules for a public safety exemption.=20 Or if their utility is regulated by the PUC, they can apply directly to a n= ew=20 program set up to examine their petition for exemptions.=20 Finally, they can go to the state Legislature, where lawmakers have=20 introduced a range of bills that would protect schools, nursing homes,=20 refineries -- even Universal Studios.=20 But in the attempt to quickly piece together a system to grant exemptions,= =20 critics say, a haphazard process has been developed.=20 Dan Johnson, associate vice president for facilities development and=20 operations at San Jose State University, said he has sought an exemption fr= om=20 PG&E and is still waiting, while campuses with similar circumstances have= =20 succeeded. Now he wonders about the fairness of what seems to him a murky= =20 decision-making process.=20 "Each utility has its own way of dealing with exemptions," he said. "If it= =20 appears that the decision is arbitrary and capricious, we hope that when we= =20 appeal to the PUC some sanity prevails."=20 One person in PG&E's tariff's department has done nothing but process=20 exemption requests since March, officials said, after the job became too bi= g=20 to be absorbed in another worker's duties.=20 About 200 requests have come in since early this year, and PG&E has approve= d=20 45 of them and denied 72, with 79 still pending.=20 The process is aimed at being a straightforward evaluation of whether an=20 entity fits into existing PUC categories of "essential" customers.=20 But it isn't always that simple, said Roland Risser, PG&E director of tarif= fs=20 and compliance.=20 Sometimes, said Risser, a customer will say it has adequate backup=20 generation, and PG&E will let the customer know the backup disqualifies it= =20 from an exemption. Later, the customer calls back and says "we've=20 re-evaluated" and the backup generator won't supply all its needs.=20 "We just take their word for it," Risser said. "We don't police."=20 From universities to transit agencies, a wide range of customers worry that= =20 as different utilities apply PUC standards, those regulations don't always= =20 yield the same results.=20 So far, at least eight campuses within the University of California and CSU= =20 systems will not be subject to rolling blackouts, including UC Davis.=20 In a letter to PG&E asking for an exemption, UC Davis stressed the potentia= l=20 danger to animals in its veterinary hospital and the possible destruction o= f=20 research. But PG&E spokesman Ron Low said health and safety arguments are t= he=20 only ones that matter. PG&E granted the exemption because the campus does n= ot=20 have generators for its airport and its radio station -- which is part of t= he=20 emergency broadcasting network.=20 Transportation officials say they're frustrated by the mixed signals sent b= y=20 utilities.=20 While the PUC has declared the Bay Area Rapid Transit District exempt from= =20 blackouts, Edison says Los Angeles' Municipal Transportation Authority is= =20 not. Ralph de la Cruz, deputy executive director of operations for the MTA,= =20 doesn't understand that logic. True, BART travels under the bay. But the=20 MTA's Green Line runs down the middle of the I-105 Century Freeway. Some MT= A=20 rail lines are elevated, and passengers trying to extricate themselves from= a=20 stalled train could plunge to the ground.=20 The MTA asked Edison to reconsider and has appealed to the PUC.=20 "We are anxious to see this resolved as quickly as possible, before blackou= ts=20 occur," de la Cruz said. "My God, we don't want to be in the position of ou= r=20 lines experiencing the prospect of stranded passengers."=20 The San Francisco Giants also have appealed to the PUC to be exempt during= =20 games. A blackout at Pacific Bell Park would "pose major operational=20 challenges," said Staci Slaughter, a Giants' spokeswoman.=20 Electric turnstiles wouldn't work. Concession stands could only accept cash= =20 only for hot dogs and beers. The field would go dark and night games would= =20 have to be canceled.=20 The PUC has been so swamped with bids to escape blackouts that it has hired= a=20 scientific and engineering consulting firm to study who else should be adde= d.=20 Meanwhile, it has asked utilities to look into ways to reconfigure the wiri= ng=20 so that each essential customer won't take so many nonessential ones out of= =20 the blackout pool. A report on those efforts is due Friday.=20 "We've been deluged at the commission by individual requests that do have a= =20 broader public policy good," said PUC president Loretta Lynch, including on= e=20 from the lone U.S. maker of a blood-clotting agent for hemophiliacs.=20 The PUC has hired Exponent, a Menlo Park consulting firm, for $615,000 to= =20 analyze who else should be exempt.=20 Exemption applications are due Friday and will be reviewed by people with= =20 specialties ranging from toxicology to environmental sciences to electrical= =20 engineering, said Robert Caligiuri, an Exponent vice president.=20 The company will rank applicants based on safety risks, and it will work wi= th=20 utilities to determine the potential impacts of adding each one to the=20 exemption pool. It will report to the commission in July, and Wood expects = a=20 decision in early August. He hopes the new rules can be implemented by=20 utilities soon after.=20 But no one within the PUC is taking an equally rigorous look at those who a= re=20 already exempt, and the commission is split on whether such a study is=20 necessary. Wood, who specializes in the blackout issue, believes that the= =20 commission simply doesn't have the time for such an effort during the curre= nt=20 emergency.=20 Unsure of their prospects with utilities or the PUC, some are taking their= =20 cases to the Capitol.=20 State Sen. Sheila Kuehl, D-Santa Monica, said lawmakers are scrambling to= =20 draft energy policies that help all Californians, and at the same time, loo= k=20 after interests in their districts.=20 One example is Kuehl's bill that would allow 15 businesses -- including=20 Universal Studios -- which straddle the boundary between Edison and the Los= =20 Angeles Department of Water and Power to get their electricity from DWP. No= t=20 only would that deal provide them with cheaper rates, but it would likely= =20 exempt them from blackouts.=20 The Los Angeles city utility is not part of the region controlled by the=20 state Independent System Operator, and so it functions independently when t= he=20 ISO orders utilities to impose blackouts.=20 Kuehl said the proposal is fair because those businesses were harmed by a= =20 "geographic quirk," where parts of the park are in DWP territory but they a= re=20 solely an Edison customer.=20 "These are already DWP customers," Kuehl said. "They should be able to draw= =20 all their energy from DWP."=20 Other lawmakers are carrying bills for public schools, oil refineries and= =20 customers in areas where there are extreme temperatures. Sen. Richard=20 Polanco, D-Los Angeles, is proposing a law that would ensure municipal=20 utilities -- such as his district's DWP -- don't have to participate in=20 blackouts.=20 Sen. Debra Bowen, D-Marina del Rey, chairwoman of the Senate energy=20 committee, said the state has to realize that not everyone can be exempt.= =20 "All these bills that seek to put one group of folks in a better position= =20 than someone else do is Balkanize the issue," Bowen said. "Unfortunately,= =20 instead of having people come together to try and share the pain equally,= =20 we're seeing folks rushing for their own lifeboat without regard for who ge= ts=20 thrown overboard in the process."=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com.=20 Sempra chief: County may fare OK on outages=20 By Kristen Green=20 UNION-TRIBUNE STAFF WRITER=20 May 31, 2001=20 San Diego County may be more insulated from blackouts this summer than the= =20 rest of the state, the chief executive officer of Sempra Energy said=20 yesterday.=20 Stephen Baum said power supply shortages aren't as profound in Southern=20 California, in part, because the capabilities for importing energy are=20 better.=20 And that might mean Northern Californians will face more days in the dark= =20 than San Diegans over the next three months, he said.=20 In a lecture at University of California San Diego yesterday, Baum, who=20 oversees San Diego Gas & Electric's parent company, said the state will=20 probably have at least 30 days of rolling blackouts this summer, an estimat= e=20 often repeated by other energy experts.=20 But Baum hopes to limit San Diego County energy outages by introducing a=20 rolling blackout reduction program. Sempra is asking the state to support t= he=20 program, which would give San Diego County credit for the energy that=20 businesses contribute to statewide energy supplies when electricity reserve= s=20 drop dangerously low.=20 Local companies would turn on generators as the state nears blackouts, whic= h=20 would make more energy available. In return, Sempra asks that the state=20 reduce the number of households that would be blacked out in San Diego=20 County. The state Public Utilities Commission has not considered the idea= =20 yet.=20 State officials, however, have suggested that the program be applied=20 statewide. That would mean San Diego County businesses that run generators= =20 would contribute to the state's energy supply, but the number of local=20 residents impacted by blackouts would not shrink.=20 During the afternoon lecture, attended by about 30 UCSD students and=20 visitors, Baum acknowledged the significance of President Bush's visit=20 Tuesday but said he disagrees with Bush's opposition to price caps.=20 And he expressed frustration that a resolution seems so far off.=20 "I see no leadership in this issue," he said.=20 The lecture was sponsored by the Irwin and Joan Jacobs School of Engineerin= g,=20 the Graduate School of International Relations & Pacific Studies, and the= =20 Center for Energy Research.=20 'Plan B' gains key support in Assembly=20 Lawmakers also want state costs on energy to be fully disclosed By Ed Mendel? UNION-TRIBUNE STAFF WRITER=20 May 31, 2001=20 CALIFORNIA'S POWER CRISIS=20 SACRAMENTO -- Assembly Democratic leaders have decided to back an alternati= ve=20 to Gov. Gray Davis' plan to keep Southern California Edison out of bankrupt= cy=20 that places less emphasis on state purchase of the Edison transmission=20 system.=20 The long-awaited "Plan B" from Assembly Speaker Robert Hertzberg, D-Van Nuy= s,=20 is taking shape as legislative leaders are demanding that the governor reve= al=20 detailed information about state power purchases, which total more than $7= =20 billion.=20 "You can't come to a solution of this problem until you know exactly what t= he=20 Department of Water Resources is spending," said Senate President Pro Tempo= re=20 John Burton, D-San Francisco.=20 A Davis spokesman said the administration expects to begin complying with t= he=20 legislators' request soon. But there is a question about whether standard= =20 confidentiality clauses prevent release of long-term contracts and concern= =20 that revealing daily purchases would result in higher prices.=20 "The governor philosophically wants to release them as soon as possible,"= =20 said Steve Maviglio, Davis' press secretary. "We just want to make sure we= =20 don't adversely affect our ability to get power at lower cost for the=20 summer."=20 Reserve power levels dropped yesterday, and the state power grid operator= =20 declared a Stage 2 alert for the first time in three weeks. The Independent= =20 System Operator said some power plants were off-line for maintenance and ho= t=20 weather across the state increased demand. Fewer imports were available=20 yesterday in comparison to last week.=20 Another reason legislative leaders are pushing for a full disclosure of sta= te=20 spending on power is to help the Legislature prepare a new state budget for= =20 the fiscal year that begins July 1.=20 "There are many reasons that having very precise numbers in that regard are= =20 important to Sen. Burton and the speaker," said Assemblyman Fred Keeley,=20 D-Boulder Creek, who has been active on the power issue in the Legislature.= =20 Keeley said disclosure of power spending costs might encourage Republican= =20 legislators to provide an urgency vote allowing the prompt sale of a bond o= f=20 up to $13.4 billion to repay the state general fund for the power purchases= .=20 Without an urgency vote the state cannot begin issuing the massive bond=20 before late August, nearly two months into the new fiscal year. The bond=20 would be paid off by ratepayers over 15 years.=20 In addition, said Keeley, detailed information about state spending might= =20 also lead to an agreement on legislation sought by Republicans that would= =20 allow "direct access" purchase of electricity, where businesses and other= =20 consumers contract with generators and marketers.=20 The state began buying power for utility customers in January after a faile= d=20 deregulation plan, which froze customer rates as power costs soared, result= ed=20 in a combined $13 billion debt for Edison and Pacific Gas and Electric and= =20 left them unable to borrow.=20 After PG&E went into bankruptcy in early April, Davis quickly completed a= =20 memorandum of understanding to purchase the Edison transmission system for= =20 $2.76 billion as part of a plan to keep Edison out of bankruptcy and able t= o=20 resume buying power for its customers by the end of next year.=20 But Republican legislators immediately opposed the state purchase of the=20 transmission system. Democratic legislators think the plan is too generous= =20 for Edison and are reluctant to approve what consumer groups have called a= =20 "bailout" of the utility.=20 Burton said that before legislators can evaluate an alternative to the=20 governor's plan they need to know how much the state power purchasing agenc= y,=20 the Department of Water Resources, is spending and how much money has been= =20 committed for the future.=20 "Until we can find that out it's kind of tough to plan," Burton said.=20 Speaker Hertzberg has asked Keeley and senior Assembly staff members to=20 prepare the documents for an alternative to the governor's plan that=20 Hertzberg is expected to propose in a few days.=20 "The transmission purchase is not featured as prominently as it was in the= =20 governor's proposal," Keeley said.=20 One of the options considered by the Assembly Democratic "Plan B" group was= a=20 proposal by Assemblymen John Dutra of Fremont and Joe Nation of San Rafael= =20 that would give the state the option of purchasing the Edison transmission= =20 system for $1.2 billion within five years.=20 A key part of both the governor's plan and the Dutra-Nation proposal is=20 giving Edison part of the revenue from monthly utility bills, a "dedicated= =20 rate component," that could be used to pay off Edison's debt and allow the= =20 utility to resume buying power.=20 Both plans also would require Edison to make other concessions, including= =20 providing low-cost power and the return of a $400 million tax refund that= =20 Edison gave to its parent firm. Generators would be asked to forgive 30=20 percent of what they are owed.=20 Assembly Republicans said last week that what the state should receive in= =20 exchange for aiding Edison is not the transmission system, but an agreement= =20 that Edison would build new power plants to provide low-cost power. FERC boss unfazed by Davis' lawsuit threat=20 Court has dismissed similar action already By Toby Eckert=20 COPLEY NEWS SERVICE=20 May 31, 2001=20 WASHINGTON -- The head of the Federal Energy Regulatory Commission said=20 yesterday he is confident the agency would prevail in a legal battle with= =20 California Gov. Gray Davis over electricity price controls.=20 "I feel good about our chances," said FERC Chairman Curtis Hebert, citing a= =20 federal court's decision Tuesday to dismiss a similar lawsuit filed by=20 California legislative leaders.=20 Davis has threatened to sue the FERC for allegedly failing to meet its lega= l=20 obligation to ensure that wholesale power costs are "just and reasonable."= =20 Such a move would be the latest escalation in Davis' running battle with th= e=20 agency over its response to California's power crisis.=20 "I think the 9th Circuit (federal appeals court) made very clear that the= =20 commission is doing its job appropriately," Hebert told reporters.=20 A three-judge panel of the San Francisco-based court rejected a suit by=20 California Senate President Pro Tempore John Burton and Assembly Speaker=20 Robert Hertzberg that sought to force the FERC to impose wholesale price=20 controls. The court said the lawmakers "have not demonstrated that this cas= e=20 warrants the intervention of this court."=20 Davis says his administration has laid a firmer legal foundation for a=20 lawsuit by first pursuing administrative remedies at the FERC. Several stat= e=20 agencies made a flurry of filings with the commission last week, asking it = to=20 crack down on wholesale prices that have increased tenfold over the past=20 year.=20 "The (legislative leaders') lawsuit was thrown out .?.?. because there wasn= 't=20 a preliminary filing with FERC asking for the relief that the plaintiffs we= nt=20 into court to seek," Davis said Tuesday. "We have made such filings as=20 recently as Friday. .?.?. So we have to give them some time to review that= =20 information."=20 But legal experts said the state may have a tough time building a successfu= l=20 case against the FERC.=20 Federal statutes generally "give a great deal of discretion to agencies in= =20 carrying out their duties," said Peter Shuck, an expert in regulatory polic= y=20 at Yale Law School. "So it would be very hard for the state to prevail."=20 Hebert and fellow Commissioner Linda Breathitt have rejected the firm price= =20 controls sought by Davis, overruling Commissioner William Massey, who favor= s=20 them.=20 Hebert says the commission has taken steps to lower wholesale power prices = in=20 California and punish price gouging. He cites $125 million in refunds=20 recently ordered by the agency and a "price mitigation" plan that went into= =20 effect Tuesday.=20 The plan will use a complicated formula to set a price ceiling for power=20 sales during severe shortage periods. Generators breaching the limit will= =20 have to justify their prices to the FERC or pay refunds.=20 Davis and other critics say the plan is riddled with loopholes and will bri= ng=20 little relief to the state. They also say the refunds ordered by the FERC t= o=20 date fall far short of the billions of dollars in overcharges the state has= =20 endured.=20 Meanwhile, a spokesman for the California Independent System Operator, whic= h=20 controls most of California's power grid, said the agency intends to meet a= =20 Friday deadline for filing comments with the FERC on joining a regional gri= d=20 management organization. The FERC has threatened to revoke the limited pric= e=20 curbs if the ISO fails to present a plan for joining the organization.=20 Chula Vista names itself a municipal power entity=20 Move is latest effort to combat energy crisis By Amy Oakes=20 UNION-TRIBUNE STAFF WRITER=20 May 31, 2001=20 CHULA VISTA -- The city has declared itself a municipal utility district as= =20 one possible way to cope with the state's crippling energy crisis.=20 The declaration, approved by the City Council on Tuesday, is the city's fir= st=20 step in examining the costs and benefits of owning and operating all or par= t=20 of an energy generation and distribution system.=20 "It's a fairly simple act in a complex environment," Assistant City Attorne= y=20 Glen Googins told the council.=20 The council also approved an energy conservation and strategy plan, which= =20 outlines eight options for the city to review. The choices, range from=20 entering into a fixed-price contract with an energy service provider to=20 partnering with a third party, such as Duke Energy, to operate a power=20 generation facility.=20 The council also voiced concerns about a proposed 62.4 megawatt peak-use=20 plant to be built near Main Street. Ramco Inc., which wants to build an=20 enclosed gas turbine plant, held a site tour and information meeting Tuesda= y=20 evening.=20 If approved by the California Energy Commission, the plant would be=20 operational by Sept. 30.=20 The city has scheduled its own informational public hearing for residents= =20 from 6 to 8 p.m. Friday at the Otay Community Center, 1671 Albany Ave.=20 Several on the council said another plant could harm the air quality in the= =20 city because the peak-use facilities primarily use natural gas.=20 The city is home to Duke's South Bay facility and has approved plans for a= =20 49.5 megawatt peak-use plant near Main Street.=20 "We think another peaker plant is a little much," Councilwoman Patty Davis= =20 said yesterday. "I think Chula Vista has done its job."=20 Davis said the council had not received any information about the Ramco=20 project. She said she learned about the proposal Tuesday before the council= =20 meeting.=20 By naming itself a municipal utility district, the city can consider=20 establishing and operating public works for its residents, such as water=20 distribution. The decision does not commit the city to providing those=20 services.=20 The council on Tuesday also approved using $50,000 from its traffic signal= =20 fund to install backup battery power supply packs and light emitting diodes= =20 at 55 intersections. The battery packs will ensure that the traffic lights= =20 will function if the area is subject to a rolling blackout. Circuit breaker=20 Giddy investors in the power trade get their wires crossed By Brad Foss=20 ASSOCIATED PRESS=20 May 31, 2001=20 NEW YORK -- Investors in power companies who were sipping champagne after= =20 President Bush unveiled his national energy strategy got a bad case of the= =20 hiccups when Democrats regained control of the Senate.=20 Shares of companies that trade power climbed higher in the days following t= he=20 release of the Bush plan. They've been sliding since Sen. James Jeffords of= =20 Vermont defected from the Republican Party, and Wall Street analysts say=20 perceptions about the fate of the Bush plan are definitely a factor.=20 "The energy bill was so favorable it almost seemed like (power companies) g= ot=20 everything they would have asked for," said Barry Abramson, utility analyst= =20 at UBS Warburg. "Now it looks like everything is going to be more difficult= =20 to achieve, but not impossible."=20 The Bush plan seeks to give oil and gas drillers easier access to public=20 lands, to speed up the review process for refinery and power plant expansio= ns=20 and spur renewed interest in nuclear power.=20 Shares of Calpine, Dynegy, Mirant and San Diego-based Sempra Energy, climbe= d=20 between May 16 and May 21 -- the time between the release of the Bush plan= =20 and reports of a Senate shake-up.=20 These stocks began to descend May 23, when Sen. Jeffords announced he was= =20 leaving the GOP, and have continued downward, with Calpine and Dynegy losin= g=20 13 percent, Mirant off 17 percent and Sempra Energy down more than 4 percen= t.=20 Still, analysts say investors might be overreacting.=20 "Despite the fanfare following the unveiling of President Bush's energy pla= n,=20 we believed its chances of passage -- even with a Republican majority -- wa= s=20 slim at best," said Daniel Ford, head of a team of energy analysts at Lehma= n=20 Brothers. "With Jeffords' move, the effort may be even more remote, but the= =20 most likely outcome, inaction, has not changed."=20 Ford acknowledged that talk of capping wholesale electricity prices for=20 California has resurfaced in the Senate, though he dismissed the likelihood= =20 of this happening -- even with a Democratic majority -- because "Bush still= =20 has veto power and, to date, has been steadfastly against caps."=20 Democrats no doubt will emphasize conservation more than Republicans would= =20 have, but the momentum shift in the Senate will not be overly dramatic,=20 according to Bill Breier, vice president of the Edison Electric Institute, = a=20 Washington-based group that represents utilities.=20 But other experts note how quickly political positions could shift if Weste= rn=20 power markets suffer the kind of meltdown San Diego experienced last summer= .=20 During that crisis, power bills quickly tripled, costs were passed directly= =20 to electricity consumers and even the most conservative local Republican=20 leaders called for an end to the open market and a cap on wholesale=20 electricity prices.=20 There still will be fierce battles over efforts to relax power plant=20 emissions -- a Bush proposal that would benefit coal burners -- and proposa= ls=20 to expand the nation's electricity and natural gas infrastructure.=20 "There's going to have to be consensus and we've known that from the get-go= ,"=20 Breier said.=20 Analysts emphasized that it would be wrong to assume that much of the Bush= =20 energy plan is now dead-on-arrival with Democrats in control of the Senate.= =20 For instance, attention has been given to the fact that Sen. Jeff Bingaman,= a=20 Democrat from New Mexico, will take over as chairman of the Senate Energy a= nd=20 Natural Resources Committee, replacing Sen. Frank Murkowski of Alaska.=20 Bingaman, however, supports legislation critical to the nuclear power=20 industry, including the Price Anderson Act, a 1957 law set to expire in 200= 2=20 that limits corporate liability from a nuclear accident.=20 Other energy strategies favored by Bush, such as the deregulation of=20 electricity markets and the construction of 1,300 power plants over the nex= t=20 20 years, will not be affected by the Senate overhaul simply because their= =20 implementation is heavily dependent on state government, not federal, said= =20 Ray Niles, who analyzes the power and natural gas industries for Salomon=20 Smith Barney.=20 "I don't think it makes a huge amount of difference," Niles said. "Things= =20 like increasing drilling were going to be a hard haul for the country=20 anyway."=20 Staff writer Craig D. Rose contributed to this report.=20 After months of pressure, mayor agrees on power plant=20 By Brian Bergstein ASSOCIATED PRESS=20 May 31, 2001=20 SAN JOSE =01) After months of pressure, Mayor Ron Gonzales has dropped his= =20 opposition to a proposed large power plant in southern San Jose.=20 In a crowded news conference in his office Wednesday, Gonzales announced hi= s=20 staff had negotiated important concessions from the companies that want to= =20 build the $400 million Metcalf Energy Center =01) Calpine Corp. and Bechtel= =20 Enterprises Inc.=20 The companies agreed to donate $6.5 million to community programs, offer=20 long-term power contracts at below-market rates to San Jose businesses and= =20 take extra steps to keep the plant's pollution levels down.=20 "We came to the conclusion this power plant was on its way to San Jose, and= =20 we needed to do everything we could to use our leverage to make this the be= st=20 facility we could," Gonzales said. "We worked hard to make this plant bette= r=20 for the people of San Jose."=20 Gonzales and the entire City Council in November voted against the=20 600-megawatt Metcalf plant on the grounds it would be too close to=20 residential areas.=20 But as California's energy crisis deepened, Gonzales' position became=20 increasingly unpopular. Gov. Gray Davis, state representatives, county=20 supervisors and the Sierra Club called for the plant to be built.=20 The decision on whether the plant will be built now rests with the Californ= ia=20 Energy Commission, which did not return a call for comment Wednesday. The= =20 agency, which is expected to vote this summer, could have approved the plan= t=20 even without Gonzales' support.=20 But Gonzales said the city still "could have made it difficult" by refusing= =20 to extend San Jose's recycled water line to the plant. Calpine and Bechtel= =20 agreed to pay for part of the extension.=20 Peter Cartwright, president and chief executive of San Jose-based Calpine,= =20 also said Gonzales' support was important.=20 "We didn't want a situation where the Energy Commission overruled the city,= "=20 Cartwright said. "We have to live here."=20 Construction on the natural gas-fueled plant could begin this summer, meani= ng=20 it could start generating enough electricity for 450,000 homes in 2003.=20 The Metcalf plant would be built in the Coyote Valley, one of the city's la= st=20 remaining chunks of open space. The plant has been opposed by Internet=20 equipment maker Cisco Systems Inc., which plans to build a $1.3 billion=20 office complex nearby. A Cisco spokesman did not return a call for comment= =20 Wednesday.=20 Members of the Santa Teresa Citizen Action Group, based in a neighborhood= =20 near the proposed plant, said the mayor failed to win any significant=20 environmental concessions on the Metcalf plant. The group's president,=20 Elizabeth Cord, said she will go to court to block the plant if necessary.= =20 Panel OKs weakened utility district bill=20 By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 May 30, 2001=20 SACRAMENTO -- A watered-down bill originally intended to create a San Diego= =20 County municipal utility district was approved by an Assembly committee=20 yesterday after San Diego Gas & Electric dropped its opposition.=20 The committee rejected a bill last week authorizing the creation of a new= =20 municipal utility district. The new version of the bill simply expresses th= e=20 "intent" that the county, cities and special districts cooperate to obtain = a=20 stable source of low-priced power.=20 The author, Assemblyman Mark Wyland, R-Escondido, pledged to bring the bill= =20 back to the committee for final approval after attempting to negotiate=20 agreements in the Senate on the operation, governing and public approval of= a=20 proposed new agency.=20 "What we are really asking for today is to let this proceed out of this=20 committee, because we do need to address many, many, many of the issues tha= t=20 were raised and then have the bill come back to this committee for its fina= l=20 working," Wyland told the committee.=20 Wyland said he hopes to negotiate a bill that would allow the new agency to= =20 obtain cheap long-term power contracts, possibly by forming groups of=20 customers that could purchase power directly from generators or marketers.= =20 He said the agency might also generate some power through San Diego County= =20 Water Authority hydroelectric facilities or by purchasing the South Bay pla= nt=20 in Chula Vista, which is owned by the San Diego Unified Port District and= =20 operated by Duke Energy under a lease.=20 One thing the new agency would not be doing is using the public power of=20 "eminent domain" to force SDG&E to sell any of its property. An SDG&E=20 lobbyist said the utility dropped its opposition after it was made clear th= at=20 the proposed new agency would not have the power of eminent domain.=20 Wyland said he thought the original version of the bill was rejected by the= =20 committee partly because SDG&E "felt burdened" and partly because committee= =20 members thought it might influence attempts to create municipal utility=20 districts in other areas of the state.=20 Advocates of municipal utility districts say they have historically provide= d=20 cheaper power than investor-owned utilities. The Los Angeles Department of= =20 Water and Power has continued to provide low-cost power to its customers=20 during the current electricity crisis.=20 A proposal to create a new municipal utility district may appear on the=20 ballot in San Francisco this fall. Backers of the San Diego proposal=20 initially wanted to create a new district without a vote of the people,=20 hoping to quickly get cheaper power.=20 Now legislators have made it clear that a vote of the people will be=20 required. But there is a dispute over whether approval should require a=20 majority vote or a two-thirds vote, as urged by some Republicans who think= =20 the proposed new agency might be able to raise taxes.=20 Wyland said that even if the legislation is approved this year, getting a= =20 detailed proposal ready for the ballot next March may be difficult. Some=20 groups in Escondido and San Marcos have been talking about creating municip= al=20 utility districts in those cities.=20 Jim Madaffer, a San Diego city councilman, told the committee that he=20 believed the bill could allow streamlining and efficiencies and other steps= =20 that SDG&E might find beneficial.=20 "It's on that premise that I am here today," Madaffer said, "and I believe= =20 also that SDG&E is now allowing it to move forward."=20 Madaffer was corrected by the committee chairman, Rod Wright, D-Los Angeles= ,=20 who said the committee decides whether bills pass. Madaffer quickly agreed,= =20 saying he meant to say that SDG&E had dropped its opposition.=20 Wright, who opposed the original version of the bill last week, joined in t= he=20 13-to-0 vote for the new measure.=20 "You have a lot of work yet to do," Wright told Wyland.=20 The committee also approved a bill by Assemblyman Jay La Suer, R-La Mesa,= =20 that would require the SDG&E "balancing account" debt to be paid off by=20 ratepayers over a five-year period.=20 Legislation capped SDG&E rates last September at a level far below the=20 wholesale cost of power, producing a debt of more than $600 million by last= =20 month, a sum known as the balancing account.=20 An aide said La Suer wants to protect ratepayers from a large "balloon=20 payment" due in a short period. The Utility Consumers' Action Network of Sa= n=20 Diego opposed the bill, arguing that the debt might be lowered by=20 negotiations or regulatory action.=20 The aide said the bill does not specify the amount of the debt and that La= =20 Suer is willing to discuss the issue with the consumer group.=20 Davis fails to sway Bush on price caps=20 Meeting cordial, but president remains opposed to controls By John Marelius=20 UNION-TRIBUNE STAFF WRITER=20 May 30, 2001=20 LOS ANGELES -- After a weeklong buildup worthy of international summitry,= =20 President Bush and Gov. Gray Davis met yesterday to discuss California's=20 electricity crisis, leaving unresolved their fundamental disagreement over= =20 the merits of imposing federal price controls to curb soaring utility rates= .=20 While the meeting between two political rivals was steeped in cordiality, i= t=20 ended with Davis proclaiming he intended to sue the federal government if i= t=20 didn't deliver price relief to California electricity consumers.=20 "I am going to pursue every recourse available to me," Davis told reporters= =20 after the 35-minute meeting. "We will file a lawsuit against the Federal=20 Energy Regulatory Commission for failing to discharge its legal obligation.= "=20 While Bush refused to budge on wholesale electricity price caps, Davis said= =20 he was pleased by one Bush action. The president designated Pat Wood III,= =20 Bush's first appointee to the FERC, to act as a personal emissary between t= he=20 governor and the regulatory commission's investigation into allegations of= =20 market manipulation by Texas natural gas distributors who charge California= =20 three times what they charge New York.=20 More than four months into his presidency, Bush yesterday made his first=20 public appearances in California as president of the United States.=20 The president met with Marines and their families at Camp Pendleton in the= =20 early morning, then traveled to Los Angeles, where he delivered a speech on= =20 energy and economic policy to the Los Angeles World Affairs Council.=20 Summing up his approach to unpredictable electricity prices and supplies, t= he=20 president said:=20 "My administration will continue to work to help California through the=20 difficult months ahead. All our efforts are guided by a simple test: Will a= ny=20 action increase supply at fair and reasonable prices? Will it decrease dema= nd=20 in equitable ways? Anything that meets that test will alleviate the=20 shortages, and we will move swiftly to adopt it. Anything that fails that= =20 test will make the shortage worse."=20 The president outlined his opposition to electricity price controls -- a=20 stance Democrats have exploited to portray the Bush administration as a=20 lackey for profiteering energy companies.=20 "We will not take any action that makes California's problems worse. And=20 that's why I oppose price caps," he said. "At first blush, for those=20 struggling to pay high energy bills, price caps may sound appealing. But=20 their result will ultimately be more serious shortages and therefore even= =20 higher prices."=20 An long-distance war of words between Democrat Davis and Republican=20 administration officials, particularly Vice President Dick Cheney, has=20 escalated in recent weeks over energy policy.=20 With Davis two seats away on the World Affairs Council dais, Bush pointedly= =20 called for an end to the acrimony.=20 "For too long, too often, too many have wasted energy pointing fingers and= =20 laying blame," the president said. "Energy is a problem that requires actio= n=20 -- not politics, not excuses, but action. Blame shifting is not action; it = is=20 a distraction."=20 Leading up to yesterday's meeting was a week of posturing by spokesmen for= =20 the two leaders on seemingly every detail, including who invited whom to th= e=20 meeting in the first place.=20 But when the two met -- Bush and Davis are casual acquaintances from their= =20 briefly overlapping tenures as governors -- the session was, by all account= s,=20 as devoid of rancor as it apparently was of productivity.=20 "The meeting was cordial, informational, businesslike," Davis said.=20 As Davis told it, he even deployed the only remaining weapon in his=20 gubernatorial arsenal -- the threat of a lawsuit -- delicately.=20 "I said, 'Mr. President, you understand I have to do everything in my power= =20 to seek relief for the people of this state. You would do the same thing if= =20 you were in my position,' and he agreed," Davis said.=20 Karl Rove, Bush's hard-nosed chief political adviser, also characterized th= e=20 meeting in amiable terms.=20 "They did agree on one thing: that California is entitled to price relief,"= =20 Rove told reporters. Of course, he went on, the president's prescription fo= r=20 price relief lies in conservation and development of new energy sources, no= t=20 price controls.=20 "When the cap was lowered by the administration in California, 3,000=20 megawatts of power disappeared from California (to be sold elsewhere)," Rov= e=20 said.=20 For his part, Davis contended the Bush administration's free-market economi= c=20 arguments against price caps are beside the point. He maintained federal la= w=20 compels the FERC to guarantee reasonable wholesale electricity prices and= =20 stabilize wildly fluctuating markets.=20 Lawsuits by states against the federal government have little history of=20 success. Indeed, a lawsuit against the FERC by Assembly Speaker Bob=20 Hertzberg, D-Van Nuys, was thrown out by the 9th U.S. Circuit Court of=20 Appeals yesterday just as Davis was threatening another one.=20 Davis said the court rejected Hertzberg's suit because it failed to allow= =20 administrative remedies to be exhausted. The governor said he filed a numbe= r=20 of motions with FERC seeking rate relief last Friday and would wait 30 days= =20 or so for those to run their administrative course before proceeding with= =20 legal action.=20 Davis said the total electricity bill in California went from $7 billion in= =20 1999 to a projected $50 billion this year. He said he reminded the presiden= t=20 of the potential political disaster facing both of them if the electricity= =20 situation is not brought under control.=20 "I did tell him that if we have to pay $50 billion for power, it could well= =20 trigger a recession in California, which could drag down the American econo= my=20 into a recession as well," he said.=20 Bush was greeted at both stops yesterday by protesters denouncing his energ= y=20 and environmental policies. Three women -- one of them former Green Party= =20 U.S. Senate candidate Medea Benjamin -- tried to disrupt Bush's World Affai= rs=20 Council speech and were removed from the ballroom.=20 Earlier in the day, Davis held a session where several San Diegans told how= =20 they were affected by soaring electricity costs: YMCA director Michael=20 Brunker, Gabriel and Christine Rodriguez of Chiquita's Mexican Restaurant,= =20 and Cybele Thompson, president of the San Diego Building Owners and Manager= s=20 Association.=20 "It may not be as obvious as an earthquake," said Brunker of the Jackie=20 Robinson Family YMCA. "But it's hit us in such a way that it's really=20 crippling a lot of people."=20 Staff writer Ed Mendel contributed to this report.=20 Head of FERC confident California suit will fail=20 By Toby Eckert COPLEY NEWS SERVICE=20 May 30, 2001=20 WASHINGTON =01) The head of the Federal Energy Regulatory Commission said= =20 Wednesday he is confident the agency would prevail in a legal battle with= =20 California Gov. Gray Davis over electricity price controls.=20 "I feel good about our chances," FERC Chairman Curtis Hebert said, citing a= =20 federal court's decision Tuesday to dismiss a similar suit filed by=20 California legislative leaders.=20 Davis has threatened to sue the FERC for allegedly failing to meet its lega= l=20 obligation to ensure that wholesale power costs are "just and reasonable."= =20 Such a move would be the latest escalation in Davis' running battle with FE= RC=20 over its response to California's power crisis.=20 "I think the 9th Circuit (federal appeals court) made very clear that the= =20 commission is doing its job appropriately," Hebert told reporters.=20 A three-judge panel of the San Francisco-based court rejected a lawsuit by= =20 California Senate President Pro Tempore John Burton and Assembly Speaker=20 Robert Hertzberg that sought to force FERC to impose wholesale price=20 controls. The court said the lawmakers "have not demonstrated that this cas= e=20 warrants the intervention of this court."=20 Davis says that his administration has laid a firmer legal foundation for a= =20 suit by first pursuing administrative remedies at FERC. Several state=20 agencies made a flurry of filings with the commission last week, asking it = to=20 crack down on wholesale prices that have increased ten-fold over the past= =20 year.=20 "The (legislative leaders') lawsuit was thrown out ... because there wasn't= a=20 preliminary filing with FERC asking for the relief that the plaintiffs went= =20 into court to seek," Davis said Tuesday. "We have made such filings as=20 recently as Friday. ... So we have to give them some time to review that=20 information."=20 But legal experts said the state may have a tough time building a successfu= l=20 case against FERC.=20 Federal statutes generally "give a great deal of discretion to agencies in= =20 carrying out their duties," said Peter Shuck, an expert in regulatory polic= y=20 at Yale Law School. "So it would very hard for the state to prevail."=20 Hebert and fellow Commissioner Linda Breathitt have rejected the firm price= =20 controls sought by Davis, overruling Commissioner William Massey, who favor= s=20 them.=20 Hebert insists the commission has taken steps to lower wholesale power pric= es=20 in California and punish price gouging. He cites $125 million in refunds=20 recently ordered by the agency and a "price mitigation" plan that went into= =20 effect Tuesday.=20 The plan will use a complicated formula to set a price ceiling for power=20 sales during severe shortage periods. Generators breaching the limit will= =20 have to justify their prices to FERC or pay refunds.=20 Davis and other critics say the plan is riddled with loopholes and will bri= ng=20 little relief to the state. They also say the refunds ordered by FERC to da= te=20 fall far short of the billions of dollars in overcharges the state has=20 endured.=20 Meanwhile, a spokesman for the California Independent System Operator, whic= h=20 controls most of California's power grid, said the agency intends to meet a= =20 Friday deadline for filing comments with FERC on joining a regional grid=20 management organization. FERC has threatened to revoke the limited price=20 curbs if the ISO fails to present a plan for joining the organization.=20 California's three investor-owned utilities =01) Southern California Edison= , San=20 Diego Gas & Electric and Pacific Gas & Electric =01) plan to make similar= =20 filings.=20 Grid managers call Stage 2 alert, but hope to avoid blackouts=20 ASSOCIATED PRESS=20 May 30, 2001=20 SACRAMENTO =01) Managers of the state's power grid called a Stage 2 alert= =20 Wednesday and asked customers to conserve power as temperatures climbed.=20 The Independent System Operator said it did not expect blackouts, although= =20 spokeswoman Stephanie McCorkle said electricity supplies were "obviously ve= ry=20 tight."=20 Higher temperatures statewide were driving up electricity use about 1,200= =20 megawatts over Tuesday, she said.=20 Power plants off-line for repairs and increased power usage caused the=20 state's electricity reserves to dip below 5 percent, prompting officials to= =20 declare a Stage 2. A Stage 3 alert is called when reserves are in danger of= =20 falling below 1.5 percent and can be followed by rolling blackouts.=20 FERC Chief Unfazed By Threat of Third Lawsuit=20 By RICARDO ALONSO-ZALDIVAR and JUDY PASTERNAK, Times Staff Writers=20 ?????WASHINGTON--The beleaguered chairman of the Federal Energy Regulatory= =20 Commission said Wednesday that he was not fazed by California Gov. Gray=20 Davis' threat to sue the agency for failing to cap wholesale electricity=20 rates. ?????California officials have gone to the federal courts twice before to= =20 force FERC to impose price caps, Curt Hebert told reporters. And the U.S. 9= th=20 Circuit Court of Appeals in San Francisco has twice rejected the suits. ?????Davis, observing that FERC has a legal obligation to ensure that=20 wholesale electricity rates are "just and reasonable," threatened to go to= =20 court again after he failed in a meeting Tuesday to persuade President Bush= =20 to support caps on wholesale electricity prices. ?????"They've sued us two times and they have been [dismissed] two times,"= =20 Hebert said. "I feel very good about it." ?????Responding to reporters' questions, Hebert also appeared to be unaware= =20 of media reports that President Bush had asked a rival for his chairmanship= ,=20 Patrick Wood III, to play a special role in dealing with California's=20 problems. ?????Wood, a Bush confidant who until now had been chairman of the Texas=20 Public Utility Commission, was confirmed by the Senate as a FERC commission= er=20 last week and is widely expected to be named to Hebert's job. The president= =20 can designate any FERC commissioner as chairman without further action by t= he=20 Senate. ?????White House officials said during Bush's visit to Los Angeles on Tuesd= ay=20 that Wood would follow up on concerns raised in the president's meeting wit= h=20 Davis. ?????Wood said in an interview that he talked briefly with Davis three week= s=20 ago and more recently with California PUC President Loretta Lynch. He said= =20 his charge is vague: to review the entire situation. ?????"I'm looking at short-term things and long-term things," he said, noti= ng=20 that he had heard from lawmakers "on both sides of the aisle" complaining= =20 that FERC had not gone far enough. ?????Wood, who advocates a more activist role for FERC, said he wants to=20 monitor how the agency's efforts to limit price spikes in California are=20 working and that he might push for changes. Unlike Hebert, he said the=20 agency's standard for deciding whether a company has market power--enough= =20 influence to sway prices--needs to be reconsidered. He said he is also open= =20 to increasing the amount of rebates ordered to utilities for January. ?????And he said he thought FERC should also take another look at the desig= n=20 of California's deregulated market. "Your work never stops," Wood said. "Yo= u=20 never get there and say, 'We're done.' " ?????California, he added, "is salvageable," though he said blackouts are= =20 inevitable this summer. ?????FERC itself has acknowledged that California is paying unfair prices f= or=20 electricity, particularly during power shortages. But instead of imposing= =20 price caps, the agency has instituted a complex system to monitor the marke= t=20 and seek refunds from power sellers that overcharge during emergencies. ?????A majority of FERC's governing board believes that price caps would=20 deter investors from building new power plants in California, thereby=20 complicating efforts to increase energy supplies. Price caps "would destroy= =20 what is left of California," Hebert said Wednesday. ?????State officials disagree. ?????With California paying as much as $1,900 per megawatt hour to avert=20 blackouts earlier this month--five times the current market price--state=20 officials argue that FERC's approach is no deterrent and that the agency ha= s=20 a legal obligation to impose price caps. ?????Davis and others contend that temporary controls would bring order to= =20 the power markets and prevent further damage to California's economy. They= =20 point out that the energy industry operated efficiently under government-se= t=20 rates until the recent onset of deregulation.=20 ?????But the courts have held that FERC has wide latitude in fulfilling its= =20 obligations under federal law. ?????In an April 11 decision denying a petition for relief by the city of S= an=20 Diego, a 9th Circuit panel ruled that the same law that gives FERC authorit= y=20 to impose price caps also allows it to pursue alternatives. ?????On Tuesday, the same court dismissed a petition from state Senate lead= er=20 John Burton, citing its earlier decision in the San Diego case. Copyright 2001 Los Angeles Times=20 The Home Energy Drain=20 How Appliances Draw Electricity, Even When Off=20 By DAVE WILSON, Times Staff Writer=20 ?????When devices such as stereos are turned off, we think of them as dead.= =20 But it turns out they're only mostly dead. And mostly dead is a little bit= =20 alive. Graphic: Standby power consumption of common appliances.=20 ?????For instance, have you ever wondered how a television set can understa= nd=20 the "power on" command from the remote control if the TV isn't using any=20 power at all? The fact is nearly all television sets--in fact, most home=20 appliances--use power as long as they're plugged in to a live electrical=20 outlet, if only to receive and interpret remote control signals or keep the= =20 little clock running. ?????All those little trickles of electricity can add up to a steady stream= =20 of juice that users end up paying for--power that's being drained from a=20 system that can't meet the state's needs as California enters a summer of= =20 rolling blackouts and rising power bills. Plus, the delicate electronic=20 circuitry that makes our favorite gizmos work can be damaged when the power= =20 flow abruptly stops and starts. ?????Researchers refer to this sort-of-off-but-sort-of-on condition as=20 "standby power" and say the drain on the electrical supply is=20 significant--and continuing to rise. ?????"When you add up all these things like TVs and VCRs, it looks like=20 standby use in California is almost 10% of the residential use of=20 electricity," said Alan Meier, staff scientist at the Berkeley Laboratory a= nd=20 an internationally recognized expert on the phenomenon of standby power dra= in. Shopping for a Surge Supressor Fluctuating power levels can cause damage under certain conditions to devic= es=20 that draw power all the time. One tactic to prevent damage is using a surge= =20 supressor. =01=07 When shopping for a surge suppressor, the key number is the maximum = level=20 of electricity that will be let through in case of a surge. This number is= =20 referred to as, depending on the marketing guys behind the product, "clampi= ng=20 voltage," "let-through voltage" or "voltage rating." The lower the number,= =20 the better. =01=07 Right now, the best rating you can get is a surge suppressor carryin= g the=20 UL inspection seal certifying that it's met the 1449 standard and a clampin= g=20 voltage rating of 330 volts. =01=07Also, look for suppressors with a 1-nanosecond response time or less;= =20 cheaper suppressors take longer to respond to a spike, which can be too lat= e=20 to protect your components. -- DAVE WILSON ?????The cost of this drain probably isn't especially onerous to most=20 consumers. Leaving your answering machine plugged in all the time, for=20 instance, will cost you about 37 cents a month, assuming you're paying abou= t=20 17 cents a kilowatt-hour. ?????The total cost of standby power probably is in the neighborhood of $10= 0=20 a year per household at current rates, though that figure will rise as=20 electricity becomes more expensive. Though that's not a vast sum to many=20 people, reducing electricity usage is critical to maintaining a steady powe= r=20 supply in California. ?????The difference between a Stage 2 power emergency and Stage 3--the poin= t=20 at which rolling blackouts kick in--is only 3.5% of total reserve electrica= l=20 capacity. So cutting back on that leaking 10% in homes can make the=20 difference. ?????Not all the standby power is wasted. An answering machine is pretty=20 useless if it doesn't have access to power all the time since part of the= =20 device's job is to be primed to pick up the phone if it should ring. It's= =20 those other devices, such as the microwave oven clock that pulls power even= =20 though nothing's being cooked, that are the problem. All devices that use= =20 standby power could be designed to use as little electricity as possible. ?????Standby power drain is getting worse as more of the items we have in o= ur=20 homes move from mechanical switches and timers to electronic controls. The= =20 typical household today uses 7,000 kilowatt-hours of power each year. ?????Overall, residential consumption of power has risen 17.6%, from 68,000= =20 gigawatt-hours in 1990 to an estimated 80,000 gigawatt-hours, according to= =20 the California Energy Commission. Even when adjusted for population growth,= =20 Californians use more power than they did 10 years ago--despite the fact th= at=20 household appliances got more energy efficient. ?????One reason: We've got a lot more energy-gobbling devices in our homes.= =20 For instance, Fred Johnson, who works in Silicon Valley's high-tech industr= y,=20 has three TVs, each with a DVD player. He's also got two TiVo digital=20 recorder boxes, four computers and two stereo systems. ?????"Fortunately, it's not all on simultaneously," he said. ?????Another reason for the increase in power draw is a simultaneous increa= se=20 in the number of devices that are always on. For instance, older microwave= =20 ovens used a mechanical timer, which means the device didn't draw power=20 unless the oven was actually heating something up. Newer ovens use electron= ic=20 touch pads and digital clocks, both of which require a steady stream of=20 power. Part of the reason for the shift was interest in reliability;=20 mechanical switches wear out or need maintenance, whereas electronic contro= ls=20 are generally service free. ?????Those digital controls are showing up in things such as stoves,=20 dishwashers, washers and dryers, which means these devices also leak=20 electricity even when they're not actually working. ?????Some devices are so badly designed that they generally use as much=20 electricity when they're theoretically off as when they're on, Meier said.= =20 "The set-top boxes for cable and satellite television broadcasts are good= =20 examples," he said. Manufacturers aren't under any pressure to improve the= =20 design of electronic components in the home because there's no financial=20 incentive for them to do so. ?????Consumers wind up paying the price. ?????"We think there are typically 20 devices in a home that are consuming= =20 standby power," Meier said. "In the average home in California, standby pow= er=20 is somewhere around 500 kilowatt-hours a year. And some users are paying 20= =20 cents a kilowatt. So that's about $100 a year for appliances that aren't=20 actually doing what you bought them for."=20 ?????That hundred bucks during the course of a year might seem a pretty sma= ll=20 price to pay for the ability to change the music coming out of the CD playe= r=20 without having to lever yourself off the couch. ?????But even if it does bother you, there's not a lot you can do, short of= =20 unplugging devices when they're not in use. Sometimes unplugging a device= =20 isn't practical, though, because many components will lose information stor= ed=20 in them if the power goes out. Your radio might forget its presets, your VC= R=20 will lose the time and some TVs will have to be reprogrammed with the local= =20 television stations available. ?????On a fundamental level, this is an issu= e=20 that has to be addressed by electronics manufacturers, who, until now,=20 largely ignored the issue. Meier has been leading a fight during the last= =20 couple of years to get manufacturers to build devices that use standby powe= r=20 more efficiently, to keep that functionality but make better use of=20 electricity. ?????"Some of these devices draw 15 or 20 watts," Meier said. New designs c= an=20 reduce that flow to 1 watt, but few manufacturers have shown enthusiasm for= =20 the goal. That might change as governments put pressure on manufacturers.= =20 Australia, for one, recently endorsed the goal of 1-watt standby drain for= =20 all appliances.=20 ?????In addition, there is some concern that, under certain conditions,=20 devices that draw power all the time could be slightly more vulnerable to= =20 damage caused by fluctuations in the power supply than devices that are=20 completely powered down. ?????If that's true, it makes such things as surge suppressors and=20 uninterruptible power supplies even more important to consumers at a time= =20 when rolling blackouts are expected to become a regular occurrence. ?????Surge suppressors are designed to choke off a spike of electricity=20 before it can reach your valuable components and damage them. Typically, a= =20 lightning strike a mile or so away can flow down electric, telephone or cab= le=20 television wires and fry any component connected to the line, such as a hom= e=20 computer. The surge suppressor intercepts that overload. ?????These surges can occur in many different situations, such as apartment= =20 buildings where large motors--for instance, those used in air conditioners= =20 and elevators--routinely go on and off. ?????"Any time the power goes off and goes back on again, that's a tremendo= us=20 hit on the electrical system, and that can cause surges," said John=20 Drengenberg, an electrical engineer who's manager of global consumer affair= s=20 for Underwriters Laboratories, the nonprofit testing organization. "I think= =20 maybe right now in California, in particular, installing transient voltage= =20 surge suppressors would be a good idea." ?????Surge suppressors don't help at all with a brownout, which is an=20 insufficient flow of electricity through the wires. ?????Brownouts are most often caused by things such as a squirrel shorting= =20 out a line and can be identified by suddenly dimmed lights. Low voltage can= =20 seriously damage appliances that use motors--such as refrigerators and air= =20 conditioners--so if the lights go dim and stay dim, unplug such appliances= =20 until the power company makes repairs. ?????Items that use electricity to create heat or produce light will contin= ue=20 to function with little chance of damage; they just won't get as hot or be = as=20 bright. ?????Some devices, such as computers, will get trashed by low power or sudd= en=20 loss of power, especially if the power fluctuates while the system is writi= ng=20 data to the hard drive. Computers should be turned off using the standard= =20 shutdown procedure for their particular make and model to avoid corruption = of=20 the operating system, which can create lots of headaches for users. ?????To avoid that, consider an uninterruptible power supply, basically jus= t=20 a system of rechargeable batteries that's always plugged in to the electric= al=20 outlet. Plug the components into the UPS, and if the voltage on the line=20 drops or disappears, the juice flows from the batteries to the device. ?????Many of these systems also come with surge suppressors built in as wel= l,=20 protecting equipment from both too much and too little electricity. A=20 high-end consumer UPS costs less than $200. ?????Most of these systems are designed to safely power down a computer in= =20 the event of a power outage. They won't provide enough juice for more than = a=20 few minutes on a standard desktop computer. ?????And of course, the debate about whether some conservation efforts have= =20 diminishing returns continues. Turning off your computer reduces electricit= y=20 consumption, but repeatedly turning the computer off and on can stress the= =20 electronic circuitry, which could cause it to fail sooner. ?????Devices that are pulling down considerably less electricity might eke= =20 out an hour or two on a UPS. If you find yourself growing increasingly=20 annoyed at having to reset the clock on the VCR or microwave, a=20 consumer-level UPS might provide enough stored power to get you through a= =20 blackout that lasts an hour or two. ?????Don't plan on watching TV or making popcorn. We're talking strictly=20 about keeping the clock on line, although most people probably won't be=20 interested. "Spending $150 because you don't want to set the clock on the V= CR=20 probably won't be very appealing to many people," said James Little, a=20 spokesman for Belkins Components, which makes such devices. ?????And there's no such thing as a free lunch. UPS systems are also a drai= n=20 on power. It costs money to keep the batteries charged in preparation for t= he=20 blackout. So don't look to a UPS as a solution to conservation. ?????What you can do is plug components that can safely be completely shut= =20 down into a surge suppressor and kill the power to that surge suppressor wh= en=20 you're not using them. ?????For instance, think about running all the power cords for every=20 component that makes up your stereo system--amplifier, CD player, DVD=20 player--into a single power strip equipped with a surge suppressor. Most=20 surge suppressors have a kill switch, a button that will cut off all power = to=20 the devices plugged into it. ?????Hit the switch and make those components more than mostly dead. * * * ?????Dave Wilson is The Times' personal technology columnist. Copyright 2001 Los Angeles Times=20 Heat's on, but so are lights=20 100-degree temperatures aren't widespread, sparing the grid=20 Matthew B. Stannard, Carolyn Said, Chronicle Staff Writers Thursday, May 31, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/31/MN206011= .DTL=20 Thermometers reached triple digit records around the Bay Area yesterday,=20 feeding several fires and challenging, but not quite breaking, the state's= =20 power grid.=20 The sweltering heat was caused by a huge dome of hot air that blocked the s= ea=20 breezes that normally keep the Bay Area comparatively cool this time of yea= r.=20 National Weather Service forecasters said the high pressure system, centere= d=20 over Nevada, should head east today and allow temperatures to return to=20 somewhere near normal by tomorrow.=20 The short duration and highly localized nature of the heat wave --=20 concentrated mainly in Central and Northern California -- kept it from addi= ng=20 much to the state's energy woes, said Stephanie McCorkle, a spokeswoman for= =20 the Independent System Operator, which oversees the state's power grid.=20 "Those are the kinds of heat waves that we like: the type that are isolated= =20 to one area."=20 Yesterday presented California's grid operators with a better scenario than= =20 two weeks ago, when more-pervasive hot weather and numerous plant service= =20 interruptions set off two days of rolling blackouts.=20 While no rolling blackouts were ordered, the ISO declared a Stage 2 energy= =20 alert at 2 p.m., asking customers to conserve power as temperatures climbed= =20 and the state's energy reserves dipped below 5 percent.=20 Aiding yesterday's situation was the availability of more power plants in= =20 service than during the May 7 and May 8 blackouts. About 14,400 megawatts o= f=20 power generation -- one-third of the state's capacity -- were offline for= =20 repairs and other reasons on May 7 and 8, while yesterday the figure was 10= ,=20 700 megawatts out of service.=20 Meanwhile, downtown San Francisco melted as the thermometer hit 101 degrees= ,=20 higher than any day in May since at least 1914. Not quite the city's all-ti= me=20 high of 103, but close enough to drive some people out of the city=20 altogether.=20 FLEEING HOT S.F. Sonafman Allah, 22, drove to Lake Temescal in Oakland with his friends Nabi= la=20 Suleiman, 20, and her sister, Saida, 19.=20 "It's a quick little getaway from San Francisco," Allah said, relaxing on a= =20 blanket spread under the shade of a tree.=20 But Oakland was pretty hot, too. Temperatures at the airport hit 94, the=20 hottest May 30 since 1978. May 30 records were also shattered in San Jose,= =20 where the mercury hit 100; San Rafael, which saw 99; Santa Cruz, where=20 surfers sweltered in 92 degree heat.=20 Redwood City, at a record 101, was hot enough to make John Handley loath to= =20 leave his nicely air-conditioned Office Depot delivery truck.=20 "I stay in there as long as I can," Handley said, hustling a cart of office= =20 supplies across the steaming concrete into San Mateo County's Hall of=20 Justice.=20 FIREFIGHTERS HAMPERED Elsewhere in the state, the heat and low humidity hampered thousands of=20 firefighters.=20 An early morning fire near the Sonoma-Napa county line quickly built to a= =20 100-plus acre blaze and was battled by 30 engines, five bulldozers, and 11= =20 hand crews from state and local fire stations. Fire officials are still=20 investigating the cause.=20 The fire, near Kellogg, had imperiled some homes in the early part of the= =20 day, but the threat abated by 12:30 p.m., according to Mike Parkes of the= =20 California Department of Forestry. It was fully contained last night.=20 Nearly 250 miles away, near Susanville, more than 1,900 firefighters were o= n=20 the scene of a 4,346 acre fire yesterday, and officials said they hoped the= =20 blaze, fed by heat and strong winds, would be contained by 6 p.m. today.=20 Investigators believe that the fire was caused by target shooting near=20 Williams Creek and have cited a man they identified as William Bushey for= =20 allegedly sparking the blaze. The cost of suppressing the fire so far has= =20 been $3.1 million, and $2.5 million in timber has been lost, fire officials= =20 estimate.=20 SUISUN CITY BLAZE And late yesterday, the Solano County Sheriff's Department reported a 75-= =20 acre fire burning out of control near Suisun City. It was being battled by= =20 volunteers and its cause is under investigation.=20 The good news, forecasters said last night, is that the heat spell should= =20 prove short-lived: temperatures in San Francisco should collapse back into= =20 the 80s today, and inland cities should see relief by tomorrow.=20 Chronicle staff writers Suzanne Herel, Pamela J. Podger and Pia Sarkar=20 contributed to this report. / E-mail the writers at mstannard@sfchronicle.c= om=20 and csaid@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Municipal utilities warned=20 Governor says he'll seize excess electricity if prices don't come down=20 David Lazarus, Chronicle Staff Writer Thursday, May 31, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/31/MN154796= .DTL=20 Sacramento -- Gov. Gray Davis threatened last night to seize excess power= =20 generated by California's municipal utility districts, which he said have= =20 charged even higher electricity prices than out-of-state generators.=20 Davis said in an interview with The Chronicle that some municipal utility= =20 districts have charged the state as much as 10 percent more than the averag= e=20 wholesale cost demanded by private power companies.=20 The governor's tough talk came as California suffered through a Stage 2 pow= er=20 alert and faced the prospect of a long, hot summer of rolling blackouts and= =20 skyrocketing electricity prices. So far this year, the state has paid more= =20 than $8.2 billion to buy power for its cash-strapped utilities.=20 In a variation on his threat to seize power plants from out-of-state=20 generators if they continue gouging California ratepayers, the governor sai= d=20 he would use his executive powers to claim excess juice from the locally=20 owned utilities if they do not lower their prices.=20 He said he is ready to go to court if they offer resistance.=20 "We're going to get that power one way or another," Davis said.=20 Municipal utilities are city-owned power companies. In Northern California,= =20 there are municipal utilities in Alameda, Palo Alto, Redding, Sacramento an= d=20 Santa Clara. Los Angeles has the largest municipal utility in the state.=20 30 DAYS TILL CONTRACT DETAILS=20 For the first time, the governor also gave a time frame for releasing detai= ls=20 of more than 40 long-term electricity contracts California is signing with= =20 generators since the financial meltdown of the state's two biggest utilitie= s.=20 He said that after about six more contracts get nailed down, he expects ful= l=20 details to be made available within 30 days.=20 Although the contracts involve nearly $40 billion in public funds, Davis an= d=20 other state officials have adamantly refused to divulge their contents,=20 insisting that secrecy is needed to remain competitive during negotiations.= =20 The Chronicle and other media outlets have filed suit for access to the=20 contracts, arguing that the public has a right to know how its money is bei= ng=20 spent.=20 RUDE AWAKENING While going toe-to-toe with the out-of-state generators, the last thing Dav= is=20 needed was for municipal utilities -- the home team, as it were -- to emula= te=20 the Texas big boys and dig deep into California's pockets.=20 Yet the governor's negotiators have been struggling for weeks to convince= =20 municipals that they are obliged to provide power at cost -- which Davis=20 insisted they are required to do by law.=20 He met last week with the heads of a dozen municipal utilities and told the= m=20 explicitly that he would not tolerate gouging from within the state as=20 California faces a summer of potential blackouts.=20 The governor said after the meeting that the municipals had agreed "to make= =20 most of their excess power available this summer . . . at prices=20 significantly lower than those being charged on the spot market."=20 Apparently, however, little progress has been made since that declaration.= =20 Davis told The Chronicle last night that he is still "trying very hard to= =20 promote this notion that we're all in this together."=20 While unwilling to specify which municipal utilities have been most=20 aggressive in their pricing, and refusing to place a dollar amount on how= =20 much the utilities charged, Davis said he is prepared to seize up to 800=20 megawatts of output if the they do not change their ways.=20 Eight hundred megawatts is enough power to light about 800,000 homes.=20 Representatives of the various municipal utilities could not be reached for= =20 comment, nor could a spokesperson for the California Municipal Utilities=20 Association in Sacramento.=20 "I told them that they will either (reduce their prices) voluntarily or=20 involuntarily," the governor said.=20 UNCERTAIN FUTURE It remains to be seen, however, whether the municipal utilities will play= =20 ball. To date, they have shown a firm inclination to go their own way.=20 In March, Lodi's municipal utility district and a Northern California=20 municipal utility cooperative that includes Palo Alto, Santa Clara and=20 Alameda told Pacific Gas and Electric Co. that they will not participate in= =20 rolling blackouts during power shortages.=20 "I won't arbitrarily screw my customers . . . so 5,000 PG&E customers can= =20 turn on their lights somewhere else," said Alan Vallow, director of the=20 utility serving Lodi's 58,000 residents.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Regulators want state trade-off for caps=20 Davis asked to give up control of power lines=20 Bernadette Tansey, Chronicle Staff Writer Thursday, May 31, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/31/MN221412= .DTL=20 California's testy relationship with federal energy regulators could turn= =20 into a showdown tomorrow, when state power officials must decide whether to= =20 surrender some control over the state's electricity market or risk losing= =20 limited price curbs that kicked in this week.=20 In agreeing last month to set flexible caps to restrict price gouging durin= g=20 electricity shortages, the Federal Energy Regulatory Commission said the=20 state and its utilities must agree to let an independent organization manag= e=20 California's power transmission lines.=20 Under that setup, California would be one of a group of Western states=20 sharing a linked transmission grid whose rates and access rules would be se= t=20 by independent managers.=20 It is part of the commission's drive to create regional electricity markets= =20 throughout the country and make it easier to trade power across state lines= .=20 The regional grids would be a prelude to the nationwide free market in=20 electricity advocated by the Bush administration and power marketers like= =20 Enron.=20 But California Assembly Democrats who have challenged the federal demand sa= y=20 the requirement could interfere with some of the state's homegrown solution= s=20 to its energy crisis, such as Gov. Gray Davis' proposal that the state buy= =20 and run transmission lines owned by Southern California Edison Co.=20 "A lot of folks were wondering how those two things would interact and are= =20 they mutually exclusive," said Paul Hefner, an aide to Assembly Speaker=20 Robert Hertzberg, D-Sherman Oaks.=20 Other officials say the federal requirement is premature because no regiona= l=20 organization yet exists that California can join.=20 Mike Florio, a board member of the California Independent System Operator,= =20 which manages the state's power grid, said California is already part of=20 regional efforts to clear transmission bottlenecks and share surplus power.= =20 But Florio said no Western state will rush into a regional arrangement and= =20 surrender part of its authority without ensuring a good deal for its own=20 consumers.=20 "We certainly don't want to be forced into an entity where generators or=20 power marketers get to dictate the terms," Florio said. "This has got to be= a=20 long courtship rather than a shotgun wedding."=20 When federal regulators initiated the move toward regional transmission gri= ds=20 during the Clinton administration in 1999, participation was voluntary, sai= d=20 Gary Cohen, general counsel to the state Public Utilities Commission.=20 But in its April 26 order, the federal energy commission made its offer of= =20 limited price relief contingent on a filing by June 1 from the Independent= =20 System Operator committing the state to a regional management plan.=20 The PUC and the Assembly are challenging that requirement. If anything, Coh= en=20 said, the state needs to increase control over its energy system while it= =20 recovers from its disastrous debut into deregulation, rather than submit to= a=20 regional authority that would be overseen by the federal government.=20 "This doesn't seem to be the time to be doing more experimenting," Cohen=20 said. "We certainly have not been able to rely on FERC to look out for the= =20 interests of Californians."=20 WAITING FOR STATE'S RESPONSE Curt Hebert, chairman of the federal commission, declined to say yesterday= =20 whether the government would immediately yank the soft price caps that went= =20 into effect this week if it found the ISO response unsatisfactory.=20 "He said he didn't want to prejudge the case," said commission spokeswoman= =20 Tamara Young-Allen. "He will wait to see what California files."=20 PUC Commissioner Jeff Brown said he would be willing to give up some state= =20 control of the grid in exchange for meaningful price controls. But, he said= ,=20 the federal measures granted fell far short of what California needed.=20 "Hell, those caps are pretty toothless as they are," Brown said.=20 The price controls are in effect only during power shortages. The cap is th= e=20 price offered by the least-efficient generating plant. And generators can= =20 challenge any federal ruling that they have exceeded the caps, by claiming= =20 high costs.=20 The controls were in place for the first time yesterday, when the state=20 declared a Stage 2 power emergency, meaning reserves fell below 5 percent o= f=20 available capacity.=20 Florio said state power managers' answer to the federal government will=20 probably be that they are already doing within California much of what a=20 regional transmission organization would do.=20 ISO COULD PLAY A ROLE The ISO manages the grid to ensure that power gets to where it is needed in= =20 the state, the organization told federal regulators in January. The agency= =20 could represent California when a Western regional organization develops, i= t=20 said.=20 The governor declined to say yesterday what stand he would take on federal= =20 regulators' demand.=20 "I'm of a mind to do something, but I still have to talk to my lawyers,"=20 Davis said.=20 Assembly Democrats say regulators in Washington have no right to withhold= =20 actions to correct California's dysfunctional power market.=20 "They're required to . . . ensure that just and reasonable rates prevail in= =20 the market," Hefner said. "Why should we have to dicker to get them to do t= he=20 job Congress created them to do?"=20 E-mail Bernadette Tansey at btansey@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 NEWS=20 Plan would have biggest customers pay Edison's debt=20 Greg Lucas=20 Sacramento Bureau Chief=20 ? 05/31/2001=20 The San Francisco Chronicle=20 FINAL=20 A.5=20 (Copyright 2001)=20 ? ? Legislative leaders are drafting a new rescue plan for Southern California= =20 Edison that would put the utility back on its feet financially at the expen= se=20 of its biggest customers.=20 The plan would leave manufacturers, refineries and other big industrial=20 customers with the burden of paying nearly all the utility's $3.5 billion= =20 back debt through a dedicated charge. Residential and small commercial user= s=20 would be on the hook for only a fraction of the back debt.=20 ? Big users say it is unfair to saddle them with all of Edison's debt, but=20 supporters of the plan say it's these users that wanted deregulation and=20 should shoulder the costs it created.=20 "We're trying to put something together in a way that solves all these=20 problems, and if people are to be pigheaded about it, we won't solve any=20 problems," said Assemblyman Fred Keeley, D-Boulder Creek (Santa Cruz County= ).=20 Although the plan is an alternative to Gov. Gray Davis' proposed deal to pu= t=20 Edison back on its feet financially, it could be used as a model to help=20 restore Pacific Gas and Electric Co. to solvency.=20 Democrats say the plan contains some elements desired by Republicans, but G= OP=20 lawmakers object to saddling large business users with Edison's debt.=20 The plan is based on the way gas customers are divided into "core" and=20 "noncore" users.=20 SEPARATING 'CORE' USERS=20 Under this proposal, electrical users would be divided the same way. Core= =20 users would be customers who use 500 kilowatts or less a month. Noncore wou= ld=20 be those using more than 500 kilowatts.=20 Out of Edison's 4.2 million customers, only 3,600 would be noncore customer= s.=20 But those 3,600 customers use about 26 percent of Edison's demand for energ= y.=20 Core customers would get their power from generators owned by Edison,=20 long-term contracts and alternative energy producers, such as wind farms an= d=20 solar panels, on contract with the utility.=20 That would mean those customers would no longer be subject to the whims of= =20 the spot market, which has far higher prices than other sources of=20 electricity.=20 Large users, the noncore customers, would be given the right to negotiate t= o=20 buy their power directly from generators or build on- site power plants to= =20 make themselves energy self-sufficient.=20 The plan would be phased in through January 2003 to give large energy=20 customers time to prepare for buying power on the open market.=20 During that period, residential, small business and large industrial users= =20 would all share in paying off Edison's debt. But in 2003, that burden would= =20 shift exclusively to the big users.=20 Republican lawmakers and those same large users have been clamoring to be= =20 given what is called "direct access" to generators so they can negotiate=20 cheaper rates.=20 Enron is also backing the idea of cutting loose the largest electricity use= rs=20 because that would create a built-in market for the energy the company sell= s.=20 Large users who want to remain on the grid could do so.=20 EDISON 'ENCOURAGED'=20 Sources said Edison officials met with lawmakers over the weekend to iron o= ut=20 details of the plan.=20 A spokesman for Edison said he was "encouraged" by the talks.=20 "I haven't seen a finished product or a plan," said Bob Foster, a senior vi= ce=20 president with Edison. "They're approaching this in a spirit of goodwill an= d=20 trying to find a solution."=20 Big businesses complain that the plan does not work because right now, ther= e=20 is nowhere they can buy cheap electricity.=20 "We're very concerned that separating the core from the noncore means we wi= ll=20 experience extreme rate hikes over the next two years," said D.J. Smith, a= =20 lobbyist for the California Large Energy Consumers Association.=20 "When you add blackouts, the multiple interruptions of production and anoth= er=20 potentially huge rate hike, the result would be catastrophic to the economy= ,"=20 Smith said.=20 Added Dorothy Rothrock, a lobbyist for the California Manufacturers and=20 Technology Association: "What's the rationale for the noncore to be paying= =20 the entire Edison undercollection? It sounds to me like just pure politics.= =20 They don't want voters to pay because they vote."=20 CONSUMER ADVOCATE SMELLS A RAT=20 Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights,= =20 said he thought the plan would eventually turn into a bailout as business= =20 interests muscle lawmakers into pushing some portion of Edison's debt onto= =20 residential and smaller commercial customers.=20 "I think it's a trick. We've seen this same tactic used at the Public=20 Utilities Commission, where what were supposed to be rate increases for big= =20 business end up costing more for residential and small businesses,"=20 Rosenfield said.=20 The new plan also does not include the outright purchase of Edison's part o= f=20 the transmission system that loops electricity around the state.=20 Davis backs buying the lines for $2.7 billion. Democrats have insisted that= =20 for the state's financial help, taxpayers receive something of value.=20 Republicans have insisted that they will back no proposal that includes sta= te=20 purchase of transmission lines.=20 In the new proposal, the state would have a five-year option to buy the=20 transmission lines for $1.2 billion -- the book value of the asset.=20 In addition, the utility would make $1.5 billion available to the state to= =20 either purchase other assets -- such as Edison's hydroelectric facilities,= =20 for example -- or use it in partnership to build new power plants.=20 PHOTO; Caption: "If people are to be pigheaded about it, we won't solve any= =20 problems," said Assemblyman Fred Keeley.=20 =09=09 =09=09 =09=09 =09=09 San Jose mayor changes course, endorses power plant=20 Posted at 10:29 p.m. PDT Wednesday, May 30, 2001=20 MIKE=20 ZAPLER=20 Mercury News=20 After a year of staunch opposition to a major power plant in South San Jose= ,=20 Mayor Ron Gonzales reversed course Wednesday and endorsed the project,=20 removing the largest remaining barrier to construction and angering residen= ts=20 of a nearby neighborhood he had pledged to protect.=20 Speaking before news cameras and reporters in his City Hall office, Gonzale= s=20 said he had negotiated an agreement with Calpine that eased his concerns=20 about the Metcalf Energy Center project. The deal, he said, contains=20 provisions to help shield the Santa Teresa neighborhood from air pollution,= =20 gives local businesses the chance to negotiate below-market electricity rat= es=20 and provides a sure energy source for local residents.=20 ``We need power in San Jose and we believe this power plant is needed in Sa= n=20 Jose,'' Gonzales said. ``We've worked hard to make this plant better for th= e=20 neighborhoods and better for the city.''=20 But the city entered talks with Calpine about five weeks ago in a vastly=20 weakened position, and its chief negotiator, mayoral budget director Joe=20 Guerra, was unable to extract most of the concessions the city and=20 neighborhood had sought. Santa Teresa leader Elizabeth Cord called the=20 neighborhood protection provisions ``totally not substantive,'' and another= =20 opponent said a lawsuit is likely if the plant is ultimately approved.=20 ``The mayor's deal does nothing to reduce the impact on this neighborhood,'= '=20 Santa Teresa activist Issa Ajlouny said. ``It's the same project as it was= =20 two years ago except San Jose residents will be paying millions of dollars= =20 more.''=20 Shift by Cisco?=20 Cisco Systems, which is planning a 20,000-worker campus adjacent to the=20 proposed plant and has strenuously opposed it, appears to be softening its= =20 opposition. Kent Jenkins Jr., a spokesman for the company, said Wednesday= =20 that Cisco would still prefer not to have the plant, but that officials wer= e=20 pleased, at first glance, with the health and safety concessions Gonzales h= ad=20 negotiated. Asked whether Cisco might file a lawsuit, Jenkins said, ``We're= =20 not ruling anything in or out and by that, I don't want to imply we are=20 considering anything.''=20 He added that the agreement will have no bearing on the company's plans to= =20 build the campus. ``All along we were committed to pursuing Coyote Valley a= nd=20 that remains unchanged,'' he said.=20 With experts predicting a summer of rolling blackouts, and with the=20 California Energy Commission expected soon to override the city council's= =20 November rejection of the plant, Gonzales was under enormous pressure to=20 strike a deal. Polls taken by Calpine had shown overwhelming public support= =20 for the plant, another ominous sign for the mayor who is up for re-election= =20 next year.=20 While the city probably could not have blocked approval of the plant once i= t=20 got state approval, the mayor indicated as late as April?18 that the city= =20 might fight it in court. But that possibility vanished with Wednesday's=20 announcement, leaving a possible neighborhood-backed lawsuit as the only=20 potential threat.=20 ``This power plant is coming to San Jose. That's clear from the support it= =20 has gathered in Sacramento,'' Gonzales conceded, referring to Gov. Gray=20 Davis' endorsement in April. So rather than continue to fight an uphill=20 battle, Gonzales decided it was best to negotiate what he could.=20 At the news conference, Gonzales touted provisions in the deal that will=20 provide two additional air monitoring stations to ensure the plant complies= =20 with local air quality standards. The agreement also provides a three-month= =20 window, prior to the plant's opening, for San Jose businesses to negotiate= =20 long-term power contracts with the Metcalf plant at a ``below-market'' rate= ,=20 said Calpine chief executive officer Peter Cartwright.=20 City's concessions=20 But the city clearly got less than it wanted, which was at least partly the= =20 price of Gonzales' longtime resistance to the 600-megawatt plant:=20 ?One key negotiating point was how much Calpine would pay to extend a=20 recycled-water pipeline seven miles to the plant site. The city started by= =20 asking the company to pay at least $25 million of the roughly $50 million= =20 price tag. But, in a provision Gonzales touted as a victory, Calpine will p= ay=20 20 percent of the cost, or $10 million, and the city will pick up the=20 remaining $40 million. Calpine said the company is simply paying its fair= =20 share.=20 ?In an effort to protect neighborhoods from pollution, the city wanted=20 Metcalf to operate full time, since emissions are highest when a power plan= t=20 first fires up. The city tried to arrange a long-term contract with the sta= te=20 to buy power from Metcalf to keep it running constantly, but officials balk= ed=20 at such a commitment.=20 Calpine said it intends to keep the plant running constantly as long as=20 demand -- in the form of annual contracts with the state -- justifies it. I= f=20 demand is lacking, the company will lower the number of potential times the= =20 generator will start up by 25 percent, from 624 per year to 468 annually.= =20 That restriction would last five years, by which time the energy crisis in= =20 California is expected to be long over.=20 ?In the fall, Calpine offered $10 million in electricity discounts to help= =20 win the city's backing for Metcalf. Wednesday's agreement includes a $6.5= =20 million benefits package, including $5 million for parks and open space=20 acquisition in Santa Teresa; $1 million for energy conservation programs an= d=20 assistance to low-income people to help pay their energy bills; and $500,00= 0=20 to help provide health insurance to San Jose children.=20 ?Calpine has agreed to install new technologies that reduce or eliminate th= e=20 use of ammonia, which would be extremely hazardous if accidentally released= ,=20 as soon as those systems are deemed ``economically feasible'' and approved = by=20 state regulators. But because there is no standard in the agreement, the=20 burden would fall on the city to prove that a new technology was feasible. = If=20 the two sides disagreed, the decision would fall to a third-party arbitrato= r.=20 There is also a significant question of whether ammonia-free technology,=20 known as SCONOx, already is viable -- a position taken by the U.S.=20 Environmental Protection Agency.=20 Calpine's Cartwright, who appeared with Gonzales, said Wednesday that the= =20 company is committed to switching as soon as possible from liquid ammonia t= o=20 less hazardous solid ammonia.=20 The city council is scheduled to take up the agreement at its Tuesday=20 meeting. Although Gonzales persuaded the council to vote with him against t= he=20 controversial project last fall, most members are expected to go along with= =20 the mayor's switch. At a closed-door meeting on Tuesday, council members=20 Forrest Williams, who represents Santa Teresa, and Linda LeZotte aired=20 significant concerns with the pact's environmental provisions, but there wa= s=20 no other notable dissent, an attendee said.=20 The project would then go through the city planning process again this fall= .=20 Calpine hopes to begin construction this year and to have the plant up and= =20 running by summer 2003.=20 Contact Mike Zapler at mzapler@sjmercury.com or at (408) 275-0140.=20 State admits power-deal secrecy=20 Posted at 10:55 p.m. PDT Wednesday, May 30, 2001=20 BY JOHN WOOLFOLK=20 Mercury News=20 As state officials cut deals in recent months to spend millions of taxpayer= =20 dollars to purchase electricity, they signed agreements not to reveal the= =20 terms of those contracts to the public.=20 Even the state's chief energy czar admits the confidentiality clause=20 conflicts with the public's right to know how its money is spent, and that= =20 officials are trying to get around it. But the clause gives sellers veto=20 power over releasing information.=20 ``Our hope would be to release these contracts, but we can't release them, = at=20 least our lawyers tell us, without consent of the parties,'' said S. David= =20 Freeman, who acknowledged the agreements for the first time Wednesday.=20 Consumer advocates voiced outrage.=20 ``There's no such thing as a non-disclosure agreement with regards to=20 taxpayer money,'' said Doug Heller of the Foundation for Taxpayer and=20 Consumer Rights.=20 The administration's secret electricity spending has been a top concern amo= ng=20 lawmakers and public advocates since January, when the state stepped in to= =20 buy power for its troubled utilities at a cost that has reached more than $= 70=20 million a day.=20 Freeman said Wednesday that the state was so pressured to sign contracts to= =20 lock up lower-cost power supplies that negotiators never considered the=20 ramifications of the secrecy clause. He said violating that agreement could= =20 void the contracts.=20 Would companies bail?=20 A representative for power companies said Thursday that he doubts companies= =20 would bail on existing contracts but might not sign more.=20 Without seeing details of the spending, lawmakers this month approved a=20 record $13.4 billion in ratepayer-backed bonds to cover power costs that ha= ve=20 reached nearly $8 billion. Critics question whether the state is getting a= =20 good deal and wonder whether the bonds will cover the costs.=20 Until now, Gov. Gray Davis has answered critics by arguing that revealing t= he=20 deals would jeopardize the state's bargaining position, exposing ratepayers= =20 to even higher costs. Critics said the administration never before mentione= d=20 confidentiality clauses.=20 ``These contracts have been out there for a couple of months and this is an= =20 excuse I've never heard before,'' said Mindy Spatt of the Utility Reform=20 Network, a consumer group. ``It makes me wonder whether they've really got = a=20 good reason or something they're trying to hide.''=20 The state routinely enters into contracts in other areas, and those contrac= ts=20 are governed by public-records law and open for review. But Freeman suggest= ed=20 new rules may be in play.=20 ``Businesses don't reveal their contracts, and the state has gone into the= =20 business of buying power,'' Freeman said. ``I recognize that if the state= =20 does something that people have a right to know about it. On the other hand= ,=20 if the government is acting in an emergency way as businesses do, there's a= =20 clash.''=20 Freeman said the administration plans to reveal the contracts ``in the very= =20 near future'' and is working to find a way around ``this legal problem'' wi= th=20 the confidentiality clause.=20 ``We have nothing to hide,'' Freeman said. ``We're very proud of those=20 contracts.''=20 2003 release date=20 But in response to lawsuits from news agencies and lawmakers seeking to=20 compel disclosure, the administration has argued it shouldn't reveal the=20 contracts until Jan. 1, 2003, when they are no longer commercially sensitiv= e.=20 The state's power-buying authority ends on that date.=20 News agencies, whose case will be heard Friday, say there's no evidence=20 disclosure would jeopardize the state's bargaining position, and that the= =20 secrecy serves the governor's political interests more than the public's.= =20 Alonzo Wickers, a lawyer for the news agencies, including the Mercury News,= =20 said the administration hasn't made an argument based on confidentiality=20 clauses, and that the law wouldn't support that claim.=20 ``The courts have said you can't do that if you're a public agency,'' Wicke= rs=20 said.=20 Jamie Fisfis, spokesman for Assemblyman Dave Cox, R-Sacramento, said the=20 confidentiality argument is ``frankly outrageous.''=20 ``If he signed a contract to build roads, would he then argue he couldn't= =20 disclose it?'' Fisfis said.=20 Daily deals costly=20 The contracts guarantee a supply of power at costs below today's high marke= t=20 prices, helping to avoid rolling blackouts and limit rising rates. Without= =20 the deals, the state must scramble to buy power day by day at much higher= =20 prices.=20 The administration has signed dozens of contracts ranging from several mont= hs=20 to a decade or more, and said the average price over 10 years is 7.1 cents= =20 per kilowatt-hour, a bargain compared with the 20- to 30-cent daily rates.= =20 Even with the contracts already signed, the state still will have to buy ha= lf=20 to two-thirds of its power day by day this summer. It's unclear how many=20 sellers might walk away from deals if the state discloses them.=20 A spokesman for Calpine of San Jose, which has signed two, 10-year contract= s=20 and another for 20 years, said it already has revealed the basic terms and= =20 wouldn't oppose further disclosure.=20 ``I don't know any reason for us to get upset,'' said Calpine spokesman Bil= l=20 Highlander. ``We came in at a very attractive price that we think is good f= or=20 California and good for us.''=20 A representative of several major power sellers said companies probably=20 wouldn't walk away from deals they've already signed. But he said=20 confidentiality is important.=20 ``It certainly would drive away people from doing deals like this in the=20 future,'' said Gary Ackerman, executive director of the Western Power Tradi= ng=20 Forum. ``It's just not professional.''=20 Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410=20 California Gov. Davis blasts Bush energy policy=20 NEW YORK (Reuters) - California Gov. Gray Davis on Thursday blasted Preside= nt=20 George Bush's energy policy, saying in a newspaper op-ed piece that the=20 president is setting a ''perilous'' course by opposing caps on wholesale=20 electricity prices.=20 Davis, writing in The New York Times, likened California's long-running=20 energy crunch to the U.S. energy shock in the 1970s and said the Bush=20 administration ``must adopt a more responsible energy policy.''=20 The comments follow a meeting earlier this week between Davis and Bush that= =20 underscored their differences on federal price caps. Bush reiterated his=20 opposition to caps on wholesale electricity prices at the meeting, Davis=20 said.=20 Davis called caps necessary to prevent price-gouging by power companies,=20 while Bush asserted that caps will make the situation worse by discouraging= =20 investment in new power plants.=20 The governor told President Bush on Tuesday that he would seek a court orde= r=20 to force action by the Federal Energy Regulatory Commission (FERC).=20 In his op-ed piece, Davis cited an estimate that the size of California's= =20 energy crisis is likely to be in the range of $40 billion to $50 billion th= is=20 year.=20 Defending his own methods of dealing with the power crisis, which has cause= d=20 rolling blackouts in the state, Davis said only FERC has the power to ensur= e=20 a reasonable wholesale electricity market in California. ``This is not a=20 matter of discretion for federal regulators,'' the Governor wrote, ``It is = an=20 obligation.''=20 Davis acknowledged that California's power problems stemmed from ``a=20 fundamentally flawed'' 1996 state electricity deregulation law, and he=20 repeatedly raised the specter of economic turmoil brought on by policies=20 favored by President Bush.=20 ``The threat is real,'' Davis wrote, ``and the Bush administration must ado= pt=20 a more responsible energy policy, one that restrains energy price=20 manipulation and creates a fair and competitive energy market across the We= st=20 and the whole country.'' Mayor sees the light on power plant=20 Published Thursday, May 31, 2001, in the San Jose Mercury News=20 THE mayor standing on the tracks waving a red flag at the onrushing=20 locomotive has calculated the effects of a collision. Calpine's proposal fo= r=20 the Metcalf power plant at the north end of Coyote Valley is now fine with= =20 Ron Gonzales.=20 It's been fine with almost everybody else outside the immediate neighborhoo= d=20 since the plant was proposed by Calpine and Bechtel more than a year ago. I= t=20 escalated from fine to urgent as the shortage of electricity pushed prices= =20 into the clouds and led to blackouts.=20 In the process, the opposition of Gonzales and the San Jose City Council, o= n=20 thin factual ice from the start, couldn't withstand the weight of the force= s=20 in favor of the 600-megawatt plant, enough to serve 600,000 homes.=20 The Legislature and Gov. Gray Davis wondered what San Jose could be thinkin= g.=20 The California Energy Commission has the last word on power plant siting=20 regardless of the city's position. Denial would be flabbergasting.=20 Wednesday afternoon, Gonzales yielded gracefully; Calpine, along with its= =20 partner Bechtel, triumphed politely. The city will ``provide all requested= =20 municipal services in a timely matter.'' And it won't sue to overturn Energ= y=20 Commission approval.=20 Calpine will add two stations to monitor air quality, reduce the number of= =20 pollution-creating stops and starts at the plant, give $5 million for parks= =20 in the area, and contribute $1.5 million for community programs, including= =20 assistance with energy bills.=20 These are not trivial additions to the original proposal. But Calpine/Becht= el=20 held all the cards. Almost certainly, it could have jammed the plant throug= h=20 without sweeteners.=20 Instead, both parties recognized that Calpine and the city must do business= =20 together for the plant to work well. Calpine depends, for instance, on=20 recycled water from the city's sewage treatment plant. And the city needs= =20 customers like Calpine, which will consume 3 million gallons a day, to use = up=20 that water.=20 It's a mutually beneficial arrangement, just as it was from the start. ? ? Gordon Dillow gldillow@aol.com ? ? Building a new plant? More power to them=20 May 31, 2001=20 By GORDON DILLOW Orange=20 County Register=20 As you probably know, the main reason we're in a power crisis in California= =20 is because we haven't built enough power-generating plants. And one reason = we=20 haven't built enough plants is NIMBY-ism: When faced with having a new powe= r=20 plant nearby, most people shout "Not in my back yard!"=20 Well, I just found out that a new power plant is being built in my back yar= d.=20 And frankly, I think it's a dandy idea.=20 The power plant in question is being built at the county Olinda Alpha=20 Landfill in Brea. The plan is to take the methane gas formed by the natural= =20 decomposition of refuse in the dump - which ordinarily would have to be=20 flared off -- and burn it in engines to produce electricity. Actually,=20 they've been producing power at the landfill that way for years, but now,= =20 with power at a premium, a New Jersey-based company called Ridgewood Power= =20 wants to expand the plant's output by about 50 percent.=20 True, the power plant isn't literally in my back yard; it's a couple of=20 ridgelines away. But it's still close enough for the Air Quality Management= =20 District to recently send me a letter informing me of increased pollution= =20 from the plant - and warning me that the plant emissions could cause cancer= .=20 Now, ordinarily those would be the sort of grim tidings that would cause=20 palpitations in my homeowner's heart. So why am I being so welcoming to my= =20 new power-generating, air-polluting neighbor?=20 Several reasons. First, it's a pretty tiny power plant. Even with the 50=20 percent production boost, it will only crank out 8 megawatts - enough to=20 provide power to about 8,000 homes, but still less than 1 percent of the=20 juice produced by one reactor at the San Onofre nuclear power plant.=20 Also, the increased air pollution hardly seems like enough to worry about.= =20 For example, the AQMD says the plant will produce up to 9 pounds of fine=20 particulates per day - which is probably about the same amount of=20 particulates I release into the atmosphere when I burn a steak on the=20 barbecue. And according to the AQMD's calculations, I'd have to suck in the= =20 plant's air for 70 years to run even a 1-in-1 million risk of developing=20 cancer from the emissions.=20 But the big thing in favor of the landfill power plant is that it's exactly= =20 the sort of clever power-producing scheme we need right now. It takes=20 something we don't need - the methane from our garbage - and turns it into= =20 something we desperately need: electric power. These days, every 8 megawatt= s=20 helps.=20 And now that I think on it, there's another, more personal advantage to=20 having the landfill power plant nearby:=20 Without requiring any real sacrifices on my part, it makes me feel like a= =20 non-NIMBYist. So when they start looking around for a place to build anothe= r=20 power plant to help ease the energy crunch, I can strongly suggest - no,=20 demand! -- that they build it in somebody else's back yard.=20 Because I already have one in mine. Watering down fun=20 Many summer activities in O.C. will be diminished by the electricity crunch= .=20 May 31, 2001=20 Story by TIFFANY MONTGOMERY Photos by MICHAEL KITADA The Orange County Register=20 LEISURE WORLD resident Jackie Lane works out five days a week in the pool a= nd=20 says she notices the 2-degree difference in the water temperature. ? ? Many in Orange County will find the power crunch crimping their fun this=20 summer as some cities and groups slash pool hours, turn off tennis-court=20 lights, raise swimming-class fees and drop pool temperatures to cut utility= =20 bills and conserve energy.=20 Two Orange County community colleges will switch from night to day football= =20 games come fall, along with most of their 12-team conference. And Orange ci= ty=20 officials have even floated the idea of moving popular adult softball leagu= es=20 to weekend afternoons rather than weekday nights.=20 "If we need to save energy, I'm all for it," said Saddleback College=20 defensive back Derrick Waddell, 19, who prefers the excitement of evening= =20 games. "I just never expected (the power crisis) to go this far that it wou= ld=20 affect a football game."=20 Athletic Director Tony Lipold said the college needed to cut utility bills,= =20 and stadium lights are expensive - a $1,500 demand charge to turn them on= =20 each month, then $45 an hour. Plus, the school wants the community to know = it=20 is conserving.=20 "When people drive by the stadium and see lights burning, we don't want the= m=20 to say, 'Hey, what's going on?' " Lipold said.=20 Fullerton College will also switch to day games next season, and Santa Ana= =20 has played in the afternoon for years. Orange Coast and Golden West college= s=20 share a stadium, so one team often plays in the day, the other at night.=20 An official with the southern section of the California Interscholastic=20 Federation, or CIF, which oversees high school athletics in the region, sai= d=20 he has not heard whether high schools are giving up Friday night football= =20 games.=20 HERE'S A SWITCH: Conservation efforts are apparent at Leisure World. ? ? In Seal Beach, the city has raised fees ($7 for residents and $12 for other= s)=20 for swimming lessons and recreation and lap swimming (50 cents) because the= =20 Recreation Department's utility budget has jumped $21,000, a 123 percent=20 increase. Mission Viejo has stopped illuminating courts at the Felipe Tenni= s=20 Center on weekends and will open the Sierra Recreation Center pool this=20 summer for five hours during the day instead of eight.=20 Fullerton is raising tennis-court fees by $2 for peak hours and $1 other=20 times with its new budget in July to cover energy costs. Currently the fees= =20 are $6 or $7 per hour depending on day and time. And the city of Westminste= r=20 and the Newport-Mesa Unified School District have shut off court lights all= =20 together.=20 Newport-Mesa will also begin charging the cities of Newport Beach and Costa= =20 Mesa for heating four school pools that the cities use for summer swim=20 programs. Mike Fine, the district's assistant superintendent of business=20 services, has calculated that it costs $24 a day for each degree of heat.= =20 As a result, Newport Beach is raising swim-lesson fees by $5 and will squee= ze=20 most of its programs, including lessons and short periods for recreation an= d=20 lap swimming, into the Newport Harbor High School pool, which it will share= =20 part of the time with Costa Mesa. The pool at Corona del Mar High School wi= ll=20 be open for lap swimming, but not heated.=20 "You can't teach swim lessons with kids (in a cold pool)," said Andrea=20 McGuire, Newport Beach recreation-services manager. "They turn blue, their= =20 teeth chatter and they're not happy."=20 Newport Beach will also raise lap fees by varying amounts but keep recreati= on=20 swim costs the same.=20 Costa Mesa has decided to absorb the added cost of heating the pools,=20 estimated to be about $5,000 for the summer, instead of passing it on, said= =20 Ruth Raheb, a recreation supervisor.=20 Colder pools have also affected swimming routines at Leisure World in Lagun= a=20 Woods. Temperatures at all six pools have been dropped 2 degrees, so some= =20 have begun exercising in the afternoons when it's warmer, said Debby Lamb,= =20 recreation director. Officials did keep one pool a toasty 84 degrees for=20 those with achy bones.=20 Alan Davis, 69, a heart patient, recently had to exercise in colder waters= =20 while pool four, the warm pool, was being renovated.=20 "It was a shock to get into," he said. "If it's too cold it doesn't work we= ll=20 with arthritis."=20 The warmer water, he said, soothes and restores his body, so he was happy= =20 when pool four opened again last week.=20 The energy crunch has also affected the ceramics studio at Leisure World,= =20 which draws about 300 people a week. Electric- and gas-powered kiln usage h= as=20 been cut back to save money.=20 "It's slowed us down," said Marjorie Amstadter, president of the Potters an= d=20 Sculptors Club. She estimates they are two to three weeks behind in firing,= =20 but people have generally understood, she said.=20 "The only people who are complaining are non-Leisure World residents ... wh= o=20 may have to wait until next fall (when classes start again) to pick up thei= r=20 pieces," she said.=20 Those in charge of cutting or adjusting recreation programs said most peopl= e=20 have been very understanding about the energy crisis. After all, California= ns=20 are already conservation minded: The state ranks 49th in per capita energy= =20 consumption, according to a 1999 Energy Information Administration report.= =20 Wally Johnson is one of the understanding ones. A fierce Saddleback footbal= l=20 fan, he has gone to 256 straight games and doesn't plan to miss one because= =20 of a time change.=20 "I'll go to them anytime - daytime, nighttime, midnight, Sunday," he said.= =20 "Day games are fun. They don't get quite so cold."=20 Energy notebook=20 San Jose mayor switches position, backs power plant=20 May 31, 2001=20 From Register news services=20 SAN JOSE After months of pressure, Mayor Ron Gonzales has reversed course a= nd=20 decided to support a large proposed power plant in southern San Jose.=20 Gonzales said Wednesday that the companies that would build the $400 millio= n=20 Metcalf Energy Center - Calpine Corp. and Bechtel Enterprises Inc. - have= =20 agreed to donate money to community programs, offer long- term power=20 contracts at competitive rates to San Jose businesses, and take extra steps= =20 to ensure the safety of the surrounding neighborhood.=20 Gonzales and the entire City Council in November voted against the=20 600-megawatt Metcalf plant on the grounds that it would be too close to=20 residential areas.=20 But as California's energy crisis deepened, Gonzales' position became=20 increasingly unpopular. Gov. Gray Davis, state representatives, county=20 supervisors and the Sierra Club called for the plant to be built.=20 The decision on whether the plant will be built now rests with the Californ= ia=20 Energy Commission, which is expected to vote on the issue this summer.=20 New hydroelectric plant goes on line a year early=20 HEMET A new hydroelectric facility at a huge new reservoir began generating= =20 power Wednesday, a full year earlier than planned.=20 The facility at Diamond Valley Lake will provide power for 13,000 household= s=20 initially and 40,000 households once the reservoir is completely full next= =20 year, officials said. The lake is about three-fourths full now.=20 "This may just be a drop in the bucket for California, but we believe that= =20 every little bit counts, especially this summer," said Phillip J. Pace,=20 chairman of the Metropolitan Water District board.=20 The facility is the first new hydroelectric generator in the state in six= =20 years, according to the California Energy Commission.=20 Lab's Web site posts potential blackout data=20 BERKELEY Californians can now get their own information about whether the= =20 lights will stay on without waiting for the Independent System Operator to= =20 issue blackout warnings.=20 Residents can see supply and demand levels rise and fall before their eyes = on=20 a new Web site put together by Lawrence Berkeley Laboratory scientists.=20 The site -- found at http://energycrisis.lbl.gov -- also shows statewide=20 power imports and exports and the capacity that's out of service on any giv= en=20 day.=20 In other news:=20 California power reserves fell below 5 percent because higher temperatures= =20 spurred demand for electricity to run air conditioners, prompting a state= =20 agency to call an alert.=20 The California Independent System Operator, which runs the state=20 power-transmission system, called a Stage Two alert at 2 p.m. No blackouts= =20 were necessary.=20 Forecasters say today will be even hotter, with the mercury rising to 100 i= n=20 San Bernardino.=20 Anaheim will only reach 82, because of an onshore breeze.=20 Gov. Gray Davis said Wednesday that he'll give federal energy regulators at= =20 least 30 days to respond to his requests for massive electricity rebates or= =20 rate cuts before taking them to court.=20 He said judges are "reluctant to tell agencies what to do until agencies=20 review the matter."=20 Bloomberg News, The Associated Press and Register staff writer Gary Robbins= =20 contributed to this report.=20 Deadline near on regional power grid=20 State has until Friday to abide by FERC call to join transmission network.= =20 May 31, 2001=20 By JOHN HOWARD The Orange County Register=20 SACRAMENTO Gov. Gray Davis has until Friday to decide whether to place=20 California's 28,000 miles of electricity lines under increased federal=20 control by joining other Western states in a regional power grid.=20 The decision, which has provoked little public discussion, has long-term=20 implications for the way the state will be able to control its electricity.= =20 Federal energy regulators believe creating about 18 huge multistate grids= =20 across the United States - known as regional transmission organizations, or= =20 RTOs - will make it easier to speed electricity across the country. That wi= ll=20 limit outages and lower prices for consumers, according to the Federal Ener= gy=20 Regulatory Commission.=20 Critics of deregulation, however, contend the creation of an RTO in effect= =20 turns over the state's lines to the Bush administration, which has close ti= es=20 to power companies that have profited mightily in California.=20 "The whole (FERC) plan is to federalize the transmission lines and federali= ze=20 energy policy, and to get the biggest state to commit to this scheme, (whic= h)=20 would be a huge boost for Bush and his allies," said San Diego energy=20 consumer advocate Michael Shames.=20 The RTOs would have the authority to levy transmission charges on wholesale= =20 power, subject to FERC's approval, and control the flow of electricity=20 throughout the grids. The FERC wants the RTOs up and running by December.= =20 FERC has given California's three investor-owned utilities and the grid=20 manager, the Independent System Operator, until Friday to describe how they= =20 would participate.=20 Davis, although not directly deciding the issue, wields influence over the= =20 ISO board, which he appointed, and has been in negotiations with at least t= wo=20 of the utilities. The reports to FERC are expected to largely reflect his= =20 will.=20 Missing Friday's deadline could cause the Bush administration to halt the= =20 so-called "soft cap" price controls currently on California's roiling=20 electricity market. But the threat that holds little worry for Davis.=20 Last month, FERC decided to set targets for power prices when state=20 electricity reserves fall to 7.5 percent or lower during Stage 1, 2 or 3=20 power alerts. Davis and others complained that the targets were "soft caps"= =20 that could easily be ignored by power companies.=20 Stanford University energy economist Frank Wolak suggested that California= =20 should refuse to join an existing RTO, but devise its own plan and present = it=20 to FERC. Others agree, saying such a huge state could be a single-state RTO= ,=20 its grid managed internally but required to participate in the regional flo= w=20 of power.=20 That might better play into a proposal for the state to buy the transmissio= n=20 lines from the utilities.=20 "I would basically say, 'Thanks, but no thanks,' and this is where FERC has= =20 left a giant opening for California to do something clever,'' Wolak said.= =20 Advocates of the RTOs say they represent the reality of geography and the= =20 marketplace - not artificially created political borders.=20 "Markets are regional; they don't stop at the state border," said Elizabeth= =20 Moler, a former FERC chairwoman.=20 Register reporters Kate Berry and Dena Bunis contributed to this story.=20 Thursday, May 31, 2001=20 Bush standing tall as Davis plays blame game=20 So Gov. Gray Davis had a short meeting and is going to sue to set price cap= s=20 on energy ["Bush: No price caps," Front Page, May 30]. What gives a judge t= he=20 power to set price caps on anything? Going through an old high school yearbook, I found a gasoline receipt from= =20 Wilshire Gas where I paid 25 cents per gallon. Why doesn't good old Gov.=20 Davis have the prices rolled back on everything? My first apartment in Sant= a=20 Monica was $150 per month, and I'm sure people would like to see apartment= =20 rents rolled back to that rate.=20 However, to keep everything equal, the judge would also have to roll back= =20 salaries to earlier levels of decades past. The latest trend is to go into= =20 court and ask a judge to legislate what should be done. Doesn't anyone=20 question whether judges have the authority to do that?=20 I don't like higher prices, but how can a California judge order Pacific Ga= s=20 & Electric or Southern California Edison to sell power for one-third of wha= t=20 it pays to bring energy from Idaho? Of course, both would go bankrupt and= =20 shut down. Then, energy costs would go down because there wouldn't be any.= =20 Stock up on candles.=20 Burl Estes Mission Viejo=20 I have nothing but the utmost respect for President Bush for standing firm = in=20 his refusal to implement price caps on wholesale energy prices. Even though= I=20 personally stand to suffer from any electricity rate hikes passed on to=20 customers by Southern California Edison, I firmly support Bush's hands-off= =20 policy and any other federal or state policies that help transfer price=20 controls to those of a free market: the basic controlling forces of supply= =20 and demand. I remind all Californians that the whole reason we are sufferin= g=20 energy problems today are past attempts to unnaturally control prices and= =20 production. I will happily endure any rate hikes, even beyond 500 percent,= =20 knowing full well that such rate increases are essential steps to our=20 recovery from the terrible effects of regulation and our so-called=20 "deregulation." Dennis Chang Seal Beach=20 Gov. Davis wants the Federal Energy Regulatory Commission to set price caps= =20 for wholesale electric rates, but FERC refuses because it believes wholesal= e=20 electric rates are "fair and reasonable." Well, if Davis really wants price= =20 caps, all he has to do is start charging all federal customers the actual= =20 wholesale rate for electricity. Imagine if all the post offices, federal=20 courthouses, FBI offices, INS offices and IRS offices in California had to= =20 pay the actual wholesale rate for electricity, plus assorted delivery=20 charges. That might get FERC to consider price caps. And it would put an en= d=20 to California subsidizing federal customers. The federal customers could no= t=20 complain because FERC says that wholesale electric rates are fair and=20 reasonable. Douglas Ditonto Yorba Linda=20 President Bush announced during his visit to California that he was opposed= =20 to capping energy prices for fear that caps would only lead to more shortag= es=20 and higher prices for gas and electricity. Why does that sound more like a= =20 thinly veiled threat from an extortionist than concern from a nation's=20 leader? I did not vote for George Bush. It seemed obvious to me that he wou= ld=20 be more inclined to support the views of the wealthy in this country,=20 particularly those of the oil industry, than those of the working class. It= =20 appears that Bush will live down to my expectations.=20 Leslie E. Lyon Anaheim=20 Electrical Emergency Stepped Up to Stage Two; Need for Energy Conservation = is=20 Critical FOLSOM, Calif.--(BUSINESS WIRE)--May 30, 2001 via NewsEdge Corporation - The California Independent System Operator (California ISO) declared a Stage Two Electrical Emergency today, Wednesday, May 30, 2001, at 2:00 p.m. with operating reserves dipping below five percent. A number of factors are contributing to today's emergency condition: -- With higher than expected temperatures and the corresponding use of air conditioning units, the demand for power is trending approximately 1,200 megawatts over the forecast. -- Net imports are running at 4,000 megawatts; 3,000 less than last week. -- A total of 9,800 megawatts worth of generation remains unavailable today with power plants off-line because of preventative repairs and plant malfunctions. Consumers are asked to step up conservation efforts as the California ISO's job of balancing the supply and demand for power becomes more challenging this afternoon and into the evening peak hours. Demand across the California ISO Control Area is expected to peak at 36,174 megawatts around 3:00 p.m. this afternoon. Today's Stage Two Emergency is in effect until midnight. With the Stage Two declaration, the California ISO is able to access emergency resources that will help maintain operating reserves. A Stage Two Emergency is declared when operating reserves dip below five percent or are expected to within the next two hours. If an operating reserve shortfall of less than one-and-a-half percent is unavoidable, Stage Three will be initiated. Involuntary curtailments of service to customers, including "rotating blackouts," are possible during this emergency declaration. The California ISO is charged with managing the flow of electricity along the long-distance, high-voltage power lines that make up the bulk of California's transmission system. The not-for-profit public-benefit corporation assumed the responsibility in March, 1998, when California opened its energy markets to competition and the state's investor-owned utilities turned their private transmission power lines over to the California ISO to manage. The mission of the California ISO is to safeguard the reliable delivery of electricity, facilitate markets and ensure equal access to a 25,526 circuit mile "electron highway." Information about the California ISO control area's electricity supply and the current demand is available on the web at www.caiso.com. Other helpful contacts: Pacific Gas and Electric 415/973-5930 Southern California Edison 626/302-2255 San Diego Gas and Electric 877/866-2066 CONTACT: California ISO | Stephanie McCorkle, 888/516-NEWS Washington's Role Helped Spark California's Power Crunch WASHINGTON, May 29, 2001 (States News Service via COMTEX) via NewsEdge=20 Corporation - Although it is popular in Washington to point the finger at California for its energy cris= is, the federal government shares a good deal of blame for the California energ= y crisis. In 1995, the Federal Energy Regulatory Commission helped lay the foundation= =20 for what has become the debacle of the new millenium when it rejected a state p= lan calling for new power plants that today would be providing 1,300 megawatts = in new electricity. What's more, records from that year show that the regulatory commission expressed "grave concerns about the need" for new power generation in the= =20 state. Had those power plants been built, they would be generating power for an estimated 1.3 million homes at the wholesale fixed cost of between 3.5 and = 6.6 cents per kilowatt-hour with binding, long-term contracts. At the time, retail prices averaged 9 cents per kilowatt-hour, according to= =20 FERC documents. In recent months, wholesale prices have been averaging between 12 cents to = 13 cents per kilowatt-hour, according to California Public Utility Commission spokesman James Hendry. During peak usage, those prices can reach 20 cents = to=20 40 cents and at times have rocketed to a record $1.90 since last December. "Everybody is saying those prices will go higher this summer," Hendry added= . Nevertheless, members of the Federal Energy Regulatory Commission -- known = as FERC -- have regularly blamed California for failing to build new power pla= nts to meet present power needs that have sparked energy shortages and higher= =20 prices throughout the West. The commission also shares the widely held view that faulty legislation aim= ed=20 at deregulating the state's power industry in 1996 is to blame. Although FERC put limited price caps into effect on wholesale electricity o= n Tuesday, the commission continues to resist broader demands to stabilize=20 prices in the Western region, as has been sought by California Gov. Gray Davis, an= d other lawmakers. They claim that FERC has ignored their responsibility to= =20 ensure that electricity rates are "just and fair." President Bush has sided with FERC's limited price caps because he believes= =20 that market-oriented supply and demand is the only sure way to restore permanent order to the crisis. The messy trail of the Golden State's rolling blackouts and power failures passed through Washington in January 1995 when several California utility companies asked FERC to rule against the state's plans to build power=20 facilities around the state. As part of that plan, first announced in 1992, the California Public Utilit= ies Commission nailed down bids through a competitive auction process to build = two new geothermal plants, one wind farm, and the repowering of an existing ste= am plant in Southern California. A "badly needed" gas-powered plant on the San Francisco Peninsula also was called for. All would have been up and running by 1999. Had the plants been build, California's electrical utilities would have bee= n required to buy power from them under a long-standing policy first enacted = by Congress in 1978, the Public Utility Regulatory Policies Act. But two utili= ty companies protested, claiming they didn't need more electricity. Besides, t= hey said they could provide or purchase cheaper electricity elsewhere if needed= . California used "a flawed auction process," recalled Art Larson, spokesman = for Sempra Energy, parent company of San Diego Gas &amp; Electric, when asked= =20 about the decision. "It didn't consider the least-cost bids," he said, because=20 California mandated the use of renewable energy. So, just two months before construction on the plants was to begin, Souther= n California Edison and San Diego Gas &amp; Electric filed a protest with FER= C.=20 The five-member regulatory commission approves rates for wholesale electric sal= es=20 of electricity and transmission in interstate commerce. Both utility companies argued that because the PUC favored renewable energy generation, it ignored less expensive ways to provide electricity such as gas-fired plants and other sources. Southern California Edison also expressed concerns about California's effor= ts=20 to deregulate the electric utility industry that soon would be approved the following year. Such legislation would likely bring down energy costs, it predicted. Other parties also weighed in on the complaint, including the National Coal= =20 and Western Fuels Association, which claimed that Edison could purchase power f= rom out-of-state sources at 3 cents a kilowatt hour. Today, FERC and other crit= ics of California's electricity policies believe that the state relies far too heavily on out-of-state sources. California responded to the complaints by noting that it did approve gas=20 powered turbines in its plans, but also wanted "clean" energy suppliers as part of = the state's environmental objectives. After factoring in the costs of controlli= ng pollution in California caused by other forms of energy production, the pri= ce for electricity provided from alternative sources would be competitive, it= =20 said. California's argument fell of deaf ears and FERC sided with the utility companies. In its ruling, the commission stated that California's auction procedure violated the standards set by PURPA because the state explicitly sought out renewable energy providers and ignored other sources in the bidd= ing process. FERC added that "we have grave concerns about the need" for added electrici= ty=20 in California. It also cautioned that the fact that the state was moving towar= d deregulating the electricity industry, "heightens our concern" about forcin= g utility companies into long-term contracts. FERC's controversial ruling, which was opposed by many independent energy organizations, still disturbs Loretta Lynch, chairman of the California Pub= lic Utilities Commission. What derailed the effort to build more power "was not the actions of=20 California, but instead the actions of FERC itself," she said last December when FERC= =20 first denied requests to place wholesale price caps on electricity in western sta= tes and blamed California for not building enough power plants. And how do the utility companies now feel about the power plants they fough= t=20 in 1995 when long-term contracts would have been had for a fraction of the cos= t they are now paying? "20/20 hindsight is a luxury," responds Larson of Sempra Energy. "But the= =20 prices were out of line in the 1990s." By David Phinney Energy Experts Say Solution to California Crisis is Inescapable/ Build More= =20 Power Plants and Ensure Competition ATLANTA--(BUSINESS WIRE)--May 30, 2001 via NewsEdge Corporation - As the Bush Administration continues to face harsh criticism in California over perceived inaction regarding the energy crisis, industry executives appear to be lining up behind Bush's assertion that enhancing the availability and reliability of the nation's energy supply is the long-term solution. And they consider creating more supply while maintaining the transition to a deregulated marketplace crucial, reports the May issue of Energy Competition Strategy Report, published by Atlanta-based NHI Publications. One leading utility executive says the solution to the nation's long-term supply problem is inescapable. "We need to build new power plants. And those new plants will be built only if we allow the competitive market to do its job," says William Hecht, chairman, president, and CEO of Allentown, PA-based PPL Corp. Price caps - which California is pushing for and Bush opposes - "reduce the incentive to invest in new production and unnecessarily prolong and exacerbate the current supply and demand mismatch," Hecht adds. PPL is aggressively developing new power plants in Connecticut, New York, Pennsylvania, Washington, and Arizona that will add more than 4,000 megawatts of supply. Other members of the Washington, DC-based Electric Power Supply Association, such as ABB Energy Ventures of Switzerland and Zeigler Coal Holding of Ashland, KY, are building new, unregulated merchant power plants. Meanwhile, EPSA is asking Congress to enact legislation that would allow federal eminent domain for transmission siting and establish a standardized interconnection policy to make it easier for generation companies to "get onto the grid." Other highlights of this month's Energy Competition Strategy Report include: -0- *T -- A new energy market study finds that despite several major setbacks, including California's ongoing crisis, the energy industry still has its sights set on achieving full competition. Retail Energy Markets (REM), produced annually by Xenergy, a Burlington, MA, research firm, is featured in the report and includes a wealth of data suggesting that, despite restructuring problems, the shift to competition continues. -- Get a detailed look at PowerSolution, a core technology platform that helps energy companies manage their data by integrating business applications, external trading partners, and legacy systems. -- Regional utilities are forging loyalties with big commercial and industrial chains through National Accounts programs that provide value-added, one-stop customer service. Award-winning Southern Co. shares its secrets to success. -- Can fuel cells meet the growing demands for electricity? A large energy company plans to build, operate, and maintain an electric generation plant that will use six fuel cells to generate primary electric supplies. -- Evaluate opportunities for investment. Use this process to assess whether any of 700 technologies spanning the energy value chain are appropriate investments. *T Free three-month trial subscriptions to Energy Competition Strategy Report are available by sending an e-mail with your full mailing address to nhi@nhionline.net, calling 800-597-6300 or 404-607-9500, or faxing your address to 404-607-0095. CONTACT: NHI Publications, Atlanta | David Schwartz, 404-607-9500 Business/Financial Desk; Section A=20 In California, Blackouts Spur A Search for Home Remedies=20 By LAURA M. HOLSON=20 ?=20 05/31/2001=20 The New York Times=20 Page 1, Column 5=20 c. 2001 New York Times Company=20 LOS ANGELES, May 30 -- For Evans Keller, a turkey farmer in the Central=20 Valley of California, the energy crisis has become a matter of life and=20 death.=20 For 17 years, he and his family have raised turkeys near Fresno, far from t= he=20 dot-com companies of Silicon Valley and the ''Baywatch'' beaches most=20 outsiders associate with the state. In his world, where daily summer=20 temperatures soar above 100 degrees on dusty ranches, Mr. Keller is forced = to=20 use electric fans and fog-making machines to cool his one million turkeys -= -=20 or watch them roast in tin-roofed sheds.=20 But with energy experts forecasting more than 260 hours of blackouts this= =20 summer and no relief in sight from regulators or politicians, Mr. Keller ha= s=20 taken matters into his own hands. In April, he bought eight small generator= s=20 at Costco that he could hook up to tractors and use to keep the fans and=20 misters running when the Pacific Gas and Electric Company cuts his power.= =20 Since then he has regularly conducted drills on the 14 farms that supply hi= m=20 with turkeys -- 4 farms he owns and 10 run by independent contractors -- an= d=20 has spent weeks winnowing the routine down to 40 minutes, barely enough tim= e=20 before the birds begin to wither under the searing sun.=20 ''Believe me, we're not proud,'' said Mr. Keller, who said he had appealed= =20 earlier this year, without success, to Pacific Gas and Electric for advance= =20 warnings of blackouts. ''We'll do what we have to to protect our=20 investment.''=20 The energy crisis here has come to this: from tourist attractions in sunny= =20 Southern California, to farmers who dominate the central region of the stat= e,=20 to technology concerns up north, businesses are coming up with novel ways t= o=20 cope with what many fear will be an unpleasant summer.=20 The concerns are understandable given the issues that many businesses face,= =20 including lost revenue and potential layoffs, as the state's power shortage= s=20 continue. ''The uncertainty is what kills you,'' Jerry Meek, utility=20 operations manager at Roche Pharmaceuticals in Palo Alto, said.=20 Trying to reduce that uncertainty, businesses are applying to the state's= =20 Public Utilities Commission for exemptions from having their power turned o= ff=20 this summer. (The deadline is Friday.) Last week, Gov. Gray Davis announced= =20 that the state would begin a three-tiered warning system for residences and= =20 businesses that are likely to be affected. The first warning will come two= =20 days before a blackout; the second, one day in advance; and the final=20 warning, one hour before the lights go out.=20 A more radical approach is being suggested by Mike Briggs, a Republican=20 assemblyman from Fresno. He is asking the state to schedule potential=20 blackout days as much as months in advance so business owners know when the= ir=20 turn is coming. ''It is scary what this has come to,'' Mr. Briggs said. ''B= ut=20 this gives people options.''=20 Farmers in the Central Valley, for instance, have to order water for their= =20 crops a day ahead. But if the power is off when the water shows up in an=20 irrigation canal, he said, ''they can't open the gates and the water flows= =20 right past them.'' One business owner told Mr. Briggs that he spent $30,000= =20 one month to lease two generators that were never used. ''He said it would= =20 have been nice to know ahead of time so he could rent the generators for a= =20 day,'' the assemblyman said.=20 Of course critics worry that burglars will know when the lights go out, too= .=20 ''Yes, there is the downside of more potential burglaries,'' Mr. Briggs sai= d.=20 ''But maybe people are willing to make that trade-off.''=20 Even those business owners who say they are currently protected from power= =20 failures are making preparations -- just in case. The Legoland California= =20 amusement park in Carlsbad, near San Diego, has an arrangement with its=20 utility, the San Diego Gas and Electric Company, to keep the lights on, sai= d=20 a spokeswoman, Courtney Simmons. Still, she added, the park is prepared in= =20 the event of a loss.=20 The contingency plan consists of keeping open the 3 rides, of the 20 total,= =20 that are not powered by electricity, she said. Barbecues would be rolled ou= t=20 to cook food, and the park's boulevards would be flooded with performers,= =20 including singers, dancers, jugglers and musicians who will entertain until= =20 the power comes back on. ''We are prepared for outages no matter what the= =20 cause this summer,'' she said.=20 Many tourist attractions, including Disneyland in Anaheim, are already=20 prepared because they upgraded their systems in 1999, fearing a Year 2000= =20 disaster that would threaten the power grid. ''A lot of these things were= =20 already tested and documented,'' said Ray Gomez, director of communications= =20 at Disneyland Resorts. ''We are skilled at emergency evacuations. Energy is= =20 only one part of that.''=20 As part of its plan, Disneyland shored up its emergency operations center,= =20 holding employee drills to turn on emergency power. This summer, Disneyland= =20 will have employee volunteers who roam the park day and night, turning out= =20 lights and replacing incandescent bulbs with more energy-efficient ones. Th= e=20 park also works with the city of Anaheim, which supplies the park with powe= r,=20 to conserve 5 to 10 percent, minimizing the risk of blackouts at all.=20 Oddly enough, Disneyland is reviving its Main Street Electrical Parade, a= =20 29-year-old light show that had most recently been an attraction in Florida= .=20 Leslie Goodman, a senior vice president for strategic communications for Wa= lt=20 Disney Parks and Resorts, said the park had made sure that the parade did n= ot=20 use energy when Californians need it most. The lights in the parade are=20 powered by battery, and are recharged during off-peak hours. But, she added= ,=20 despite what was a difficult decision and a potential public relations=20 nightmare, ''the show goes on.''=20 While most businesses make an effort to conserve (if for no other reason th= an=20 to save money as rates soar), some communities are giving corporations adde= d=20 incentives. The city of Palo Alto, for example, has agreed not to cut off= =20 power to Roche Pharmaceuticals as long as the company reduces energy=20 consumption by 15 percent within 30 minutes of an announced Stage 3 alert,= =20 the state's most critical. Only once has Roche lost power, said Mr. Meek, t= he=20 company's utility operations manager. And that, he added, was because of a= =20 mistake.=20 Roche has a plan to ensure that a blackout does not happen. Once Mr. Meek= =20 gets an alert on his pager from a city representative (who can see how much= =20 is being saved because the company has a real-time meter for the 15-buildin= g=20 campus), voice mail and e-mail messages are sent to more than 1,000 employe= es=20 asking them to turn off nonessential lights. The air-conditioning is change= d=20 to raise the temperature in most areas to 78 degrees from a normal 72=20 degrees. Lighting in all offices is reduced, and some employees move from= =20 their dark cubicles to the window-walled cafeteria to work, he said.=20 ''The question is, do you treasure light or do you want your computer shut= =20 down?'' Mr. Meek asked. If these measures do not reduce overall demand by 1= 5=20 percent, Roche will switch on backup generators to power the laboratories.= =20 Why? If laboratory tools are not properly shut off before a loss of power, = it=20 takes days to recalibrate them, costing thousands of dollars and wasted tim= e,=20 Mr. Meek said. ''My focus with the uncertainty is to do what we can to get= =20 around it,'' he said.=20 One way that California businesses are seeking certainty is by appealing to= =20 the state's Public Utilities Commission for relief. One commissioner, Carl= =20 Wood, said in a recent interview that about half the customers who got=20 electricity from the state's three largest utilities were exempt from=20 blackouts because their services were considered essential, like fire=20 stations or hospitals, or because they shared power with an essential sourc= e.=20 No more than 60 percent of the state's customers can be exempted from=20 blackouts.=20 Recently, an exemption was granted for the Bay Area Rapid Transit District,= =20 which runs 95 miles of commuter train service in the San Francisco=20 metropolitan area, Mr. Wood said. Pacific Bell Park, home of the San=20 Francisco Giants, has asked for one, too; that request is being reviewed.= =20 ''It can be extremely disruptive and expensive if there are lots of blackou= ts=20 this summer,'' he said. ''This is a big economic issue.''=20 Just imagine, he said, musing about how the summer could end: ''Disneyland= =20 without rides?''=20

dasovich-j/all_documents/13246.

dasovich-j

Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/13246. ===================================== Please see the following articles: Sac Bee, Thurs, 5/31: A rush to duck power outages: About half of the state's electric users already have been exempted from rolling blackouts SD Union, Thurs, 5/31: Sempra chief: County may fare OK on outages SD Union, Thurs, 5/31: 'Plan B' gains key support in Assembly SD Union, Thurs, 5/31: FERC boss unfazed by Davis' lawsuit threat SD Union, Thurs, 5/31: Chula Vista names itself a municipal power entity SD Union (AP), Thurs, 5/31: Circuit breaker=20 Giddy investors in the power trade get their wires crossed SD Union (AP), Thurs, 5/31: After months of pressure, mayor agrees on power= =20 plant=20 SD Union, Wed, 5/30: Panel OKs weakened utility district bill SD Union, Wed, 5/30: Davis fails to sway Bush on price caps SD Union, Wed, 5/30: Head of FERC confident California suit will fail SD Union (AP), Wed, 5/30: Grid managers call Stage 2 alert, but hope to avo= id=20 blackouts=20 LA Times, Thurs, 5/31: FERC Chief Unfazed By Threat of Third Lawsuit LA Times, Thurs, 5/31: The Home Energy Drain SF Chron, Thurs, 5/31: Heat's on, but so are lights=20 100-degree temperatures aren't widespread, sparing the grid SF Chron, Thurs, 5/31: Municipal utilities warned=20 Governor says he'll seize excess electricity if prices don't come down SF Chron, Thurs, 5/31: Regulators want state trade-off for caps=20 Davis asked to give up control of power lines SF Chron, Thurs, 5/31: Plan would have biggest customers pay Edison's debt Mercury News, Thurs, 5/31: San Jose mayor changes course, endorses power= =20 plant Mercury News, Thurs, 5/31: State admits power-deal secrecy=20 Mercury News, Thurs, 5/31: California Gov. Davis blasts Bush energy policy= =20 Mercury News, Thurs, 5/31: Mayor sees the light on power plant (Editorial)= =20 OC Register, Thurs, 5/31: Building a new plant? More power to them OC Register, Thurs, 5/31: Watering down fun Many summer activities in O.C. will be diminished by the electricity crunch OC Register, Thurs, 5/31: Energy notebook San Jose mayor switches position, backs power plant OC Register, Thurs, 5/31: Deadline near on regional power grid=20 OC Register, Thurs, 5/31: Bush standing tall as Davis plays blame game = =20 (Commentary) Individual.com (Businesswire), Thurs, 5/31: Electrical Emergency Stepped Up= =20 to Stage Two;=20 Need for Energy Conservation is Critical =20 Individual.com (AP), Thurs, 5/31: Washington's Role Helped Spark=20 California's Power Crunch Individual.com (Businesswire), Thurs, 5/31: Energy Experts Say Solution to= =20 California Crisis is Inescapable/ Build More Power Plants and Ensure Competition NY Times, Thurs, 5/31: In California, Blackouts Spur A Search for Home=20 Remedies ---------------------------------------------------------------------------= --- ------------------------------------- A rush to duck power outages: About half of the state's electric users=20 already have been exempted from rolling blackouts. By Carrie Peyton, Terri Hardy and Clint Swett Bee Staff Writers (Published May 31, 2001)=20 Up and down California, businesses, government agencies, campuses and other= s=20 are scrambling to join the millions who will escape this summer's predicted= =20 waves of rolling blackouts.=20 Some have gotten state regulators to change blackout rules. Some have given= =20 different versions of their needs to utilities, changing their stories in= =20 ways that satisfy exemption standards. Some have persuaded legislators to= =20 propose laws just for them.=20 "People that have political power or economic power are going to find ways = of=20 getting exempted. It happens all the time," said Richard Bilas, one of five= =20 appointed members of the state Public Utilities Commission.=20 Every addition to the largely confidential list of those exempt from outage= s=20 boosts the frequency of blackouts for everyone else.=20 While a few thousand institutions -- including hospitals, fire departments= =20 and prisons -- are deemed "essential" users who should not be blacked out,= =20 nearly half the state is spared outages because millions more share circuit= s=20 with those exempt facilities.=20 In Sacramento, for example, the electric utility will not cut power to a=20 water treatment facility along the American River for fear of endangering= =20 water quality. But sheltering that circuit also spares the sprawling=20 California State University, Sacramento, campus nearby.=20 If exemptions grow, "at some point, you lose the ability to reliably have= =20 rolling blackouts," said PUC commissioner Carl Wood. He has estimated that= =20 fewer than 1,000 more institutions can be exempted without compromising the= =20 system that rolls outages from one part of the state to the next when the= =20 electric grid can't supply power for everyone.=20 With close to half of the state sitting out outages, "that means the other= =20 half is going to get blacked out twice as often. It's basically unfair to t= he=20 rest of the community," said Paul Perkovic, who sits on the board of the=20 Montara Sanitary District, which provides sewer, garbage and other services= =20 to a San Mateo County community.=20 Perkovic urged the PUC last week to make more government agencies, includin= g=20 his tiny district, eligible for blackouts, arguing that they should be=20 prepared for other emergencies anyway.=20 The deluge of exemption requests has created a dilemma of values and number= s.=20 Should nursing homes be placed on the essential list? What about outpatient= =20 surgical clinics or transit agencies or schools? And when, if ever, should= =20 someone review existing exemptions to see if they're still needed?=20 Utilities and regulators say they try to apply the rules fairly. But=20 inconsistencies appear, and the rules keep changing as the realization sink= s=20 in that many more blackouts could await California.=20 The state's two biggest utilities are close in size, but one shields about = 25=20 percent more customers than the other from outages.=20 The Sacramento Municipal Utility District, which sets its own outage=20 standards, exempts only 21 of its 530,000 customers.=20 Pacific Gas and Electric Co., which applies rules set by the PUC, is much= =20 more generous, giving 2,600 of its 4.8 million customers the "get out of=20 blackouts free card."=20 Southern California Edison is even more open handed in its interpretation o= f=20 the same rules, doling out 3,600 exemptions among its 4.3 million customers= .=20 The roads to getting an exemption are varied. There are at least three plac= es=20 to start for those who want to stay cool and bright when all around are goi= ng=20 dark.=20 Businesses or governments can apply to their utility, which determines=20 whether they fit rules for a public safety exemption.=20 Or if their utility is regulated by the PUC, they can apply directly to a n= ew=20 program set up to examine their petition for exemptions.=20 Finally, they can go to the state Legislature, where lawmakers have=20 introduced a range of bills that would protect schools, nursing homes,=20 refineries -- even Universal Studios.=20 But in the attempt to quickly piece together a system to grant exemptions,= =20 critics say, a haphazard process has been developed.=20 Dan Johnson, associate vice president for facilities development and=20 operations at San Jose State University, said he has sought an exemption fr= om=20 PG&E and is still waiting, while campuses with similar circumstances have= =20 succeeded. Now he wonders about the fairness of what seems to him a murky= =20 decision-making process.=20 "Each utility has its own way of dealing with exemptions," he said. "If it= =20 appears that the decision is arbitrary and capricious, we hope that when we= =20 appeal to the PUC some sanity prevails."=20 One person in PG&E's tariff's department has done nothing but process=20 exemption requests since March, officials said, after the job became too bi= g=20 to be absorbed in another worker's duties.=20 About 200 requests have come in since early this year, and PG&E has approve= d=20 45 of them and denied 72, with 79 still pending.=20 The process is aimed at being a straightforward evaluation of whether an=20 entity fits into existing PUC categories of "essential" customers.=20 But it isn't always that simple, said Roland Risser, PG&E director of tarif= fs=20 and compliance.=20 Sometimes, said Risser, a customer will say it has adequate backup=20 generation, and PG&E will let the customer know the backup disqualifies it= =20 from an exemption. Later, the customer calls back and says "we've=20 re-evaluated" and the backup generator won't supply all its needs.=20 "We just take their word for it," Risser said. "We don't police."=20 From universities to transit agencies, a wide range of customers worry that= =20 as different utilities apply PUC standards, those regulations don't always= =20 yield the same results.=20 So far, at least eight campuses within the University of California and CSU= =20 systems will not be subject to rolling blackouts, including UC Davis.=20 In a letter to PG&E asking for an exemption, UC Davis stressed the potentia= l=20 danger to animals in its veterinary hospital and the possible destruction o= f=20 research. But PG&E spokesman Ron Low said health and safety arguments are t= he=20 only ones that matter. PG&E granted the exemption because the campus does n= ot=20 have generators for its airport and its radio station -- which is part of t= he=20 emergency broadcasting network.=20 Transportation officials say they're frustrated by the mixed signals sent b= y=20 utilities.=20 While the PUC has declared the Bay Area Rapid Transit District exempt from= =20 blackouts, Edison says Los Angeles' Municipal Transportation Authority is= =20 not. Ralph de la Cruz, deputy executive director of operations for the MTA,= =20 doesn't understand that logic. True, BART travels under the bay. But the=20 MTA's Green Line runs down the middle of the I-105 Century Freeway. Some MT= A=20 rail lines are elevated, and passengers trying to extricate themselves from= a=20 stalled train could plunge to the ground.=20 The MTA asked Edison to reconsider and has appealed to the PUC.=20 "We are anxious to see this resolved as quickly as possible, before blackou= ts=20 occur," de la Cruz said. "My God, we don't want to be in the position of ou= r=20 lines experiencing the prospect of stranded passengers."=20 The San Francisco Giants also have appealed to the PUC to be exempt during= =20 games. A blackout at Pacific Bell Park would "pose major operational=20 challenges," said Staci Slaughter, a Giants' spokeswoman.=20 Electric turnstiles wouldn't work. Concession stands could only accept cash= =20 only for hot dogs and beers. The field would go dark and night games would= =20 have to be canceled.=20 The PUC has been so swamped with bids to escape blackouts that it has hired= a=20 scientific and engineering consulting firm to study who else should be adde= d.=20 Meanwhile, it has asked utilities to look into ways to reconfigure the wiri= ng=20 so that each essential customer won't take so many nonessential ones out of= =20 the blackout pool. A report on those efforts is due Friday.=20 "We've been deluged at the commission by individual requests that do have a= =20 broader public policy good," said PUC president Loretta Lynch, including on= e=20 from the lone U.S. maker of a blood-clotting agent for hemophiliacs.=20 The PUC has hired Exponent, a Menlo Park consulting firm, for $615,000 to= =20 analyze who else should be exempt.=20 Exemption applications are due Friday and will be reviewed by people with= =20 specialties ranging from toxicology to environmental sciences to electrical= =20 engineering, said Robert Caligiuri, an Exponent vice president.=20 The company will rank applicants based on safety risks, and it will work wi= th=20 utilities to determine the potential impacts of adding each one to the=20 exemption pool. It will report to the commission in July, and Wood expects = a=20 decision in early August. He hopes the new rules can be implemented by=20 utilities soon after.=20 But no one within the PUC is taking an equally rigorous look at those who a= re=20 already exempt, and the commission is split on whether such a study is=20 necessary. Wood, who specializes in the blackout issue, believes that the= =20 commission simply doesn't have the time for such an effort during the curre= nt=20 emergency.=20 Unsure of their prospects with utilities or the PUC, some are taking their= =20 cases to the Capitol.=20 State Sen. Sheila Kuehl, D-Santa Monica, said lawmakers are scrambling to= =20 draft energy policies that help all Californians, and at the same time, loo= k=20 after interests in their districts.=20 One example is Kuehl's bill that would allow 15 businesses -- including=20 Universal Studios -- which straddle the boundary between Edison and the Los= =20 Angeles Department of Water and Power to get their electricity from DWP. No= t=20 only would that deal provide them with cheaper rates, but it would likely= =20 exempt them from blackouts.=20 The Los Angeles city utility is not part of the region controlled by the=20 state Independent System Operator, and so it functions independently when t= he=20 ISO orders utilities to impose blackouts.=20 Kuehl said the proposal is fair because those businesses were harmed by a= =20 "geographic quirk," where parts of the park are in DWP territory but they a= re=20 solely an Edison customer.=20 "These are already DWP customers," Kuehl said. "They should be able to draw= =20 all their energy from DWP."=20 Other lawmakers are carrying bills for public schools, oil refineries and= =20 customers in areas where there are extreme temperatures. Sen. Richard=20 Polanco, D-Los Angeles, is proposing a law that would ensure municipal=20 utilities -- such as his district's DWP -- don't have to participate in=20 blackouts.=20 Sen. Debra Bowen, D-Marina del Rey, chairwoman of the Senate energy=20 committee, said the state has to realize that not everyone can be exempt.= =20 "All these bills that seek to put one group of folks in a better position= =20 than someone else do is Balkanize the issue," Bowen said. "Unfortunately,= =20 instead of having people come together to try and share the pain equally,= =20 we're seeing folks rushing for their own lifeboat without regard for who ge= ts=20 thrown overboard in the process."=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com.=20 Sempra chief: County may fare OK on outages=20 By Kristen Green=20 UNION-TRIBUNE STAFF WRITER=20 May 31, 2001=20 San Diego County may be more insulated from blackouts this summer than the= =20 rest of the state, the chief executive officer of Sempra Energy said=20 yesterday.=20 Stephen Baum said power supply shortages aren't as profound in Southern=20 California, in part, because the capabilities for importing energy are=20 better.=20 And that might mean Northern Californians will face more days in the dark= =20 than San Diegans over the next three months, he said.=20 In a lecture at University of California San Diego yesterday, Baum, who=20 oversees San Diego Gas & Electric's parent company, said the state will=20 probably have at least 30 days of rolling blackouts this summer, an estimat= e=20 often repeated by other energy experts.=20 But Baum hopes to limit San Diego County energy outages by introducing a=20 rolling blackout reduction program. Sempra is asking the state to support t= he=20 program, which would give San Diego County credit for the energy that=20 businesses contribute to statewide energy supplies when electricity reserve= s=20 drop dangerously low.=20 Local companies would turn on generators as the state nears blackouts, whic= h=20 would make more energy available. In return, Sempra asks that the state=20 reduce the number of households that would be blacked out in San Diego=20 County. The state Public Utilities Commission has not considered the idea= =20 yet.=20 State officials, however, have suggested that the program be applied=20 statewide. That would mean San Diego County businesses that run generators= =20 would contribute to the state's energy supply, but the number of local=20 residents impacted by blackouts would not shrink.=20 During the afternoon lecture, attended by about 30 UCSD students and=20 visitors, Baum acknowledged the significance of President Bush's visit=20 Tuesday but said he disagrees with Bush's opposition to price caps.=20 And he expressed frustration that a resolution seems so far off.=20 "I see no leadership in this issue," he said.=20 The lecture was sponsored by the Irwin and Joan Jacobs School of Engineerin= g,=20 the Graduate School of International Relations & Pacific Studies, and the= =20 Center for Energy Research.=20 'Plan B' gains key support in Assembly=20 Lawmakers also want state costs on energy to be fully disclosed By Ed Mendel? UNION-TRIBUNE STAFF WRITER=20 May 31, 2001=20 CALIFORNIA'S POWER CRISIS=20 SACRAMENTO -- Assembly Democratic leaders have decided to back an alternati= ve=20 to Gov. Gray Davis' plan to keep Southern California Edison out of bankrupt= cy=20 that places less emphasis on state purchase of the Edison transmission=20 system.=20 The long-awaited "Plan B" from Assembly Speaker Robert Hertzberg, D-Van Nuy= s,=20 is taking shape as legislative leaders are demanding that the governor reve= al=20 detailed information about state power purchases, which total more than $7= =20 billion.=20 "You can't come to a solution of this problem until you know exactly what t= he=20 Department of Water Resources is spending," said Senate President Pro Tempo= re=20 John Burton, D-San Francisco.=20 A Davis spokesman said the administration expects to begin complying with t= he=20 legislators' request soon. But there is a question about whether standard= =20 confidentiality clauses prevent release of long-term contracts and concern= =20 that revealing daily purchases would result in higher prices.=20 "The governor philosophically wants to release them as soon as possible,"= =20 said Steve Maviglio, Davis' press secretary. "We just want to make sure we= =20 don't adversely affect our ability to get power at lower cost for the=20 summer."=20 Reserve power levels dropped yesterday, and the state power grid operator= =20 declared a Stage 2 alert for the first time in three weeks. The Independent= =20 System Operator said some power plants were off-line for maintenance and ho= t=20 weather across the state increased demand. Fewer imports were available=20 yesterday in comparison to last week.=20 Another reason legislative leaders are pushing for a full disclosure of sta= te=20 spending on power is to help the Legislature prepare a new state budget for= =20 the fiscal year that begins July 1.=20 "There are many reasons that having very precise numbers in that regard are= =20 important to Sen. Burton and the speaker," said Assemblyman Fred Keeley,=20 D-Boulder Creek, who has been active on the power issue in the Legislature.= =20 Keeley said disclosure of power spending costs might encourage Republican= =20 legislators to provide an urgency vote allowing the prompt sale of a bond o= f=20 up to $13.4 billion to repay the state general fund for the power purchases= .=20 Without an urgency vote the state cannot begin issuing the massive bond=20 before late August, nearly two months into the new fiscal year. The bond=20 would be paid off by ratepayers over 15 years.=20 In addition, said Keeley, detailed information about state spending might= =20 also lead to an agreement on legislation sought by Republicans that would= =20 allow "direct access" purchase of electricity, where businesses and other= =20 consumers contract with generators and marketers.=20 The state began buying power for utility customers in January after a faile= d=20 deregulation plan, which froze customer rates as power costs soared, result= ed=20 in a combined $13 billion debt for Edison and Pacific Gas and Electric and= =20 left them unable to borrow.=20 After PG&E went into bankruptcy in early April, Davis quickly completed a= =20 memorandum of understanding to purchase the Edison transmission system for= =20 $2.76 billion as part of a plan to keep Edison out of bankruptcy and able t= o=20 resume buying power for its customers by the end of next year.=20 But Republican legislators immediately opposed the state purchase of the=20 transmission system. Democratic legislators think the plan is too generous= =20 for Edison and are reluctant to approve what consumer groups have called a= =20 "bailout" of the utility.=20 Burton said that before legislators can evaluate an alternative to the=20 governor's plan they need to know how much the state power purchasing agenc= y,=20 the Department of Water Resources, is spending and how much money has been= =20 committed for the future.=20 "Until we can find that out it's kind of tough to plan," Burton said.=20 Speaker Hertzberg has asked Keeley and senior Assembly staff members to=20 prepare the documents for an alternative to the governor's plan that=20 Hertzberg is expected to propose in a few days.=20 "The transmission purchase is not featured as prominently as it was in the= =20 governor's proposal," Keeley said.=20 One of the options considered by the Assembly Democratic "Plan B" group was= a=20 proposal by Assemblymen John Dutra of Fremont and Joe Nation of San Rafael= =20 that would give the state the option of purchasing the Edison transmission= =20 system for $1.2 billion within five years.=20 A key part of both the governor's plan and the Dutra-Nation proposal is=20 giving Edison part of the revenue from monthly utility bills, a "dedicated= =20 rate component," that could be used to pay off Edison's debt and allow the= =20 utility to resume buying power.=20 Both plans also would require Edison to make other concessions, including= =20 providing low-cost power and the return of a $400 million tax refund that= =20 Edison gave to its parent firm. Generators would be asked to forgive 30=20 percent of what they are owed.=20 Assembly Republicans said last week that what the state should receive in= =20 exchange for aiding Edison is not the transmission system, but an agreement= =20 that Edison would build new power plants to provide low-cost power. FERC boss unfazed by Davis' lawsuit threat=20 Court has dismissed similar action already By Toby Eckert=20 COPLEY NEWS SERVICE=20 May 31, 2001=20 WASHINGTON -- The head of the Federal Energy Regulatory Commission said=20 yesterday he is confident the agency would prevail in a legal battle with= =20 California Gov. Gray Davis over electricity price controls.=20 "I feel good about our chances," said FERC Chairman Curtis Hebert, citing a= =20 federal court's decision Tuesday to dismiss a similar lawsuit filed by=20 California legislative leaders.=20 Davis has threatened to sue the FERC for allegedly failing to meet its lega= l=20 obligation to ensure that wholesale power costs are "just and reasonable."= =20 Such a move would be the latest escalation in Davis' running battle with th= e=20 agency over its response to California's power crisis.=20 "I think the 9th Circuit (federal appeals court) made very clear that the= =20 commission is doing its job appropriately," Hebert told reporters.=20 A three-judge panel of the San Francisco-based court rejected a suit by=20 California Senate President Pro Tempore John Burton and Assembly Speaker=20 Robert Hertzberg that sought to force the FERC to impose wholesale price=20 controls. The court said the lawmakers "have not demonstrated that this cas= e=20 warrants the intervention of this court."=20 Davis says his administration has laid a firmer legal foundation for a=20 lawsuit by first pursuing administrative remedies at the FERC. Several stat= e=20 agencies made a flurry of filings with the commission last week, asking it = to=20 crack down on wholesale prices that have increased tenfold over the past=20 year.=20 "The (legislative leaders') lawsuit was thrown out .?.?. because there wasn= 't=20 a preliminary filing with FERC asking for the relief that the plaintiffs we= nt=20 into court to seek," Davis said Tuesday. "We have made such filings as=20 recently as Friday. .?.?. So we have to give them some time to review that= =20 information."=20 But legal experts said the state may have a tough time building a successfu= l=20 case against the FERC.=20 Federal statutes generally "give a great deal of discretion to agencies in= =20 carrying out their duties," said Peter Shuck, an expert in regulatory polic= y=20 at Yale Law School. "So it would be very hard for the state to prevail."=20 Hebert and fellow Commissioner Linda Breathitt have rejected the firm price= =20 controls sought by Davis, overruling Commissioner William Massey, who favor= s=20 them.=20 Hebert says the commission has taken steps to lower wholesale power prices = in=20 California and punish price gouging. He cites $125 million in refunds=20 recently ordered by the agency and a "price mitigation" plan that went into= =20 effect Tuesday.=20 The plan will use a complicated formula to set a price ceiling for power=20 sales during severe shortage periods. Generators breaching the limit will= =20 have to justify their prices to the FERC or pay refunds.=20 Davis and other critics say the plan is riddled with loopholes and will bri= ng=20 little relief to the state. They also say the refunds ordered by the FERC t= o=20 date fall far short of the billions of dollars in overcharges the state has= =20 endured.=20 Meanwhile, a spokesman for the California Independent System Operator, whic= h=20 controls most of California's power grid, said the agency intends to meet a= =20 Friday deadline for filing comments with the FERC on joining a regional gri= d=20 management organization. The FERC has threatened to revoke the limited pric= e=20 curbs if the ISO fails to present a plan for joining the organization.=20 Chula Vista names itself a municipal power entity=20 Move is latest effort to combat energy crisis By Amy Oakes=20 UNION-TRIBUNE STAFF WRITER=20 May 31, 2001=20 CHULA VISTA -- The city has declared itself a municipal utility district as= =20 one possible way to cope with the state's crippling energy crisis.=20 The declaration, approved by the City Council on Tuesday, is the city's fir= st=20 step in examining the costs and benefits of owning and operating all or par= t=20 of an energy generation and distribution system.=20 "It's a fairly simple act in a complex environment," Assistant City Attorne= y=20 Glen Googins told the council.=20 The council also approved an energy conservation and strategy plan, which= =20 outlines eight options for the city to review. The choices, range from=20 entering into a fixed-price contract with an energy service provider to=20 partnering with a third party, such as Duke Energy, to operate a power=20 generation facility.=20 The council also voiced concerns about a proposed 62.4 megawatt peak-use=20 plant to be built near Main Street. Ramco Inc., which wants to build an=20 enclosed gas turbine plant, held a site tour and information meeting Tuesda= y=20 evening.=20 If approved by the California Energy Commission, the plant would be=20 operational by Sept. 30.=20 The city has scheduled its own informational public hearing for residents= =20 from 6 to 8 p.m. Friday at the Otay Community Center, 1671 Albany Ave.=20 Several on the council said another plant could harm the air quality in the= =20 city because the peak-use facilities primarily use natural gas.=20 The city is home to Duke's South Bay facility and has approved plans for a= =20 49.5 megawatt peak-use plant near Main Street.=20 "We think another peaker plant is a little much," Councilwoman Patty Davis= =20 said yesterday. "I think Chula Vista has done its job."=20 Davis said the council had not received any information about the Ramco=20 project. She said she learned about the proposal Tuesday before the council= =20 meeting.=20 By naming itself a municipal utility district, the city can consider=20 establishing and operating public works for its residents, such as water=20 distribution. The decision does not commit the city to providing those=20 services.=20 The council on Tuesday also approved using $50,000 from its traffic signal= =20 fund to install backup battery power supply packs and light emitting diodes= =20 at 55 intersections. The battery packs will ensure that the traffic lights= =20 will function if the area is subject to a rolling blackout. Circuit breaker=20 Giddy investors in the power trade get their wires crossed By Brad Foss=20 ASSOCIATED PRESS=20 May 31, 2001=20 NEW YORK -- Investors in power companies who were sipping champagne after= =20 President Bush unveiled his national energy strategy got a bad case of the= =20 hiccups when Democrats regained control of the Senate.=20 Shares of companies that trade power climbed higher in the days following t= he=20 release of the Bush plan. They've been sliding since Sen. James Jeffords of= =20 Vermont defected from the Republican Party, and Wall Street analysts say=20 perceptions about the fate of the Bush plan are definitely a factor.=20 "The energy bill was so favorable it almost seemed like (power companies) g= ot=20 everything they would have asked for," said Barry Abramson, utility analyst= =20 at UBS Warburg. "Now it looks like everything is going to be more difficult= =20 to achieve, but not impossible."=20 The Bush plan seeks to give oil and gas drillers easier access to public=20 lands, to speed up the review process for refinery and power plant expansio= ns=20 and spur renewed interest in nuclear power.=20 Shares of Calpine, Dynegy, Mirant and San Diego-based Sempra Energy, climbe= d=20 between May 16 and May 21 -- the time between the release of the Bush plan= =20 and reports of a Senate shake-up.=20 These stocks began to descend May 23, when Sen. Jeffords announced he was= =20 leaving the GOP, and have continued downward, with Calpine and Dynegy losin= g=20 13 percent, Mirant off 17 percent and Sempra Energy down more than 4 percen= t.=20 Still, analysts say investors might be overreacting.=20 "Despite the fanfare following the unveiling of President Bush's energy pla= n,=20 we believed its chances of passage -- even with a Republican majority -- wa= s=20 slim at best," said Daniel Ford, head of a team of energy analysts at Lehma= n=20 Brothers. "With Jeffords' move, the effort may be even more remote, but the= =20 most likely outcome, inaction, has not changed."=20 Ford acknowledged that talk of capping wholesale electricity prices for=20 California has resurfaced in the Senate, though he dismissed the likelihood= =20 of this happening -- even with a Democratic majority -- because "Bush still= =20 has veto power and, to date, has been steadfastly against caps."=20 Democrats no doubt will emphasize conservation more than Republicans would= =20 have, but the momentum shift in the Senate will not be overly dramatic,=20 according to Bill Breier, vice president of the Edison Electric Institute, = a=20 Washington-based group that represents utilities.=20 But other experts note how quickly political positions could shift if Weste= rn=20 power markets suffer the kind of meltdown San Diego experienced last summer= .=20 During that crisis, power bills quickly tripled, costs were passed directly= =20 to electricity consumers and even the most conservative local Republican=20 leaders called for an end to the open market and a cap on wholesale=20 electricity prices.=20 There still will be fierce battles over efforts to relax power plant=20 emissions -- a Bush proposal that would benefit coal burners -- and proposa= ls=20 to expand the nation's electricity and natural gas infrastructure.=20 "There's going to have to be consensus and we've known that from the get-go= ,"=20 Breier said.=20 Analysts emphasized that it would be wrong to assume that much of the Bush= =20 energy plan is now dead-on-arrival with Democrats in control of the Senate.= =20 For instance, attention has been given to the fact that Sen. Jeff Bingaman,= a=20 Democrat from New Mexico, will take over as chairman of the Senate Energy a= nd=20 Natural Resources Committee, replacing Sen. Frank Murkowski of Alaska.=20 Bingaman, however, supports legislation critical to the nuclear power=20 industry, including the Price Anderson Act, a 1957 law set to expire in 200= 2=20 that limits corporate liability from a nuclear accident.=20 Other energy strategies favored by Bush, such as the deregulation of=20 electricity markets and the construction of 1,300 power plants over the nex= t=20 20 years, will not be affected by the Senate overhaul simply because their= =20 implementation is heavily dependent on state government, not federal, said= =20 Ray Niles, who analyzes the power and natural gas industries for Salomon=20 Smith Barney.=20 "I don't think it makes a huge amount of difference," Niles said. "Things= =20 like increasing drilling were going to be a hard haul for the country=20 anyway."=20 Staff writer Craig D. Rose contributed to this report.=20 After months of pressure, mayor agrees on power plant=20 By Brian Bergstein ASSOCIATED PRESS=20 May 31, 2001=20 SAN JOSE =01) After months of pressure, Mayor Ron Gonzales has dropped his= =20 opposition to a proposed large power plant in southern San Jose.=20 In a crowded news conference in his office Wednesday, Gonzales announced hi= s=20 staff had negotiated important concessions from the companies that want to= =20 build the $400 million Metcalf Energy Center =01) Calpine Corp. and Bechtel= =20 Enterprises Inc.=20 The companies agreed to donate $6.5 million to community programs, offer=20 long-term power contracts at below-market rates to San Jose businesses and= =20 take extra steps to keep the plant's pollution levels down.=20 "We came to the conclusion this power plant was on its way to San Jose, and= =20 we needed to do everything we could to use our leverage to make this the be= st=20 facility we could," Gonzales said. "We worked hard to make this plant bette= r=20 for the people of San Jose."=20 Gonzales and the entire City Council in November voted against the=20 600-megawatt Metcalf plant on the grounds it would be too close to=20 residential areas.=20 But as California's energy crisis deepened, Gonzales' position became=20 increasingly unpopular. Gov. Gray Davis, state representatives, county=20 supervisors and the Sierra Club called for the plant to be built.=20 The decision on whether the plant will be built now rests with the Californ= ia=20 Energy Commission, which did not return a call for comment Wednesday. The= =20 agency, which is expected to vote this summer, could have approved the plan= t=20 even without Gonzales' support.=20 But Gonzales said the city still "could have made it difficult" by refusing= =20 to extend San Jose's recycled water line to the plant. Calpine and Bechtel= =20 agreed to pay for part of the extension.=20 Peter Cartwright, president and chief executive of San Jose-based Calpine,= =20 also said Gonzales' support was important.=20 "We didn't want a situation where the Energy Commission overruled the city,= "=20 Cartwright said. "We have to live here."=20 Construction on the natural gas-fueled plant could begin this summer, meani= ng=20 it could start generating enough electricity for 450,000 homes in 2003.=20 The Metcalf plant would be built in the Coyote Valley, one of the city's la= st=20 remaining chunks of open space. The plant has been opposed by Internet=20 equipment maker Cisco Systems Inc., which plans to build a $1.3 billion=20 office complex nearby. A Cisco spokesman did not return a call for comment= =20 Wednesday.=20 Members of the Santa Teresa Citizen Action Group, based in a neighborhood= =20 near the proposed plant, said the mayor failed to win any significant=20 environmental concessions on the Metcalf plant. The group's president,=20 Elizabeth Cord, said she will go to court to block the plant if necessary.= =20 Panel OKs weakened utility district bill=20 By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 May 30, 2001=20 SACRAMENTO -- A watered-down bill originally intended to create a San Diego= =20 County municipal utility district was approved by an Assembly committee=20 yesterday after San Diego Gas & Electric dropped its opposition.=20 The committee rejected a bill last week authorizing the creation of a new= =20 municipal utility district. The new version of the bill simply expresses th= e=20 "intent" that the county, cities and special districts cooperate to obtain = a=20 stable source of low-priced power.=20 The author, Assemblyman Mark Wyland, R-Escondido, pledged to bring the bill= =20 back to the committee for final approval after attempting to negotiate=20 agreements in the Senate on the operation, governing and public approval of= a=20 proposed new agency.=20 "What we are really asking for today is to let this proceed out of this=20 committee, because we do need to address many, many, many of the issues tha= t=20 were raised and then have the bill come back to this committee for its fina= l=20 working," Wyland told the committee.=20 Wyland said he hopes to negotiate a bill that would allow the new agency to= =20 obtain cheap long-term power contracts, possibly by forming groups of=20 customers that could purchase power directly from generators or marketers.= =20 He said the agency might also generate some power through San Diego County= =20 Water Authority hydroelectric facilities or by purchasing the South Bay pla= nt=20 in Chula Vista, which is owned by the San Diego Unified Port District and= =20 operated by Duke Energy under a lease.=20 One thing the new agency would not be doing is using the public power of=20 "eminent domain" to force SDG&E to sell any of its property. An SDG&E=20 lobbyist said the utility dropped its opposition after it was made clear th= at=20 the proposed new agency would not have the power of eminent domain.=20 Wyland said he thought the original version of the bill was rejected by the= =20 committee partly because SDG&E "felt burdened" and partly because committee= =20 members thought it might influence attempts to create municipal utility=20 districts in other areas of the state.=20 Advocates of municipal utility districts say they have historically provide= d=20 cheaper power than investor-owned utilities. The Los Angeles Department of= =20 Water and Power has continued to provide low-cost power to its customers=20 during the current electricity crisis.=20 A proposal to create a new municipal utility district may appear on the=20 ballot in San Francisco this fall. Backers of the San Diego proposal=20 initially wanted to create a new district without a vote of the people,=20 hoping to quickly get cheaper power.=20 Now legislators have made it clear that a vote of the people will be=20 required. But there is a dispute over whether approval should require a=20 majority vote or a two-thirds vote, as urged by some Republicans who think= =20 the proposed new agency might be able to raise taxes.=20 Wyland said that even if the legislation is approved this year, getting a= =20 detailed proposal ready for the ballot next March may be difficult. Some=20 groups in Escondido and San Marcos have been talking about creating municip= al=20 utility districts in those cities.=20 Jim Madaffer, a San Diego city councilman, told the committee that he=20 believed the bill could allow streamlining and efficiencies and other steps= =20 that SDG&E might find beneficial.=20 "It's on that premise that I am here today," Madaffer said, "and I believe= =20 also that SDG&E is now allowing it to move forward."=20 Madaffer was corrected by the committee chairman, Rod Wright, D-Los Angeles= ,=20 who said the committee decides whether bills pass. Madaffer quickly agreed,= =20 saying he meant to say that SDG&E had dropped its opposition.=20 Wright, who opposed the original version of the bill last week, joined in t= he=20 13-to-0 vote for the new measure.=20 "You have a lot of work yet to do," Wright told Wyland.=20 The committee also approved a bill by Assemblyman Jay La Suer, R-La Mesa,= =20 that would require the SDG&E "balancing account" debt to be paid off by=20 ratepayers over a five-year period.=20 Legislation capped SDG&E rates last September at a level far below the=20 wholesale cost of power, producing a debt of more than $600 million by last= =20 month, a sum known as the balancing account.=20 An aide said La Suer wants to protect ratepayers from a large "balloon=20 payment" due in a short period. The Utility Consumers' Action Network of Sa= n=20 Diego opposed the bill, arguing that the debt might be lowered by=20 negotiations or regulatory action.=20 The aide said the bill does not specify the amount of the debt and that La= =20 Suer is willing to discuss the issue with the consumer group.=20 Davis fails to sway Bush on price caps=20 Meeting cordial, but president remains opposed to controls By John Marelius=20 UNION-TRIBUNE STAFF WRITER=20 May 30, 2001=20 LOS ANGELES -- After a weeklong buildup worthy of international summitry,= =20 President Bush and Gov. Gray Davis met yesterday to discuss California's=20 electricity crisis, leaving unresolved their fundamental disagreement over= =20 the merits of imposing federal price controls to curb soaring utility rates= .=20 While the meeting between two political rivals was steeped in cordiality, i= t=20 ended with Davis proclaiming he intended to sue the federal government if i= t=20 didn't deliver price relief to California electricity consumers.=20 "I am going to pursue every recourse available to me," Davis told reporters= =20 after the 35-minute meeting. "We will file a lawsuit against the Federal=20 Energy Regulatory Commission for failing to discharge its legal obligation.= "=20 While Bush refused to budge on wholesale electricity price caps, Davis said= =20 he was pleased by one Bush action. The president designated Pat Wood III,= =20 Bush's first appointee to the FERC, to act as a personal emissary between t= he=20 governor and the regulatory commission's investigation into allegations of= =20 market manipulation by Texas natural gas distributors who charge California= =20 three times what they charge New York.=20 More than four months into his presidency, Bush yesterday made his first=20 public appearances in California as president of the United States.=20 The president met with Marines and their families at Camp Pendleton in the= =20 early morning, then traveled to Los Angeles, where he delivered a speech on= =20 energy and economic policy to the Los Angeles World Affairs Council.=20 Summing up his approach to unpredictable electricity prices and supplies, t= he=20 president said:=20 "My administration will continue to work to help California through the=20 difficult months ahead. All our efforts are guided by a simple test: Will a= ny=20 action increase supply at fair and reasonable prices? Will it decrease dema= nd=20 in equitable ways? Anything that meets that test will alleviate the=20 shortages, and we will move swiftly to adopt it. Anything that fails that= =20 test will make the shortage worse."=20 The president outlined his opposition to electricity price controls -- a=20 stance Democrats have exploited to portray the Bush administration as a=20 lackey for profiteering energy companies.=20 "We will not take any action that makes California's problems worse. And=20 that's why I oppose price caps," he said. "At first blush, for those=20 struggling to pay high energy bills, price caps may sound appealing. But=20 their result will ultimately be more serious shortages and therefore even= =20 higher prices."=20 An long-distance war of words between Democrat Davis and Republican=20 administration officials, particularly Vice President Dick Cheney, has=20 escalated in recent weeks over energy policy.=20 With Davis two seats away on the World Affairs Council dais, Bush pointedly= =20 called for an end to the acrimony.=20 "For too long, too often, too many have wasted energy pointing fingers and= =20 laying blame," the president said. "Energy is a problem that requires actio= n=20 -- not politics, not excuses, but action. Blame shifting is not action; it = is=20 a distraction."=20 Leading up to yesterday's meeting was a week of posturing by spokesmen for= =20 the two leaders on seemingly every detail, including who invited whom to th= e=20 meeting in the first place.=20 But when the two met -- Bush and Davis are casual acquaintances from their= =20 briefly overlapping tenures as governors -- the session was, by all account= s,=20 as devoid of rancor as it apparently was of productivity.=20 "The meeting was cordial, informational, businesslike," Davis said.=20 As Davis told it, he even deployed the only remaining weapon in his=20 gubernatorial arsenal -- the threat of a lawsuit -- delicately.=20 "I said, 'Mr. President, you understand I have to do everything in my power= =20 to seek relief for the people of this state. You would do the same thing if= =20 you were in my position,' and he agreed," Davis said.=20 Karl Rove, Bush's hard-nosed chief political adviser, also characterized th= e=20 meeting in amiable terms.=20 "They did agree on one thing: that California is entitled to price relief,"= =20 Rove told reporters. Of course, he went on, the president's prescription fo= r=20 price relief lies in conservation and development of new energy sources, no= t=20 price controls.=20 "When the cap was lowered by the administration in California, 3,000=20 megawatts of power disappeared from California (to be sold elsewhere)," Rov= e=20 said.=20 For his part, Davis contended the Bush administration's free-market economi= c=20 arguments against price caps are beside the point. He maintained federal la= w=20 compels the FERC to guarantee reasonable wholesale electricity prices and= =20 stabilize wildly fluctuating markets.=20 Lawsuits by states against the federal government have little history of=20 success. Indeed, a lawsuit against the FERC by Assembly Speaker Bob=20 Hertzberg, D-Van Nuys, was thrown out by the 9th U.S. Circuit Court of=20 Appeals yesterday just as Davis was threatening another one.=20 Davis said the court rejected Hertzberg's suit because it failed to allow= =20 administrative remedies to be exhausted. The governor said he filed a numbe= r=20 of motions with FERC seeking rate relief last Friday and would wait 30 days= =20 or so for those to run their administrative course before proceeding with= =20 legal action.=20 Davis said the total electricity bill in California went from $7 billion in= =20 1999 to a projected $50 billion this year. He said he reminded the presiden= t=20 of the potential political disaster facing both of them if the electricity= =20 situation is not brought under control.=20 "I did tell him that if we have to pay $50 billion for power, it could well= =20 trigger a recession in California, which could drag down the American econo= my=20 into a recession as well," he said.=20 Bush was greeted at both stops yesterday by protesters denouncing his energ= y=20 and environmental policies. Three women -- one of them former Green Party= =20 U.S. Senate candidate Medea Benjamin -- tried to disrupt Bush's World Affai= rs=20 Council speech and were removed from the ballroom.=20 Earlier in the day, Davis held a session where several San Diegans told how= =20 they were affected by soaring electricity costs: YMCA director Michael=20 Brunker, Gabriel and Christine Rodriguez of Chiquita's Mexican Restaurant,= =20 and Cybele Thompson, president of the San Diego Building Owners and Manager= s=20 Association.=20 "It may not be as obvious as an earthquake," said Brunker of the Jackie=20 Robinson Family YMCA. "But it's hit us in such a way that it's really=20 crippling a lot of people."=20 Staff writer Ed Mendel contributed to this report.=20 Head of FERC confident California suit will fail=20 By Toby Eckert COPLEY NEWS SERVICE=20 May 30, 2001=20 WASHINGTON =01) The head of the Federal Energy Regulatory Commission said= =20 Wednesday he is confident the agency would prevail in a legal battle with= =20 California Gov. Gray Davis over electricity price controls.=20 "I feel good about our chances," FERC Chairman Curtis Hebert said, citing a= =20 federal court's decision Tuesday to dismiss a similar suit filed by=20 California legislative leaders.=20 Davis has threatened to sue the FERC for allegedly failing to meet its lega= l=20 obligation to ensure that wholesale power costs are "just and reasonable."= =20 Such a move would be the latest escalation in Davis' running battle with FE= RC=20 over its response to California's power crisis.=20 "I think the 9th Circuit (federal appeals court) made very clear that the= =20 commission is doing its job appropriately," Hebert told reporters.=20 A three-judge panel of the San Francisco-based court rejected a lawsuit by= =20 California Senate President Pro Tempore John Burton and Assembly Speaker=20 Robert Hertzberg that sought to force FERC to impose wholesale price=20 controls. The court said the lawmakers "have not demonstrated that this cas= e=20 warrants the intervention of this court."=20 Davis says that his administration has laid a firmer legal foundation for a= =20 suit by first pursuing administrative remedies at FERC. Several state=20 agencies made a flurry of filings with the commission last week, asking it = to=20 crack down on wholesale prices that have increased ten-fold over the past= =20 year.=20 "The (legislative leaders') lawsuit was thrown out ... because there wasn't= a=20 preliminary filing with FERC asking for the relief that the plaintiffs went= =20 into court to seek," Davis said Tuesday. "We have made such filings as=20 recently as Friday. ... So we have to give them some time to review that=20 information."=20 But legal experts said the state may have a tough time building a successfu= l=20 case against FERC.=20 Federal statutes generally "give a great deal of discretion to agencies in= =20 carrying out their duties," said Peter Shuck, an expert in regulatory polic= y=20 at Yale Law School. "So it would very hard for the state to prevail."=20 Hebert and fellow Commissioner Linda Breathitt have rejected the firm price= =20 controls sought by Davis, overruling Commissioner William Massey, who favor= s=20 them.=20 Hebert insists the commission has taken steps to lower wholesale power pric= es=20 in California and punish price gouging. He cites $125 million in refunds=20 recently ordered by the agency and a "price mitigation" plan that went into= =20 effect Tuesday.=20 The plan will use a complicated formula to set a price ceiling for power=20 sales during severe shortage periods. Generators breaching the limit will= =20 have to justify their prices to FERC or pay refunds.=20 Davis and other critics say the plan is riddled with loopholes and will bri= ng=20 little relief to the state. They also say the refunds ordered by FERC to da= te=20 fall far short of the billions of dollars in overcharges the state has=20 endured.=20 Meanwhile, a spokesman for the California Independent System Operator, whic= h=20 controls most of California's power grid, said the agency intends to meet a= =20 Friday deadline for filing comments with FERC on joining a regional grid=20 management organization. FERC has threatened to revoke the limited price=20 curbs if the ISO fails to present a plan for joining the organization.=20 California's three investor-owned utilities =01) Southern California Edison= , San=20 Diego Gas & Electric and Pacific Gas & Electric =01) plan to make similar= =20 filings.=20 Grid managers call Stage 2 alert, but hope to avoid blackouts=20 ASSOCIATED PRESS=20 May 30, 2001=20 SACRAMENTO =01) Managers of the state's power grid called a Stage 2 alert= =20 Wednesday and asked customers to conserve power as temperatures climbed.=20 The Independent System Operator said it did not expect blackouts, although= =20 spokeswoman Stephanie McCorkle said electricity supplies were "obviously ve= ry=20 tight."=20 Higher temperatures statewide were driving up electricity use about 1,200= =20 megawatts over Tuesday, she said.=20 Power plants off-line for repairs and increased power usage caused the=20 state's electricity reserves to dip below 5 percent, prompting officials to= =20 declare a Stage 2. A Stage 3 alert is called when reserves are in danger of= =20 falling below 1.5 percent and can be followed by rolling blackouts.=20 FERC Chief Unfazed By Threat of Third Lawsuit=20 By RICARDO ALONSO-ZALDIVAR and JUDY PASTERNAK, Times Staff Writers=20 ?????WASHINGTON--The beleaguered chairman of the Federal Energy Regulatory= =20 Commission said Wednesday that he was not fazed by California Gov. Gray=20 Davis' threat to sue the agency for failing to cap wholesale electricity=20 rates. ?????California officials have gone to the federal courts twice before to= =20 force FERC to impose price caps, Curt Hebert told reporters. And the U.S. 9= th=20 Circuit Court of Appeals in San Francisco has twice rejected the suits. ?????Davis, observing that FERC has a legal obligation to ensure that=20 wholesale electricity rates are "just and reasonable," threatened to go to= =20 court again after he failed in a meeting Tuesday to persuade President Bush= =20 to support caps on wholesale electricity prices. ?????"They've sued us two times and they have been [dismissed] two times,"= =20 Hebert said. "I feel very good about it." ?????Responding to reporters' questions, Hebert also appeared to be unaware= =20 of media reports that President Bush had asked a rival for his chairmanship= ,=20 Patrick Wood III, to play a special role in dealing with California's=20 problems. ?????Wood, a Bush confidant who until now had been chairman of the Texas=20 Public Utility Commission, was confirmed by the Senate as a FERC commission= er=20 last week and is widely expected to be named to Hebert's job. The president= =20 can designate any FERC commissioner as chairman without further action by t= he=20 Senate. ?????White House officials said during Bush's visit to Los Angeles on Tuesd= ay=20 that Wood would follow up on concerns raised in the president's meeting wit= h=20 Davis. ?????Wood said in an interview that he talked briefly with Davis three week= s=20 ago and more recently with California PUC President Loretta Lynch. He said= =20 his charge is vague: to review the entire situation. ?????"I'm looking at short-term things and long-term things," he said, noti= ng=20 that he had heard from lawmakers "on both sides of the aisle" complaining= =20 that FERC had not gone far enough. ?????Wood, who advocates a more activist role for FERC, said he wants to=20 monitor how the agency's efforts to limit price spikes in California are=20 working and that he might push for changes. Unlike Hebert, he said the=20 agency's standard for deciding whether a company has market power--enough= =20 influence to sway prices--needs to be reconsidered. He said he is also open= =20 to increasing the amount of rebates ordered to utilities for January. ?????And he said he thought FERC should also take another look at the desig= n=20 of California's deregulated market. "Your work never stops," Wood said. "Yo= u=20 never get there and say, 'We're done.' " ?????California, he added, "is salvageable," though he said blackouts are= =20 inevitable this summer. ?????FERC itself has acknowledged that California is paying unfair prices f= or=20 electricity, particularly during power shortages. But instead of imposing= =20 price caps, the agency has instituted a complex system to monitor the marke= t=20 and seek refunds from power sellers that overcharge during emergencies. ?????A majority of FERC's governing board believes that price caps would=20 deter investors from building new power plants in California, thereby=20 complicating efforts to increase energy supplies. Price caps "would destroy= =20 what is left of California," Hebert said Wednesday. ?????State officials disagree. ?????With California paying as much as $1,900 per megawatt hour to avert=20 blackouts earlier this month--five times the current market price--state=20 officials argue that FERC's approach is no deterrent and that the agency ha= s=20 a legal obligation to impose price caps. ?????Davis and others contend that temporary controls would bring order to= =20 the power markets and prevent further damage to California's economy. They= =20 point out that the energy industry operated efficiently under government-se= t=20 rates until the recent onset of deregulation.=20 ?????But the courts have held that FERC has wide latitude in fulfilling its= =20 obligations under federal law. ?????In an April 11 decision denying a petition for relief by the city of S= an=20 Diego, a 9th Circuit panel ruled that the same law that gives FERC authorit= y=20 to impose price caps also allows it to pursue alternatives. ?????On Tuesday, the same court dismissed a petition from state Senate lead= er=20 John Burton, citing its earlier decision in the San Diego case. Copyright 2001 Los Angeles Times=20 The Home Energy Drain=20 How Appliances Draw Electricity, Even When Off=20 By DAVE WILSON, Times Staff Writer=20 ?????When devices such as stereos are turned off, we think of them as dead.= =20 But it turns out they're only mostly dead. And mostly dead is a little bit= =20 alive. Graphic: Standby power consumption of common appliances.=20 ?????For instance, have you ever wondered how a television set can understa= nd=20 the "power on" command from the remote control if the TV isn't using any=20 power at all? The fact is nearly all television sets--in fact, most home=20 appliances--use power as long as they're plugged in to a live electrical=20 outlet, if only to receive and interpret remote control signals or keep the= =20 little clock running. ?????All those little trickles of electricity can add up to a steady stream= =20 of juice that users end up paying for--power that's being drained from a=20 system that can't meet the state's needs as California enters a summer of= =20 rolling blackouts and rising power bills. Plus, the delicate electronic=20 circuitry that makes our favorite gizmos work can be damaged when the power= =20 flow abruptly stops and starts. ?????Researchers refer to this sort-of-off-but-sort-of-on condition as=20 "standby power" and say the drain on the electrical supply is=20 significant--and continuing to rise. ?????"When you add up all these things like TVs and VCRs, it looks like=20 standby use in California is almost 10% of the residential use of=20 electricity," said Alan Meier, staff scientist at the Berkeley Laboratory a= nd=20 an internationally recognized expert on the phenomenon of standby power dra= in. Shopping for a Surge Supressor Fluctuating power levels can cause damage under certain conditions to devic= es=20 that draw power all the time. One tactic to prevent damage is using a surge= =20 supressor. =01=07 When shopping for a surge suppressor, the key number is the maximum = level=20 of electricity that will be let through in case of a surge. This number is= =20 referred to as, depending on the marketing guys behind the product, "clampi= ng=20 voltage," "let-through voltage" or "voltage rating." The lower the number,= =20 the better. =01=07 Right now, the best rating you can get is a surge suppressor carryin= g the=20 UL inspection seal certifying that it's met the 1449 standard and a clampin= g=20 voltage rating of 330 volts. =01=07Also, look for suppressors with a 1-nanosecond response time or less;= =20 cheaper suppressors take longer to respond to a spike, which can be too lat= e=20 to protect your components. -- DAVE WILSON ?????The cost of this drain probably isn't especially onerous to most=20 consumers. Leaving your answering machine plugged in all the time, for=20 instance, will cost you about 37 cents a month, assuming you're paying abou= t=20 17 cents a kilowatt-hour. ?????The total cost of standby power probably is in the neighborhood of $10= 0=20 a year per household at current rates, though that figure will rise as=20 electricity becomes more expensive. Though that's not a vast sum to many=20 people, reducing electricity usage is critical to maintaining a steady powe= r=20 supply in California. ?????The difference between a Stage 2 power emergency and Stage 3--the poin= t=20 at which rolling blackouts kick in--is only 3.5% of total reserve electrica= l=20 capacity. So cutting back on that leaking 10% in homes can make the=20 difference. ?????Not all the standby power is wasted. An answering machine is pretty=20 useless if it doesn't have access to power all the time since part of the= =20 device's job is to be primed to pick up the phone if it should ring. It's= =20 those other devices, such as the microwave oven clock that pulls power even= =20 though nothing's being cooked, that are the problem. All devices that use= =20 standby power could be designed to use as little electricity as possible. ?????Standby power drain is getting worse as more of the items we have in o= ur=20 homes move from mechanical switches and timers to electronic controls. The= =20 typical household today uses 7,000 kilowatt-hours of power each year. ?????Overall, residential consumption of power has risen 17.6%, from 68,000= =20 gigawatt-hours in 1990 to an estimated 80,000 gigawatt-hours, according to= =20 the California Energy Commission. Even when adjusted for population growth,= =20 Californians use more power than they did 10 years ago--despite the fact th= at=20 household appliances got more energy efficient. ?????One reason: We've got a lot more energy-gobbling devices in our homes.= =20 For instance, Fred Johnson, who works in Silicon Valley's high-tech industr= y,=20 has three TVs, each with a DVD player. He's also got two TiVo digital=20 recorder boxes, four computers and two stereo systems. ?????"Fortunately, it's not all on simultaneously," he said. ?????Another reason for the increase in power draw is a simultaneous increa= se=20 in the number of devices that are always on. For instance, older microwave= =20 ovens used a mechanical timer, which means the device didn't draw power=20 unless the oven was actually heating something up. Newer ovens use electron= ic=20 touch pads and digital clocks, both of which require a steady stream of=20 power. Part of the reason for the shift was interest in reliability;=20 mechanical switches wear out or need maintenance, whereas electronic contro= ls=20 are generally service free. ?????Those digital controls are showing up in things such as stoves,=20 dishwashers, washers and dryers, which means these devices also leak=20 electricity even when they're not actually working. ?????Some devices are so badly designed that they generally use as much=20 electricity when they're theoretically off as when they're on, Meier said.= =20 "The set-top boxes for cable and satellite television broadcasts are good= =20 examples," he said. Manufacturers aren't under any pressure to improve the= =20 design of electronic components in the home because there's no financial=20 incentive for them to do so. ?????Consumers wind up paying the price. ?????"We think there are typically 20 devices in a home that are consuming= =20 standby power," Meier said. "In the average home in California, standby pow= er=20 is somewhere around 500 kilowatt-hours a year. And some users are paying 20= =20 cents a kilowatt. So that's about $100 a year for appliances that aren't=20 actually doing what you bought them for."=20 ?????That hundred bucks during the course of a year might seem a pretty sma= ll=20 price to pay for the ability to change the music coming out of the CD playe= r=20 without having to lever yourself off the couch. ?????But even if it does bother you, there's not a lot you can do, short of= =20 unplugging devices when they're not in use. Sometimes unplugging a device= =20 isn't practical, though, because many components will lose information stor= ed=20 in them if the power goes out. Your radio might forget its presets, your VC= R=20 will lose the time and some TVs will have to be reprogrammed with the local= =20 television stations available. ?????On a fundamental level, this is an issu= e=20 that has to be addressed by electronics manufacturers, who, until now,=20 largely ignored the issue. Meier has been leading a fight during the last= =20 couple of years to get manufacturers to build devices that use standby powe= r=20 more efficiently, to keep that functionality but make better use of=20 electricity. ?????"Some of these devices draw 15 or 20 watts," Meier said. New designs c= an=20 reduce that flow to 1 watt, but few manufacturers have shown enthusiasm for= =20 the goal. That might change as governments put pressure on manufacturers.= =20 Australia, for one, recently endorsed the goal of 1-watt standby drain for= =20 all appliances.=20 ?????In addition, there is some concern that, under certain conditions,=20 devices that draw power all the time could be slightly more vulnerable to= =20 damage caused by fluctuations in the power supply than devices that are=20 completely powered down. ?????If that's true, it makes such things as surge suppressors and=20 uninterruptible power supplies even more important to consumers at a time= =20 when rolling blackouts are expected to become a regular occurrence. ?????Surge suppressors are designed to choke off a spike of electricity=20 before it can reach your valuable components and damage them. Typically, a= =20 lightning strike a mile or so away can flow down electric, telephone or cab= le=20 television wires and fry any component connected to the line, such as a hom= e=20 computer. The surge suppressor intercepts that overload. ?????These surges can occur in many different situations, such as apartment= =20 buildings where large motors--for instance, those used in air conditioners= =20 and elevators--routinely go on and off. ?????"Any time the power goes off and goes back on again, that's a tremendo= us=20 hit on the electrical system, and that can cause surges," said John=20 Drengenberg, an electrical engineer who's manager of global consumer affair= s=20 for Underwriters Laboratories, the nonprofit testing organization. "I think= =20 maybe right now in California, in particular, installing transient voltage= =20 surge suppressors would be a good idea." ?????Surge suppressors don't help at all with a brownout, which is an=20 insufficient flow of electricity through the wires. ?????Brownouts are most often caused by things such as a squirrel shorting= =20 out a line and can be identified by suddenly dimmed lights. Low voltage can= =20 seriously damage appliances that use motors--such as refrigerators and air= =20 conditioners--so if the lights go dim and stay dim, unplug such appliances= =20 until the power company makes repairs. ?????Items that use electricity to create heat or produce light will contin= ue=20 to function with little chance of damage; they just won't get as hot or be = as=20 bright. ?????Some devices, such as computers, will get trashed by low power or sudd= en=20 loss of power, especially if the power fluctuates while the system is writi= ng=20 data to the hard drive. Computers should be turned off using the standard= =20 shutdown procedure for their particular make and model to avoid corruption = of=20 the operating system, which can create lots of headaches for users. ?????To avoid that, consider an uninterruptible power supply, basically jus= t=20 a system of rechargeable batteries that's always plugged in to the electric= al=20 outlet. Plug the components into the UPS, and if the voltage on the line=20 drops or disappears, the juice flows from the batteries to the device. ?????Many of these systems also come with surge suppressors built in as wel= l,=20 protecting equipment from both too much and too little electricity. A=20 high-end consumer UPS costs less than $200. ?????Most of these systems are designed to safely power down a computer in= =20 the event of a power outage. They won't provide enough juice for more than = a=20 few minutes on a standard desktop computer. ?????And of course, the debate about whether some conservation efforts have= =20 diminishing returns continues. Turning off your computer reduces electricit= y=20 consumption, but repeatedly turning the computer off and on can stress the= =20 electronic circuitry, which could cause it to fail sooner. ?????Devices that are pulling down considerably less electricity might eke= =20 out an hour or two on a UPS. If you find yourself growing increasingly=20 annoyed at having to reset the clock on the VCR or microwave, a=20 consumer-level UPS might provide enough stored power to get you through a= =20 blackout that lasts an hour or two. ?????Don't plan on watching TV or making popcorn. We're talking strictly=20 about keeping the clock on line, although most people probably won't be=20 interested. "Spending $150 because you don't want to set the clock on the V= CR=20 probably won't be very appealing to many people," said James Little, a=20 spokesman for Belkins Components, which makes such devices. ?????And there's no such thing as a free lunch. UPS systems are also a drai= n=20 on power. It costs money to keep the batteries charged in preparation for t= he=20 blackout. So don't look to a UPS as a solution to conservation. ?????What you can do is plug components that can safely be completely shut= =20 down into a surge suppressor and kill the power to that surge suppressor wh= en=20 you're not using them. ?????For instance, think about running all the power cords for every=20 component that makes up your stereo system--amplifier, CD player, DVD=20 player--into a single power strip equipped with a surge suppressor. Most=20 surge suppressors have a kill switch, a button that will cut off all power = to=20 the devices plugged into it. ?????Hit the switch and make those components more than mostly dead. * * * ?????Dave Wilson is The Times' personal technology columnist. Copyright 2001 Los Angeles Times=20 Heat's on, but so are lights=20 100-degree temperatures aren't widespread, sparing the grid=20 Matthew B. Stannard, Carolyn Said, Chronicle Staff Writers Thursday, May 31, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/31/MN206011= .DTL=20 Thermometers reached triple digit records around the Bay Area yesterday,=20 feeding several fires and challenging, but not quite breaking, the state's= =20 power grid.=20 The sweltering heat was caused by a huge dome of hot air that blocked the s= ea=20 breezes that normally keep the Bay Area comparatively cool this time of yea= r.=20 National Weather Service forecasters said the high pressure system, centere= d=20 over Nevada, should head east today and allow temperatures to return to=20 somewhere near normal by tomorrow.=20 The short duration and highly localized nature of the heat wave --=20 concentrated mainly in Central and Northern California -- kept it from addi= ng=20 much to the state's energy woes, said Stephanie McCorkle, a spokeswoman for= =20 the Independent System Operator, which oversees the state's power grid.=20 "Those are the kinds of heat waves that we like: the type that are isolated= =20 to one area."=20 Yesterday presented California's grid operators with a better scenario than= =20 two weeks ago, when more-pervasive hot weather and numerous plant service= =20 interruptions set off two days of rolling blackouts.=20 While no rolling blackouts were ordered, the ISO declared a Stage 2 energy= =20 alert at 2 p.m., asking customers to conserve power as temperatures climbed= =20 and the state's energy reserves dipped below 5 percent.=20 Aiding yesterday's situation was the availability of more power plants in= =20 service than during the May 7 and May 8 blackouts. About 14,400 megawatts o= f=20 power generation -- one-third of the state's capacity -- were offline for= =20 repairs and other reasons on May 7 and 8, while yesterday the figure was 10= ,=20 700 megawatts out of service.=20 Meanwhile, downtown San Francisco melted as the thermometer hit 101 degrees= ,=20 higher than any day in May since at least 1914. Not quite the city's all-ti= me=20 high of 103, but close enough to drive some people out of the city=20 altogether.=20 FLEEING HOT S.F. Sonafman Allah, 22, drove to Lake Temescal in Oakland with his friends Nabi= la=20 Suleiman, 20, and her sister, Saida, 19.=20 "It's a quick little getaway from San Francisco," Allah said, relaxing on a= =20 blanket spread under the shade of a tree.=20 But Oakland was pretty hot, too. Temperatures at the airport hit 94, the=20 hottest May 30 since 1978. May 30 records were also shattered in San Jose,= =20 where the mercury hit 100; San Rafael, which saw 99; Santa Cruz, where=20 surfers sweltered in 92 degree heat.=20 Redwood City, at a record 101, was hot enough to make John Handley loath to= =20 leave his nicely air-conditioned Office Depot delivery truck.=20 "I stay in there as long as I can," Handley said, hustling a cart of office= =20 supplies across the steaming concrete into San Mateo County's Hall of=20 Justice.=20 FIREFIGHTERS HAMPERED Elsewhere in the state, the heat and low humidity hampered thousands of=20 firefighters.=20 An early morning fire near the Sonoma-Napa county line quickly built to a= =20 100-plus acre blaze and was battled by 30 engines, five bulldozers, and 11= =20 hand crews from state and local fire stations. Fire officials are still=20 investigating the cause.=20 The fire, near Kellogg, had imperiled some homes in the early part of the= =20 day, but the threat abated by 12:30 p.m., according to Mike Parkes of the= =20 California Department of Forestry. It was fully contained last night.=20 Nearly 250 miles away, near Susanville, more than 1,900 firefighters were o= n=20 the scene of a 4,346 acre fire yesterday, and officials said they hoped the= =20 blaze, fed by heat and strong winds, would be contained by 6 p.m. today.=20 Investigators believe that the fire was caused by target shooting near=20 Williams Creek and have cited a man they identified as William Bushey for= =20 allegedly sparking the blaze. The cost of suppressing the fire so far has= =20 been $3.1 million, and $2.5 million in timber has been lost, fire officials= =20 estimate.=20 SUISUN CITY BLAZE And late yesterday, the Solano County Sheriff's Department reported a 75-= =20 acre fire burning out of control near Suisun City. It was being battled by= =20 volunteers and its cause is under investigation.=20 The good news, forecasters said last night, is that the heat spell should= =20 prove short-lived: temperatures in San Francisco should collapse back into= =20 the 80s today, and inland cities should see relief by tomorrow.=20 Chronicle staff writers Suzanne Herel, Pamela J. Podger and Pia Sarkar=20 contributed to this report. / E-mail the writers at mstannard@sfchronicle.c= om=20 and csaid@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Municipal utilities warned=20 Governor says he'll seize excess electricity if prices don't come down=20 David Lazarus, Chronicle Staff Writer Thursday, May 31, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/31/MN154796= .DTL=20 Sacramento -- Gov. Gray Davis threatened last night to seize excess power= =20 generated by California's municipal utility districts, which he said have= =20 charged even higher electricity prices than out-of-state generators.=20 Davis said in an interview with The Chronicle that some municipal utility= =20 districts have charged the state as much as 10 percent more than the averag= e=20 wholesale cost demanded by private power companies.=20 The governor's tough talk came as California suffered through a Stage 2 pow= er=20 alert and faced the prospect of a long, hot summer of rolling blackouts and= =20 skyrocketing electricity prices. So far this year, the state has paid more= =20 than $8.2 billion to buy power for its cash-strapped utilities.=20 In a variation on his threat to seize power plants from out-of-state=20 generators if they continue gouging California ratepayers, the governor sai= d=20 he would use his executive powers to claim excess juice from the locally=20 owned utilities if they do not lower their prices.=20 He said he is ready to go to court if they offer resistance.=20 "We're going to get that power one way or another," Davis said.=20 Municipal utilities are city-owned power companies. In Northern California,= =20 there are municipal utilities in Alameda, Palo Alto, Redding, Sacramento an= d=20 Santa Clara. Los Angeles has the largest municipal utility in the state.=20 30 DAYS TILL CONTRACT DETAILS=20 For the first time, the governor also gave a time frame for releasing detai= ls=20 of more than 40 long-term electricity contracts California is signing with= =20 generators since the financial meltdown of the state's two biggest utilitie= s.=20 He said that after about six more contracts get nailed down, he expects ful= l=20 details to be made available within 30 days.=20 Although the contracts involve nearly $40 billion in public funds, Davis an= d=20 other state officials have adamantly refused to divulge their contents,=20 insisting that secrecy is needed to remain competitive during negotiations.= =20 The Chronicle and other media outlets have filed suit for access to the=20 contracts, arguing that the public has a right to know how its money is bei= ng=20 spent.=20 RUDE AWAKENING While going toe-to-toe with the out-of-state generators, the last thing Dav= is=20 needed was for municipal utilities -- the home team, as it were -- to emula= te=20 the Texas big boys and dig deep into California's pockets.=20 Yet the governor's negotiators have been struggling for weeks to convince= =20 municipals that they are obliged to provide power at cost -- which Davis=20 insisted they are required to do by law.=20 He met last week with the heads of a dozen municipal utilities and told the= m=20 explicitly that he would not tolerate gouging from within the state as=20 California faces a summer of potential blackouts.=20 The governor said after the meeting that the municipals had agreed "to make= =20 most of their excess power available this summer . . . at prices=20 significantly lower than those being charged on the spot market."=20 Apparently, however, little progress has been made since that declaration.= =20 Davis told The Chronicle last night that he is still "trying very hard to= =20 promote this notion that we're all in this together."=20 While unwilling to specify which municipal utilities have been most=20 aggressive in their pricing, and refusing to place a dollar amount on how= =20 much the utilities charged, Davis said he is prepared to seize up to 800=20 megawatts of output if the they do not change their ways.=20 Eight hundred megawatts is enough power to light about 800,000 homes.=20 Representatives of the various municipal utilities could not be reached for= =20 comment, nor could a spokesperson for the California Municipal Utilities=20 Association in Sacramento.=20 "I told them that they will either (reduce their prices) voluntarily or=20 involuntarily," the governor said.=20 UNCERTAIN FUTURE It remains to be seen, however, whether the municipal utilities will play= =20 ball. To date, they have shown a firm inclination to go their own way.=20 In March, Lodi's municipal utility district and a Northern California=20 municipal utility cooperative that includes Palo Alto, Santa Clara and=20 Alameda told Pacific Gas and Electric Co. that they will not participate in= =20 rolling blackouts during power shortages.=20 "I won't arbitrarily screw my customers . . . so 5,000 PG&E customers can= =20 turn on their lights somewhere else," said Alan Vallow, director of the=20 utility serving Lodi's 58,000 residents.=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Regulators want state trade-off for caps=20 Davis asked to give up control of power lines=20 Bernadette Tansey, Chronicle Staff Writer Thursday, May 31, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/31/MN221412= .DTL=20 California's testy relationship with federal energy regulators could turn= =20 into a showdown tomorrow, when state power officials must decide whether to= =20 surrender some control over the state's electricity market or risk losing= =20 limited price curbs that kicked in this week.=20 In agreeing last month to set flexible caps to restrict price gouging durin= g=20 electricity shortages, the Federal Energy Regulatory Commission said the=20 state and its utilities must agree to let an independent organization manag= e=20 California's power transmission lines.=20 Under that setup, California would be one of a group of Western states=20 sharing a linked transmission grid whose rates and access rules would be se= t=20 by independent managers.=20 It is part of the commission's drive to create regional electricity markets= =20 throughout the country and make it easier to trade power across state lines= .=20 The regional grids would be a prelude to the nationwide free market in=20 electricity advocated by the Bush administration and power marketers like= =20 Enron.=20 But California Assembly Democrats who have challenged the federal demand sa= y=20 the requirement could interfere with some of the state's homegrown solution= s=20 to its energy crisis, such as Gov. Gray Davis' proposal that the state buy= =20 and run transmission lines owned by Southern California Edison Co.=20 "A lot of folks were wondering how those two things would interact and are= =20 they mutually exclusive," said Paul Hefner, an aide to Assembly Speaker=20 Robert Hertzberg, D-Sherman Oaks.=20 Other officials say the federal requirement is premature because no regiona= l=20 organization yet exists that California can join.=20 Mike Florio, a board member of the California Independent System Operator,= =20 which manages the state's power grid, said California is already part of=20 regional efforts to clear transmission bottlenecks and share surplus power.= =20 But Florio said no Western state will rush into a regional arrangement and= =20 surrender part of its authority without ensuring a good deal for its own=20 consumers.=20 "We certainly don't want to be forced into an entity where generators or=20 power marketers get to dictate the terms," Florio said. "This has got to be= a=20 long courtship rather than a shotgun wedding."=20 When federal regulators initiated the move toward regional transmission gri= ds=20 during the Clinton administration in 1999, participation was voluntary, sai= d=20 Gary Cohen, general counsel to the state Public Utilities Commission.=20 But in its April 26 order, the federal energy commission made its offer of= =20 limited price relief contingent on a filing by June 1 from the Independent= =20 System Operator committing the state to a regional management plan.=20 The PUC and the Assembly are challenging that requirement. If anything, Coh= en=20 said, the state needs to increase control over its energy system while it= =20 recovers from its disastrous debut into deregulation, rather than submit to= a=20 regional authority that would be overseen by the federal government.=20 "This doesn't seem to be the time to be doing more experimenting," Cohen=20 said. "We certainly have not been able to rely on FERC to look out for the= =20 interests of Californians."=20 WAITING FOR STATE'S RESPONSE Curt Hebert, chairman of the federal commission, declined to say yesterday= =20 whether the government would immediately yank the soft price caps that went= =20 into effect this week if it found the ISO response unsatisfactory.=20 "He said he didn't want to prejudge the case," said commission spokeswoman= =20 Tamara Young-Allen. "He will wait to see what California files."=20 PUC Commissioner Jeff Brown said he would be willing to give up some state= =20 control of the grid in exchange for meaningful price controls. But, he said= ,=20 the federal measures granted fell far short of what California needed.=20 "Hell, those caps are pretty toothless as they are," Brown said.=20 The price controls are in effect only during power shortages. The cap is th= e=20 price offered by the least-efficient generating plant. And generators can= =20 challenge any federal ruling that they have exceeded the caps, by claiming= =20 high costs.=20 The controls were in place for the first time yesterday, when the state=20 declared a Stage 2 power emergency, meaning reserves fell below 5 percent o= f=20 available capacity.=20 Florio said state power managers' answer to the federal government will=20 probably be that they are already doing within California much of what a=20 regional transmission organization would do.=20 ISO COULD PLAY A ROLE The ISO manages the grid to ensure that power gets to where it is needed in= =20 the state, the organization told federal regulators in January. The agency= =20 could represent California when a Western regional organization develops, i= t=20 said.=20 The governor declined to say yesterday what stand he would take on federal= =20 regulators' demand.=20 "I'm of a mind to do something, but I still have to talk to my lawyers,"=20 Davis said.=20 Assembly Democrats say regulators in Washington have no right to withhold= =20 actions to correct California's dysfunctional power market.=20 "They're required to . . . ensure that just and reasonable rates prevail in= =20 the market," Hefner said. "Why should we have to dicker to get them to do t= he=20 job Congress created them to do?"=20 E-mail Bernadette Tansey at btansey@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 NEWS=20 Plan would have biggest customers pay Edison's debt=20 Greg Lucas=20 Sacramento Bureau Chief=20 ? 05/31/2001=20 The San Francisco Chronicle=20 FINAL=20 A.5=20 (Copyright 2001)=20 ? ? Legislative leaders are drafting a new rescue plan for Southern California= =20 Edison that would put the utility back on its feet financially at the expen= se=20 of its biggest customers.=20 The plan would leave manufacturers, refineries and other big industrial=20 customers with the burden of paying nearly all the utility's $3.5 billion= =20 back debt through a dedicated charge. Residential and small commercial user= s=20 would be on the hook for only a fraction of the back debt.=20 ? Big users say it is unfair to saddle them with all of Edison's debt, but=20 supporters of the plan say it's these users that wanted deregulation and=20 should shoulder the costs it created.=20 "We're trying to put something together in a way that solves all these=20 problems, and if people are to be pigheaded about it, we won't solve any=20 problems," said Assemblyman Fred Keeley, D-Boulder Creek (Santa Cruz County= ).=20 Although the plan is an alternative to Gov. Gray Davis' proposed deal to pu= t=20 Edison back on its feet financially, it could be used as a model to help=20 restore Pacific Gas and Electric Co. to solvency.=20 Democrats say the plan contains some elements desired by Republicans, but G= OP=20 lawmakers object to saddling large business users with Edison's debt.=20 The plan is based on the way gas customers are divided into "core" and=20 "noncore" users.=20 SEPARATING 'CORE' USERS=20 Under this proposal, electrical users would be divided the same way. Core= =20 users would be customers who use 500 kilowatts or less a month. Noncore wou= ld=20 be those using more than 500 kilowatts.=20 Out of Edison's 4.2 million customers, only 3,600 would be noncore customer= s.=20 But those 3,600 customers use about 26 percent of Edison's demand for energ= y.=20 Core customers would get their power from generators owned by Edison,=20 long-term contracts and alternative energy producers, such as wind farms an= d=20 solar panels, on contract with the utility.=20 That would mean those customers would no longer be subject to the whims of= =20 the spot market, which has far higher prices than other sources of=20 electricity.=20 Large users, the noncore customers, would be given the right to negotiate t= o=20 buy their power directly from generators or build on- site power plants to= =20 make themselves energy self-sufficient.=20 The plan would be phased in through January 2003 to give large energy=20 customers time to prepare for buying power on the open market.=20 During that period, residential, small business and large industrial users= =20 would all share in paying off Edison's debt. But in 2003, that burden would= =20 shift exclusively to the big users.=20 Republican lawmakers and those same large users have been clamoring to be= =20 given what is called "direct access" to generators so they can negotiate=20 cheaper rates.=20 Enron is also backing the idea of cutting loose the largest electricity use= rs=20 because that would create a built-in market for the energy the company sell= s.=20 Large users who want to remain on the grid could do so.=20 EDISON 'ENCOURAGED'=20 Sources said Edison officials met with lawmakers over the weekend to iron o= ut=20 details of the plan.=20 A spokesman for Edison said he was "encouraged" by the talks.=20 "I haven't seen a finished product or a plan," said Bob Foster, a senior vi= ce=20 president with Edison. "They're approaching this in a spirit of goodwill an= d=20 trying to find a solution."=20 Big businesses complain that the plan does not work because right now, ther= e=20 is nowhere they can buy cheap electricity.=20 "We're very concerned that separating the core from the noncore means we wi= ll=20 experience extreme rate hikes over the next two years," said D.J. Smith, a= =20 lobbyist for the California Large Energy Consumers Association.=20 "When you add blackouts, the multiple interruptions of production and anoth= er=20 potentially huge rate hike, the result would be catastrophic to the economy= ,"=20 Smith said.=20 Added Dorothy Rothrock, a lobbyist for the California Manufacturers and=20 Technology Association: "What's the rationale for the noncore to be paying= =20 the entire Edison undercollection? It sounds to me like just pure politics.= =20 They don't want voters to pay because they vote."=20 CONSUMER ADVOCATE SMELLS A RAT=20 Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights,= =20 said he thought the plan would eventually turn into a bailout as business= =20 interests muscle lawmakers into pushing some portion of Edison's debt onto= =20 residential and smaller commercial customers.=20 "I think it's a trick. We've seen this same tactic used at the Public=20 Utilities Commission, where what were supposed to be rate increases for big= =20 business end up costing more for residential and small businesses,"=20 Rosenfield said.=20 The new plan also does not include the outright purchase of Edison's part o= f=20 the transmission system that loops electricity around the state.=20 Davis backs buying the lines for $2.7 billion. Democrats have insisted that= =20 for the state's financial help, taxpayers receive something of value.=20 Republicans have insisted that they will back no proposal that includes sta= te=20 purchase of transmission lines.=20 In the new proposal, the state would have a five-year option to buy the=20 transmission lines for $1.2 billion -- the book value of the asset.=20 In addition, the utility would make $1.5 billion available to the state to= =20 either purchase other assets -- such as Edison's hydroelectric facilities,= =20 for example -- or use it in partnership to build new power plants.=20 PHOTO; Caption: "If people are to be pigheaded about it, we won't solve any= =20 problems," said Assemblyman Fred Keeley.=20 =09=09 =09=09 =09=09 =09=09 San Jose mayor changes course, endorses power plant=20 Posted at 10:29 p.m. PDT Wednesday, May 30, 2001=20 MIKE=20 ZAPLER=20 Mercury News=20 After a year of staunch opposition to a major power plant in South San Jose= ,=20 Mayor Ron Gonzales reversed course Wednesday and endorsed the project,=20 removing the largest remaining barrier to construction and angering residen= ts=20 of a nearby neighborhood he had pledged to protect.=20 Speaking before news cameras and reporters in his City Hall office, Gonzale= s=20 said he had negotiated an agreement with Calpine that eased his concerns=20 about the Metcalf Energy Center project. The deal, he said, contains=20 provisions to help shield the Santa Teresa neighborhood from air pollution,= =20 gives local businesses the chance to negotiate below-market electricity rat= es=20 and provides a sure energy source for local residents.=20 ``We need power in San Jose and we believe this power plant is needed in Sa= n=20 Jose,'' Gonzales said. ``We've worked hard to make this plant better for th= e=20 neighborhoods and better for the city.''=20 But the city entered talks with Calpine about five weeks ago in a vastly=20 weakened position, and its chief negotiator, mayoral budget director Joe=20 Guerra, was unable to extract most of the concessions the city and=20 neighborhood had sought. Santa Teresa leader Elizabeth Cord called the=20 neighborhood protection provisions ``totally not substantive,'' and another= =20 opponent said a lawsuit is likely if the plant is ultimately approved.=20 ``The mayor's deal does nothing to reduce the impact on this neighborhood,'= '=20 Santa Teresa activist Issa Ajlouny said. ``It's the same project as it was= =20 two years ago except San Jose residents will be paying millions of dollars= =20 more.''=20 Shift by Cisco?=20 Cisco Systems, which is planning a 20,000-worker campus adjacent to the=20 proposed plant and has strenuously opposed it, appears to be softening its= =20 opposition. Kent Jenkins Jr., a spokesman for the company, said Wednesday= =20 that Cisco would still prefer not to have the plant, but that officials wer= e=20 pleased, at first glance, with the health and safety concessions Gonzales h= ad=20 negotiated. Asked whether Cisco might file a lawsuit, Jenkins said, ``We're= =20 not ruling anything in or out and by that, I don't want to imply we are=20 considering anything.''=20 He added that the agreement will have no bearing on the company's plans to= =20 build the campus. ``All along we were committed to pursuing Coyote Valley a= nd=20 that remains unchanged,'' he said.=20 With experts predicting a summer of rolling blackouts, and with the=20 California Energy Commission expected soon to override the city council's= =20 November rejection of the plant, Gonzales was under enormous pressure to=20 strike a deal. Polls taken by Calpine had shown overwhelming public support= =20 for the plant, another ominous sign for the mayor who is up for re-election= =20 next year.=20 While the city probably could not have blocked approval of the plant once i= t=20 got state approval, the mayor indicated as late as April?18 that the city= =20 might fight it in court. But that possibility vanished with Wednesday's=20 announcement, leaving a possible neighborhood-backed lawsuit as the only=20 potential threat.=20 ``This power plant is coming to San Jose. That's clear from the support it= =20 has gathered in Sacramento,'' Gonzales conceded, referring to Gov. Gray=20 Davis' endorsement in April. So rather than continue to fight an uphill=20 battle, Gonzales decided it was best to negotiate what he could.=20 At the news conference, Gonzales touted provisions in the deal that will=20 provide two additional air monitoring stations to ensure the plant complies= =20 with local air quality standards. The agreement also provides a three-month= =20 window, prior to the plant's opening, for San Jose businesses to negotiate= =20 long-term power contracts with the Metcalf plant at a ``below-market'' rate= ,=20 said Calpine chief executive officer Peter Cartwright.=20 City's concessions=20 But the city clearly got less than it wanted, which was at least partly the= =20 price of Gonzales' longtime resistance to the 600-megawatt plant:=20 ?One key negotiating point was how much Calpine would pay to extend a=20 recycled-water pipeline seven miles to the plant site. The city started by= =20 asking the company to pay at least $25 million of the roughly $50 million= =20 price tag. But, in a provision Gonzales touted as a victory, Calpine will p= ay=20 20 percent of the cost, or $10 million, and the city will pick up the=20 remaining $40 million. Calpine said the company is simply paying its fair= =20 share.=20 ?In an effort to protect neighborhoods from pollution, the city wanted=20 Metcalf to operate full time, since emissions are highest when a power plan= t=20 first fires up. The city tried to arrange a long-term contract with the sta= te=20 to buy power from Metcalf to keep it running constantly, but officials balk= ed=20 at such a commitment.=20 Calpine said it intends to keep the plant running constantly as long as=20 demand -- in the form of annual contracts with the state -- justifies it. I= f=20 demand is lacking, the company will lower the number of potential times the= =20 generator will start up by 25 percent, from 624 per year to 468 annually.= =20 That restriction would last five years, by which time the energy crisis in= =20 California is expected to be long over.=20 ?In the fall, Calpine offered $10 million in electricity discounts to help= =20 win the city's backing for Metcalf. Wednesday's agreement includes a $6.5= =20 million benefits package, including $5 million for parks and open space=20 acquisition in Santa Teresa; $1 million for energy conservation programs an= d=20 assistance to low-income people to help pay their energy bills; and $500,00= 0=20 to help provide health insurance to San Jose children.=20 ?Calpine has agreed to install new technologies that reduce or eliminate th= e=20 use of ammonia, which would be extremely hazardous if accidentally released= ,=20 as soon as those systems are deemed ``economically feasible'' and approved = by=20 state regulators. But because there is no standard in the agreement, the=20 burden would fall on the city to prove that a new technology was feasible. = If=20 the two sides disagreed, the decision would fall to a third-party arbitrato= r.=20 There is also a significant question of whether ammonia-free technology,=20 known as SCONOx, already is viable -- a position taken by the U.S.=20 Environmental Protection Agency.=20 Calpine's Cartwright, who appeared with Gonzales, said Wednesday that the= =20 company is committed to switching as soon as possible from liquid ammonia t= o=20 less hazardous solid ammonia.=20 The city council is scheduled to take up the agreement at its Tuesday=20 meeting. Although Gonzales persuaded the council to vote with him against t= he=20 controversial project last fall, most members are expected to go along with= =20 the mayor's switch. At a closed-door meeting on Tuesday, council members=20 Forrest Williams, who represents Santa Teresa, and Linda LeZotte aired=20 significant concerns with the pact's environmental provisions, but there wa= s=20 no other notable dissent, an attendee said.=20 The project would then go through the city planning process again this fall= .=20 Calpine hopes to begin construction this year and to have the plant up and= =20 running by summer 2003.=20 Contact Mike Zapler at mzapler@sjmercury.com or at (408) 275-0140.=20 State admits power-deal secrecy=20 Posted at 10:55 p.m. PDT Wednesday, May 30, 2001=20 BY JOHN WOOLFOLK=20 Mercury News=20 As state officials cut deals in recent months to spend millions of taxpayer= =20 dollars to purchase electricity, they signed agreements not to reveal the= =20 terms of those contracts to the public.=20 Even the state's chief energy czar admits the confidentiality clause=20 conflicts with the public's right to know how its money is spent, and that= =20 officials are trying to get around it. But the clause gives sellers veto=20 power over releasing information.=20 ``Our hope would be to release these contracts, but we can't release them, = at=20 least our lawyers tell us, without consent of the parties,'' said S. David= =20 Freeman, who acknowledged the agreements for the first time Wednesday.=20 Consumer advocates voiced outrage.=20 ``There's no such thing as a non-disclosure agreement with regards to=20 taxpayer money,'' said Doug Heller of the Foundation for Taxpayer and=20 Consumer Rights.=20 The administration's secret electricity spending has been a top concern amo= ng=20 lawmakers and public advocates since January, when the state stepped in to= =20 buy power for its troubled utilities at a cost that has reached more than $= 70=20 million a day.=20 Freeman said Wednesday that the state was so pressured to sign contracts to= =20 lock up lower-cost power supplies that negotiators never considered the=20 ramifications of the secrecy clause. He said violating that agreement could= =20 void the contracts.=20 Would companies bail?=20 A representative for power companies said Thursday that he doubts companies= =20 would bail on existing contracts but might not sign more.=20 Without seeing details of the spending, lawmakers this month approved a=20 record $13.4 billion in ratepayer-backed bonds to cover power costs that ha= ve=20 reached nearly $8 billion. Critics question whether the state is getting a= =20 good deal and wonder whether the bonds will cover the costs.=20 Until now, Gov. Gray Davis has answered critics by arguing that revealing t= he=20 deals would jeopardize the state's bargaining position, exposing ratepayers= =20 to even higher costs. Critics said the administration never before mentione= d=20 confidentiality clauses.=20 ``These contracts have been out there for a couple of months and this is an= =20 excuse I've never heard before,'' said Mindy Spatt of the Utility Reform=20 Network, a consumer group. ``It makes me wonder whether they've really got = a=20 good reason or something they're trying to hide.''=20 The state routinely enters into contracts in other areas, and those contrac= ts=20 are governed by public-records law and open for review. But Freeman suggest= ed=20 new rules may be in play.=20 ``Businesses don't reveal their contracts, and the state has gone into the= =20 business of buying power,'' Freeman said. ``I recognize that if the state= =20 does something that people have a right to know about it. On the other hand= ,=20 if the government is acting in an emergency way as businesses do, there's a= =20 clash.''=20 Freeman said the administration plans to reveal the contracts ``in the very= =20 near future'' and is working to find a way around ``this legal problem'' wi= th=20 the confidentiality clause.=20 ``We have nothing to hide,'' Freeman said. ``We're very proud of those=20 contracts.''=20 2003 release date=20 But in response to lawsuits from news agencies and lawmakers seeking to=20 compel disclosure, the administration has argued it shouldn't reveal the=20 contracts until Jan. 1, 2003, when they are no longer commercially sensitiv= e.=20 The state's power-buying authority ends on that date.=20 News agencies, whose case will be heard Friday, say there's no evidence=20 disclosure would jeopardize the state's bargaining position, and that the= =20 secrecy serves the governor's political interests more than the public's.= =20 Alonzo Wickers, a lawyer for the news agencies, including the Mercury News,= =20 said the administration hasn't made an argument based on confidentiality=20 clauses, and that the law wouldn't support that claim.=20 ``The courts have said you can't do that if you're a public agency,'' Wicke= rs=20 said.=20 Jamie Fisfis, spokesman for Assemblyman Dave Cox, R-Sacramento, said the=20 confidentiality argument is ``frankly outrageous.''=20 ``If he signed a contract to build roads, would he then argue he couldn't= =20 disclose it?'' Fisfis said.=20 Daily deals costly=20 The contracts guarantee a supply of power at costs below today's high marke= t=20 prices, helping to avoid rolling blackouts and limit rising rates. Without= =20 the deals, the state must scramble to buy power day by day at much higher= =20 prices.=20 The administration has signed dozens of contracts ranging from several mont= hs=20 to a decade or more, and said the average price over 10 years is 7.1 cents= =20 per kilowatt-hour, a bargain compared with the 20- to 30-cent daily rates.= =20 Even with the contracts already signed, the state still will have to buy ha= lf=20 to two-thirds of its power day by day this summer. It's unclear how many=20 sellers might walk away from deals if the state discloses them.=20 A spokesman for Calpine of San Jose, which has signed two, 10-year contract= s=20 and another for 20 years, said it already has revealed the basic terms and= =20 wouldn't oppose further disclosure.=20 ``I don't know any reason for us to get upset,'' said Calpine spokesman Bil= l=20 Highlander. ``We came in at a very attractive price that we think is good f= or=20 California and good for us.''=20 A representative of several major power sellers said companies probably=20 wouldn't walk away from deals they've already signed. But he said=20 confidentiality is important.=20 ``It certainly would drive away people from doing deals like this in the=20 future,'' said Gary Ackerman, executive director of the Western Power Tradi= ng=20 Forum. ``It's just not professional.''=20 Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410=20 California Gov. Davis blasts Bush energy policy=20 NEW YORK (Reuters) - California Gov. Gray Davis on Thursday blasted Preside= nt=20 George Bush's energy policy, saying in a newspaper op-ed piece that the=20 president is setting a ''perilous'' course by opposing caps on wholesale=20 electricity prices.=20 Davis, writing in The New York Times, likened California's long-running=20 energy crunch to the U.S. energy shock in the 1970s and said the Bush=20 administration ``must adopt a more responsible energy policy.''=20 The comments follow a meeting earlier this week between Davis and Bush that= =20 underscored their differences on federal price caps. Bush reiterated his=20 opposition to caps on wholesale electricity prices at the meeting, Davis=20 said.=20 Davis called caps necessary to prevent price-gouging by power companies,=20 while Bush asserted that caps will make the situation worse by discouraging= =20 investment in new power plants.=20 The governor told President Bush on Tuesday that he would seek a court orde= r=20 to force action by the Federal Energy Regulatory Commission (FERC).=20 In his op-ed piece, Davis cited an estimate that the size of California's= =20 energy crisis is likely to be in the range of $40 billion to $50 billion th= is=20 year.=20 Defending his own methods of dealing with the power crisis, which has cause= d=20 rolling blackouts in the state, Davis said only FERC has the power to ensur= e=20 a reasonable wholesale electricity market in California. ``This is not a=20 matter of discretion for federal regulators,'' the Governor wrote, ``It is = an=20 obligation.''=20 Davis acknowledged that California's power problems stemmed from ``a=20 fundamentally flawed'' 1996 state electricity deregulation law, and he=20 repeatedly raised the specter of economic turmoil brought on by policies=20 favored by President Bush.=20 ``The threat is real,'' Davis wrote, ``and the Bush administration must ado= pt=20 a more responsible energy policy, one that restrains energy price=20 manipulation and creates a fair and competitive energy market across the We= st=20 and the whole country.'' Mayor sees the light on power plant=20 Published Thursday, May 31, 2001, in the San Jose Mercury News=20 THE mayor standing on the tracks waving a red flag at the onrushing=20 locomotive has calculated the effects of a collision. Calpine's proposal fo= r=20 the Metcalf power plant at the north end of Coyote Valley is now fine with= =20 Ron Gonzales.=20 It's been fine with almost everybody else outside the immediate neighborhoo= d=20 since the plant was proposed by Calpine and Bechtel more than a year ago. I= t=20 escalated from fine to urgent as the shortage of electricity pushed prices= =20 into the clouds and led to blackouts.=20 In the process, the opposition of Gonzales and the San Jose City Council, o= n=20 thin factual ice from the start, couldn't withstand the weight of the force= s=20 in favor of the 600-megawatt plant, enough to serve 600,000 homes.=20 The Legislature and Gov. Gray Davis wondered what San Jose could be thinkin= g.=20 The California Energy Commission has the last word on power plant siting=20 regardless of the city's position. Denial would be flabbergasting.=20 Wednesday afternoon, Gonzales yielded gracefully; Calpine, along with its= =20 partner Bechtel, triumphed politely. The city will ``provide all requested= =20 municipal services in a timely matter.'' And it won't sue to overturn Energ= y=20 Commission approval.=20 Calpine will add two stations to monitor air quality, reduce the number of= =20 pollution-creating stops and starts at the plant, give $5 million for parks= =20 in the area, and contribute $1.5 million for community programs, including= =20 assistance with energy bills.=20 These are not trivial additions to the original proposal. But Calpine/Becht= el=20 held all the cards. Almost certainly, it could have jammed the plant throug= h=20 without sweeteners.=20 Instead, both parties recognized that Calpine and the city must do business= =20 together for the plant to work well. Calpine depends, for instance, on=20 recycled water from the city's sewage treatment plant. And the city needs= =20 customers like Calpine, which will consume 3 million gallons a day, to use = up=20 that water.=20 It's a mutually beneficial arrangement, just as it was from the start. ? ? Gordon Dillow gldillow@aol.com ? ? Building a new plant? More power to them=20 May 31, 2001=20 By GORDON DILLOW Orange=20 County Register=20 As you probably know, the main reason we're in a power crisis in California= =20 is because we haven't built enough power-generating plants. And one reason = we=20 haven't built enough plants is NIMBY-ism: When faced with having a new powe= r=20 plant nearby, most people shout "Not in my back yard!"=20 Well, I just found out that a new power plant is being built in my back yar= d.=20 And frankly, I think it's a dandy idea.=20 The power plant in question is being built at the county Olinda Alpha=20 Landfill in Brea. The plan is to take the methane gas formed by the natural= =20 decomposition of refuse in the dump - which ordinarily would have to be=20 flared off -- and burn it in engines to produce electricity. Actually,=20 they've been producing power at the landfill that way for years, but now,= =20 with power at a premium, a New Jersey-based company called Ridgewood Power= =20 wants to expand the plant's output by about 50 percent.=20 True, the power plant isn't literally in my back yard; it's a couple of=20 ridgelines away. But it's still close enough for the Air Quality Management= =20 District to recently send me a letter informing me of increased pollution= =20 from the plant - and warning me that the plant emissions could cause cancer= .=20 Now, ordinarily those would be the sort of grim tidings that would cause=20 palpitations in my homeowner's heart. So why am I being so welcoming to my= =20 new power-generating, air-polluting neighbor?=20 Several reasons. First, it's a pretty tiny power plant. Even with the 50=20 percent production boost, it will only crank out 8 megawatts - enough to=20 provide power to about 8,000 homes, but still less than 1 percent of the=20 juice produced by one reactor at the San Onofre nuclear power plant.=20 Also, the increased air pollution hardly seems like enough to worry about.= =20 For example, the AQMD says the plant will produce up to 9 pounds of fine=20 particulates per day - which is probably about the same amount of=20 particulates I release into the atmosphere when I burn a steak on the=20 barbecue. And according to the AQMD's calculations, I'd have to suck in the= =20 plant's air for 70 years to run even a 1-in-1 million risk of developing=20 cancer from the emissions.=20 But the big thing in favor of the landfill power plant is that it's exactly= =20 the sort of clever power-producing scheme we need right now. It takes=20 something we don't need - the methane from our garbage - and turns it into= =20 something we desperately need: electric power. These days, every 8 megawatt= s=20 helps.=20 And now that I think on it, there's another, more personal advantage to=20 having the landfill power plant nearby:=20 Without requiring any real sacrifices on my part, it makes me feel like a= =20 non-NIMBYist. So when they start looking around for a place to build anothe= r=20 power plant to help ease the energy crunch, I can strongly suggest - no,=20 demand! -- that they build it in somebody else's back yard.=20 Because I already have one in mine. Watering down fun=20 Many summer activities in O.C. will be diminished by the electricity crunch= .=20 May 31, 2001=20 Story by TIFFANY MONTGOMERY Photos by MICHAEL KITADA The Orange County Register=20 LEISURE WORLD resident Jackie Lane works out five days a week in the pool a= nd=20 says she notices the 2-degree difference in the water temperature. ? ? Many in Orange County will find the power crunch crimping their fun this=20 summer as some cities and groups slash pool hours, turn off tennis-court=20 lights, raise swimming-class fees and drop pool temperatures to cut utility= =20 bills and conserve energy.=20 Two Orange County community colleges will switch from night to day football= =20 games come fall, along with most of their 12-team conference. And Orange ci= ty=20 officials have even floated the idea of moving popular adult softball leagu= es=20 to weekend afternoons rather than weekday nights.=20 "If we need to save energy, I'm all for it," said Saddleback College=20 defensive back Derrick Waddell, 19, who prefers the excitement of evening= =20 games. "I just never expected (the power crisis) to go this far that it wou= ld=20 affect a football game."=20 Athletic Director Tony Lipold said the college needed to cut utility bills,= =20 and stadium lights are expensive - a $1,500 demand charge to turn them on= =20 each month, then $45 an hour. Plus, the school wants the community to know = it=20 is conserving.=20 "When people drive by the stadium and see lights burning, we don't want the= m=20 to say, 'Hey, what's going on?' " Lipold said.=20 Fullerton College will also switch to day games next season, and Santa Ana= =20 has played in the afternoon for years. Orange Coast and Golden West college= s=20 share a stadium, so one team often plays in the day, the other at night.=20 An official with the southern section of the California Interscholastic=20 Federation, or CIF, which oversees high school athletics in the region, sai= d=20 he has not heard whether high schools are giving up Friday night football= =20 games.=20 HERE'S A SWITCH: Conservation efforts are apparent at Leisure World. ? ? In Seal Beach, the city has raised fees ($7 for residents and $12 for other= s)=20 for swimming lessons and recreation and lap swimming (50 cents) because the= =20 Recreation Department's utility budget has jumped $21,000, a 123 percent=20 increase. Mission Viejo has stopped illuminating courts at the Felipe Tenni= s=20 Center on weekends and will open the Sierra Recreation Center pool this=20 summer for five hours during the day instead of eight.=20 Fullerton is raising tennis-court fees by $2 for peak hours and $1 other=20 times with its new budget in July to cover energy costs. Currently the fees= =20 are $6 or $7 per hour depending on day and time. And the city of Westminste= r=20 and the Newport-Mesa Unified School District have shut off court lights all= =20 together.=20 Newport-Mesa will also begin charging the cities of Newport Beach and Costa= =20 Mesa for heating four school pools that the cities use for summer swim=20 programs. Mike Fine, the district's assistant superintendent of business=20 services, has calculated that it costs $24 a day for each degree of heat.= =20 As a result, Newport Beach is raising swim-lesson fees by $5 and will squee= ze=20 most of its programs, including lessons and short periods for recreation an= d=20 lap swimming, into the Newport Harbor High School pool, which it will share= =20 part of the time with Costa Mesa. The pool at Corona del Mar High School wi= ll=20 be open for lap swimming, but not heated.=20 "You can't teach swim lessons with kids (in a cold pool)," said Andrea=20 McGuire, Newport Beach recreation-services manager. "They turn blue, their= =20 teeth chatter and they're not happy."=20 Newport Beach will also raise lap fees by varying amounts but keep recreati= on=20 swim costs the same.=20 Costa Mesa has decided to absorb the added cost of heating the pools,=20 estimated to be about $5,000 for the summer, instead of passing it on, said= =20 Ruth Raheb, a recreation supervisor.=20 Colder pools have also affected swimming routines at Leisure World in Lagun= a=20 Woods. Temperatures at all six pools have been dropped 2 degrees, so some= =20 have begun exercising in the afternoons when it's warmer, said Debby Lamb,= =20 recreation director. Officials did keep one pool a toasty 84 degrees for=20 those with achy bones.=20 Alan Davis, 69, a heart patient, recently had to exercise in colder waters= =20 while pool four, the warm pool, was being renovated.=20 "It was a shock to get into," he said. "If it's too cold it doesn't work we= ll=20 with arthritis."=20 The warmer water, he said, soothes and restores his body, so he was happy= =20 when pool four opened again last week.=20 The energy crunch has also affected the ceramics studio at Leisure World,= =20 which draws about 300 people a week. Electric- and gas-powered kiln usage h= as=20 been cut back to save money.=20 "It's slowed us down," said Marjorie Amstadter, president of the Potters an= d=20 Sculptors Club. She estimates they are two to three weeks behind in firing,= =20 but people have generally understood, she said.=20 "The only people who are complaining are non-Leisure World residents ... wh= o=20 may have to wait until next fall (when classes start again) to pick up thei= r=20 pieces," she said.=20 Those in charge of cutting or adjusting recreation programs said most peopl= e=20 have been very understanding about the energy crisis. After all, California= ns=20 are already conservation minded: The state ranks 49th in per capita energy= =20 consumption, according to a 1999 Energy Information Administration report.= =20 Wally Johnson is one of the understanding ones. A fierce Saddleback footbal= l=20 fan, he has gone to 256 straight games and doesn't plan to miss one because= =20 of a time change.=20 "I'll go to them anytime - daytime, nighttime, midnight, Sunday," he said.= =20 "Day games are fun. They don't get quite so cold."=20 Energy notebook=20 San Jose mayor switches position, backs power plant=20 May 31, 2001=20 From Register news services=20 SAN JOSE After months of pressure, Mayor Ron Gonzales has reversed course a= nd=20 decided to support a large proposed power plant in southern San Jose.=20 Gonzales said Wednesday that the companies that would build the $400 millio= n=20 Metcalf Energy Center - Calpine Corp. and Bechtel Enterprises Inc. - have= =20 agreed to donate money to community programs, offer long- term power=20 contracts at competitive rates to San Jose businesses, and take extra steps= =20 to ensure the safety of the surrounding neighborhood.=20 Gonzales and the entire City Council in November voted against the=20 600-megawatt Metcalf plant on the grounds that it would be too close to=20 residential areas.=20 But as California's energy crisis deepened, Gonzales' position became=20 increasingly unpopular. Gov. Gray Davis, state representatives, county=20 supervisors and the Sierra Club called for the plant to be built.=20 The decision on whether the plant will be built now rests with the Californ= ia=20 Energy Commission, which is expected to vote on the issue this summer.=20 New hydroelectric plant goes on line a year early=20 HEMET A new hydroelectric facility at a huge new reservoir began generating= =20 power Wednesday, a full year earlier than planned.=20 The facility at Diamond Valley Lake will provide power for 13,000 household= s=20 initially and 40,000 households once the reservoir is completely full next= =20 year, officials said. The lake is about three-fourths full now.=20 "This may just be a drop in the bucket for California, but we believe that= =20 every little bit counts, especially this summer," said Phillip J. Pace,=20 chairman of the Metropolitan Water District board.=20 The facility is the first new hydroelectric generator in the state in six= =20 years, according to the California Energy Commission.=20 Lab's Web site posts potential blackout data=20 BERKELEY Californians can now get their own information about whether the= =20 lights will stay on without waiting for the Independent System Operator to= =20 issue blackout warnings.=20 Residents can see supply and demand levels rise and fall before their eyes = on=20 a new Web site put together by Lawrence Berkeley Laboratory scientists.=20 The site -- found at http://energycrisis.lbl.gov -- also shows statewide=20 power imports and exports and the capacity that's out of service on any giv= en=20 day.=20 In other news:=20 California power reserves fell below 5 percent because higher temperatures= =20 spurred demand for electricity to run air conditioners, prompting a state= =20 agency to call an alert.=20 The California Independent System Operator, which runs the state=20 power-transmission system, called a Stage Two alert at 2 p.m. No blackouts= =20 were necessary.=20 Forecasters say today will be even hotter, with the mercury rising to 100 i= n=20 San Bernardino.=20 Anaheim will only reach 82, because of an onshore breeze.=20 Gov. Gray Davis said Wednesday that he'll give federal energy regulators at= =20 least 30 days to respond to his requests for massive electricity rebates or= =20 rate cuts before taking them to court.=20 He said judges are "reluctant to tell agencies what to do until agencies=20 review the matter."=20 Bloomberg News, The Associated Press and Register staff writer Gary Robbins= =20 contributed to this report.=20 Deadline near on regional power grid=20 State has until Friday to abide by FERC call to join transmission network.= =20 May 31, 2001=20 By JOHN HOWARD The Orange County Register=20 SACRAMENTO Gov. Gray Davis has until Friday to decide whether to place=20 California's 28,000 miles of electricity lines under increased federal=20 control by joining other Western states in a regional power grid.=20 The decision, which has provoked little public discussion, has long-term=20 implications for the way the state will be able to control its electricity.= =20 Federal energy regulators believe creating about 18 huge multistate grids= =20 across the United States - known as regional transmission organizations, or= =20 RTOs - will make it easier to speed electricity across the country. That wi= ll=20 limit outages and lower prices for consumers, according to the Federal Ener= gy=20 Regulatory Commission.=20 Critics of deregulation, however, contend the creation of an RTO in effect= =20 turns over the state's lines to the Bush administration, which has close ti= es=20 to power companies that have profited mightily in California.=20 "The whole (FERC) plan is to federalize the transmission lines and federali= ze=20 energy policy, and to get the biggest state to commit to this scheme, (whic= h)=20 would be a huge boost for Bush and his allies," said San Diego energy=20 consumer advocate Michael Shames.=20 The RTOs would have the authority to levy transmission charges on wholesale= =20 power, subject to FERC's approval, and control the flow of electricity=20 throughout the grids. The FERC wants the RTOs up and running by December.= =20 FERC has given California's three investor-owned utilities and the grid=20 manager, the Independent System Operator, until Friday to describe how they= =20 would participate.=20 Davis, although not directly deciding the issue, wields influence over the= =20 ISO board, which he appointed, and has been in negotiations with at least t= wo=20 of the utilities. The reports to FERC are expected to largely reflect his= =20 will.=20 Missing Friday's deadline could cause the Bush administration to halt the= =20 so-called "soft cap" price controls currently on California's roiling=20 electricity market. But the threat that holds little worry for Davis.=20 Last month, FERC decided to set targets for power prices when state=20 electricity reserves fall to 7.5 percent or lower during Stage 1, 2 or 3=20 power alerts. Davis and others complained that the targets were "soft caps"= =20 that could easily be ignored by power companies.=20 Stanford University energy economist Frank Wolak suggested that California= =20 should refuse to join an existing RTO, but devise its own plan and present = it=20 to FERC. Others agree, saying such a huge state could be a single-state RTO= ,=20 its grid managed internally but required to participate in the regional flo= w=20 of power.=20 That might better play into a proposal for the state to buy the transmissio= n=20 lines from the utilities.=20 "I would basically say, 'Thanks, but no thanks,' and this is where FERC has= =20 left a giant opening for California to do something clever,'' Wolak said.= =20 Advocates of the RTOs say they represent the reality of geography and the= =20 marketplace - not artificially created political borders.=20 "Markets are regional; they don't stop at the state border," said Elizabeth= =20 Moler, a former FERC chairwoman.=20 Register reporters Kate Berry and Dena Bunis contributed to this story.=20 Thursday, May 31, 2001=20 Bush standing tall as Davis plays blame game=20 So Gov. Gray Davis had a short meeting and is going to sue to set price cap= s=20 on energy ["Bush: No price caps," Front Page, May 30]. What gives a judge t= he=20 power to set price caps on anything? Going through an old high school yearbook, I found a gasoline receipt from= =20 Wilshire Gas where I paid 25 cents per gallon. Why doesn't good old Gov.=20 Davis have the prices rolled back on everything? My first apartment in Sant= a=20 Monica was $150 per month, and I'm sure people would like to see apartment= =20 rents rolled back to that rate.=20 However, to keep everything equal, the judge would also have to roll back= =20 salaries to earlier levels of decades past. The latest trend is to go into= =20 court and ask a judge to legislate what should be done. Doesn't anyone=20 question whether judges have the authority to do that?=20 I don't like higher prices, but how can a California judge order Pacific Ga= s=20 & Electric or Southern California Edison to sell power for one-third of wha= t=20 it pays to bring energy from Idaho? Of course, both would go bankrupt and= =20 shut down. Then, energy costs would go down because there wouldn't be any.= =20 Stock up on candles.=20 Burl Estes Mission Viejo=20 I have nothing but the utmost respect for President Bush for standing firm = in=20 his refusal to implement price caps on wholesale energy prices. Even though= I=20 personally stand to suffer from any electricity rate hikes passed on to=20 customers by Southern California Edison, I firmly support Bush's hands-off= =20 policy and any other federal or state policies that help transfer price=20 controls to those of a free market: the basic controlling forces of supply= =20 and demand. I remind all Californians that the whole reason we are sufferin= g=20 energy problems today are past attempts to unnaturally control prices and= =20 production. I will happily endure any rate hikes, even beyond 500 percent,= =20 knowing full well that such rate increases are essential steps to our=20 recovery from the terrible effects of regulation and our so-called=20 "deregulation." Dennis Chang Seal Beach=20 Gov. Davis wants the Federal Energy Regulatory Commission to set price caps= =20 for wholesale electric rates, but FERC refuses because it believes wholesal= e=20 electric rates are "fair and reasonable." Well, if Davis really wants price= =20 caps, all he has to do is start charging all federal customers the actual= =20 wholesale rate for electricity. Imagine if all the post offices, federal=20 courthouses, FBI offices, INS offices and IRS offices in California had to= =20 pay the actual wholesale rate for electricity, plus assorted delivery=20 charges. That might get FERC to consider price caps. And it would put an en= d=20 to California subsidizing federal customers. The federal customers could no= t=20 complain because FERC says that wholesale electric rates are fair and=20 reasonable. Douglas Ditonto Yorba Linda=20 President Bush announced during his visit to California that he was opposed= =20 to capping energy prices for fear that caps would only lead to more shortag= es=20 and higher prices for gas and electricity. Why does that sound more like a= =20 thinly veiled threat from an extortionist than concern from a nation's=20 leader? I did not vote for George Bush. It seemed obvious to me that he wou= ld=20 be more inclined to support the views of the wealthy in this country,=20 particularly those of the oil industry, than those of the working class. It= =20 appears that Bush will live down to my expectations.=20 Leslie E. Lyon Anaheim=20 Electrical Emergency Stepped Up to Stage Two; Need for Energy Conservation = is=20 Critical FOLSOM, Calif.--(BUSINESS WIRE)--May 30, 2001 via NewsEdge Corporation - The California Independent System Operator (California ISO) declared a Stage Two Electrical Emergency today, Wednesday, May 30, 2001, at 2:00 p.m. with operating reserves dipping below five percent. A number of factors are contributing to today's emergency condition: -- With higher than expected temperatures and the corresponding use of air conditioning units, the demand for power is trending approximately 1,200 megawatts over the forecast. -- Net imports are running at 4,000 megawatts; 3,000 less than last week. -- A total of 9,800 megawatts worth of generation remains unavailable today with power plants off-line because of preventative repairs and plant malfunctions. Consumers are asked to step up conservation efforts as the California ISO's job of balancing the supply and demand for power becomes more challenging this afternoon and into the evening peak hours. Demand across the California ISO Control Area is expected to peak at 36,174 megawatts around 3:00 p.m. this afternoon. Today's Stage Two Emergency is in effect until midnight. With the Stage Two declaration, the California ISO is able to access emergency resources that will help maintain operating reserves. A Stage Two Emergency is declared when operating reserves dip below five percent or are expected to within the next two hours. If an operating reserve shortfall of less than one-and-a-half percent is unavoidable, Stage Three will be initiated. Involuntary curtailments of service to customers, including "rotating blackouts," are possible during this emergency declaration. The California ISO is charged with managing the flow of electricity along the long-distance, high-voltage power lines that make up the bulk of California's transmission system. The not-for-profit public-benefit corporation assumed the responsibility in March, 1998, when California opened its energy markets to competition and the state's investor-owned utilities turned their private transmission power lines over to the California ISO to manage. The mission of the California ISO is to safeguard the reliable delivery of electricity, facilitate markets and ensure equal access to a 25,526 circuit mile "electron highway." Information about the California ISO control area's electricity supply and the current demand is available on the web at www.caiso.com. Other helpful contacts: Pacific Gas and Electric 415/973-5930 Southern California Edison 626/302-2255 San Diego Gas and Electric 877/866-2066 CONTACT: California ISO | Stephanie McCorkle, 888/516-NEWS Washington's Role Helped Spark California's Power Crunch WASHINGTON, May 29, 2001 (States News Service via COMTEX) via NewsEdge=20 Corporation - Although it is popular in Washington to point the finger at California for its energy cris= is, the federal government shares a good deal of blame for the California energ= y crisis. In 1995, the Federal Energy Regulatory Commission helped lay the foundation= =20 for what has become the debacle of the new millenium when it rejected a state p= lan calling for new power plants that today would be providing 1,300 megawatts = in new electricity. What's more, records from that year show that the regulatory commission expressed "grave concerns about the need" for new power generation in the= =20 state. Had those power plants been built, they would be generating power for an estimated 1.3 million homes at the wholesale fixed cost of between 3.5 and = 6.6 cents per kilowatt-hour with binding, long-term contracts. At the time, retail prices averaged 9 cents per kilowatt-hour, according to= =20 FERC documents. In recent months, wholesale prices have been averaging between 12 cents to = 13 cents per kilowatt-hour, according to California Public Utility Commission spokesman James Hendry. During peak usage, those prices can reach 20 cents = to=20 40 cents and at times have rocketed to a record $1.90 since last December. "Everybody is saying those prices will go higher this summer," Hendry added= . Nevertheless, members of the Federal Energy Regulatory Commission -- known = as FERC -- have regularly blamed California for failing to build new power pla= nts to meet present power needs that have sparked energy shortages and higher= =20 prices throughout the West. The commission also shares the widely held view that faulty legislation aim= ed=20 at deregulating the state's power industry in 1996 is to blame. Although FERC put limited price caps into effect on wholesale electricity o= n Tuesday, the commission continues to resist broader demands to stabilize=20 prices in the Western region, as has been sought by California Gov. Gray Davis, an= d other lawmakers. They claim that FERC has ignored their responsibility to= =20 ensure that electricity rates are "just and fair." President Bush has sided with FERC's limited price caps because he believes= =20 that market-oriented supply and demand is the only sure way to restore permanent order to the crisis. The messy trail of the Golden State's rolling blackouts and power failures passed through Washington in January 1995 when several California utility companies asked FERC to rule against the state's plans to build power=20 facilities around the state. As part of that plan, first announced in 1992, the California Public Utilit= ies Commission nailed down bids through a competitive auction process to build = two new geothermal plants, one wind farm, and the repowering of an existing ste= am plant in Southern California. A "badly needed" gas-powered plant on the San Francisco Peninsula also was called for. All would have been up and running by 1999. Had the plants been build, California's electrical utilities would have bee= n required to buy power from them under a long-standing policy first enacted = by Congress in 1978, the Public Utility Regulatory Policies Act. But two utili= ty companies protested, claiming they didn't need more electricity. Besides, t= hey said they could provide or purchase cheaper electricity elsewhere if needed= . California used "a flawed auction process," recalled Art Larson, spokesman = for Sempra Energy, parent company of San Diego Gas &amp; Electric, when asked= =20 about the decision. "It didn't consider the least-cost bids," he said, because=20 California mandated the use of renewable energy. So, just two months before construction on the plants was to begin, Souther= n California Edison and San Diego Gas &amp; Electric filed a protest with FER= C.=20 The five-member regulatory commission approves rates for wholesale electric sal= es=20 of electricity and transmission in interstate commerce. Both utility companies argued that because the PUC favored renewable energy generation, it ignored less expensive ways to provide electricity such as gas-fired plants and other sources. Southern California Edison also expressed concerns about California's effor= ts=20 to deregulate the electric utility industry that soon would be approved the following year. Such legislation would likely bring down energy costs, it predicted. Other parties also weighed in on the complaint, including the National Coal= =20 and Western Fuels Association, which claimed that Edison could purchase power f= rom out-of-state sources at 3 cents a kilowatt hour. Today, FERC and other crit= ics of California's electricity policies believe that the state relies far too heavily on out-of-state sources. California responded to the complaints by noting that it did approve gas=20 powered turbines in its plans, but also wanted "clean" energy suppliers as part of = the state's environmental objectives. After factoring in the costs of controlli= ng pollution in California caused by other forms of energy production, the pri= ce for electricity provided from alternative sources would be competitive, it= =20 said. California's argument fell of deaf ears and FERC sided with the utility companies. In its ruling, the commission stated that California's auction procedure violated the standards set by PURPA because the state explicitly sought out renewable energy providers and ignored other sources in the bidd= ing process. FERC added that "we have grave concerns about the need" for added electrici= ty=20 in California. It also cautioned that the fact that the state was moving towar= d deregulating the electricity industry, "heightens our concern" about forcin= g utility companies into long-term contracts. FERC's controversial ruling, which was opposed by many independent energy organizations, still disturbs Loretta Lynch, chairman of the California Pub= lic Utilities Commission. What derailed the effort to build more power "was not the actions of=20 California, but instead the actions of FERC itself," she said last December when FERC= =20 first denied requests to place wholesale price caps on electricity in western sta= tes and blamed California for not building enough power plants. And how do the utility companies now feel about the power plants they fough= t=20 in 1995 when long-term contracts would have been had for a fraction of the cos= t they are now paying? "20/20 hindsight is a luxury," responds Larson of Sempra Energy. "But the= =20 prices were out of line in the 1990s." By David Phinney Energy Experts Say Solution to California Crisis is Inescapable/ Build More= =20 Power Plants and Ensure Competition ATLANTA--(BUSINESS WIRE)--May 30, 2001 via NewsEdge Corporation - As the Bush Administration continues to face harsh criticism in California over perceived inaction regarding the energy crisis, industry executives appear to be lining up behind Bush's assertion that enhancing the availability and reliability of the nation's energy supply is the long-term solution. And they consider creating more supply while maintaining the transition to a deregulated marketplace crucial, reports the May issue of Energy Competition Strategy Report, published by Atlanta-based NHI Publications. One leading utility executive says the solution to the nation's long-term supply problem is inescapable. "We need to build new power plants. And those new plants will be built only if we allow the competitive market to do its job," says William Hecht, chairman, president, and CEO of Allentown, PA-based PPL Corp. Price caps - which California is pushing for and Bush opposes - "reduce the incentive to invest in new production and unnecessarily prolong and exacerbate the current supply and demand mismatch," Hecht adds. PPL is aggressively developing new power plants in Connecticut, New York, Pennsylvania, Washington, and Arizona that will add more than 4,000 megawatts of supply. Other members of the Washington, DC-based Electric Power Supply Association, such as ABB Energy Ventures of Switzerland and Zeigler Coal Holding of Ashland, KY, are building new, unregulated merchant power plants. Meanwhile, EPSA is asking Congress to enact legislation that would allow federal eminent domain for transmission siting and establish a standardized interconnection policy to make it easier for generation companies to "get onto the grid." Other highlights of this month's Energy Competition Strategy Report include: -0- *T -- A new energy market study finds that despite several major setbacks, including California's ongoing crisis, the energy industry still has its sights set on achieving full competition. Retail Energy Markets (REM), produced annually by Xenergy, a Burlington, MA, research firm, is featured in the report and includes a wealth of data suggesting that, despite restructuring problems, the shift to competition continues. -- Get a detailed look at PowerSolution, a core technology platform that helps energy companies manage their data by integrating business applications, external trading partners, and legacy systems. -- Regional utilities are forging loyalties with big commercial and industrial chains through National Accounts programs that provide value-added, one-stop customer service. Award-winning Southern Co. shares its secrets to success. -- Can fuel cells meet the growing demands for electricity? A large energy company plans to build, operate, and maintain an electric generation plant that will use six fuel cells to generate primary electric supplies. -- Evaluate opportunities for investment. Use this process to assess whether any of 700 technologies spanning the energy value chain are appropriate investments. *T Free three-month trial subscriptions to Energy Competition Strategy Report are available by sending an e-mail with your full mailing address to nhi@nhionline.net, calling 800-597-6300 or 404-607-9500, or faxing your address to 404-607-0095. CONTACT: NHI Publications, Atlanta | David Schwartz, 404-607-9500 Business/Financial Desk; Section A=20 In California, Blackouts Spur A Search for Home Remedies=20 By LAURA M. HOLSON=20 ?=20 05/31/2001=20 The New York Times=20 Page 1, Column 5=20 c. 2001 New York Times Company=20 LOS ANGELES, May 30 -- For Evans Keller, a turkey farmer in the Central=20 Valley of California, the energy crisis has become a matter of life and=20 death.=20 For 17 years, he and his family have raised turkeys near Fresno, far from t= he=20 dot-com companies of Silicon Valley and the ''Baywatch'' beaches most=20 outsiders associate with the state. In his world, where daily summer=20 temperatures soar above 100 degrees on dusty ranches, Mr. Keller is forced = to=20 use electric fans and fog-making machines to cool his one million turkeys -= -=20 or watch them roast in tin-roofed sheds.=20 But with energy experts forecasting more than 260 hours of blackouts this= =20 summer and no relief in sight from regulators or politicians, Mr. Keller ha= s=20 taken matters into his own hands. In April, he bought eight small generator= s=20 at Costco that he could hook up to tractors and use to keep the fans and=20 misters running when the Pacific Gas and Electric Company cuts his power.= =20 Since then he has regularly conducted drills on the 14 farms that supply hi= m=20 with turkeys -- 4 farms he owns and 10 run by independent contractors -- an= d=20 has spent weeks winnowing the routine down to 40 minutes, barely enough tim= e=20 before the birds begin to wither under the searing sun.=20 ''Believe me, we're not proud,'' said Mr. Keller, who said he had appealed= =20 earlier this year, without success, to Pacific Gas and Electric for advance= =20 warnings of blackouts. ''We'll do what we have to to protect our=20 investment.''=20 The energy crisis here has come to this: from tourist attractions in sunny= =20 Southern California, to farmers who dominate the central region of the stat= e,=20 to technology concerns up north, businesses are coming up with novel ways t= o=20 cope with what many fear will be an unpleasant summer.=20 The concerns are understandable given the issues that many businesses face,= =20 including lost revenue and potential layoffs, as the state's power shortage= s=20 continue. ''The uncertainty is what kills you,'' Jerry Meek, utility=20 operations manager at Roche Pharmaceuticals in Palo Alto, said.=20 Trying to reduce that uncertainty, businesses are applying to the state's= =20 Public Utilities Commission for exemptions from having their power turned o= ff=20 this summer. (The deadline is Friday.) Last week, Gov. Gray Davis announced= =20 that the state would begin a three-tiered warning system for residences and= =20 businesses that are likely to be affected. The first warning will come two= =20 days before a blackout; the second, one day in advance; and the final=20 warning, one hour before the lights go out.=20 A more radical approach is being suggested by Mike Briggs, a Republican=20 assemblyman from Fresno. He is asking the state to schedule potential=20 blackout days as much as months in advance so business owners know when the= ir=20 turn is coming. ''It is scary what this has come to,'' Mr. Briggs said. ''B= ut=20 this gives people options.''=20 Farmers in the Central Valley, for instance, have to order water for their= =20 crops a day ahead. But if the power is off when the water shows up in an=20 irrigation canal, he said, ''they can't open the gates and the water flows= =20 right past them.'' One business owner told Mr. Briggs that he spent $30,000= =20 one month to lease two generators that were never used. ''He said it would= =20 have been nice to know ahead of time so he could rent the generators for a= =20 day,'' the assemblyman said.=20 Of course critics worry that burglars will know when the lights go out, too= .=20 ''Yes, there is the downside of more potential burglaries,'' Mr. Briggs sai= d.=20 ''But maybe people are willing to make that trade-off.''=20 Even those business owners who say they are currently protected from power= =20 failures are making preparations -- just in case. The Legoland California= =20 amusement park in Carlsbad, near San Diego, has an arrangement with its=20 utility, the San Diego Gas and Electric Company, to keep the lights on, sai= d=20 a spokeswoman, Courtney Simmons. Still, she added, the park is prepared in= =20 the event of a loss.=20 The contingency plan consists of keeping open the 3 rides, of the 20 total,= =20 that are not powered by electricity, she said. Barbecues would be rolled ou= t=20 to cook food, and the park's boulevards would be flooded with performers,= =20 including singers, dancers, jugglers and musicians who will entertain until= =20 the power comes back on. ''We are prepared for outages no matter what the= =20 cause this summer,'' she said.=20 Many tourist attractions, including Disneyland in Anaheim, are already=20 prepared because they upgraded their systems in 1999, fearing a Year 2000= =20 disaster that would threaten the power grid. ''A lot of these things were= =20 already tested and documented,'' said Ray Gomez, director of communications= =20 at Disneyland Resorts. ''We are skilled at emergency evacuations. Energy is= =20 only one part of that.''=20 As part of its plan, Disneyland shored up its emergency operations center,= =20 holding employee drills to turn on emergency power. This summer, Disneyland= =20 will have employee volunteers who roam the park day and night, turning out= =20 lights and replacing incandescent bulbs with more energy-efficient ones. Th= e=20 park also works with the city of Anaheim, which supplies the park with powe= r,=20 to conserve 5 to 10 percent, minimizing the risk of blackouts at all.=20 Oddly enough, Disneyland is reviving its Main Street Electrical Parade, a= =20 29-year-old light show that had most recently been an attraction in Florida= .=20 Leslie Goodman, a senior vice president for strategic communications for Wa= lt=20 Disney Parks and Resorts, said the park had made sure that the parade did n= ot=20 use energy when Californians need it most. The lights in the parade are=20 powered by battery, and are recharged during off-peak hours. But, she added= ,=20 despite what was a difficult decision and a potential public relations=20 nightmare, ''the show goes on.''=20 While most businesses make an effort to conserve (if for no other reason th= an=20 to save money as rates soar), some communities are giving corporations adde= d=20 incentives. The city of Palo Alto, for example, has agreed not to cut off= =20 power to Roche Pharmaceuticals as long as the company reduces energy=20 consumption by 15 percent within 30 minutes of an announced Stage 3 alert,= =20 the state's most critical. Only once has Roche lost power, said Mr. Meek, t= he=20 company's utility operations manager. And that, he added, was because of a= =20 mistake.=20 Roche has a plan to ensure that a blackout does not happen. Once Mr. Meek= =20 gets an alert on his pager from a city representative (who can see how much= =20 is being saved because the company has a real-time meter for the 15-buildin= g=20 campus), voice mail and e-mail messages are sent to more than 1,000 employe= es=20 asking them to turn off nonessential lights. The air-conditioning is change= d=20 to raise the temperature in most areas to 78 degrees from a normal 72=20 degrees. Lighting in all offices is reduced, and some employees move from= =20 their dark cubicles to the window-walled cafeteria to work, he said.=20 ''The question is, do you treasure light or do you want your computer shut= =20 down?'' Mr. Meek asked. If these measures do not reduce overall demand by 1= 5=20 percent, Roche will switch on backup generators to power the laboratories.= =20 Why? If laboratory tools are not properly shut off before a loss of power, = it=20 takes days to recalibrate them, costing thousands of dollars and wasted tim= e,=20 Mr. Meek said. ''My focus with the uncertainty is to do what we can to get= =20 around it,'' he said.=20 One way that California businesses are seeking certainty is by appealing to= =20 the state's Public Utilities Commission for relief. One commissioner, Carl= =20 Wood, said in a recent interview that about half the customers who got=20 electricity from the state's three largest utilities were exempt from=20 blackouts because their services were considered essential, like fire=20 stations or hospitals, or because they shared power with an essential sourc= e.=20 No more than 60 percent of the state's customers can be exempted from=20 blackouts.=20 Recently, an exemption was granted for the Bay Area Rapid Transit District,= =20 which runs 95 miles of commuter train service in the San Francisco=20 metropolitan area, Mr. Wood said. Pacific Bell Park, home of the San=20 Francisco Giants, has asked for one, too; that request is being reviewed.= =20 ''It can be extremely disruptive and expensive if there are lots of blackou= ts=20 this summer,'' he said. ''This is a big economic issue.''=20 Just imagine, he said, musing about how the summer could end: ''Disneyland= =20 without rides?''=20 =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Mon, 5/7: "It's crunch time on power rates" SD Union, Sun, 5/6: "SDG&E shutoff notices increasing" SD Union, Sun, 5/6: "State OKs $7 billion contract" SD Union, Sun, 5/6: "The energy crisis gives Filner some easy targets" SD Union, Sat, 5/5: "Gephardt tells rally here he's pushing price caps" LA Times, Mon, 5/7: "Proud Linemen Take a Hit" LA Times, Sun, 5/6: "Utility's Workers Watch Helplessly as Company Falls" LA Times, Mon, 5/7: "Utility Bills Are Just One Way People Pay for Energy= =20 Crisis" LA Times, Mon, 5/7: "Questions Remains Who'll Take Brunt of the Rate Hikes= " LA Times, Sun, 5/6: "Riordan and Freeman's Feud Erupts in Public" LA Times, Sat, 5/5: "Cheney Rejects Price Caps, Aid for Calif. Power Crisi= s" SF Chron, Mon, 5/7: "Rolling Health Hazards=20 Summer Blackouts May Pose Public Health Risks" SF Chron, Mon, 5/7: "Oh, that boom in 2002 " SF Chron (AP), Mon, 5/7: "Developments in California's energy crisis"=20 SF Chron, Mon, 5/7: "U.S. considers withdrawing lawsuits against coal=20 industry=20 Pollution controls affect power plants " SF Chron, Mon, 5/7: "Swimming pool owners get PG&E discounts=20 Operating pumps at night saves energy " SF Chron, Sun, 5/6: "Legislators plan to sue U.S. panel on energy=20 Top state Democrats want cap on prices" SF Chron, Sun, 5/6: "Nevada's winning hand -- power=20 State sees profit in California's crisis" Mercury News, Mon, 5/7: "Share prices rise amid news of big energy deals" Mercury News, Mon, 5/7: "Florida shrugs off Calif-blackout scenario" Mercury News, Mon, 5/7: "Hot days worry energy watchers" OC Register, Mon, 5/7: "Unplugged Manking has lived thousands of years without electricity. The Amish still = do. Californians may have to. We called an Ohio hardware store to find out how" Individual.com (AP), Mon, 5/7: "Mexico Continues Power Exports To=20 California" WSJ, Mon, 5/7: "Charged Up: Texas May Face a Glut of Electricity, but that Won't Aid Rest of U.S." Energy Insight, Mon, 5/7: "Out of Eden: California on the edge" ---------------------------------------------------------------------------= --- ---------------------------------------------------- It's crunch time on power rates By Carrie Peyton Bee Staff Writer (Published May 7, 2001)=20 In a San Francisco hearing room, lawyers settled into squeaky green seats,= =20 flopped their briefcases onto the orange carpet and waited.=20 Where was Gov. Gray Davis' plan for how a whopping electric rate hike shoul= d=20 be spread among homes and stores, farms and offices?=20 Where were the underlying calculations that explained why Pacific Gas and= =20 Electric Co. customers should pay a stiffer increase than Southern Californ= ia=20 Edison's customers?=20 And where was the sworn witness who would answer tough questions after=20 formally introducing the governor's plan at quasi-legal rate hearings at th= e=20 state Public Utilities Commission?=20 The Governor's Office knew that business and utility lawyers were asking fo= r=20 details and for someone they could cross-examine, Administrative Law Judge= =20 Christine Walwyn assured those gathered in the dingy hearing room last week= .=20 "We have relayed all parties' comments to their office. There has been no= =20 response," she said.=20 Chuckles and snorts played over the room. "Surprise, surprise" one attorney= =20 muttered.=20 "Frankly, it was handled terribly," Shelly Sharp, PG&E's director of rates,= =20 said later. "It's sort of a mockery of the process."=20 Rarely has the interplay between Sacramento and San Francisco been as visib= ly=20 strained as it was in the rate-making drama that has unfolded for the past= =20 month.=20 At stake are issues that will touch virtually every home and business in th= e=20 state and could drastically alter California's power landscape.=20 The right rates could spur conservation, reduce summer blackouts and drive= =20 down wholesale costs, many believe. The wrong ones could decimate businesse= s=20 and kill jobs, regulators have been warned.=20 The PUC, which regulates rates, has been gathering data to decide which=20 consumers will get hit hardest by the $4.8 billion rate hike approved in la= te=20 March. Normally, it takes six months to a year to make such decisions.=20 Now, the PUC is trying to do the job in about six weeks, and Walwyn is=20 scheduled to release her draft decision Tuesday. Community hearings will be= =20 held across the state before commissioners vote May 14, two weeks before th= e=20 new charges start showing up on customers' bills June 1.=20 Hanging over it all have been two patches of fog. The state did not give=20 regulators the details on how much money it thinks it needs in rates until= =20 Wednesday -- so late it was "useless" for this round of rate design, said a= =20 source familiar with the process.=20 The wait for the data has been "just purely frustrating and leaves everyone= =20 in the dark," said Ed Yates, vice president of the California League of Foo= d=20 Processors.=20 And the governor, who outlined some general ideas for rates in a speech Apr= il=20 5, followed up two weeks later by trying to submit, as written testimony, a= =20 short question-and-answer summary and slides from his Web site.=20 "There's no meat on the bones. There are hardly any bones," said Bob=20 Finkelstein, an attorney for The Utility Reform Network in San Francisco.= =20 Ultimately, the judge refused to admit Davis' offerings as testimony, letti= ng=20 them into the record only as "reference items" that do not carry the weight= =20 of evidence.=20 The governor's press office has said it believes Davis' opinions will be=20 thoroughly considered by the commission in that format.=20 Davis gave the PUC the same template he gave the Legislature, said spokesma= n=20 Steve Maviglio, and "the outlines of the plan are clear." He added that PUC= =20 staffers assured the Governor's Office the information was "acceptable."=20 The episode was nerve-wracking for participants because of the clout Davis = is=20 believed to carry at the PUC, where three of the five commissioners are his= =20 appointees.=20 "The parties are legitimately afraid that the governor's proposal might be= =20 rammed down their throats," consumer advocate James Weil said.=20 The parties include everyone from winemakers to oil refineries. They've bee= n=20 presenting witnesses, firing off briefs and trying to persuade regulators t= o=20 set rates in ways that will have the least possible effect on their=20 operations.=20 Do this wrong, and "you're going to lose whole industries," lobbyist D.J.= =20 Smith warned in an interview.=20 Do this wrong, and "we're going to have severe economic disruption of the= =20 state, of the sort we haven't seen in 30 years," energy economist Severin= =20 Borenstein testified.=20 Taking the first stab at sorting the wrong choices from the right ones will= =20 be Walwyn, the judge and former Nevada PUC commissioner whom business group= s=20 accuse of tending to favor small consumers. She will have to sift conflicti= ng=20 arguments on two key issues and scores of smaller ones, often with hundreds= =20 of millions of dollars at stake:=20 First, how can rates be designed to encourage conservation?=20 Borenstein, who heads the University of California Energy Institute, urged= =20 the commission to get tough with virtually everyone, despite political=20 pressure. Big users should be forced onto real-time rates that fluctuate wi= th=20 the power market, and household users should get rebates for cutting use an= d=20 face steep charges if they surpass baseline rates.=20 Such calls have met with strong opposition from businesses least able to cu= t=20 consumption when prices are highest, such as canneries that operate around= =20 the clock and department stores that want to stay open at peak hours.=20 A second, equally contentious issue is who should bear the brunt of the rat= e=20 hike.=20 PUC President Loretta Lynch, the commissioner assigned to oversee this rate= =20 case, suggested early on that her colleagues should consider reversing a=20 long-standing policy of charging the biggest users some of the lowest price= s.=20 Before this year's twin rate hikes, PG&E's household rates averaged more th= an=20 10 cents a kilowatt-hour while its largest industrial customers paid less= =20 than 5 cents. Heavy industries contend such imbalances are fair because the= =20 biggest power users cost less to serve. They consume steady amounts of=20 electricity around the clock, while homeowners' consumption shoots up durin= g=20 high-priced peaks.=20 The overall rate hike approved unanimously by commissioners March 27 gives= =20 PG&E and Edison the right to collect the equivalent of an extra 3 cents for= =20 every kilowatt-hour of electricity they sell.=20 There are at least two ways to do that: Charge everyone 3 cents more or sen= d=20 everyone's rates up about 29 percent for PG&E customers and 26 percent for= =20 Edison's.=20 "Any time you use an equal-cents allocation, it's going to be to the benefi= t=20 of smaller customers," said Sharp, PG&E's rate director. The equal-cent=20 method is also fairer than equal percentage hikes, she said, because those= =20 are based on "very, very old" calculations about how much it costs to serve= =20 different customers.=20 But Edison has taken the opposite stand, urging the commission to go easier= =20 on its biggest customers, with rate hikes that top out at about 30 percent= =20 for any one group. "We want to ensure that the increase is allocated fairly= =20 among customer classes," said Akbar Jazayeri, Edison's manager of pricing a= nd=20 tariffs.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com.=20 ---------------------------------------------------------------------------= --- --------------------------------------------- SDG&E shutoff notices increasing=20 By Jeff McDonald=20 UNION-TRIBUNE STAFF WRITER=20 May 6, 2001=20 Not much bigger than a postcard, the final notice from San Diego Gas &=20 Electric Co. came curled inside the front gate of her Lakeside mobile home.= =20 Marie Maurer found it only after hearing rustling outside. The bill collect= or=20 was already on his way to a nearby mobile home, without having spoken a wor= d=20 to the 72-year-old woman.=20 The news was not good. SDG&E wanted $200 -- a big chunk of her $283.95 debt= =20 -- and Maurer was $47 short. The retired nurse had three days to come up wi= th=20 the money or have her electricity shut off.=20 "I try so hard to save and to budget," said Maurer, who gets by on a few=20 hundred dollars a week in Social Security and government rental assistance.= =20 "I don't go anywhere. I collect cans. I pawn stuff."=20 Maurer is among a growing number of fixed-income senior citizens,=20 small-business owners and others getting pinched by rising electricity cost= s=20 -- and increasingly fearful of what the hot summer months might bring.=20 Unable to meet the commanding debt piling up on their electric and=20 natural-gas bills, ratepayers such as Maurer are facing 72-hour disconnect= =20 notices, or in many cases agreeing to what amounts to revolving=20 pay-as-you-can accounts.=20 SDG&E refused to say how many customers have had their power shut off for= =20 nonpayment in recent months, saying such information is proprietary and=20 confidential.=20 But consumer groups and business resource centers report a fresh influx of= =20 calls for help in finding what little relief is available.=20 "I'm getting more people contacting me with disconnection notices," said Jo= di=20 Beebe, an analyst with the Utility Consumers' Action Network. "They're=20 flooded. It's very frustrating for many people."=20 Ken M. Clark of the Small Business Development Center at Southwestern Colle= ge=20 said he gets 10 or 12 calls a week from business owners worried about the= =20 price of power. At this time last year, he was receiving none.=20 "Some of them are looking for a shoulder to cry on," Clark said. "They're n= ot=20 necessarily looking to solve the energy crisis, but possibly to buy some ti= me=20 or make a strategy to get through this."=20 The situation could grow worse in a hurry. Gov. Gray Davis has suggested th= at=20 the Public Utilities Commission allow SDG&E to raise its electricity rate b= y=20 44 percent.=20 Not only that, but barely half the low-income ratepayers in California=20 eligible for relief programs have enrolled. Regulators blame the low figure= =20 on less-than-diligent outreach efforts by the utilities.=20 At their meeting last week, commissioners warned utility companies to work= =20 harder at signing up more of the 2 million or so customers eligible for the= =20 California Alternate Rates for Energy program.=20 "If they don't, we'll order them to," PUC President Loretta Lynch said.=20 Eligibility rules allow customers with incomes of up to 175 percent of the= =20 federal poverty level to qualify. A one-or two-resident home is now eligibl= e=20 with an income of $21,233 or less; a three-person home, $25,083.=20 The program, which offers a 15 percent discount on electricity, is funded b= y=20 a 25-to 50-cent surcharge on the bills of other customers. That fee may ris= e=20 once regulators decide how to implement the latest rate increase.=20 Low-income customers are exempt from the recent rate hike.=20 Officials at SDG&E, where almost 20 percent of the 1.2 million ratepayers a= re=20 eligible for discounted electric rates, say they steer as many customers as= =20 they can into the programs. Customer service representatives also are=20 available to help consumers arrange payment plans, the utility said.=20 "Whenever we hear that a customer has a problem, we want to contact them an= d=20 see if we can't solve the problem," spokesman Ed Van Herik said. "We work t= o=20 keep customers' power on."=20 Jane Johnson isn't so sure.=20 The disabled woman from San Diego's Lomita neighborhood received a disconne= ct=20 notice Friday. SDG&E demanded $210 to avoid shutting off the power within= =20 three business days.=20 "We were fairly good, but every now and then the bill was late," Johnson=20 said. "Last August our bills tripled, and ever since then I have not been= =20 able to get caught up."=20 The run-up in electricity costs last summer prompted state regulators to=20 order SDG&E to stop shutting off power to customers who could not pay their= =20 bills. But that directive lasted only through October.=20 By November, the utility began asking larger users to bring their bills=20 current, and the same request was made of small businesses in December. SDG= &E=20 began requiring residential customers to pay off their debts in January.=20 Those who cannot pay are subject to a $15 disconnect fee and a $9 charge fo= r=20 delivering final notices. Even more daunting, a deposit equal to twice the= =20 consumer's highest monthly bill may be required before service is restored.= =20 It is difficult to gauge how deeply the crisis has hurt low-income people.= =20 SDG&E will only discuss in vague terms the numbers of customers who have be= en=20 issued disconnect notices or been forced into revolving payment plans.=20 "After resuming credit collections, we did have an accelerated number of=20 customers who entered into pay agreements," Van Herik said.=20 For Maurer and Johnson, assistance came in the form of intervention by Beeb= e,=20 the Utility Consumers' Action Network analyst who works with SDG&E in=20 restructuring customer payments.=20 Nonetheless, "it's a constant worry," said Maurer, who said she had to sell= a=20 gold watch to finance part of her latest utility bill. "I don't think we're= =20 going to have any real relief for two or three years." The Associated Press contributed to this report.=20 ---------------------------------------------------------------------------= --- --------------------------------------------- State OKs $7 billion contract=20 Sempra unit to sell half its power output By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 May 6, 2001=20 SACRAMENTO -- A San Diego-based firm that is building several efficient,=20 clean-burning power plants has agreed to sell about half its output to the= =20 state under a 10-year contract worth $7 billion.=20 Sempra Energy Resources becomes the second-largest provider as the state pu= ts=20 together a portfolio of cheaper long-term power contracts, lowering the cos= t=20 of buying power for utility customers on the expensive spot market.=20 As the state struggles to find power at reasonable prices to keep the light= s=20 and air conditioners on this summer, Sempra Energy Resources will begin=20 providing 250 megawatts next month during peak-load periods, enough to supp= ly=20 power to 188,000 to 250,000 households.=20 Sempra Energy Resources, an unregulated sister company to San Diego Gas &= =20 Electric, will provide as much as 1,900 megawatts by 2004 as new plants at= =20 Bakersfield, Phoenix and Mexicali come on-line. The company is seeking=20 permits for a new plant in Escondido and an expansion of a plant near Las= =20 Vegas.=20 "The fact that we are taking roughly half of our output and committing that= =20 to the state I think is a good outcome for us and the state," said Donald= =20 Felsinger, group president of Sempra Energy's unregulated units.=20 State officials said the price paid for power under the Sempra contract is= =20 lower than the portfolio long-term average of 6.9 cents per kilowatt-hour a= nd=20 that the price will be a third to a half cheaper this summer than current= =20 spot market prices. They have not revealed the exact price of power specifi= ed=20 in any of the energy contracts.=20 "This is a positive step toward increasing the available power supply to=20 California at a significantly lower price than currently found on the spot= =20 market," Gov. Gray Davis said in a statement.=20 Felsinger said Sempra is investing $2 billion in power plants with the late= st=20 technology capable of using about 40 percent less natural gas while produci= ng=20 the same amount of power as older models.=20 "We are probably one of the more attractive prices that has been negotiated= ,"=20 said Felsinger, "because we have a brand-new, efficient fleet."=20 Sempra Energy of San Diego is the parent firm of Sempra Energy Resources an= d=20 SDG&E, the local utility.=20 In one of the ironies of the California electricity crisis, the state will = be=20 buying power from one unit of Sempra Energy and providing the power to the= =20 customers of another Sempra unit, SDG&E.=20 The state began buying power for utility customers in January after Souther= n=20 California Edison and Pacific Gas and Electric, whose rates were frozen und= er=20 deregulation as wholesale power costs soared, ran up a $13 billion debt and= =20 were no longer able to borrow.=20 Monthly bills for customers of SDG&E, the first utility to be deregulated,= =20 doubled and tripled last summer before they were capped by legislation in= =20 September.=20 The state has spent about $6 billion buying power for the customers of the= =20 three investor-owned utilities. Davis wants to repay the state general fund= =20 with a $12.5 billion bond that would be paid off by ratepayers over 15 year= s.=20 Assembly Republicans have proposed that the state surplus be used to pay fo= r=20 $5 billion of the power costs, lowering the bond to $8 billion and reducing= =20 monthly bills for ratepayers in the months ahead.=20 There are grim predictions of blackouts and soaring costs as the demand for= =20 power increases this summer, traditionally by about half because of air=20 conditioning and other factors.=20 The agency that manages the power grid, the Independent System Operator, ha= s=20 forecast that the peak demand could reach 50,303 megawatts next month, 3,64= 7=20 megawatts above the generation expected to be available in the region.=20 The state has to purchase only about a third of the total supply -- the "ne= t=20 short" remaining after the power provided from utility generators and small= =20 nonutility generators operating under the federal "qualifying facilities"= =20 program.=20 The state contract with Sempra, which jointly operates a 480-megawatt plant= =20 near Las Vegas with Reliant Energy of Houston, does not add new generation= =20 but will lower state spending.=20 An analysis issued by the governor's consultants last week forecast that 37= =20 percent of the power that the state will have to buy from July through=20 September will be covered by long-term contracts.=20 The rest of the power will have to be purchased on the expensive spot marke= t.=20 Some think the analysts' prediction that the average price will be 19.5 cen= ts=20 per kilowatt-hour is optimistic.=20 The analysts expect a decline in the average price of 35 cents per=20 kilowatt-hour from April through June because of additional small plants=20 operating during peak periods and conservation, including "sticker shock"= =20 from a rate increase that may boost the average residential bill 26 percent= .=20 The state Department of Water Resources, which purchases power for the stat= e,=20 also is trying to negotiate more contracts like the Sempra agreement that= =20 will help lower costs this summer.=20 "I don't think we have any others quite that large under negotiation," said= =20 Ray Hart, DWR deputy director, "but we are still working on a number of=20 contracts."=20 Hart said that only a contract with a San Jose-based firm, Calpine, is larg= er=20 than the Sempra contract announced yesterday. Calpine reportedly has an=20 agreement to sell the state $12.9 billion worth of power. ---------------------------------------------------------------------------= --- -------------------------------------------------- The energy crisis gives Filner some easy targets=20 He's carving new niche, bringing state woes to Washington's attention By Philip J. LaVelle=20 UNION-TRIBUNE STAFF WRITER=20 May 6, 2001=20 When he passed on the 2000 San Diego mayor's race, Rep. Bob Filner based hi= s=20 decision, at least in part, on a flawed political calculation.=20 "I thought the Democrats would be in the majority in Congress," Filner said= =20 in a recent interview. "Given my seniority, I would have a large role to=20 play."=20 He was dead wrong. In November, Republicans retained slim control in the=20 107th Congress while the Electoral College gave the White House to a=20 Republican who now governs from the right.=20 Hard times for an old-school liberal like Filner?=20 Not to hear him tell it.=20 His party may be out of power, but Filner, 58, is carving a niche for himse= lf=20 in California's energy crisis, an issue he caught on to last year, long=20 before it popped up on Washington's radar screens.=20 Filner is attacking the issue with his well-known brand of aggressive actio= n.=20 As a San Diego City Council member (1987-1992) he led the Gang of Five, a= =20 dissident bloc that opposed then-Mayor Maureen O'Connor.=20 As a congressman, the San Diego Democrat reveled in making life difficult f= or=20 visiting GOP big shots, crashing local events featuring former Senate=20 Majority Leader Bob Dole and ex-House Speaker Newt Gingrich.=20 He peppers county newsrooms with news releases of his energy pronouncements= =20 and frenetic schedule, including a protest Friday with House Minority Leade= r=20 Dick Gephardt, D-Mo., outside Duke Energy's South Bay plant.=20 The crisis provides easy targets:=20 Democratic Gov. Gray Davis? "You cannot be moderate to solve this problem,"= =20 Filner said.=20 Republican President Bush? "Basically a prop of the big, big corporations,= =20 and the energy crisis shows it."=20 Out-of-state energy producers? "They know they can rob our state blind=20 because they have a friend in the White House."=20 Energy prices actually began their rise through the stratosphere when=20 Democrat Bill Clinton was president.=20 Fifth term Voters in Filner's solidly Democratic 50th Congressional District seem to= =20 approve. In November they handed him a fifth term with a commanding 69=20 percent of the vote against light opposition.=20 A tough campaigner, Filner has consistently won re-election in his South Ba= y=20 district by comfortable margins, and ran unopposed in 1998. His biggest=20 primary challenge came from Democrat Juan Vargas, then on the City Council,= =20 who lost to Filner by 9 percent in 1996. Vargas is now a state assemblyman.= =20 Filner follows the late House Speaker Tip O'Neill's maxim that all politics= =20 is local. After first meeting Filner, people of all stripes typically recei= ve=20 great-to-meet-you letters, usually within 48 hours.=20 His district, which abuts the U.S.-Mexico border, includes the southern hal= f=20 of the city of San Diego, plus National City and Chula Vista. It is one of= =20 the most ethnically diverse in the nation, at 41 percent Latino, 29 percent= =20 Anglo, 15 percent Filipino and 15 percent African-American.=20 Back in Washington, despite the Republican domination, Filner says he is we= ll=20 positioned to pursue national leadership roles in the energy crisis and=20 border infrastructure.=20 Filner sits on the House Veterans Affairs Committee and the Transportation= =20 and Infrastructure Committee. His successes include helping get an=20 international sewage treatment plant built here; securing limited benefits= =20 for Filipino veterans of the U.S. military; and securing greater benefits f= or=20 all veterans.=20 He has failed, so far, in efforts to restore full benefits to Filipino=20 veterans of World War II.=20 Wide interests At times, Filner's interests range far afield, from championing a homeland= =20 for the Kurds, a policy rejected by the U.S. government, to co-sponsoring= =20 legislation this term condemning destruction of pre-Islamic statues in=20 Afghanistan by the Taliban regime.=20 On core issues, Filner swims against a strong tide. Congress "is totally=20 controlled by the Republican majority," said UC San Diego political scienti= st=20 Gary Jacobson, making "the role of the minority severely circumscribed."=20 Filner's top areas of interest have been slow to gain traction in the=20 Beltway. The border is a neglected issue there, but the energy crisis has= =20 finally become a national story.=20 On border infrastructure -- "my key thing" -- Filner supports completing=20 state Route 905 to link the Otay Mesa crossing with the interstate freeway= =20 system. He also hopes to revive the San Diego & Arizona Eastern Railway to= =20 create a "jobs train" that could spur commerce here.=20 "If we can do this border infrastructure .?.?. we not only help trade betwe= en=20 the two nations, we transform the economy of this region," he said.=20 Julie Meier Wright, president of the San Diego Regional Economic Developmen= t=20 Corp., applauds Filner's focus but finds his positions inconsistent, given= =20 his opposition to the North American Free Trade Agreement. "Border=20 infrastructure is needed in significant part because of the increased=20 economic activity" spurred by NAFTA, she said.=20 Being anti-NAFTA fits his political base; organized labor, which opposed=20 NAFTA, ranks consistently among Filner's biggest institutional sources of= =20 campaign cash, according to the Center for Responsive Politics.=20 Paul Ganster, director of San Diego State University's Institute for Region= al=20 Studies of the Californias, sees no inconsistency. "It's possible to be ver= y=20 critical of NAFTA and at the same time recognize there are very positive=20 benefits that can be brought by free trade," he said.=20 Border problems Filner and others are concerned that the NAFTA has increased problems along= =20 the border that are not being addressed.=20 "That's my biggest disappointment, that we have not been able to bring the= =20 border to its rightful place in national consciousness. .?.?. Nobody gives = a=20 damn about it in Washington," said Filner, who attended Mexican President= =20 Vicente Fox's inauguration and is in his second year of Spanish lessons.=20 Filner got on the energy crisis last year when San Diego became the first= =20 California city to bear the brunt of the state's 1996 deregulation=20 legislation. His working-class district has been particularly hard hit.=20 In January, he introduced a bill to force the Federal Energy Regulatory=20 Commission to cap energy rates, retroactive to last June. It was supported = by=20 Rep. Duncan Hunter, R-El Cajon, a conservative about as far from Filner on= =20 the political spectrum as one can get. Filner now supports another energy= =20 bill advanced by representatives from California, Washington and Oregon.=20 Filner may have no desire to ever run for governor -- but if he held the jo= b,=20 he said, there would be no mistaking him for Gov. Davis on the energy issue= .=20 "I'd be all over the place. .?.?. I'd probably be in jail because I'd be=20 joining protests."=20 He's been there before.=20 In 1961, as a Cornell University undergraduate, Filner took on segregation= =20 and went to Mississippi as a Freedom Rider. He integrated a lunch counter,= =20 which landed him in state prison for a few months.=20 A Pittsburgh native raised in New York City, Filner, with a doctorate in th= e=20 history of science, is one of the most highly educated members of Congress.= =20 He taught history at SDSU for 20 years. In the mid-1970s he was an aide to= =20 the late Sen. Hubert H. Humphrey. Filner was on the San Diego school board= =20 from 1978 to 1983 before being elected to the City Council.=20 Will Filner run for mayor in 2004?=20 "It's a possibility," he said. But if Mayor Dick Murphy "continues the job= =20 he's doing, he's there for two terms, and that puts me a pretty old guy." H= e=20 may choose instead to attempt a long House career, hoping the Democrats=20 become the majority in next year's midterm elections. "The more terms --=20 assuming you stay in touch with your constituents -- gives you a chance to = do=20 all kinds of things."=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------ Gephardt tells rally here he's pushing price caps=20 By Ronald W. Powell and Craig D. Rose=20 UNION-TRIBUNE STAFF WRITERS=20 May 5, 2001=20 CHULA VISTA -- The nation's electric power crisis heated up here yesterday = as=20 House Minority Leader Richard Gephardt demanded that President Bush and the= =20 Federal Energy Regulatory Commission work to immediately curb runaway=20 electric rates.=20 Standing before a noontime crowd of more than 300 angry electricity consume= rs=20 outside the bay-front South Bay Power Plant, Gephardt said Bush should tell= =20 the commission to cap the prices power companies can charge. And he said he= =20 is pushing a bill that would impose caps on energy prices.=20 The former presidential aspirant from Missouri exhorted the throng to=20 organize and fight against the power generators that have dramatically rais= ed=20 rates in California and the West.=20 "This is your country," said Gephardt, pounding the podium to rousing cheer= s.=20 "If you vote, if you make yourself heard, we can solve this problem."=20 Rep. Bob Filner, D-San Diego, who organized the rally, said federal=20 regulators should order more refunds to consumers for overcharges by what h= e=20 described as an "energy cartel."=20 "This is the kind of pressure that will bring down prices," Filner said.=20 Filner chose the South Bay plant as the backdrop for the rally because=20 critics are accusing the facility, operated by Duke Energy, of charging=20 exorbitant electric rates after receiving a low-cost lease from the San Die= go=20 Unified Port District. The 10-year deal was negotiated in 1998.=20 According to the terms of the deal, Duke is obligated to build a replacemen= t=20 plant off-site before its lease expires. Duke then should dismantle the=20 existing plant and turn over to the port 200 acres, including the plant=20 property, free of contamination and ready for development.=20 But critics say taxpayers may not get what was advertised because Duke want= s=20 to build the new plant on 30 of the promised acres.=20 Filner is joining those who say the existing plant and any new plant should= =20 be publicly owned and offer affordable rates. He said Duke and other=20 generators are using their facilities to charge illegal power prices -- a= =20 breach of the lease.=20 "They have broken the terms of the lease and we should take it back," Filne= r=20 said.=20 Jerry Butkiewicz, secretary-treasurer of the San Diego-Imperial Counties=20 Labor Council, accused Duke of gouging consumers.=20 "We want the government and the port to take back this property," Butkiewic= z=20 told the crowd. "We own this (plant)."=20 Duke officials insist the company is abiding by its lease with the port.=20 After the rally, Duke spokesman Tom Williams said the company does not have= =20 to do anything about building a replacement plant at this time, but is acti= ng=20 "proactively" by exploring the possibility of constructing a new generating= =20 plant on the same site.=20 Chula Vista Mayor Shirley Horton, interviewed at the rally, chided Gephardt= =20 and the other congressional representatives, including Rep. Susan Davis,=20 D-San Diego, for criticizing Duke for raising electric rates while doing=20 nothing about power plants owned by the federal government that have also= =20 hiked rates.=20 "What are they doing to provide affordable energy at reasonable prices (at= =20 the federally operated plants)?" Horton asked. Horton wants to see a new=20 power plant built on a part of the 200-acre site that is south of the curre= nt=20 facility and inland from the bay. She said Chula Vista is negotiating with= =20 Duke in hopes of striking a deal that would allow joint ownership of a new= =20 plant.=20 Michael Aguirre, a local lawyer suing power companies on behalf of Lt. Gov.= =20 Cruz Bustamante and on behalf of ratepayers in a separate class-action case= ,=20 said Duke is among a handful of companies in an energy cartel that have=20 manipulated prices statewide. Aguirre said the port should move to void its= =20 lease with the company.=20 But Williams, the Duke spokesman, denied accusations that the South Bay pla= nt=20 sold power at illegal prices. The Federal Energy Regulatory Commission=20 recently required the company to issue refunds, but Williams said those=20 payments are related to surcharges the company imposed on power sales to=20 compensate for growing credit risks in California.=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------- Second of three articles EDISON'S AGONY Proud Linemen Take a Hit=20 Energy: Morale sinks as the utility's workers are forced to do the=20 unthinkable: leave customers in the dark.=20 By NANCY CLEELAND, Times Staff Writer=20 ?????Lineman Ernie Lopez has been rousted out of bed on countless cold, rai= ny=20 nights. He's climbed 100-foot utility poles in heavy winds and grabbed live= =20 electrical lines with nothing but a pair of rubber gloves to protect him.= =20 ?????But the hardest thing Lopez has done in 20 years at Southern Californi= a=20 Edison is walk away from a darkened apartment building while residents=20 pleaded for their heat. Lineman Ernie Lopez repairs ground wire in Hacienda Heights. He doesn't loo= k=20 forward to work like he used to. BRIAN WALSKI / Los Angeles Times ?????It happened in late January. Sinking in debt, Edison had just announce= d=20 drastic budget cuts, including a ban on most overtime. The new rule: If it'= s=20 not a public safety problem, it has to wait until the next business day.=20 ?????Edison's 990 linemen, as well as the people they left shivering in the= =20 dark, howled. Within a week, the utility loosened its overtime restriction.= =20 But Lopez had already done the unthinkable--twice--and remained shellshocke= d. ?????"You get the lights on at all costs. That was bred into us from the=20 get-go," he said two weeks after leaving customers without power in Whittie= r=20 and La Puente. "It's in the preamble of our [union] contract."=20 ?????Months of uncertainty and bad press have chipped away at the pride=20 linemen like Lopez once took in their jobs. Customers harangue him,=20 complaining about rate increases and fat Edison salaries. Service levels ar= e=20 deteriorating. It's going to be a terrible summer. "I don't look forward to= =20 coming to work as much as I used to." ?????As Lopez drives toward an outage in Covina, he shouts into a cell phon= e=20 over the rattling of his big white truck. "I just wish I knew what directio= n=20 they're heading in," he says. "They're not telling us much. . . . We're not= =20 so sure they care about us or the customers anymore." ?????Edison Lacks Enough Veteran Linemen ?????This is bad news for anyone in Edison territory. The utility can't=20 afford to alienate its veteran linemen because there aren't enough to go=20 around. Journeymen are in short supply, drawing big signing bonuses and=20 promises of generous overtime. Edison was trying to hire more than 100 when= =20 the financial crisis hit last summer. Now it faces the triple whammy of a= =20 hiring freeze, low morale and overtime pay cuts that could set off an exodu= s=20 of talent.=20 ?????Already, there have been some defections, including several to the flu= sh=20 cross-town rival, the Los Angeles Department of Water and Power. Lopez and= =20 other veterans remain loyal, but they're checking the Internet, just in cas= e.=20 "Everybody's depressed, bummed out," he says. Ernie Lopez now spends more time with his family in Chino Hills. Cutbacks a= t=20 Edison have meant less overtime for linemen. BRIAN WALSKI / Los Angeles Times ?????Linemen like to see themselves as roughneck heroes, riding into town t= o=20 turn on the lights, to help the kitty out of the tree. Many are loners,=20 outsiders, proud of their cowboy culture. They don't tend to move up to=20 office jobs. They prefer to be out in the field. They are well paid, but wh= at=20 many love even more are the small signs of gratitude, the cup of coffee fro= m=20 a customer, the sound of applause when the lights go back on.=20 ?????"We don't do it for the money. We do it for the glory," says Lopez,=20 almost serious.=20 ?????Along with weathered faces and fallen arches from standing astride=20 poles, most linemen have developed a rigid sense of civic duty. It is what= =20 makes them leave a warm bed and barge into a downpour at 3 a.m. They've=20 missed birthdays, anniversaries, Christmas with the kids for their jobs.=20 Every one of them has stories, of working through hurricanes, ice storms an= d=20 earthquakes. Some have been close to death. Some have watched other linemen= =20 die.=20 ?????"Our whole careers have been designed to provide people with power, no= t=20 cut it off," says Pat Lavin, a veteran Edison lineman, now business agent f= or=20 the International Brotherhood of Electrical Workers, Local 47. "I think our= =20 members would probably offer to work for free if they thought it would help= .=20 They like working for Edison. It's a pride thing." ?????Team Spirit Takes a Hit ?????You see this ethos in Kansas City, home of the International Lineman's= =20 Rodeo. Every September, hundreds of utility field-worker teams pour in from= =20 as far as Jamaica and England to test their skills and stamina against othe= r=20 linemen.=20 ?????They scramble up wooden poles in seconds, replace transformers and=20 rescue "hurt man" dummies from the wires. In one event that tests focus as= =20 well as strength and dexterity, a lineman climbs a 45-foot pole holding the= =20 handle of a bucket in his teeth. In the bucket is an egg. At the top, the= =20 lineman ties the bucket to a wire, puts the egg in his mouth and climbs bac= k=20 down, taking care not to bite. ?????Last year, Edison's senior team--45 years and older--placed fourth out= =20 of 213. It was a huge coup and a career highlight for team member Joe Baker= ,=20 a crew foreman and 25-year Edison veteran working out of the Barstow office= .=20 His parents came down from Iowa to watch. His wife and son--an Edison=20 apprentice--were cheering from the bleachers. Baker had been training for= =20 months, and was in top form. "If you look at the scores," he notes, "you'll= =20 see that we were awfully close to first." ?????He might have made it to the top this year, but Edison won't be sendin= g=20 linemen to Kansas City in September. The rodeo team is one more casualty of= =20 the California crisis. ?????Seven months after his big win, Baker watches as pieces of Barstow go= =20 dark. Planned blackouts sweep across the southern part of the state for the= =20 first time since World War II. Traffic lights blink off; drivers skid into= =20 intersections. Manufacturing lines stop cold. Root canals go unfinished.=20 Customers call, confused and angry. They see the men in the white trucks an= d=20 wonder, are they pulling the switch? ?????"Today I went into a grocery store. I had on an Edison hat," Baker sai= d=20 in early April. "The store manager, who's a friend of mine, says, 'Is it sa= fe=20 to wear that around here?' He wasn't joking. These days, people look at you= =20 funny, like it's all your fault." ?????Union Opposed Deregulation Plan ?????For decades, Edison's linemen enjoyed a strong safety record,=20 top-of-the-line equipment and lifetime job security. Then came=20 deregulation--a concept that the linemen's union opposed long before the 19= 96=20 state law was adopted, convinced it would destabilize their lives. ?????They were downsized. Their jobs were contracted out or given to=20 temporary workers. They felt exposed and vulnerable. As early as 1998, an= =20 Edison veteran warned on a linemen's Web site: "All you guys, look out when= =20 deregulation comes your way. . . . SCE is still good, but not like the old= =20 days." ?????Among the 2,000 jobs Edison cut in January were hundreds of contracted= =20 linemen working on large construction projects. Veteran linemen absorbed hu= ge=20 losses in their half-million-dollar retirement accounts based on Edison sto= ck. Joe Baker, a 25-year Edison veteran who works in Barstow, says he's noticed= a=20 change in public attitude since power crisis began. BRIAN WALSKI / Los Angeles Times ?????The utility was on the TV news every night. Linemen began spending mor= e=20 time with customers, explaining, defending. They blamed the state regulator= s=20 who set up the dysfunctional market and the energy suppliers who took=20 advantage and reaped huge profits, but they also wondered: Why isn't the=20 company doing more to get the facts out? Why isn't it being more aggressive= ? ?????In February, the union launched its own campaign, organizing a protest= =20 march at a Huntington Beach generating plant owned by AES, a giant=20 Texas-based energy wholesaler. The message was that Edison was the victim o= f=20 gouging by the generators. But what motorists saw as they drove by were ang= ry=20 picketers at a power plant, wearing Edison hats and jackets. Victim and=20 villain were confused. The problem was too complex to fit on a placard. No= =20 more protests are planned. ?????Soon after Edison's belt-tightening, the electrical workers union file= d=20 objections with the state Public Utilities Commission, arguing that the=20 layoffs and overtime restrictions would seriously reduce the level of servi= ce=20 in Edison territory--a violation of PUC rules. ?????Two months later, the PUC agreed and ordered Edison to restore jobs an= d=20 hours that could affect service. By then, some linemen argued, it was too= =20 late. "The customers will remember we weren't there for them," says Lopez, = a=20 longtime union activist and an officer of Local 47. ?????Even after the PUC ruling, overtime restrictions for routine work=20 continue to cut linemen's pay by at least 20%, far more in some cases. It's= a=20 traumatic loss for those who have grown accustomed to fat checks, and to=20 nearly doubling their base pay of about $65,000. ?????"For someone with no college degree, earning six figures is not bad,"= =20 says Russ Neal, a supervisor in the Santa Ana distribution center. "But kee= p=20 in mind, this job is hard on personal lives. A lot of these guys are paying= =20 ex-wives, child support. They're not all choosing between a boat and a=20 camper." ?????For some, the change has been a partial blessing. Elite "troublemen"= =20 like Lopez, who are the first on the scene of an outage, get to sleep throu= gh=20 the night, spend more time with their children and read them bedtime storie= s. ?????"Having Dad home has been wonderful," says Peggy Lopez, Ernie's wife o= f=20 20 years. "We have a son, and there's been a lot of bonding lately." ?????But they all miss what the linemen call blood money. The Lopez family = is=20 scaling back on weekend trips and dinners out. Peggy wonders whether she'll= =20 need to go back to work after staying home for 11 years with her two=20 children. Nine-year-old Albert is in tears after a day of teasing at school= :=20 Your dad's going to lose his job, the kids taunt. ?????"We hadn't shared with the children how serious it was," says Peggy.= =20 "Afterward, he and Ernie had that talk. Now we just pray that things get=20 worked out." ?????Job-wise, Edison's linemen are probably safe, no matter what happens.= =20 After all, someone has to keep the power going, even through bankruptcy or= =20 state ownership. Still, it's unsettling. Linemen who were once disciplined= =20 for accidentally tripping brief outages are now ordered to cut off customer= s=20 for an hour at a stretch. They're nervous and distracted. They want this=20 crisis to end, but see no end in sight. Supervisors worry about their=20 linemen's ability to concentrate, to stay focused. After all, in this job, = a=20 moment's carelessness can be deadly. ?????"It's important that we talk to them more and let them vent a little,"= =20 says Bob Woods, who manages Edison's Santa Ana operating center. "When you= =20 read that your company is on the verge of bankruptcy, it's frightening. We= =20 don't want them thinking about that out in the field." ?????Into Woods' office walks Paul Miller, a clean-cut 34-year-old=20 troubleman, earnest, eager. He's been with the company 15 years. His job is= =20 to make the scene safe, restore as much power as possible, then call in the= =20 regular field crews for heavy-duty work. ?????He's out a lot on weekend nights, when drunk drivers tend to knock dow= n=20 poles. He's busy when the weather is lousy. He missed Christmas with his wi= fe=20 and toddler son last year when winds blew lines down all over north Orange= =20 County. Woods called him in for a 12-hour day, along with the station's 11= =20 other troublemen. "I didn't hear one complaint," Woods says. ?????Miller is so proud of his job that he had his name embroidered on his= =20 khaki Edison uniform, along with that odd title, Troubleman. He hopes to=20 retire from Edison someday. He hasn't had to walk away from a job, not yet.= =20 But it bothered him when he was sent to a Santa Ana apartment building that= =20 had been without power all night.=20 ?????"They were pretty unhappy. Nobody's used to that kind of service. We'v= e=20 always been right there. . . . I can't stand it, actually, leaving people= =20 off." Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------ EDISON'S AGONY Utility's Workers Watch Helplessly as?Company Falls Energy: Proud engineers and technicians, wincing as the firm is pilloried,= =20 blame deregulation rules. Firm was "dragged into this kicking and screaming= ,"=20 one says. By NANCY CLEELAND, Times Staff Writer "I'd cry if I had any more emotion." John Ballance keeper of Southern?California Edison's transmission and=20 distribution grid for most of he past 32 years. ?????There are hundreds of them at Southern California Edison--engineers an= d=20 technicians hired a generation ago at the height of California's=20 build-and-grow frenzy. Steady Eddies. Methodical thinkers. ?????They designed massive things like nuclear reactors and gas-fired=20 generators and kept electrons flowing over 50,000 square miles of territory= .=20 They did their jobs so well that no one ever noticed. ?????For more than 100 years their precise, problem-solving nature defined= =20 Edison culture, and distinguished the company as one of the country's most= =20 highly regarded utilities. ?????Then came deregulation, which eventually cut the financial guts out of= =20 Edison, creating a crisis solvable only by political consensus. ?????For once the engineers were stumped. Mathematical logic no longer=20 served. They lacked the intangibles--the finesse, the gifts of spin and=20 horse-trading--to put their company back together. ?????Today they draw up intricate plans to salvage the company, but the pla= ns=20 go nowhere with regulators and politicians. ?????The world hates and blames Edison, and the engineers cannot understand= =20 why. They brandish the truth--Blame a flawed deregulation system, not us!--= as=20 if it might redeem them. Yet each week finds them more marginalized.=20 Bewildered, some have been reduced to waiting, with nothing to do but watch= =20 their legacy disintegrate. It's a cruel way to end a career that was built = on=20 long-term planning and the power of rational thought. ?????"I'd cry if I had any more emotion," says John Ballance, keeper of=20 Edison's transmission and distribution grid for most of the last 32 years. ?????He is a soft-spoken, church-volunteering grandfather with twinkling ey= es=20 and a navy blue cardigan. Mr. Rogers with a slide rule. He was hired in the= =20 late 1960s straight out of UC Berkeley, where he played clarinet in the=20 marching band. Edison brought him back to his hometown. It was a dream job. ?????Now 53, Ballance still gets excited thinking about the highlights: tha= t=20 hot early summer when he installed six temporary transformers in a weekend = to=20 avoid blackouts. That post-earthquake scramble when he guided crews to=20 restore a substation that powered Ventura and Santa Barbara counties. Seven= =20 years later, he remembers every detail: 23 lines tripped at 4:17 a.m., all= =20 back up by 12:30 p.m. ?????"It was a good day when you had a problem come up that wasn't=20 anticipated but you had a contingency plan for it, and it worked," he says= =20 nostalgically. ?????No one anticipated this: Edison on the verge of bankruptcy. And so far= ,=20 none of the contingency plans has worked. ?????By early January, Edison has had to pay so much money to power=20 wholesalers that it owes several billion dollars and is bleeding nearly $20= =20 million more a day. Each time a customer turns on a light or a computer or = a=20 hair dryer, the debt grows. ?????Here's what passes for humor at utility headquarters in suburban=20 Rosemead, 10 miles east of downtown Los Angeles: When you lose money on eve= ry=20 kilowatt, you don't make it up in volume. ?????Edison defaults on loans and suspends its dividends for the first time= =20 in its history. Creditors threaten to haul it=20 Edison engineer John Ballance, left, with systems operator Kenneth House,= =20 never dreamed the firm would be on the brink of bankruptcy. ??Photos by BRIAN WALSKI /=20 Los Angeles Times into bankruptcy court. Budgets are slashed, and nearly 2,000 employees get= =20 pink slips. More than 100 executives work a week for free. ?????"It's very depressing," says Donald Fellows, who once designed power= =20 plants and is now reduced to feeding numbers to the state commission that= =20 sets utility rates. "Most people go to work for a utility because they have= =20 high security needs. You don't find a lot of risk takers here." ?????A large, balding man with a penchant for mirthful sarcasm and a tenden= cy=20 to answer questions by pulling out a calculator, Fellows becomes downright= =20 grumpy when talking about his current job: manager of revenues and tariffs. ?????Pure frustration, he huffs. He spends far too much time in hearing=20 rooms, listening to "self-serving drivel" from Edison's many critics and=20 second-guessers, who seem to pass right over the numbers Fellows so=20 meticulously gathers. ?????In his view, state regulators micro-managed Edison into this mess, by= =20 forcing it to buy power on the volatile spot market. Wholesale prices=20 exploded, from 3 to 30 cents a kilowatt. Now the people who made the rules= =20 are blaming Edison for letting it happen. And getting away with it. ?????"You sit in those hearings and sometimes it's like Alice in Wonderland= ,=20 the way things get twisted," he says. "You look around and wonder: Did I fa= ll=20 into a trapdoor?" ?????He is just back from a Public Utilities Commission meeting in San=20 Francisco, where he pleads Edison's case for a 30% rate hike. Nothing less= =20 will keep the utility solvent, he warns. ?????Consumer advocates are hostile, suspicious. The commission compromises= =20 by raising rates about 10%. Edison's stock plunges, at one point losing hal= f=20 its value in a few hours of trading. Credit agencies downgrade its investme= nt=20 rating to just above junk status. Banks suspend corporate credit cards. ?????Fellows, who put in 28 mostly good years at Edison, loses the bonus th= at=20 was nearly half his salary last year. He looks at his worthless stock optio= ns=20 and wonders whether he can still afford that early retirement in May, when = he=20 turns 55. And if so, should he take it? Is it right to walk away? ?????Panicked Retirees Flood Firm With Calls ?????The winter passes in a painful fog of uncertainty across the bland=20 1970s-era Edison complex, home to 4,000 engineers, lawyers, managers and=20 clerks. Employees keep their heads down, but they cannot escape the crisis. ?????It jumps out from the cafeteria entrance, where a posting advertises= =20 brown-bag sessions on resume writing and interview techniques. It startles= =20 them every evening at 5, when a too-loud recorded voice warns that power wi= ll=20 soon shut down to emergency levels. Television crews camp outside, lining u= p=20 for live shots every few hours. Employees pray for other breaking news,=20 anything to take them off the front page for a while. Managers cut budgets,= =20 look for expendable jobs. Public relations spokesmen set up a SWAT team to= =20 deal with all the calls. ?????Jo Ann Goddard, parent company Edison International's vice president f= or=20 investor relations, fields calls from dozens of panicked retirees. One=20 80-year-old man, who lost a fourth of his income when dividends were=20 suspended, calls every week for an update. He always takes time to ask how= =20 she's holding up. ?????Pam Bass, Southern California Edison's vice president for customer=20 relations, takes flak from angry business owners in the state-regulated=20 "interruptibles" program, which was designed to handle rare emergencies. Fo= r=20 weeks now, the businesses have had to shut down several hours a day. Some= =20 have lost millions and laid off entire shifts. ?????As the company's value dives, it takes down children's college funds,= =20 vacation dreams, early starts on retirement. Yet many engineers are even mo= re=20 troubled by the steep erosion of service. ?????Ballance is close to tears as he guts his construction budget, canceli= ng=20 orders and contracts that were eagerly placed just six months earlier. This= =20 was going to be a big year, a chance to fix Edison's aging collection of=20 poles, substations and wires. ?????He hesitates, scarcely believing what he is about to say: "We're=20 knowingly taking on risk. . . . If we get extreme temperatures this summer,= =20 only a few pockets out could cause serious problems." ?????Through his office window, he looks out on a trail of hulking=20 transmission towers marching toward the horizon, a solid, sturdy bit of=20 evidence that Edison is still the proud source of power for Southern=20 California. What he doesn't know is that the lines themselves will soon be= =20 caught up in the energy debacle. ?????An Odd Sense of Hope and Mission ?????Along with nail-biting anxiety, January brings an odd sense of hope an= d=20 mission to Edison headquarters. State and federal legislators are finally= =20 paying attention, trying to understand what happened. Auditors are going=20 through the books. Gov. Gray Davis says he will consider a state plan to=20 rescue California's private utilities, but with a daunting pair of=20 parameters--no utility bankruptcies and no rate increases. ?????Edison must analyze hundreds of contract, rate and transmission-cost= =20 variables--months of work--within a couple of days. At last the problem=20 solvers have something to sink their teeth into. ?????"I've seen this time and again over the 21 years I've worked here," sa= ys=20 an optimistic Charles Basham, who runs Edison's internal Web site and=20 considers himself its unofficial historian. "We work best in a crisis." ?????Corridors that thread past gray cubicles and into wood-paneled executi= ve=20 offices are strangely silent. No gossip around the water coolers. No shriek= s=20 of exasperation. Just lots of conference calls and long nights with cold=20 pizza and coffee. ?????Alan J. Fohrer, who helped design the San Onofre nuclear plant, has co= me=20 back to help. These days he runs Irvine-based Edison Mission Energy, a=20 fast-growing, unregulated sister company to Southern California Edison that= =20 owns and operates generating plants around the world. ?????Fohrer's wife is out of town. At dawn he dashes home to Arcadia to wak= e=20 his kids before they notice he's gone, make their lunches and get them off = to=20 school. Then he rushes back for another day of calculations. ?????After 36 hours, Fohrer wears a tentative smile. There is a way--if a= =20 series of events falls perfectly in line--to pay off Edison's debts without= =20 raising rates. ?????"We have an opportunity," says the 50-year-old executive, laying out a= ll=20 the little pieces. "But we have to move quickly. The problem gets bigger=20 every day." ?????Weeks pass. Fohrer's plan becomes moot because state legislative=20 proposals keep adding demands: Edison must hand over a chunk of company=20 stock. Or all of its prized hydroelectric system. Or its valuable=20 transmission lines. These ideas come and go, almost whimsically, without ev= er=20 taking solid form. The urgency that once distracted Edison employees=20 dissolves into a numbing sense of powerlessness. ?????Fohrer--intense, serious, focused, a veteran of the 1990s deregulation= =20 debate, when he says most of his ideas were ignored--struggles for words to= =20 describe his frustration, then finally sputters, "This is silly." ?????He graduated from USC in 1973 with a degree in civil engineering. He= =20 dreamed of designing huge, complex structures like oil refineries, and talk= ed=20 to all the major international firms. Then Edison courted him, and Fohrer w= as=20 charmed. Edison was at the tail end of a five-year hiring binge, ramping up= =20 to design and build dozens of new power plants for the fast-growing state. ?????The expansion didn't last long. Inflation hit, raising the cost of=20 construction. The Arab oil embargo struck, straining supplies and making=20 conservation look like a good idea. The Three Mile Island nuclear plant=20 leaked radiation, setting off a fierce antinuclear backlash. Edison built= =20 only two generators after 1973. ?????None of that compares to the current mess, says John L. Jurewitz, an= =20 economist and Edison's manager of regulatory policy. Like many veterans, he= =20 knows precisely when it started: April 1994, when the PUC announced that it= =20 was moving to an open retail market. ?????"Starting at that point," Jurewitz says, "we were in damage control=20 mode." ?????Edison executives worked with state legislators to fashion the 1996=20 state law that became the framework for restructuring. But Ballance, Fohrer= ,=20 Jurewitz and others directly involved in those talks insist that what they= =20 lobbied for was a far cry from what was later implemented. ?????They want the world to know that, as Fellows puts it, "the utility was= =20 dragged into this kicking and screaming." They highlight passages and fax= =20 reports and letters dating back to 1993. ?????But the old papers are dense and complicated. Southern California=20 Edison--big, familiar, accessible--continues to be a target. ?????The engineers shout at the television. They cringe at the morning=20 newspaper. They riffle through their files to find the old documents that= =20 will prove their point. But by then it's too late. The media, the=20 politicians, the public have moved from one oversimplified idea to the next= . ?????And these consumer advocates! ?????"How do they get coverage so easy just because they sound good?" asks= =20 Danny Haberern, an engineer who lost his Illinois railroad job when the lin= e=20 went bankrupt, then fled to a "safe," regulated utility. He's now district= =20 supervisor in Edison's Montebello center. "I don't get it." ?????Edison is getting bundles of hate mail. Edison is the butt of shock=20 radio programs. Edison employees are being snubbed at their children's=20 basketball games. ?????It's not our fault, they say, a little too desperately. We never wante= d=20 to sell our power plants. We asked for long-term contracts four years ago. = We=20 pleaded for a rate hike in December. When we ran the system, it never faile= d. ?????Facing the new market, Edison slashed its staff through a series of=20 layoffs and voluntary retirements in the mid-1990s. In 1998, to comply with= =20 deregulation, it sold 12 gas-fired power plants and bought the electricity= =20 back through a state-supervised market where prices fluctuate daily. ?????Other retailers are invited to jump in and compete, but retail=20 competition never materializes in force, and prices do not drop but soar. B= y=20 last December, it is clear that the market is dysfunctional. Under the=20 deregulation law, Edison cannot respond by raising rates. By the end of the= =20 year, the utility is out of cash and comes within a filament of cutting pow= er=20 to customers. ?????Back in the old days, John Ballance could make a troubled generator=20 continue running if the grid needed juice. He could get on the phone and te= ll=20 the manager, "You'll just have to hang on for a few hours, until we get pas= t=20 the peak." And it would happen. ?????Now those same plants go offline whenever the new owners say, and all= =20 the begging in the world won't bring them back. ?????In February an international energy firm, PA Management Group, names= =20 Edison the most reliable utility in the Western region, based on 1999=20 figures. The veterans chuckle. They know it will be many years before Ediso= n=20 is lauded for reliability again. They try not to think about it, gathered i= n=20 the cafeteria, graying heads bent over the tortilla soup. ?????"It used to be something to be proud of, to work for the utility," say= s=20 John R. Fielder, 56, a senior vice president for regulation, who once=20 directed Edison's information technology team. ?????"There was an ethic and an attitude, being good citizens, financially= =20 healthy, part of the communities we serve," he says. "Now people don't=20 understand. They wonder, 'How did you let this happen? Who's going to get= =20 fired?' It's just destroying the whole fabric of the place." ?????Ballance leaves for a long-planned family vacation, to visit his new= =20 grandchild in Massachusetts. "I wonder if I'll have a job to come back to,"= =20 he says. He checks the Internet for news every morning and night, and draws= a=20 blank. ?????It's only after his return that Ballance learns the state will buy=20 Edison's transmission grid--half of his job--in exchange for a "bailout." T= he=20 federal government won't let it happen, he says. Besides, it makes no sense= . ?????"I fail to see what the state or customers are going to actually get f= or=20 all of this," Ballance says, hours after Gov. Gray Davis announces a=20 tentative deal for the wires in late February. "I just don't understand the= =20 rationale, when it seems to me that there's a fairly simple solution, and= =20 that is to raise the rates of electricity." ?????In March, saturated with frustration, Fellows decides to take that ear= ly=20 retirement. He will move to central Oregon with his wife, his mother and hi= s=20 28-year-old paraplegic son. He will play golf and try to forget about=20 California's new, deregulated world. ?????"It's hard," he says. "You almost feel like you're abandoning the plac= e.=20 I've wrestled with that for a while. But my wife wants to go, and I've come= =20 to the conclusion that I'm probably not indispensable after all." ?????He stays around long enough to watch California's other struggling=20 utility, Pacific Gas & Electric, file for bankruptcy protection. It happens= =20 April 6, a Friday. On Saturday, members of Fellows' staff work through the= =20 night, gathering numbers for a final deal with the state, which Davis unvei= ls=20 with great fanfare Monday. ?????Already disengaged, watching from an emotional distance, Fellows=20 pronounces the deal DOA; the Legislature won't approve it. His voice is=20 uncharacteristically unburdened. This is no longer his problem. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------- Utility Bills Are Just One Way People Pay for Energy Crisis=20 Money: From hotel rates to zoo admission, fees are being added.=20 By JENIFER WARREN, Times Staff Writer=20 ?????Do you depend on a dry-cleaner? Dine out now and then? Do you patroniz= e=20 a hair salon, pump iron at a gym, send flowers occasionally or plan to take= a=20 vacation this year? ?????If so, you'll probably be paying an energy surcharge on those and many= =20 other goods and services. In some cases, you already are. ?????Visitors at the San Diego Zoo found a $1.50 "energy assistance fee"=20 tacked onto the admission as of last week. The Water Grill in downtown Los= =20 Angeles raised prices about 3% last month. And the San Francisco Federal=20 Reserve Bank predicts the average Californian will spend at least $750 extr= a=20 over the next year on new energy-related costs. ?????Hotels were the first to pass on the pain of the state's spiking utili= ty=20 costs, but now the practice is spreading. The result: Many Californians wil= l=20 get stung by the energy crisis multiple times: once through rate hikes comi= ng=20 next month, then again and again through special fees tacked on by business= es=20 coping with their own power bills. ?????The surcharges aren't popping up just on luxuries such as a stay at a= =20 beach-side inn or an hour in a tanning bed. Even staples such as milk could= =20 cost more. ?????Milk processors have asked the state Department of Food and Agricultur= e=20 for a price adjustment, a shift that--if approved at a hearing late this=20 month--could bump up costs at the supermarket. And gasoline prices--already= =20 about $2 a gallon--could be nudged further upward if summer blackouts shut= =20 down refineries and pinch fuel supplies. ?????For some Californians, the risks are more basic. Some businesses,=20 reluctant to raise prices too high for fear of scaring off customers, will= =20 offset soaring utility costs by laying off employees, cutting wages or=20 slashing benefits. ?????"We will see an impact on unemployment rates, we will see an impact on= =20 wages, we will see an impact on benefits," said Shirley Knight, assistant= =20 state director of the National Federation of Independent Business. "When=20 you're a small business owner and your [power] bill triples, you simply hav= e=20 no choice." ?????Four months after the energy crisis hit California full force, financi= al=20 repercussions continue to multiply. The state is spending upward of $50=20 million a day buying energy for struggling utilities, and the sale of $12.5= =20 billion in bonds to return that money to government coffers is clouded by= =20 politics and a legal dispute. ?????Summer Blackouts Threaten Economy ?????The state's $1.25-trillion economy, while still strong, is already=20 showing wear and tear as uncertainty about energy costs and supply endure,= =20 some economists say. A summer of blackouts, meanwhile, threatens to hurt=20 business productivity, discourage new investment and push inflation rates u= p,=20 they say. ?????"Elevated energy costs present a significant drag on the economy and c= an=20 be expected to reduce growth and economic output and employment," a study b= y=20 the Bay Area Economic Forum said. The study said 42% of Bay Area businesses= =20 report that power problems have already hurt their profit margins and their= =20 competitiveness relative to competitors outside the region. ?????Steven Cochrane, a senior economist at Economy.com in West Chester, Pa= .,=20 is not surprised: "There are strong downsides to this [energy crisis] for t= he=20 state both short term and long term. Everyone is watching California." ?????For most residents of the Golden State, the most visceral blow will be= =20 felt through rate hikes, beginning--but probably not ending--with the=20 increase reaching as high as 46% for some that will show up in June bills. ?????But the effects go far beyond that, and some analysts are attempting t= o=20 quantify them. The San Francisco Federal Reserve Bank study estimating a $7= 50=20 annual hit for an average Californian figures $250 for electricity bill=20 increases, $200 for additional natural gas charges and $300 for the indirec= t,=20 day-to-day costs that will rise because of power-related surcharges and pri= ce=20 hikes. ?????The report's authors emphasize that their figure "would rise=20 substantially" if the full increase in wholesale electricity prices borne b= y=20 the state was taken into account. ?????Even so, $750--representing 1.5% of the average Californian's annual= =20 income--is a very real bite, especially for the poor. Already, community=20 organizations report increases in calls for help from people forced to choo= se=20 among keeping their power on, buying food or paying for day care. ?????"It's that whole fixed-income thing," said Dennis Osmer, who runs a=20 nonprofit organization in Santa Cruz County that helps the poor pay their= =20 energy bills. "If they're living on Social Security and just getting by, an= y=20 kind of increase in anything can push them right off the edge." ?????Extra Outlay Just 'Sunk Down a Hole' ?????Veterans of the state's consumer groups warn that the consequences of= =20 the energy crisis for Californians--and the fiscal health of the state as a= =20 whole--are staggering, and not yet fully known. Harry Snyder, a senior=20 advocate for Consumers Union, likens it to "a 7.0 earthquake that hits=20 everyone, everywhere." ?????"Wherever you turn, there's an impact," Snyder said. "The cafe owner= =20 around the corner said his utility costs doubled in the last year and are n= ow=20 the same as his rent. A friend who owns a bakery says his suppliers have=20 added a 20% surcharge. This all gets passed on to us, and it's just money= =20 sunk down a hole--it's not spending that advances our well-being in any way= ." ?????California business owners say they have little choice but to tack on= =20 costs to help with their own ballooning bills. And they say that along with= =20 the rising natural gas and electricity bills, they have been hit with a jum= p=20 in the minimum wage--by 50 cents in January--and high gasoline prices.=20 Workers' compensation rates are up as well. ?????Hotels, which spend about 3.6% of their revenue on energy costs, led t= he=20 charge in passing on the extra expense. In January, most began adding fees= =20 ranging from $1 to $4. Stay at the venerable Westin St. Francis on San=20 Francisco's Union Square and you're looking at $2.85 extra per night, per= =20 room. At the Quality Inn in Mammoth Lakes, it's $2.50. ?????In San Diego, the zoo added the energy charge Thursday. Though many=20 visitors might not think of the zoo as a big energy gobbler, public relatio= ns=20 director Ted Molter said many exhibits consume lots of kilowatts. ?????Reptiles, for example, require warm temperatures and lighting, while= =20 pumps and filtration systems run constantly to keep water clear in the=20 underwater viewing portion of the hippo enclosure. ?????Molter said the zoo, a nonprofit organization, experienced a 290%=20 increase in the amount it pays per kilowatt hour during the last year. "We= =20 don't take this fee lightly and look forward to the day when we can roll it= =20 back," he said. ?????At the Calistoga Village Inn & Spa near Napa, Manager Gisela Schaefer= =20 said the natural gas bill has risen 500%--to $7,000 in March--making a pric= e=20 increase at the 41-room compound inevitable. The spa includes numerous=20 energy-guzzling Jacuzzis, pools and saunas, and its natural hot springs=20 require pumps to draw water from underground. ?????But Californians need not travel to the wine country to experience=20 energy surcharges. At Foasberg Cleaners in Long Beach, owners in February= =20 posted signs announcing a fee--about 3% per item--to account for spiking=20 utility costs. ?????Vice President James Foasberg said the cleaners' natural gas bill has= =20 tripled in the last year, and he expects his June bill from Southern=20 California Edison to show a 40% increase in his electricity rate. ?????"We hate to do this, but we have no choice," said Foasberg, who has al= so=20 been pinched by high gasoline prices that cost him more for deliveries. "So= me=20 of our smaller competitors are afraid to raise prices, so they're just=20 closing down a few days a week. It's terrible." ?????Restaurant owners also are getting hit from two sides: reeling from=20 higher utility costs and getting squeezed by linen, dairy and produce=20 suppliers who are raising prices because of the energy crisis. Signs advisi= ng=20 customers of surcharges have begun popping up next to the cream pitchers at= =20 coffee shops, while managers of some restaurants are reluctantly opting to= =20 charge more for meals. ?????Jeff King is chairman of a company that owns 11 restaurants from=20 Calabasas to San Diego, including the Water Grill in Los Angeles and iCugin= i=20 and Ocean Avenue Seafood in Santa Monica. King said energy costs for the=20 eateries rose by $150,000 during the last four months, prompting him to rai= se=20 menu prices about 3% last month. ?????"The last thing you want to do is charge the guests more," King said.= =20 "But this is a major hit. And unfortunately, I think it's just the beginnin= g." ?????Economist Cochrane agrees, predicting the energy debacle will cause a = 2%=20 increase in California's inflation rate overall, showing up in price hikes= =20 for every conceivable product and service. ?????"Power is such an essential component of production, so for most=20 businesses there's no escape," said Cochrane, who studies California for hi= s=20 economic forecasting company. "These rate increases are so large, and they'= re=20 hitting so quickly, that those businesses that don't go under have no choic= e=20 but to raise prices." ---=20 ?????Times researcher Patti Williams contributed to this story. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------- Question Remains Who'll Take Brunt of the Rate Hikes=20 Power: Everyone has opinions on how to allocate the increases. PUC will hol= d=20 hearings before selecting a plan.=20 By TIM REITERMAN, Times Staff Writer=20 ?????SAN FRANCISCO--When the California Public Utilities Commission approve= d=20 the largest electricity rate hike in state history, it ignited debate over= =20 how the pain of almost $5 billion in increased power charges will be shared= . ?????Everyone from the governor and the PUC president to consumer groups an= d=20 industry associations has weighed in, with about 20 plans. ?????They all say their formulas translate into equitable charges that will= =20 encourage serious energy belt-tightening. ?????The PUC, as the state's chief regulator, must decide how to divvy the= =20 rate increase among millions of utility customers, ranging from single-fami= ly=20 homes to factories that employ thousands of people. ?????Beginning today in Santa Monica, the commission will hold a series of= =20 hearings to let the general public have its say before the scheduled adopti= on=20 of a rate plan on May 14. ?????PUC officials say rates will increase by an average of almost 30%. The= =20 question is: Who gets hit the hardest? ?????The rate structuring is a pivotal piece of California's strategy for= =20 surviving the summer without economic devastation and extricating the state= =20 from a crisis that already has wreaked hardship on the state budget,=20 utilities and customers alike. ?????The PUC not only must assess a welter of competing proposals that=20 sometimes clash head-on. It also must design the rate structure without=20 knowing with certainty how much money the state will need to buy power in t= he=20 future. ?????Roughly half of residential users--including low-income customers--wou= ld=20 see no rate increases, and that number could grow, experts say, if customer= s=20 conserve significantly. Under proposals from Pacific Gas & Electric Co. and= =20 Southern California Edison, rates for heavy users would increase by 50% or= =20 more. ?????One battle shaping up is over whether residential customers alone shou= ld=20 pay for the increased cost of delivering power to those conserving enough t= o=20 be exempted from the rate hikes. Or should it be shared with businesses and= =20 other nonresidential customers? ?????The answers are politically and economically tricky because someone is= =20 going to feel the pinch. ?????"It is enough money to cause a noticeable increase for customers to wh= om=20 it is allocated," Paul Clanon, head of the PUC energy division, said.=20 ?????PUC President Loretta Lynch, Gov. Gray Davis and others say rates shou= ld=20 be tiered to reward energy savers and punish heavy users. The proposals=20 involve fluctuation of a customer's baseline, an amount utilities determine= =20 as the minimum level needed for household usage, varying by climate and=20 region. ?????Some proposals call for four tiers of residential users; others for fi= ve. ?????Under Southern California Edison's proposal, residential customers wou= ld=20 receive a 5% rate hike for usage that sometimes exceeds 130% of their=20 baseline amount but falls below 200%. Customers who use 300% above the=20 baseline less than six months a year would see a 45% increase. Above that,= =20 the rate would climb to 70%. ?????Lynch's proposed rate design attempts to reduce the gap between what= =20 residential customers pay and the lower rates paid by commercial and=20 industrial customers. ?????The California Large Energy Consumers Assn., representing big steel an= d=20 cement companies, said a rate hike of 3 cents a kilowatt hour--approved in= =20 March by the PUC--amounts to a huge increase for large industrial users who= =20 currently pay substantially lower rates than residential customers. ?????"One class should not pay an increase that is twice or three times [th= e=20 percentage] . . . as others," said William H. Booth, lawyer for the=20 association. ?????Farmers and food processors express concerns that they would take a=20 heavy hit because, unlike some industries, they are less able than some=20 customers to shift power use to nonpeak times. ?????"The bulk of the crops go to processors in the summer," said Ron=20 Liebert, staff attorney for the 94,000-member California Farm Bureau=20 Federation. "We can't say we'll do a double shift at night. Some crops have= =20 to be irrigated around the clock." ?????The commission also must resolve a $1 billion disagreement over how mu= ch=20 money the rate increase will raise. ?????If the utilities have their way, the 3 cents per kilowatt hour increas= e=20 will be multiplied by the total number of kilowatt hours used by its=20 residential, commercial and industrial customers. ?????However, The Utility Reform Network (TURN) contends that total should= =20 not reflect energy usage by low-income customers and other residential=20 customers who consume less than 130% baseline--groups exempted from rate=20 increases. That means the utilities would collect a total of about $4 billi= on=20 from customers, not $5 billion.=20 ?????TURN's proposal, according to staff attorney Bob Finkelstein, also wou= ld=20 mean "less money will be flowing to [the Department of Water Resources] for= =20 power purchases." Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------ Riordan and Freeman's Feud Erupts in Public=20 Power: Each questions the other's role in keeping the city free of=20 California's energy crisis. By MICHAEL FINNEGAN and TERENCE MONMANEY, Times Staff Writers ?????With California mired in energy troubles, Mayor Richard Riordan and hi= s=20 former power chief S. David Freeman trumpet the extraordinary fortune of Lo= s=20 Angeles: no rate hikes and no blackouts. ?????Yet Riordan and Freeman have sullied their mutual success story by=20 waging bitter campaigns to discredit one another--at first behind the scene= s=20 but now in public. ?????Pettiness, ingratitude, conflicts of interest, overblown claims of=20 achievement: Such is the back and forth between two leaders who would seem = to=20 have good reason to pat one another on the back. ?????To Freeman, who has resigned as general manager of the L.A. Department= =20 of Water and Power to become chief energy advisor to Gov. Gray Davis, it=20 seems Riordan resents his high-profile role in trying to steer California o= ut=20 of the energy crisis. ?????So the mayor, Freeman charged, has elbowed his way into energy issues= =20 that he is ill-equipped to handle and taken steps along the way that could= =20 harm the environment. ?????"With all due respect, I have 25 years of experience and knowledge--an= d=20 he has 25 days," Freeman said. "But he's the mayor, and he didn't like it= =20 that I didn't just say yes to everything he came up with." ?????To Riordan, Freeman's efforts to fight air pollution have given short= =20 shrift to the threat of skyrocketing power rates in Los Angeles. The mayor= =20 said Freeman also failed to recognize potential conflicts of interest betwe= en=20 his city and state roles in the power crisis. And he scoffed at Freeman for= =20 saying he had lifted morale at DWP. ?????"Morale was terrible under him," Riordan said. "I mean, they are so=20 relieved right now." ?????The backbiting has left associates suspecting the clash is really abou= t=20 egos. City Councilwoman Ruth Galanter sees Riordan and Freeman as proud,=20 successful men unable to say, "I couldn't have done it without X, Y and Z." ?????"Each of them is used to being the boss and taking pleasure at being= =20 recognized as the boss," she said.=20 ?????Much of the conflict has taken place in private meetings. And the mayo= r,=20 a Republican multimillionaire, has taken pains to play down his dispute wit= h=20 Freeman, a liberal Democrat from Tennessee who wears a cowboy hat and speak= s=20 with a Southern drawl. ?????In an interview after his resignation, Freeman laid out the conflict= =20 point by point, often in terms bluntly critical of the mayor. One of his=20 concerns, Freeman said, was that Riordan in his final two months as mayor= =20 could reverse the agency's progress in protecting the environment. ?????Freeman cited Riordan's plans concerning coal-fired power plants in=20 Nevada and Utah that are partly controlled by the DWP, the nation's largest= =20 municipal utility. The first is the Mohave Generating Station in Laughlin,= =20 Nev., a plant that has been blamed for spreading some of the haze that=20 shrouds the Grand Canyon. The DWP had planned to sell its stake in the plan= t,=20 but Freeman said Riordan ordered him to back out of the sale. ?????He described the mayor's move as a sign that Riordan and his appointee= s=20 on the board that oversees DWP were "completely insensitive to the fact tha= t=20 that power plant is one of the most environmentally troubling plants in the= =20 West." ?????"I've worked real hard to try to build some environmental sensitivity= =20 into the DWP policy," Freeman said. "And I am concerned as to whether the= =20 current commissioners and the mayor have that sensitivity, and what they=20 might do in the interim to basically overturn the progress we've made." ?????The other plant is part of the Intermountain Power Project in central= =20 Utah. Riordan has proposed building a new coal-fired generating unit there,= =20 but Freeman said he objected because of the pollution it would cause. ?????In both cases, Riordan said he was striking the appropriate balance=20 between protecting the environment and meeting the energy needs of Los=20 Angeles at an affordable cost. By keeping its share of the Mohave plant and= =20 expanding the Utah plant, Los Angeles can avert the astronomical price hike= s=20 of natural gas--and the sharp rise in ratepayers' bills that would follow,= =20 Riordan said.=20 ?????Natural gas, which provides 26% of the fuel for DWP plants, causes les= s=20 air pollution than coal, which provides 51%. The rest is mainly nuclear and= =20 hydroelectric. Los Angeles has averted rate hikes and blackouts in part=20 because the DWP relies less on natural gas than most other California power= =20 providers. ?????"I favor clean air and more natural gas, but not to the point where=20 we're going to destroy the economy of Los Angeles," Riordan said. ?????On the Mohave plant, Riordan questioned the benefit of selling the=20 city's share to a buyer that would simply continue running it. ?????"It's still going to be coal-driven," he said. "How does selling it he= lp=20 the environment?" ?????The tension between the two has built steadily as the state power cris= is=20 has worsened. With the charismatic DWP chief drawing favorable news coverag= e=20 in stories on how L.A. has dodged the crisis, Riordan and the DWP=20 commissioners began to view him as "too big for my britches," Freeman said. ?????The conflict reached its peak on April 17, the day Freeman resigned to= =20 become the governor's advisor. The DWP board president, Kenneth T. Lombard,= =20 said the mayor told commissioners that day that "it made the most sense to= =20 release him immediately." ?????"All we were doing, frankly, was release him from his responsibilities= ,=20 and then whatever time he needed to clean out his office was fine with us,"= =20 Lombard said. ?????From Riordan's standpoint, Freeman needed to be stripped of his=20 authority right away because of a potential conflict of interest: The city= =20 utility sells surplus power to the state, so Freeman would be on both sides= =20 of the sales. ?????Freeman, who had voluntarily bowed out of a DWP meeting on the state= =20 power crisis earlier that day, was outraged at his sudden release, in part= =20 because he was denied the chance to say goodbye to agency employees. In an= =20 interview, he called the conflict of interest assertion "complete malarkey.= " ?????"The insinuation that I have done anything less than protect the=20 interests of the city of Los Angeles is bordering on slanderous, considerin= g=20 what I've accomplished here," he said. ?????Brian D'Arcy, who heads the union local that represents 6,000 DWP=20 employees, agreed that Riordan and his commissioners "kind of ran him out o= f=20 here. For David to be summarily jettisoned out of here without even a=20 howdy-do is absolutely tacky," D'Arcy said.=20 ?????Riordan said Freeman deserves "an A-plus" for his work at DWP. The may= or=20 conceded that he knew of nothing that Freeman had done "to hurt Los Angeles= ."=20 But, he added, "when you have a conflict of interest, you have to act befor= e=20 anything happens." ?????Freeman has long bridled at the oversight of DWP, not just by the mayo= r,=20 but by the agency's board and the City Council. In 1998, he called for City= =20 Charter amendments to consolidate authority in a more independent board of= =20 directors. The proposal went nowhere. ?????Freeman's concerns were echoed in a report to be released Monday. The= =20 Rand Enterprise Analysis report was commissioned by the DWP. It calls for= =20 restructuring DWP management much the way Freeman proposed. But Riordan and= =20 Galanter, who chairs the Council's Commerce, Energy and Natural Resources= =20 Committee, rejected the concept. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ----------------------------------------------------------------------- Cheney Rejects Price Caps, Aid for Calif. Power Crisis By DOYLE McMANUS and RICHARD SIMON, Times Staff Writers ?????WASHINGTON--Vice President Dick Cheney said Friday that there is littl= e=20 more the Bush administration can do to alleviate California's energy crisis= =20 this year and declared his opposition to further federal intervention in th= e=20 energy market even if the problem threatens the nation's economy. ?????"It's all you can do in the short term," Cheney said of the modest=20 energy conservation measures President Bush announced earlier this week, su= ch=20 as turning down air conditioners in federal buildings. ?????In an interview with The Times, Cheney, whom Bush has put in charge of= =20 designing a new national energy policy, said he strongly believes that ener= gy=20 prices should not be capped or regulated under any circumstances. ?????He said he disagreed with the Federal Energy Regulatory Commission's= =20 decision last month to place limits on wholesale electricity prices during= =20 emergency shortages. ?????"I'm a skeptic. I've never seen price regulations that I've felt very= =20 good about," Cheney said. ?????"If I had been at FERC, I would never had voted for short-term price= =20 caps. But that's their decision. . . . I hope for their sake, and=20 California's, it works." ?????FERC, an independent regulatory commission, decided April 25 to cap=20 wholesale prices when statewide electricity reserves fall below 7%, using a= =20 formula pegged to the cost of production for the least efficient generating= =20 plant. ?????Consumer groups and Democratic members of Congress have criticized the= =20 decision as too soft, but Cheney--like other advocates of=20 deregulation--condemned it as a step too far. ?????"Price caps are not a help. They take us in exactly the wrong=20 direction," the vice president said. "The way you address these issues is y= ou=20 either have to reduce demand or increase supply. And anything that doesn't = do=20 that is counterproductive, especially if it takes us in the opposite=20 direction, which to some extent price caps may because they discourage=20 investment." ?????"Ultimately, I think we're going to be better off if we have a=20 deregulated energy market in this country," he added. ?????Asked whether he might soften his opposition to price controls if the= =20 energy crisis began to produce significant damage to the national economy,= =20 Cheney shook his head ruefully. ?????"I start with a strong view, based on prior experience, that governmen= t=20 should intervene in the marketplace with great reluctance. ?????"I admit that I was traumatized in my youth by being part of the Nixon= =20 wage and price controls," he said with a wry smile. In 1971, when President= =20 Nixon sought to tame inflation with federal controls, Cheney was an obscure= =20 White House official. ?????"I remember how we started out with 14 pages of regulations . . . whic= h=20 I typed up myself." A few years later, "we had a roomful." ?????More important, Cheney recalled, the Nixon price controls led to a=20 series of "unintended consequences," including a decline in domestic=20 production of oil, increased reliance on foreign energy sources and the=20 failure of the U.S. automobile industry to build fuel-efficient cars. ?????Cheney, speaking in his West Wing office, acknowledged that the=20 administration's tough position against price caps could offend many=20 California voters in the short run, but he said he was confident that=20 Californians would come to accept his position in the long run. ?????"There is a much greater willingness today . . . to have this debate,"= =20 he said. ?????Cheney said the administration has done "virtually everything" that Go= v.=20 Gray Davis has asked, except to impose price controls. ?????"We're doing everything we can. Remember, we've been here 100 days. Ou= r=20 predecessor left this area virtually untouched, I think primarily because i= t=20 involves very tough issues. It means you've got to go out and address some = of=20 the most sensitive political issues . . . and we're doing that. That should= =20 have been done years ago. If it had been done years ago, California wouldn'= t=20 have trouble today." ?????Cheney said the national energy policy manifesto he plans to issue lat= er=20 this month will touch on California--but largely as an example for the rest= =20 of the nation to shun, not as a focus for federal action. ?????"We talk about California; there are a lot of examples there in terms = of=20 what needs to be done and, to some extent, what to avoid. . . . [But] the= =20 things we focus on with respect to policy are long-term in nature and aren'= t=20 going to provide any relief this summer." ?????Cheney offered a glimpse of his strategy for building political suppor= t=20 for a national energy policy that is expected to promote domestic productio= n=20 of oil, gas, coal and nuclear power. ?????Contending that technological advancements have reduced the=20 environmental risks of oil and gas exploration on public lands, he said, "W= e=20 can, in fact, have both: a clean environment and adequate supplies of energ= y." ?????While Cheney has been criticized for emphasizing the supply side over= =20 energy conservation, he said, "Conservation has a role to play, but it's no= t=20 sufficient. You cannot build an energy policy just on the notion of=20 conservation. . . . People have used the conservation arguments in order to= =20 avoid some of the tough issues associated with increasing supply." ?????Acknowledging that increased reliance on nuclear power--an issue he ha= s=20 embraced--has been a tough sell, Cheney said public attitudes appear to be= =20 changing. He said he recently asked a group of moderate lawmakers whether= =20 they would be open to construction of new nuclear power plants. "Nearly eve= ry=20 hand went up," he said, touting the "environmental values" of nuclear power= . ?????Cheney also said that, although he believes that unilateral economic= =20 sanctions "rarely work," he understands there are "special problems" in=20 removing sanctions against oil exporters such as Libya and Iran. Bush has= =20 said he has no intention at the moment of removing sanctions on Libya and= =20 Iran; Cheney said he favors a review of sanctions. ?????The task force report will deal with another controversial proposal:= =20 industry efforts to allow federal authorities to exercise the power of=20 eminent domain to obtain rights-of-way for new electrical transmission line= s,=20 as they already do for gas pipelines. ?????Cheney would not say whether the task force would recommend that=20 authority. But such a proposal is likely to face opposition from state and= =20 local officials. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ----------------------------------------------------------------------- Rolling Health Hazards=20 Summer Blackouts May Pose Public Health Risks=20 David Bragi, Special to SF Gate Monday, May 7, 2001=20 ,2001 SF Gate=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/gate/archive/2001/05/07/h= ealth watch.DTL=20 On May 1, just prior to putting the finishing touches on this column from m= y=20 El Cerrito home, I heard the low, mournful howl of a disaster siren in the= =20 neighboring city of Richmond. A car had slammed into a utility pole, knocki= ng=20 out electrical power to the General Chemical Corp. plant.=20 The company's backup generators had failed to kick in and the ensuing power= =20 outage tripped a safety valve which shut down the compressor. After power w= as=20 restored, the safety valve would not reopen, causing a leakage of sulfuric= =20 gas into the air. By the time workers plugged the leak, approximately 100= =20 people, all in Richmond, had arrived at area hospitals with minor ailments.= =20 Although not caused by the state's energy crisis, this electrical outage=20 highlights how the prospect of chronic blackouts could pose some very real= =20 and unexpected threats to public health. So far we have been lucky, with=20 planned rolling blackouts lasting no longer than about 90 minutes.=20 But if sudden, unexpected shortfalls in electrical supply cause outages=20 lasting longer than a few hours, Californians may face such health hazards = as=20 unclean drinking water, food spoilage, vaccine shortages, heat stroke and= =20 disabled and elderly residents living without electricity.=20 For instance, widespread outages could affect the availability and safety o= f=20 water supplies. Local water districts are concerned that the state Public= =20 Utilities Commission has not exempted their facilities, such as pumping=20 stations that transport water uphill and treatment plants that purify water= ,=20 from rolling blackouts.=20 "In addition to our own facilities, outages could affect the State Water=20 Project and the Central Valley Project's ability to get water to us," said= =20 Marty Grimes, public information representative for the Santa Clara Valley= =20 Water District, which provides wholesale water supplies to Santa Clara=20 County. On the retail level, some of the smaller suppliers lack large stora= ge=20 tanks and would themselves run out of water quickly.=20 If treatment plants go off-line, water quality might also decline in some= =20 areas, in which case consumers would have to boil their tap water for at=20 least 20 minutes before drinking it. "We are doing all we can to minimize= =20 this possibility and see it as unlikely," says Grimes. "If that were to=20 happen, we'd be ready to inform everyone in the affected area immediately."= =20 To help keep the water flowing during outages, the district has installed= =20 backup generators in treatment facilities and key pumping stations, and is= =20 keeping Anderson Reservoir as full as possible. "It is high enough in=20 altitude that electricity is not needed to get the water to our treatment= =20 plants. Gravity does all the work," says Grimes.=20 The district also recommends that consumers use less water when the weather= =20 is very hot or outages are likely to occur. "In essence," says Grimes,=20 "saving water can save energy."=20 Since refrigerators and freezers run on electricity, when the power goes ou= t,=20 so does your ability to keep perishables fresh. One health risk occurs when= =20 somebody carelessly reheats and eats yesterday's frozen casserole long afte= r=20 a blackout has already thawed it back to life.=20 "It goes way beyond spoilage," says Susan Conley, director of food safety= =20 education for the Food Safety and Inspection Service at the U.S. Department= =20 of Agriculture. "If, because of the blackouts, the temperature in the=20 refrigerator or the freezer goes above dangerous levels, then you could hav= e=20 a problem with bacterial contamination," such as botulism.=20 Contrary to popular opinion, simply sniffing around is not a good way to te= ll=20 whether food is safe to eat, since not all bacteria produce noticeable odor= s.=20 A better course is to learn how to keep your food cold for as long as=20 possible and which foods last for how long at what temperatures.=20 For instance, a blackout lasting under four hours will not spoil the food i= n=20 your refrigerator. A freezer will keep frozen food safe for at least a day.= =20 To keep the cold air inside, keep refrigerator and freezer doors closed=20 unless you absolutely need to retrieve food.=20 Some foods, muffins for instance, will last longer than others, such as egg= s.=20 For an easy-to-read spoilage chart that recommends when to use, refreeze or= =20 discard various foods, go to the USDA's Keeping Food Safe During A Power=20 Outage page. It also has a collection of practical tips, such as safe=20 temperature levels, using thermometers, and handling dry ice.=20 As for food spoilage at grocery stores, I asked a butcher at Armond's Quali= ty=20 Meats in El Cerrito how well the meats in the store's refrigerated glass=20 display counter would hold up during an extended outage. He said they would= =20 keep the counter closed; since the case is kept at just above freezing, the= =20 meat would remain safe until the next day.=20 Medical facilities also rely upon refrigerators to keep perishables cold an= d=20 safe. Unfortunately, like water facilities, smaller clinics and hospitals i= n=20 California are not exempt from planned blackouts, although major hospitals= =20 are.=20 According to Dr. Barbara Ramsey, medical director the Native American Healt= h=20 Center's community health clinic in Oakland, if power goes down for more th= an=20 two hours, their biggest problem will be vaccine spoilage. In addition,=20 replacing them may also prove difficult if power outages to other clinics= =20 across the state or nation result in widespread shortages.=20 "We have episodic vaccine shortages without blackouts," she says, largely= =20 because drug manufacturers allegedly limit the supply of medicines to impro= ve=20 profit margins. "We just had one with tetanus. For those vaccines that aren= 't=20 profitable, I would see a particular risk."=20 Ramsey recommends that parents of children between 15 months and 30 months= =20 and 4 to 6 years get them vaccinated as soon as possible, especially if the= y=20 expect to enroll them in a school or day care center that requires=20 inoculations prior to admission. Often, says Ramsey, "the parents go, 'Oh,= =20 the kid turned 4 but I've two years to do these vaccines.' Then suddenly th= e=20 parent wants boosters given today because preschool starts tomorrow. But if= I=20 don't have the vaccine, tough luck."=20 Otherwise, having experienced a rolling blackout a few weeks ago, she gives= =20 mixed reviews about the clinic's ability to operate without power. Since th= e=20 clinic is "a fairly low-tech operation," Ramsey says she is confident that = it=20 can continue to provide basic services, with the exception of the EKG machi= ne=20 and dental equipment. "Just to shine that light in your mouth requires=20 electricity," she says.=20 Other medical issues must be dealt with in the home, especially for elderly= =20 and disabled residents. Medicines kept in the refrigerator can spoil,=20 life-support equipment can shut down, and heat stroke can result in serious= =20 illness or death. Some Bay Area communities plan to open summer "cooling=20 shelters" for seniors during hot days.=20 Keeping tabs on San Francisco's homebound elderly and disabled residents=20 during a disaster is largely the responsibility of a volunteer disaster=20 preparedness program called NERT, for Neighborhood Emergency Response Team.= =20 In other cities it might go by another acronym, such as NEAT (Neighborhood= =20 Emergency Assistance Team) or CERT (Community Emergency Response Team).=20 While distributing informational flyers, Susan Yip, NERT coordinator for Sa= n=20 Francisco's Balboa Terrace neighborhood, noticed some notes pasted to a fro= nt=20 door indicating that a disabled person lived inside. So she left a note of= =20 her own asking if the occupant would like to contact her in order to be=20 placed on a list of local residents who may have special needs during a=20 neighborhood-wide emergency.=20 "His son phoned me and told me about his father, who lived alone in the=20 house," was in his late 90s, mostly bedridden, and on an oxygen machine, sa= ys=20 Yip. "He explained to me which window to climb in and that he has a chair= =20 right there to jump down on, that kind of thing."=20 Not long after, a rolling blackout hit the neighborhood. She quickly paged= =20 the son, they met at the father's house, and went inside together.=20 Fortunately, the oxygen machine did not depend upon AC power and was=20 operating normally. "Because the rolling blackout happened during the dayti= me=20 and it just lasted an hour and a half, it was just a good drill for us," sh= e=20 says.=20 Yip is more concerned about the consequences of nighttime outages. "If it= =20 were dark and he went to turn on his light and that didn't go on, there mig= ht=20 just be that fear of what's going on." So an important part of a NERT=20 volunteer's job is providing neighbors with information, reassurance and a= =20 sense of hope.=20 Even in a power outage, the greatest impediments to good health are apathy= =20 and ignorance. So if we take steps to protect health and safety during the= =20 energy crisis, then the next string of blackouts may end not with a trip to= =20 the hospital and a lot of embarrassing questions, but with an excuse to sit= =20 on the front porch and enjoy the balmy evenings of summer.=20 If you would like a NERT volunteer to visit an elderly or disabled San=20 Francisco resident during a community-wide emergency, call (415) 554-9960. = If=20 you live in another community, contact your local fire department for=20 information.=20 =09 David Bragi, a freelance journalist who lives in El Cerrito, California, is= =20 Editor of the multicultural webzine New Tribal Dawn. =09?=20 ,2001 SF Gate ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Oh, that boom in 2002=20 Jon Carroll Monday, May 7, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/07/DD168333= .DTL=20 I THINK WE must now believe and accept that there is no bailout coming, no= =20 miracle cure. Human behavior will remain the same, which takes care of the= =20 demand end, and human avarice and incompetence are also reliable, which tak= es=20 care of the supply end.=20 Which means we will have blackouts this summer.=20 It seems ironic in the inner Bay Area, where our power needs drop=20 precipitously from May to October (except for a little furnace action on=20 those brisk, foggy summer days), but the rest of the state wants to stay co= ol=20 cool cool.=20 I can't blame it. If I lived in Fresno, I would succumb to temptation, I'm= =20 pretty sure. What with those rotating blocks, I'd get hit only once every= =20 fourth blackout or so. I could live with that.=20 Hell, I will live with it, even though I don't own an air conditioner, even= =20 though daylight saving will cut my illumination needs substantially, even= =20 though we have already unplugged the freezer and turned out lights like=20 little Boy Scouts. And, of course, like little Girl Scouts -- equally=20 virtuous energy savers.=20 Nevertheless, we are all in this together, just like in the old days. We ar= e=20 experiencing solidarity in our misery. Maybe we'll make up folk songs as we= =20 sit around the blocks of ice.=20 Perhaps you remember 1989, when the bridge fell down. Everything was=20 different for a while. Many of us took ferries and said, "God, this is the= =20 only way to travel. I'm never going back to my car again."=20 Yes, well. Bad habits die hard.=20 SO I AM thinking what it might be like when the great blackouts start to=20 happen. I am thinking of people learning to live without television or=20 computers. I am thinking about people at loose ends, wandering around their= =20 homes or places of businesses.=20 "What did people do for fun before there was electricity?" Various=20 suggestions will come up: quoits, bearbaiting, starting a land war in Asia.= =20 And then Person A will look at Person B and remember the oldest recreation= =20 known to humanity. It's free, it gets better the more you do it, it wastes= =20 not a gram of our precious fossil-fuel resources. Batteries are not even=20 necessary (although, of course, optional). Salmon habitats are untouched; a= ir=20 quality remains the same.=20 The heat, of course, would be a deterrent. The boredom, on the other hand,= =20 would be a goad. It would be the old heat/boredom dilemma. I'm betting on= =20 boredom here. "The hell with it, we can always take a cold shower," some=20 romantic person can say.=20 I am envisioning people putting locks on the Xerox-room door. You know what= =20 I'm saying?=20 SO LET US think big picture. Let us think downstream. Let us count to nine= =20 starting from July: August, September . . . May! I am strongly suggesting= =20 here that obstetrics wards staff up for May 2002. Extra beds, extra people.= =20 Hospitals may already be preparing the budgets for that time frame -- don't= =20 be caught off guard.=20 Oh, and think of the names. Blackie will suddenly be fashionable for boys,= =20 and maybe Blaze for the girls. Or even Heather, with a little hyphen betwee= n=20 the t and the h. Wouldn't that be cunning? I suspect we may see a few kids= =20 named Xerox too.=20 Couples will not be able to hear the phrase "rolling blackout" without=20 giggling.=20 Maybe, under the pressure of circumstance, old fires will be rekindled. Two= =20 parents might suddenly come home from their darkened workplaces in the midd= le=20 of the day to a blessedly silent house . . . violins and roses. People in= =20 cubicles facing dead computers might begin to chat . . . incense and=20 peppermints. People will say, "This is great! We should keep doing it even= =20 when the energy crisis is just a memory!"=20 Just like we're all riding the ferry now.=20 Giving a whole new meaning to the phrase "gridlock," it's fun in the dark.= =20 Skyrockets in flight, afternoon jcarroll@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?B - 10=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Developments in California's energy crisis=20 The Associated Press Monday, May 7, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/07/s= tate0 940EDT0145.DTL&type=3Dnews=20 , , -- (05-07) 06:40 PDT Developments in California's energy crisis:=20 MONDAY: --Democrat state lawmakers say they will announce that they are suing feder= al=20 energy regulators for refusing to cap the spiraling cost of electricity.=20 -- A legislative committee is expected to vote on a bill to tax power=20 generators' windfall profits.=20 -- The state Assembly could consider a bill to authorize $12.5 billion in= =20 bonds for power buys. Republican members have balked at financing that much= =20 money, suggesting that the state instead use some of its surplus to buy=20 electricity for customers of three cash-strapped utilities.=20 -- The state remains free of power alerts as reserves stay above 7 percent.= =20 FRIDAY: -- Customers of Pacific Gas and Electric Co. will have their own committee = in=20 the utility's bankruptcy proceedings, a move to which PG&E officials=20 immediately objected. The nine-member committee will be the consumers' voic= e=20 at the bargaining table, says Nettie Hoge, executive director of The Utilit= y=20 Reform Network, and a member of the panel appointed by the U.S. Trustee's= =20 office. PG&E spokesman Ron Low says ratepayers could be represented by the= =20 state attorney general and didn't need a committee.=20 -- California's power buyers announce a $7 billion contract with Sempra=20 Energy Resources for electricity for the customers of three utilities. The= =20 10-year contract will provide 250 megawatts of electricity starting June 1,= =20 eventually increasing to 1,900 megawatts, the governor's office says. One= =20 megawatt is roughly enough power for 750 homes.=20 -- Southern California Edison and several organizations kick off an=20 advertising campaign Saturday to urge support for Gov. Gray Davis' plan to= =20 rescue the utility by purchasing its power lines. Among the members of the= =20 coalition running the television and radio ads are the California Small=20 Business Roundtable, California Professional Firefighters and the Californi= a=20 Taxpayers Association.=20 -- Energy Secretary Spencer Abraham visits San Francisco to trumpet a Bush= =20 administration plan directing federal facilities to conserve electricity.= =20 Abraham says the effort, which does not specify how much power must be save= d,=20 is an important step as the administration prepares to release its national= =20 energy policy later this month. But he also stresses that conservation is n= ot=20 the panacea to California's power affliction and that the state also must= =20 build new power generators.=20 -- Shares of Edison International closed at $9.25, down 3 cents. PG&E Corp.= =20 closed at $9, up 14 cents.=20 -- No power alerts are reported as reserves stay above 7 percent.=20 WHAT'S NEXT: -- The governor meets Wednesday with the CEOs of several major energy=20 suppliers to discuss the money they're owed by the state's two largest=20 utilities, the state's creditworthiness and how wholesalers can help the=20 state during the energy crisis. Davis says he won't be discussing any of th= e=20 investigations into price manipulation in the wholesale market.=20 -- Davis' representatives continue negotiating with Sempra, the parent=20 company of San Diego Gas and Electric Co., to buy the utility's transmissio= n=20 lines.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Edison and PG&E say they've lost nearly $14 billion since June to high=20 wholesale prices the state's electricity deregulation law bars them from=20 passing on to consumers. PG&E, saying it hasn't received the help it needs= =20 from regulators or state lawmakers, filed for federal bankruptcy protection= =20 April 6.=20 Electricity and natural gas suppliers, scared off by the two companies' poo= r=20 credit ratings, are refusing to sell to them, leading the state in January = to=20 start buying power for the utilities' nearly 9 million residential and=20 business customers. The state is also buying power for a third investor-own= ed=20 utility, San Diego Gas & Electric, which is in better financial shape than= =20 much larger Edison and PG&E but also struggling with high wholesale power= =20 costs.=20 The Public Utilities Commission has raised rates as much as 46 percent to= =20 help finance the state's multibillion-dollar power buys.=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- U.S. considers withdrawing lawsuits against coal industry=20 Pollution controls affect power plants=20 Katharine Q. Seelye, New York Times Monday, May 7, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /07/M N213627.DTL&type=3Dnews=20 Washington -- The Bush administration is considering pleas from coal and=20 electric companies to drop a series of government lawsuits initiated by the= =20 Clinton administration to require the utilities to install modern pollution= =20 controls on old, coal-fired power plants.=20 The request, which the coal industry says would let it quickly increase its= =20 output of power, has touched off a debate within the administration. Christ= ie=20 Whitman, administrator of the Environmental Protection Agency, which=20 initiated the litigation, is resisting the industry's suggestion, while Vic= e=20 President Dick Cheney and Energy Secretary Spencer Abraham are sympathetic.= =20 The Bush administration is determined to increase the nation's use of fossi= l=20 fuels to produce power in response to what it deems an energy crisis.=20 The coal industry says the EPA's enforcement of the Clean Air Act is=20 preventing investments that would generate tens of thousands of megawatts o= f=20 electricity from existing coal-fired plants and that the cost of new=20 pollution controls would have to be paid by consumers.=20 "There is a recognition that plants aren't modernizing because the burden i= s=20 too onerous," a White House official said yesterday.=20 Discussions within the administration about the lawsuits have intensified i= n=20 recent days, as the White House completes a report by a energy task force= =20 headed by Cheney. The report is to be printed this evening.=20 "The coal industry is pushing very hard to lock this in and make it part of= =20 the report," said an environmentalist who has been following the case=20 closely.=20 At stake are emissions that would cost millions of dollars to control and= =20 that account for a significant share of the nation's air pollution.=20 The Clean Air Act exempted many older plants from strict emissions controls= ,=20 but required modern controls when owners modified plants in ways that=20 increased emissions.=20 For years, the agency says, plants evaded the requirements by insisting tha= t=20 certain modifications were merely "routine maintenance." But the agency fou= nd=20 that a number of major electric utilities had been modernizing their plants= =20 with projects that increased emissions.=20 Since 1988, the EPA has sued 11 companies over controls at 49 power plants.= =20 If the administration dropped these lawsuits and otherwise softened=20 regulations, the council argues, coal-fired plants could provide an increas= ed=20 capacity of 40,000 megawatts within three years, almost twice the capacity = of=20 all new power plants built last year, and 5 percent of the total generating= =20 capacity available nationwide.=20 ,2001 San Francisco Chronicle ? Page?A - 3=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Swimming pool owners get PG&E discounts=20 Operating pumps at night saves energy=20 Michael McCabe, Chronicle Staff Writer Monday, May 7, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /07/M N121100.DTL&type=3Dnews=20 A penny here, a penny there, a megawatt here and a megawatt there, for=20 Pacific Gas and Electric Co it all adds up -- maybe.=20 In the fervent hope and fear that each tiny zap of electricity is going to= =20 count this summer, PG&E is offering owners of private swimming pools $20 if= =20 they set their pool timers to operate the pumps during off-peak hours.=20 Shifting 15 megawatts off peak demand, the daylight time of day when power= =20 shortages are most likely to occur, may sound like a drop in the bucket. Bu= t=20 PG&E says 134,000 private pools exist in Northern and Central California, a= nd=20 that's enough to save 15 megawatts, or enough to power 15,000 homes at any= =20 one moment.=20 And that could add up to a sizable savings in light of the grim predictions= =20 for this summer.=20 The Independent System Operator, which oversees the state's power market,= =20 estimates that on any given day in June, the state will fall 6,815 megawatt= s=20 short of demand. That would put nearly 7 million homes in the dark.=20 So PG&E figures every bit of conservation helps, even pumping dirt and debr= is=20 and other foreign matter out of swimming pools at night or in the early=20 morning.=20 To qualify for the $20 check -- a one-time rebate, owners of in-ground=20 swimming pools must agree to set their timers to operate the pumps between = 8=20 p. m. and 10 a.m.=20 The offer does not extend to public pools for public health reasons or to= =20 solar-heated pools, which do not use power from the grid.=20 "Obviously, this is not a silver bullet to solving the energy crisis, but i= t=20 is one BB among many," said Staci Homrig, a PG&E spokeswoman. "Every little= =20 bit helps, and this is just our latest among many programs offering=20 incentives to customers who are more energy efficient at home." Other PG&E= =20 programs include offering $3 off energy star-labeled compact fluorescent=20 lamps, which use 75 percent less energy than standard incandescent bulbs; $= 75=20 rebates for Energy Star-labeled clothes washers and $50 for dishwashers. PG= &E=20 also offers $75 rebates for refrigerators that meet the 2001 Department of= =20 Energy efficiency standard.=20 Some pool installation companies say the $20 offer sounds like a good idea,= =20 generally. But they caution that pool owners who operate their sometimes=20 noisy pumps only at night may run into problems with local noise-abatement= =20 ordinances.=20 "If you run your pumps at night, then you are going to hear it running," sa= id=20 John Maguire, owner of the Pool Man, which serves Sonoma County. "But I'm= =20 sure PG&E will get a good response -- a lot of people will be happy to take= =20 $20."=20 Other pool experts said, however, that the most modern pool equipment is ve= ry=20 quiet and pumps manufactured in recent years should not cause a noise=20 problem.=20 Generally, though, the reaction was that PG&E probably could spend whatever= =20 money it has left more wisely.=20 "The trouble is that $20 is not a whole lot of money," said Rick Wolpin,=20 director of Sales and Marketing for Lifetime Pools in Palo Alto. "If it was= =20 $20 a month off their bill, I could see people jumping at it."=20 At least one pool owner agrees.=20 "I don't think 20 bucks is much of an incentive, but I probably would have= =20 done it anyway -- and also take the $20," said Deborah Clark, who has a lap= =20 pool in her San Jose backyard.=20 Indeed, most pool owners already shut their pumps down during the day, said= =20 Randy Saunders, division manager for Adams Pool Solutions based in=20 Pleasanton. "I would bet 90 percent of the pool owners would be happy to do= =20 that because the backyard pool doesn't care what time of day it is as long = as=20 it gets four to eight hours of circulation," Saunders said. "I think it's a= =20 terrific idea, assuming PG&E can afford it."=20 PG&E officials say they will have little problem coming up with the $2=20 million or so the program may cost if 80 percent of its pool-owning custome= rs=20 enroll in the program.=20 PG&E's Homrig said all the rebates will come after the bankruptcy filing, a= nd=20 so will not be affected by its filing for Chapter 11 on April 6. She said t= he=20 money for the rebates will come from the utility's customers, who pay a sma= ll=20 portion of each month's bill for energy efficient programs.=20 To make sure that those who sign up for the $20 are actually turning off=20 their pumps during the day, PG&E plans random inspections, Homrig said. The= =20 utility is also counting on the honesty of their valued customers, she said= .=20 E-mail Michael McCabe at mmccabe@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 13=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Legislators plan to sue U.S. panel on energy=20 Top state Democrats want cap on prices=20 Jim Herron Zamora, Chronicle Staff Writer Sunday, May 6, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /06/M N233207.DTL&type=3Dnews=20 The two top leaders in the California Legislature said yesterday that they= =20 plan to sue federal energy regulators for allowing electricity rates to=20 spiral out of control.=20 "The commission is not complying with the law," Senate President Pro Tem Jo= hn=20 Burton said of the Federal Energy Regulatory Commission.=20 "The Federal Power Act requires (the commission) to make sure that energy= =20 prices are just and reasonable," he said. "Clearly, rates are anything but= =20 just and reasonable."=20 Burton, D-San Francisco, said yesterday that he and Assembly Speaker Robert= =20 Hertzberg, D-Sherman Oaks, will file the suit tomorrow in federal court. Th= e=20 suit will accuse the commission of neglecting its duty by refusing to cap t= he=20 escalating cost of electricity in the midst of the power crisis.=20 Gov. Gray Davis is not a party to the suit, but "is supportive of any effor= t=20 to make sure FERC does its job," said Davis spokesman Steve Maviglio.=20 No one answered the phones at the federal commission's media office=20 yesterday, and commission officials could not be reached for comment.=20 Late last month, the commission ordered a one-year cap on electricity sold= =20 into the state during power emergencies, when power reserves fall below 7.5= =20 percent, in order to avoid rolling blackouts.=20 But the Democratic governor and state power regulators dismissed the cap as= =20 too little, too late.=20 The pending lawsuit follows months of lobbying by Davis and legislative=20 leaders of both parties. Hertzberg also is working on a tri-state plan to= =20 lower electricity costs and cut the risk of blackouts in the drought-strick= en=20 Pacific Northwest.=20 Burton said those efforts may bear fruit, but that legal action against the= =20 commission is needed as well.=20 "California is in a crisis, and we need FERC to do its job," Burton said. "= 'I=20 don't know if they have fallen asleep or if they are trying to screw=20 California, but the net effect is the same -- we are being gouged by energy= =20 wholesalers."=20 Joseph Cotchett, a Burlingame-based attorney with strong political=20 connections to Democratic leaders, will represent the legislative leaders f= or=20 $1 a month.=20 This will be the second suit filed in less than a week alleging that=20 Californians have been gouged during the power crisis.=20 On Wednesday, Lt. Gov. Cruz Bustamante filed a suit against wholesale energ= y=20 producers on behalf of California's taxpayers.=20 Bustamante's suit accuses Duke Energy Inc., Dynegy Inc., Reliant Energy Inc= .=20 , Mirant Corp. and the Williams power company of engaging in a price-fixing= =20 conspiracy and using unlawful trading practices to manipulate the state's= =20 electricity market.=20 Chronicle news services contributed to this report. / E-mail Jim Herron=20 Zamora at jzamora@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 16=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Nevada's winning hand -- power=20 State sees profit in California's crisis=20 David Lazarus, Chronicle Staff Writer Sunday, May 6, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /06/M N18476.DTL&type=3Dnews=20 Reno -- California's energy crisis is possibly the best thing to happen to= =20 Nevada since gangster Bugsy Siegel chanced upon a backwater town called Las= =20 Vegas in the 1940s.=20 Construction workers are scrambling not to erect new casinos but nearly a= =20 dozen new power plants -- an ambitious scheme hatched by state leaders and= =20 power companies to profit from California's chronic shortages.=20 While California may get fresh power supplies, Nevada, by hosting the plant= s,=20 will benefit from additional tax revenues and jobs, a more stable electrici= ty=20 network and a level of energy self-sufficiency the Golden State can only=20 dream of achieving.=20 And, to a great extent, Nevada's gains will be financed by California=20 ratepayers.=20 "While you guys in California have been putzing around politically, we got= =20 together and figured out what to do," said Nevada state Sen. Randolph=20 Townsend,=20 chairman of the Committee on Commerce and Labor that oversees energy matter= s.=20 "We're bringing the same mentality to power plants that we brought to=20 casinos," he said. "You build, and then you build some more."=20 In embarking on an unprecedented energy building boom, Nevada's first=20 priority is to secure enough electricity to meet all its needs for years to= =20 come.=20 No less importantly, though, the state is looking to position itself as the= =20 battery pack of the West -- a regional energy hub that will be to electrici= ty=20 what Texas is to oil.=20 California's acute need for juice, at virtually any price, is what will mak= e=20 this otherwise fanciful goal a reality.=20 "Our strategy is to overbuild," Nevada Gov. Kenny Guinn said during an=20 interview in his Carson City office. "We have short-term plans and long-ter= m=20 plans, and those plans affect California tremendously."=20 Those plans also include trade-offs that some environmentalists fear place= =20 business interests ahead of natural resources, as well as hardball tactics= =20 intended to force generators to provide at least a portion of their output = to=20 Nevada, rather than sell it all across the border.=20 "Energy developers are looking at us with big grins and drooling chops," sa= id=20 Jane Feldman, a spokeswoman for the southern Nevada branch of the Sierra=20 Club. "This really makes us nervous."=20 While California Gov. Gray Davis has been forced to take a crash course in= =20 energy issues, Nevada's Guinn boasts 20 years of experience in the utility= =20 business, including a stint as head of Southwest Gas Corp., a leading natur= al=20 gas supplier.=20 He said he has discussed California's energy troubles with Davis several=20 times, and each time urged Davis to be more aggressive in building new powe= r=20 plants.=20 "I think he's frustrated that he can't move as fast as we can," Guinn said,= =20 with a satisfied smile. The Nevada governor is a Republican. His California= =20 counterpart is a Democrat.=20 Of course, Nevada's commitment to energy independence is not solely the=20 result of political will. It also is what the gaming industry wants, and=20 Nevada lawmakers take notice when the casinos flex their considerable muscl= e.=20 Today, Las Vegas is the fastest-growing city in America, and the glitzy=20 gaming palaces that are its lifeblood soak up about 10 percent of all=20 available power.=20 Casinos and related sales and services account for no less than 60 percent = of=20 Nevada's economy, according to the state Commission on Economic Development= .=20 Six of every 10 Nevadans work for a casino or a casino-related company.=20 "The casino industry cannot tolerate blackouts like you've had in=20 California," said Harvey Whittemore, legislative counsel for the Nevada=20 Resort Association in Las Vegas. "We need predictable and reliable energy= =20 resources."=20 Not surprisingly, Nevada legislators voted last month to halt deregulation = of=20 the state's electricity market in its tracks and to shield local utilities= =20 from the sort of financial ruin that led Pacific Gas and Electric Co. to fi= le=20 for bankruptcy protection.=20 They also wasted no time in rolling out the red carpet for power companies= =20 eager to build new plants while California electricity prices remain at sky= -=20 high levels.=20 The governor stood alongside executives from four leading power companies t= o=20 announce that his state will fast-track approval of new plants so it can=20 double Nevada's electricity output within just two years.=20 A licensing process that might take as long as four years in California has= =20 been reduced to months in Nevada.=20 "We don't want to be like other states, like California, who can't control= =20 their own destiny," Guinn said.=20 This is music to the ears of power companies, which see Nevada as an=20 affordable and hospitable base from which to pump electricity into the=20 captive California market.=20 "If you could, you would build all your California plants in Nevada," said= =20 Jack Farley, president of western operations for Houston's Reliant Energy.= =20 "The political climate is more stable, there's no state income tax and the= =20 labor is cheaper."=20 Reliant will spend about $1 billion on three new plants outside Las Vegas,= =20 which together will generate enough power to light about 1.4 million homes.= =20 North Carolina's Duke Energy Corp., meanwhile, is looking to build a=20 sprawling facility near Las Vegas capable of lighting more than 1 million= =20 homes and a second plant about half that size near Reno.=20 Tom Williams, a Duke spokesman, said one reason power companies are heading= =20 into Nevada is because they hope to rapidly recover their construction cost= s=20 from California consumers.=20 "Clearly, building a plant rapidly in a market that has a shortfall is an= =20 objective," he said. "The sooner you get to a market that has a desperate= =20 need for power, the better off you will be."=20 In a desert canyon outside Reno, along the same path once followed by the= =20 ill-fated Donner Party, the West's newest power plant is due to begin=20 operating by the end of the month.=20 The $130 million facility, bankrolled by brokerage Morgan Stanley, will not= =20 only fuel Reno's lavish resorts but also pump electricity over the mountain= s=20 and into neighboring California.=20 Huge gray transformers and turbines dominate the construction site as worke= rs=20 battle dust storms and the harsh sun to meet their deadline.=20 "If we could have a year to do this, it would be simple," said Ray Kaufman,= a=20 technical consultant with Energy Services, the engineering firm hired by=20 Morgan Stanley to build the plant. "Doing it in four months is very=20 difficult."=20 State officials insist that no environmental regulations were waived to get= =20 Nevada's new power plants off the drawing board in record time. They say th= e=20 normally slow bureaucratic process was simply streamlined.=20 Consumer activists are not so sure.=20 "The state is moving too fast," said Kalynda Tilges, a spokeswoman for Las= =20 Vegas' grassroots Citizen Alert. "There needs to be more discussion."=20 At the same time, she and other activists worry that Nevada will be giving = up=20 precious natural resources for power plants that will be producing=20 electricity for consumers elsewhere.=20 The new plants require groundwater for cooling -- something Nevada does not= =20 have in abundance.=20 "I don't think most Nevadans realize what's happening," Tilges said. "They= =20 have no idea how much groundwater will be used, and how much of the power= =20 will be going to California."=20 To ensure that at least some of the output stays close to home, Nevada=20 authorities have driven a hard bargain with power companies. Access to=20 groundwater will be permitted in return for 25 percent of all electricity= =20 produced, which is to be sold to Nevada utilities at low rates.=20 Richard Wimmer, deputy general manager of the Southern Nevada Water=20 Authority, said he was surprised to find that power companies seemed=20 comfortable with, and perhaps even respected, his state's strong-arm tactic= s.=20 "This is what these people do all the time," he observed, adding that Nevad= a=20 saw how poorly California fared when it attempted to negotiate without any= =20 leverage.=20 In this sense, Nevada and the big energy companies have gotten off to a fin= e=20 start. They both speak the same language -- a readiness to seize=20 opportunities and to roll the dice on risky endeavors.=20 "Our economy may not have been built by gamblers, but it's a spirit we like= ,=20 " said Sen. Townsend. "Just turn us loose and let us get things done.=20 "It's not so much that we want to profit from California," he added. "We're= =20 just trying to survive."=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Share prices rise amid news of big energy deals=20 Posted at 7:44 a.m. PDT Monday, May 7, 2001=20 NEW YORK (AP) -- Share prices rose tentatively in early trading Monday as= =20 investors tried to absorb the impact of two big energy mergers and weakness= =20 in the hand-held computer sector.=20 In early trading, the Dow Jones industrial average was up 28.50 at 10,979.7= 4.=20 The Nasdaq composite index rose 16.54 to 2,208.07, while the Standard &=20 Poor's 500 index was up 1.56 at 1,268.17.=20 Two energy deals were announced in the hours just before the market opening= .=20 Williams Companies of Tulsa, Okla., said Monday it will buy natural gas=20 producer Barrett Resources for $2.3 billion in cash and stock, topping a $2= =20 billion hostile bid by the U.S. unit of Royal Dutch/Shell Group.=20 Denver-based Barrett put itself up for sale in a formal auction after Shell= =20 mounted its effort in March.=20 Shares in Barrett soared $2.79 to $70.09, while Williams' stock was down=20 $2.77 at $38.90.=20 Meanwhile, Valero Energy Corp. said it was buying Texas rival Ultramar=20 Diamond Shamrock Corp. for about $4 billion in cash and stock in a deal tha= t=20 will make Valero the second-largest U.S. refiner of petroleum products. The= =20 companies said the deal was approved by both boards over the weekend, but= =20 still must be sanctioned by regulators.=20 Valero's shares dropped 37 cents to $45.10, while those in Ultramar Diamond= =20 Shamrock were up $9.38 at $52.09.=20 In the high-tech sector, Handspring Inc. announced that it was lowering the= =20 price of its Visor Deluxe handheld computers to $199 from $249. The company= =20 also said it was offering two promotions: a $50 rebate on the purchase of a= ny=20 new Visor Platinum and $30 rebates on select Springboard modules with the= =20 purchase of any Visor handheld.=20 Investors feared the action would set off a price-war in the sector, which= =20 has been dominated by Palm Inc.=20 Shares in Handspring were down 45 cents at $12.58. Palm's were up 13 cents = at=20 $8.52.=20 Also Monday, 3Com Corp., which spun off Palm last year, announced a second= =20 round of layoffs Monday, cutting 3,000 jobs. The networking company aims to= =20 trim costs by $1 billion a year.=20 Its shares were up 20 cents to $7.10 on the news.=20 The market last week ended on an upbeat note after dismal unemployment=20 figures led investors to expect the Federal Reserve to aggressively cut=20 interest rates when it meets next week. Most analysts expect the Fed to cut= =20 interest rates at least a half a percentage point for the fifth time this= =20 year.=20 The Russell 2000 index, which measures the performance of smaller companies= =20 stocks, was up 1.07 at 493.96.=20 Advancing issues were slightly ahead of declining issues on the New York=20 Stock Exchange, where volume came to 114.58 million shares, compared with= =20 138.10 at the same time last Friday.=20 Overseas markets were mixed on Monday. In afternoon trading in Europe,=20 Germany's DAX index was off 0.18 percent at 6,127.15. France's CAC-40 was u= p=20 0.79 percent at 5,498.45, and Britain's FT-SE 100 was up 1.81 percent at=20 5,870.30.=20 The benchmark 225-issue Nikkei Stock Average rose 107.77 points, or 0.74=20 percent, to 14,529.41. It was the strongest close since the index registere= d=20 14,552.29 on Dec. 15.=20 ------=20 On the Net:=20 New York Stock Exchange: http://www.nyse.com=20 Nasdaq Stock Market: http://www.nasdaq.com=20 AP-WS-05-07-01 1036EDT ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------- Florida shrugs off Calif.-blackout scenario=20 Posted at 7:38 a.m. PDT Monday, May 7, 2001=20 BY JOAN GRALLA=20 NEW YORK (Reuters) - Florida is confident it will not face next year the=20 rolling power blackouts that have bedeviled California, but one analyst who= =20 foresaw trouble for the West Coast says the same problems may lie ahead for= =20 the Gold Coast.=20 California's self-imposed black eye with deregulation has left a number of= =20 states, from Wisconsin to Florida, disinclined to go ahead with similar=20 plans. That is especially true in the Southeast, where states have less=20 reason to deregulate because their power costs are fairly low.=20 Florida residents are not expected to experience soaring power prices this= =20 summer when the thermometer rises since power companies say they have enoug= h=20 supply to meet customer needs.=20 But whether Floridians run short of power next year might be decided by=20 factors beyond the state's control: how hot the summer is, whether utilitie= s=20 accurately predict demand growth, and whether they can add new power as fas= t=20 as they project, analyst Mark Bernstein recently told Reuters.=20 ``Two-and-a-half years ago we said California could face a problem. It wasn= 't=20 a prediction, it was one of our scenarios,'' said the policy analyst with t= he=20 Santa Monica, California-based think tank RAND.=20 But California ran into some tough luck, including a drought that dried up= =20 hydropower. ``For California to have the problem it had, everything had to = go=20 wrong,'' Bernstein said.=20 California's crisis stems from a flawed 1996 deregulation plan that allowed= =20 wholesale energy prices to soar but capped retail rates. The result has bee= n=20 rolling blackouts, soaring prices and the bankruptcy of the state's biggest= =20 utility.=20 Bernstein sees an eerie similarity between what California experts said two= =20 years ago and what Florida analysts now say. ''What they're saying in Flori= da=20 is the same thing they said in California a couple of years ago. We're not= =20 predicting problems in Florida, but if you look at the direction they're=20 going in they could have the same problems as California.''=20 Tom Ballinger, an energy supervisor with the Division of Safety and=20 Electricity Reliability for Florida's Public Service Commission, said he wa= s=20 confident the state could meet demand.=20 For 2002, for example, the peninsula area, which accounts for some 90 perce= nt=20 of Florida demand, has a 19 percent reserve margin. That will climb to 26= =20 percent by 2005 before drifting back down to 23-25 percent in the years=20 ahead.=20 ``The peninsula in times past has gotten by with a 15 percent reserve=20 margin,'' Bernstein pointed out.=20 DEREGULATION LOOKS LESS DESIRABLE=20 Back in 1995, Wisconsin was tracking California on the path to electricity= =20 deregulation, although it planned a slower approach. But the process ground= =20 to a halt after California's problems singed its reputation, economy and=20 living standards.=20 ``When California occurred, it froze everybody,'' said State Rep. Tim Hoven= ,=20 a Republican from Port Washington and chairman of the Wisconsin Legislature= =20 utilities oversight committee. He said the state now was focusing more on= =20 reliability, adding, ''We don't want to duplicate what they did in=20 California.''=20 In an interim report, a Florida study group recommended creating a=20 competitive wholesale market.=20 That would not be done by requiring utilities to divest themselves of=20 generators, as New York State has done, for example; Florida utilities woul= d=20 transfer power sources to an affiliate or third party, said Billy Stiles,= =20 executive director of the Florida Energy 2020 Study Commission.=20 Once the generators were transferred, the utilities would have long-term=20 contracts with their old units -- unlike California, whose utilities could= =20 buy only on the spot market. The amount of power Florida utilities contract= ed=20 for would decline over time, opening the market up to merchant power plants= ,=20 Stiles explained.=20 ``Once the transition is over ... they have the ability to buy (power) from= =20 anybody selling in the market, including their own affiliate or merchant,''= =20 he said.=20 Florida's deregulation proposal stalled partly because of concerns that=20 consumers might not get repaid for the hugely expensive power generators th= ey=20 helped pay for in the form of higher electricity rates.=20 The study group proposed transferring power plants at their book value: how= =20 much the plant is listed at on the utility's balance sheet. But some critic= s=20 charged the plants were worth more than their book value, and after they we= re=20 transferred they eventually might be sold to other independent power=20 producers.=20 ``There was a belief that the gain on the sale of plants will escape=20 recognition of the regulator ... that the customers will be deprived of tha= t=20 gain,'' Stiles said.=20 He did not agree that power plants necessarily would fetch more than their= =20 book values. Still, he added, ``some mechanisms may need to be devised to= =20 recognize that gain.''=20 FLORIDA SEES POWER SUPPLY AS SATISFACTORY=20 Among the concerns Bernstein raised about Florida's plans were questions=20 about whether its utilities might experience delays in building new power= =20 sources.=20 ``If those plans actually emerge on time, maybe they'll be OK, but years of= =20 experience on things like this (shows) things get delayed,'' the RAND analy= st=20 said.=20 Ballinger, the Florida Public Service Commission expert, recognized that as= a=20 risk, but only over the longer term. He said he was confident the utilities= '=20 demand projections, on which the state relies, were solid.=20 ``They're looking at it all the time,'' he said, explaining that utilities= =20 routinely analyzed population growth, customer accounts, the economy and=20 other factors.=20 Bernstein also raised the possibility Florida's weather might turn aberrant= ,=20 with a warmer winter than usual, for example, which could raise demand for= =20 cooling. Balllinger said the state's assumptions -- compiled from data=20 provided by its utilities -- were based on normal temperatures.=20 Although parts of the Northeast such as New York have gone ahead with at=20 least partial deregulation, they had a fairly strong incentive to do so.=20 New York's retail rates ran around 14.2 cents per kilowatt hour, according = to=20 the Energy Information Administration. In contrast, Floridians paid only=20 about 8 cents, and such low rates were the norm for most states in the=20 Southeast, giving them less incentive to deregulate.=20 ``I don't think you're going to see deregulation in the South anytime soon,= ''=20 said John Sell, a spokesman for Southern Company, which owns power provider= s=20 in Georgia, the Florida Panhandle, Alabama and Mississippi.=20 REUTERS Reut10:26 05-07-01=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------ Hot days worry energy watchers=20 Published Monday, May 7, 2001, in the San Jose Mercury News=20 BY GARY RICHARDS=20 Mercury News=20 Hot weather will cover the state today and Tuesday, and edgy energy officia= ls=20 are asking people not to turn on air conditioners or fans at home or at wor= k.=20 Temperatures are expected to remain in the high 80s in Silicon Valley today= =20 and the low 90s in Sacramento and Southern California. That could lead to a= n=20 energy drain and more threats of rolling blackouts as the workweek begins.= =20 ``When it warms up, demand does skyrocket and we're definitely on guard and= =20 asking consumers to step up their conservation,'' said Stephanie McCorkle, = a=20 spokeswoman for the California Independent System Operator.=20 However, energy watchers won't know until this morning whether California h= as=20 enough power to get through these warm days. The peak demand doesn't hit=20 until about 4 p.m. in spring and summer. Weather forecasters say temperatur= es=20 will return to the mid-70s by Wednesday, which is normal for this time of= =20 year. Sunday's high was 87 in San Jose, far short of the record 99 for May = 6.=20 Contact Gary Richards at mrroadshow@sjmercury.com or (408) 920-5335.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------ Unplugged=20 Mankind has lived thousands of years without electricity. The Amish still d= o.=20 Californians may have to. We called an Ohio hardware store to find out how.= =20 May 7, 2001=20 By ANDRE MOUCHARD The Orange County Register This spring, nearly 16 months after Y2K failed to unplug our=20 electricity-addicted world and just weeks before we figure to get browned o= ut=20 by our erratic power suppliers, Southern California is turning its eyes to= =20 the Amish of northern Ohio.=20 The Amish, like us, are busy. They run farms and small manufacturing=20 companies and even dabble in real estate. And while they might shun things= =20 like SportsCenter and Marilyn Manson, they're not totally without comfort.= =20 The Amish, like us, like their clothes clean, their food hot and their coff= ee=20 beans ground to a powder suitable for drip-style brewing.=20 What the Amish don't like is electricity. They live as plug-free as possibl= e.=20 Here in backward Southern California (where an almost totally non-Amish=20 population sucks down more electricity than anybody in the world) many wond= er=20 how. Hence our sudden interest in northern Ohio.=20 "Nowadays, we get calls nearly every day from people in Southern California= ,"=20 says Glenda Lehman-Ervin, marketing director of Lehman's Hardware and=20 Appliances Inc., a Kidron, Ohio-based retailer that, since 1955, has=20 specialized in selling non-electric appliances to, among others, the Amish,= =20 survivalists and Martha Stewart.=20 Lehman's, which is privately held, says only that its non-electric applianc= e=20 sales to California have "dramatically increased" in the past year,=20 particularly as power outages and rate hikes have become the norm.=20 "Apparently, there is some concern out there about electricity."=20 Apparently.=20 So even with a blackout summer only weeks away, it's not too late to go=20 plugless. The process might not be cheap. It might involve some damp=20 undergarments. And it almost certainly won't include a curling iron or a ha= ir=20 dryer. But some unplugging - without batteries even - is possible.=20 Here's a breakdown of some non-battery-powered devices that can unplug the= =20 most electric of all events - the morning ritual:=20 STEP 1: WAKING UP=20 One way to save a lot of electricity would be to sleep in so long that you= =20 get fired. You could then hang out all day by a pool or the ocean and live= =20 almost exclusively on solar power.=20 Sigh.=20 Let's assume you're not yet so dedicated to easing our strained power grid.= =20 Let's assume you've got to wake up. To do that, unplugged, you'll need a=20 mechanical alarm clock.=20 Mechanicals are no oddity. They dominated time keeping from about 1000 AD= =20 until just after World War II. Most run on power generated by gravity or=20 springs. And when they're attached to bells, they double as extremely loud= =20 alarm clocks.=20 Some companies still make mechanicals (one way to find them is to look on t= he=20 Internet under the words "mechanical alarm clocks"). Some say new mechanica= ls=20 aren't as good as old mechanicals. But one company that made the old=20 mechanicals is still around.=20 A new Westclox mechanical will cost about $20, and a near antique - from th= e=20 early 1900s - will run around $50, according to Aaron Kaplan, owner of=20 Friendly Clock and Watch Repair in Santa Ana.=20 "They're still pretty functional," Kaplan says. "If you maintain them=20 properly, they'll keep time to within a minute or two."=20 Amishness rating: 100=20 STEP 2: CLEAN DUDS=20 In the larger world of waking up and putting on clothes, one thing is alway= s=20 true: clean and dry is better than dirty and wet.=20 In Southern California, most clean, dry clothes come out of a washer and=20 dryer, two machines that also are electricity hogs.=20 But it doesn't have to work that way.=20 An Amish family, for example, might get its clean, dry clothes from a=20 washboard (technology circa 500 AD) and a clothesline. That's fine if you'v= e=20 got about eight hours to get ready for work and you don't mind a T-shirt th= at=20 crunches.=20 Other unplugged washing options are hand-cranked, mechanical washers follow= ed=20 up by hand-cranked ringers that make line-drying faster. Lehman's sells a f= ew=20 of these products. There are also dozens of alternative energy washers and= =20 dryers on the market. Like clocks, those can be found over the Internet.=20 A San Diego company, Explorer Appliances, even sells an alternative energy= =20 combo device, a washer/dryer that runs on propane, natural gas or even=20 wind-created power. The machine also drinks less water than conventional=20 washer/dryer combos, according to Explorer VP Paul Real.=20 What it doesn't provide, necessarily, is socks that come out of the dryer= =20 toasty warm.=20 "Centrifugal force," Real says, describing how the washer-dryer dries. "Tha= t=20 gets almost all the moisture out."=20 Unplugging other parts of the morning's clothing thing isn't that tricky. Y= ou=20 can find irons that reuse heat from the stove. Lehman's also sells an iron= =20 that runs on burning embers. "You need a small shovel or something to get t= he=20 embers in there. It's kind of fun," spokeswoman Lehman-Ervin says.=20 Amishness rating: 75 (subtract 25 points if your clothes are synthetic or= =20 brightly colored.)=20 STEP 3: VITTLES=20 Eating plug-free isn't as easy as it looks. You can eat raw stuff, but that= 's=20 probably going to involve a refrigerator and, in most homes, that involves = a=20 plug. You can decide to cook some stuff, look at your gas-powered range, an= d=20 think you're OK. But you're not. Check out the oven. Electric. Bummer.=20 Anyway, all of this gets particularly tricky in the morning. Breakfast is a= =20 huge electricity user. Milk (if it's cold) needs a plug. Toast has its own= =20 plug-in machine. Same for waffles. And coffee, the absolutely must-have dri= nk=20 for most morning routines, needs a plug-in machine for brewing and another= =20 plug-in machine to grind the beans.=20 Or not.=20 See, the good news is there are non-electric versions of virtually every=20 kitchen appliance. The fridge can run on propane or natural gas or wind if= =20 you're so inclined. (Check the Internet under "alternative energy=20 appliances.") And Lehmans, among others, sells wood stoves, including a mod= el=20 that has a catalytic converter that'll make your wood-stove electricity fre= e=20 and a smog-buster at the same time.=20 "Think about your car 30 years ago. You didn't have airbags or seat belts a= nd=20 things like that. And it didn't get good mileage. Well, wood stoves have=20 gotten a lot better over the years, just like cars," Lehman-Ervin says.=20 Lehman's and others also sell toasters that toast using the heat from the= =20 stove and a waffle iron that does the same thing. The company (as well as= =20 some coffee shops) also sells hand-cranked coffee bean grinders, something= =20 that's quiet and, because it doesn't generate a lot of bean-burning heat,= =20 better for the coffee. After that, you can use a water-drip device to make= =20 the coffee without a plug.=20 If you care to go further, you can grind your own grain and churn your own= =20 butter with non-electric devices.=20 "We even have a hand-crank blender," Lehman-Ervin says.=20 "The Amish like it for milkshakes, but out there, in California, maybe you= =20 could use it for margaritas."=20 Not before work.=20 Amishness rating: 10=20 STEP 4: BLOW DRYING=20 "Sacrifices must be made."=20 That's not the opening line to your pink slip. It's what Lehman-Ervin and= =20 others say when asked about how to unplug the morning routine. Essentially,= =20 there are parts of waking up and getting ready for work that must be change= d,=20 not unplugged.=20 "There is no non-electric blow dryer, except maybe when you stick your head= =20 out the window of your car or something," Lehman-Ervin says.=20 Curling irons fall into this category. Electric shavers, too, but they're= =20 easy to replace with foam and hot water and a razor.=20 Television, CD and DVD players, Nintendo - they all need a plug or a batter= y=20 which, for our purposes, rule them out. Same for microwaves and trash=20 compactors.=20 Eventually, unplugging - even in the morning - boils down to a question of= =20 "what you really need vs. what you simply want," Lehman-Ervin says.=20 "The biggest benefit is self-sufficiency. As you're finding out in=20 California, it's not always great to rely on somebody else to maintain your= =20 lifestyle.=20 "But there are many, many people in this country who don't have electricity= =20 or who have unreliable electricity, and they manage to wake up and get read= y=20 for work.=20 "If you absolutely have to have something, there is probably a non-electric= =20 version of it."=20 So how can you find out more?=20 "Uh, with a computer," Lehaman-Ervin says, laughing.=20 And that, she adds, "needs a plug."=20 Amishness: 0=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------------- Mexico Continues Power Exports To California MEXICO CITY, May 4, 2001 (El Economista/Infolatina via COMTEX) via NewsEdg= e=20 Corporation - Mexican state-owned power utility the Federal Electricity Commission (CFE) will=20 continue to supply the U.S. state of California with electricity, in light of the=20 state's ongoing power shortage, CFE head Alfredo Elias Ayub said Thursday. Speaking= =20 to a gathering of California officials and business leaders, Elias said excess electricity supply from the northern Mexican state of Baja California would continue to be exported to the United States, Mexican financial daily El Economista reported. Baja California, for geographical reasons, is not=20 connected to Mexico's national power grid, and the state's excess supply, therefore, cannot be channeled to areas of the country suffering supply shortfalls or = low operating reserve margins, explained Elias. He said rapidly rising demand f= or electricity on both sides of the border made expansion of interconnection capacity a priority. Interconnection capacity currently stands at 400=20 megawatts, he said. New transmission lines, to be completed by 2002, will boost cross-border interconnection capacity to 2,000 megawatts, he said. ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------------------------- Charged Up: Texas May Face a Glut Of Electricity, but That Won't Aid Rest of U.S. --- Pride and Policy Make State A Magnet for Power Plants And an Island Unto Itself --- A Wire Enshrined in Lucite=20 By Alexei Barrionuevo and Russell Gold=20 ?=20 05/07/2001=20 The Wall Street Journal=20 Page A1=20 (Copyright (c) 2001, Dow Jones & Company, Inc.)=20 While California struggles to keep its lights on and New York City braces f= or=20 possible electricity shortages this summer, Texas utilities could soon face= =20 the opposite problem: a power glut.=20 Texas' wide-open spaces and relatively weak zoning and environmental rules= =20 have helped make the Lone Star state a magnet for power-generation companie= s=20 as it prepares to deregulate its electricity market next year. The result:= =20 Texas' electricity-production capacity this summer is expected to exceed it= s=20 peak power demand by 11,000 megawatts -- nearly enough to light up New York= =20 City. By the summer of 2002, the excess may be closer to 15,000 megawatts,= =20 enough to power 15 million homes. And with 27 new generating plants under= =20 construction, more than any other state, some power producers fear that=20 overbuilding ultimately could send Texas' wholesale electricity prices into= a=20 tailspin.=20 All this sounds like good news for the electricity-starved East and West=20 Coasts -- but it isn't. That's because the U.S. is divided into three major= =20 power grids -- with the West on one, the East on another and most of Texas = on=20 a third, with very few links to the rest of the country. In the world of=20 electricity, that makes Texas "an island with a couple of little footpaths= =20 over to it," says Larry Makovich, senior director for electric power resear= ch=20 at Cambridge Energy Research Associates, a Cambridge, Mass., consulting fir= m.=20 Some Texas utility executives argue that their state's island status is=20 principally an accident of geography. But no one disputes the fact that goo= d=20 old Texas pride -- and a deep-seated skepticism toward federal regulation -= -=20 also played a role in shaping the state's grid. So, too, did a renegade=20 utility's desperate 1976 bid to save itself from a corporate breakup and th= e=20 resulting four-year legal battle, which the industry later dubbed the "Texa= s=20 Range War."=20 Texas' isolation isn't expected to end anytime soon. If Texas became fully= =20 interconnected, its big utilities say, the state could become more=20 susceptible to blackouts, if other regions drew off too much power. "From a= =20 reliability standpoint, it would be a degradation to the Texas grid," says= =20 Steve Schaeffer, a senior vice president at Reliant Energy Inc., the former= =20 Houston Lighting & Power Co.=20 Moreover, the utilities estimate that building the transmission lines neede= d=20 for a full connection to the nation's other grids would take at least three= =20 years and cost Texas ratepayers about $600 million. They don't want to inve= st=20 that much money to sell power to California or New York to ease what they= =20 view as temporary imbalances.=20 Some in the state also believe low rates and excess power could give it an= =20 advantage in persuading businesses to locate there. "America will be shy=20 enough electricity that this will be one of our greatest inducements for=20 growing Texas," says Matthew Simmons, president of Houston investment bank= =20 Simmons & Co.=20 Texas is an extreme example of the haphazard way electricity grids develope= d=20 in the U.S. Until the 1960s, most power plants were built near the customer= s=20 they served. Then, utilities began building larger, more-efficient coal and= =20 nuclear plants, connecting them with their neighbors to ensure that if one = of=20 these big plants went down, there would be a backup ready to keep the power= =20 flowing.=20 But the old-line Texas utilities, which have long benefited from the state'= s=20 plentiful supplies of fuels such as natural gas and lignite coal, were=20 reluctant to join in this wave of interconnections. Back then, in the mid- = to=20 late 1970s, electricity outside Texas was generally more costly. And=20 surrounding states weren't planning big enough plants to back up the huge n= ew=20 ones Texas was building to power its fast-growing cities and energy-thirsty= =20 petrochemical industry. "There was no big money to be made by shipping powe= r=20 one way or the other over the lines," says Reliant's Mr. Schaeffer.=20 By confining their grid to Texas, state utilities also avoided oversight by= =20 the Federal Energy Regulatory Commission. Thus, FERC couldn't force Texas t= o=20 send power out of state in case of an emergency.=20 The state's dominant utilities -- Texas Utilities Inc., the Dallas-based=20 predecessor of what is now TXU Corp., and Houston Lighting -- went to great= =20 lengths to ensure there were no interstate connections. The switches at a= =20 hydroelectric plant on the Texas-Oklahoma border were wired to prevent powe= r=20 from flowing between the states. Elsewhere along the border, a system of=20 relays was installed to prevent unauthorized interstate transmissions.=20 Only one big utility didn't like the setup: Central & South West Corp., a= =20 Dallas holding company that owned power plants in both Texas and Oklahoma. = In=20 1976, it faced a crisis. If it couldn't show that its plants in both states= =20 were interconnected, it ran the risk of being broken up under a federal law= .=20 The law, which barred holding companies from owning unconnected utilities i= n=20 separate states, was decades old. But, until then, it hadn't been strictly= =20 enforced.=20 On May 4, 1976 -- eight days before the Securities and Exchange Commission= =20 was set to consider the matter -- Central & South West took an extraordinar= y=20 step. At 5:30 a.m., it sent one of its line crews to secretly rewire a=20 substation in Vernon, Texas, near the Oklahoma border, allowing power to fl= ow=20 freely between the two states. For a few hours, the grids were connected by= a=20 minuscule thread. Later that morning, officials at Central & South West=20 phoned other Texas utilities to tell them the company was engaged in=20 interstate commerce.=20 Texas' other major utilities reacted angrily. "The sons of bitches are tryi= ng=20 to steal my lignite!" Texas Utilities Chairman Louis Austin bellowed,=20 according to former Texas Public Utility Commissioner George Cowden, who=20 recalls Mr. Austin making the remark during a private meeting between the t= wo=20 men.=20 Around noon, Houston Lighting cut its system off from the rest of the state= 's=20 utilities. Texas Utilities followed suit hours later. By day's end, the=20 state's utilities had broken the grid into a half-dozen pieces.=20 That same day, one of Texas Utilities' chief lawyers, a 6-foot-6 former=20 college-football star named J.A. "Tiny" Gooch, dispatched one of his=20 company's crews to disconnect the link Central & South West had made betwee= n=20 Vernon and Altus, Okla. "They made it so it was physically impossible to=20 [connect] it again," says Mr. Gooch's son, Gordon, then a lawyer representi= ng=20 Houston Lighting. The elder Mr. Gooch, who died in 1986, is considered the= =20 patron saint of Texas' electrical independence.=20 At an emergency meeting of the utility commission three days later, Mr.=20 Austin of Texas Utilities expressed disgust at the prospect of having to bu= rn=20 Texas lignite and natural gas to satisfy "Yankees," according to a=20 transcript. And, he added: "I don't like federal regulations." (Mr. Austin= =20 died in 1997.)=20 A wire reputed to have formed part of Central & South West's brief=20 Texas-Oklahoma interconnection later was cut into pieces, encased in Lucite= =20 and given out as paperweights by Dallas law firm Worsham, Forsythe &=20 Woolridge, which represented Texas Utilities.=20 Alan Erwin, a state utility commissioner in 1976 who still has the souvenir= =20 on his desk, used the wiring episode as fodder for a 1979 novel, "The Power= =20 Exchange," in which a winter storm cripples Northeast power production and= =20 the nation turns to Texas for electricity. Texas refuses to ship the=20 electricity, fearful that other regions would drain it of "what little chea= p=20 fuel was left." Ultimately, Texas becomes a scapegoat and ends up seceding= =20 from the union.=20 In reality, the outcome was less dramatic. The grid conflict wound its way= =20 through many courtrooms. Central & South West -- recently acquired by=20 American Electric Power Co. of Columbus, Ohio -- lost almost every round.= =20 After about four years, the utilities hashed out a compromise, at the urgin= g=20 of the federal government.=20 Rather than link the Texas grid to the East, so that electricity could flow= =20 freely across state borders through alternating-current cables, they agreed= =20 to build two direct-current lines. Operators could control the flow over=20 these bridges, which at peak capacity could carry a mere 820 megawatts. The= =20 parties to the deal, which included the federal government, agreed these=20 links wouldn't bring the Texas grid under federal jurisdiction. Today, Texa= s=20 power continues to be regulated in Austin, not Washington.=20 "It's just a Texas thing," says Pat Wood III, chairman of the state utility= =20 commission and a recent Bush administration nominee to FERC. "We want contr= ol=20 of our own destiny."=20 That independent attitude has extended in recent years to Texas'=20 business-friendly approach to deregulating its power industry. Unlike=20 California, with its stringent emissions and zoning rules, Texas has made i= t=20 quick and easy for power companies to locate their plants almost anywhere= =20 they can find a place to hook up to the grid. Last year, Texas completed a= =20 major upgrade to alleviate bottlenecks on the grid, and it has six similar= =20 projects under way. Unlike most other states, it decided to charge grid use= rs=20 a flat rate to move power anywhere in the state, so they could put plants i= n=20 low-cost rural areas, far from their customers.=20 Those policies, as well as projections that the state's electricity demand= =20 would grow by a robust 3.5% a year, set off a flurry of power-plant=20 construction, beginning in 1998. Since then, $11 billion worth of power=20 plants have been completed or started in Texas, and more are on the drawing= =20 board.=20 By contrast to California's approach to deregulation, which largely failed = to=20 bring new plants online, Texas' strategy "encouraged an overbuild," says Mr= .=20 Makovich, of Cambridge Energy Research Associates.=20 Consider tiny Seguin in south central Texas, where Constellation Energy Gro= up=20 Inc. of Baltimore is building an 800-megawatt gas-powered plant in a former= =20 cornfield. Fifteen miles to the west, Texas Independent Energy LP of Dallas= =20 recently finished a 1,000-megawatt plant. About the same distance to the=20 north, American National Power, a Houston-based unit of Britain's=20 International Power PLC, is building a 1,100-megawatt plant.=20 If generators don't get cold feet, Texas is on track to have a capacity=20 surplus of 9% this summer and 11% by summer 2002, says Cambridge Energy=20 Research Associates. That's in addition to the 15% surplus that most expert= s=20 consider an adequate cushion. Some areas of the country, including parts of= =20 the Southeast, Upper Midwest, New York City and the West, are struggling wi= th=20 razor-thin capacity margins. After factoring in a similar 15% cushion, the= =20 West has an 8% capacity deficit and the Upper Midwest has a 4% deficit.=20 As a result, while electricity futures prices for summer are running at as= =20 much as $400 per megawatt hour in the Northwest and around $100 in the=20 Northeast, Texas futures prices are averaging only $72 to $74 per megawatt= =20 hour.=20 Calpine Corp. of San Jose, Calif., is making the boldest wager that=20 overcapacity and a lack of export possibilities won't sink Texas' wholesale= =20 electricity prices. The company has six plants under construction in the=20 state, two of which are expected to come on line next month. And it plans t= o=20 add an additional five plants over the next two years. Altogether, Calpine= =20 plans to spend about $2.8 billion in the state, its largest investment=20 outside California.=20 "People from day one probably thought Calpine was crazy," says Darrell=20 Hayslip, a company vice president. "But so far, we are absolutely convinced= =20 that this is the right bet." He says Calpine's newer gas-fired plants are 4= 0%=20 more efficient than older plants in the state, a third of which are at leas= t=20 30 years old. Calpine expects that edge to force rivals to retire older=20 plants, thus keeping electricity prices from sagging.=20 Others aren't so sure. After initially planning new plants in Texas, Duke= =20 Energy Corp. began to worry that the state was getting overbuilt. Last May,= =20 Duke, of Charlotte, N.C., sold its 80% stake in a plant under construction = in=20 south Texas to Calpine. "We sized up the market early, and then realized to= o=20 many followers were doing the same thing," says Jim Donnell, president and= =20 CEO of Duke Energy North America.=20 If the electricity situation outside Texas grows too grim and too much supp= ly=20 sinks prices in the state, there could be "renewed pressure" for Texas to= =20 study interconnection options, says John Stauffacher, vice president for=20 regulatory affairs at Houston-based Dynegy Inc., which has 1,000 megawatts = of=20 capacity in Texas.=20 Calpine, for one, wouldn't mind sharing Texas power with the East and West.= =20 "I would love to be able to wheel power from Texas to California," says Mr.= =20 Hayslip. But, so far, the Texas utilities haven't budged in their oppositio= n=20 to exports.=20 A few generators are trying to find the best of both worlds. Tenaska Inc. o= f=20 Omaha, Neb., is building plants at the border between the Texas and eastern= =20 grids. Though utilities aren't allowed to be connected to both grids at onc= e,=20 the plants are designed to allow the company to switch between grids as=20 demand and prices warrant.=20 In rural Grimes County, about 90 miles outside Houston, Tenaska plant manag= er=20 Frank Carelli boasts that his 830-megawatt plant could disconnect from one= =20 grid, connect to the other and be back at full power within an hour. A=20 similar Tenaska plant is slated to begin operations this month in Rusk=20 County, near the Louisiana border.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------------------------------- By David Wagman dwagman@ftenergy.com "And it never failed that during the dry years the people forgot about the= =20 rich years, and during the wet years they lost all memory of the dry years.= =20 It was always that way." -John Steinbeck East of Eden, 1952 Electricity in the West this summer will rise and fall on the whim of=20 nature's elemental forces: water for power generation, weather for its effe= ct=20 on demand, and fire=01*or the threat of it=01*for its potential damage to= =20 transmission lines and the grid. And then there's Harvey Rosenfield.=20 A force of nature in his own right, perhaps no one wields more clout over= =20 California's politicians and the rest of the West than Rosenfield. Politica= l=20 watchers say his skill as a consumer advocate and master of California's=20 potent ballot initiative process is so great that he has all but sapped Gov= .=20 Gray Davis' ability to act decisively in this crisis.=20 Given California's role as the West's largest state and biggest economy, th= is=20 leadership gridlock leaves the region facing a virtual political vacuum eve= n=20 as it gropes to find a broader solution to problems of supply and price tha= t=20 are poised to infect at least Oregon and Washington.=20 Running for cover California's political gridlock is so bad that one observer equates the=20 situation to the uncertainty and confusion of a mob during a riot. "Politicians respond when there is a quantifiable problem," said Dan Walter= s,=20 political columnist for the Sacramento Bee newspaper. But the energy crisis= =20 is a "fourth-dimensional problem that mutates every day," making it tough f= or=20 politicians to respond. Walters said a growing sense within the California= =20 state legislature is that the die is cast for this summer and it's time to= =20 run for political cover.=20 But a governor and a legislature bent on self-preservation may be unwilling= =20 or unable to act on a number of important energy issues.=20 "We hope the legislature doesn't become dysfunctional because there's some= =20 stuff that's gotta move," said Tom Williams, a California-based spokesman f= or=20 Duke Energy.=20 One of many priorities is legislative action on the proposed Southern=20 California Edison (SoCal Ed) transmission asset buyout and what observers s= ay=20 is an almost mandatory fix to the imbalance between wholesale and retail=20 markets. Approval of this item has been clouded by questions about the valu= e=20 of owning only a portion of the state's transmission system. Members of=20 Davis' own party appear unconvinced by arguments that SoCal Ed could follow= =20 PG&E into bankruptcy protection.=20 "I've never been afraid of bankruptcy from the beginning," Democratic Senat= e=20 leader John Burton told the Orange County Register in mid-April. "Bankruptc= y=20 court is a better venue for open discussion and investigation."=20 The outlook for action on the second big legislative item may be even worse= =20 as California politicians hope to shield the consuming/voting public from= =20 market forces for as long as possible.=20 "Californians are paying for a product below cost. Customers need to see th= e=20 link between wholesale and retail prices," said Alex Papalexopoulos,=20 president of ECCO International, a San Francisco-based company that designs= =20 regional market structures.=20 News reports also revealed the state spent nearly $5 billion buying power= =20 between January and mid-April. In one two-week stretch from late March to= =20 mid-April, the state's average weekday power costs rose from $45.8 million = to=20 $73 million, a 60% increase. Gov. Davis blamed generators for the higher=20 costs, saying they face greater risk of not being paid. But observers worry= =20 the state itself may be headed toward bankruptcy if it continues to spend f= or=20 electric supplies.=20 CALIFORNIA'S RISING DAILY ELECTRICITY BILL Against this fast-changing backdrop, annual assessments for summer power=20 supplies for California and the West are being released. Perhaps more than = at=20 any other time, the politics of energy are as critical for industry insider= s=20 to understand as the more traditional forecasts of hydro flow, gas=20 availability and transmission constraints.=20 Bleak assessment By those more traditional measures, the summer power assessment is bad=20 enough. Below-normal precipitation in the Northwest has led power planners = to=20 say for months the region will be short of power. The California Independen= t=20 System Operator (ISO) said if consumers use the same amount of electricity= =20 this summer as last the state could face 34 days of rotating blackouts.=20 The Western States Coordinating Council's summer assessment forecasts a pea= k=20 demand of 53,893 MW in the U.S. portion of its California-Mexico subregion.= =20 Load management and interruptible demand are expected to account for almost= =20 1,000 MW of demand, leaving a net internal demand of 52,899 MW, expected fo= r=20 August.=20 But California's tight power supply market may be squeezed further by=20 conditions in the Pacific Northwest. There, electricity prices have recentl= y=20 outpaced California's, according to daily prices reported by Megawatt Daily= .=20 Those high prices suggest the Northwest's hydro shortage is driving the=20 region's crisis, said Doug Logan, principal with RDI Consulting.=20 MONTHLY PEAK PRICE TRENDS IN THE WEST SPREADSHEET "California is screaming, but the Northwest is desperate" for power, he sai= d.=20 Market vulnerabilities Published reports also suggest that almost anything short of a cool summer= =20 will overtax supplies and lead to rolling blackouts in California. Unexpect= ed=20 power plant outages also could trigger blackouts and price spikes, a=20 possibility some say points to market manipulation by power generators.=20 Others say the outages are a natural result of running older plants harder= =20 and longer than ever before.=20 For example, Duke Energy's 165-MW Oakland plant, built in 1895 and=20 revitalized in 1978, typically ran no more than 70 hours a year, said=20 spokesman Tom Williams. During 2000, Oakland ran for 800 hours before its= =20 turbines burned up. Its loss prompted a call from the California ISO, which= =20 said the plant was still needed for baseload operation, Williams said.=20 The danger for much of California is that as the state's older generating= =20 plants are called on to run harder and longer this summer, they will break= =20 down more often and add to the supply problem. With supplies constrained, t= he=20 loss of even a single plant could throw the market into turmoil.=20 "It doesn't matter what the market demand is like if supply is tight," said= =20 Papalexopoulos. Under tight supply conditions, "every market breaks down."= =20 Another critical factor will be environmental controls mandated by the=20 federal Clean Air Act and administered by state air quality management=20 districts. Plants whose NOx emissions exceeded permitted levels last year h= ad=20 to enter the market to buy emission credits. At one point, demand for the= =20 credits was so high they were all but unavailable at any price. When credit= s=20 were available, their price left some power generators paying almost as muc= h=20 for them as for wholesale power. Thus, a crucial factor to watch will be th= e=20 willingness (or ability) of air quality management districts to ease or=20 modify environmental restrictions.=20 CALIFORNIA SUPPLY & DEMAND FROM ECONOMIC FORUM SPREADSHEET Kern River rescue One bright spot seems to be natural gas supplies, which appear adequate or= =20 even improved compared with last year. The improved outlook is due in part = to=20 the fast-track approval by the Federal Energy Regulatory Commission of a 13= 5=20 million-cubic-foot per day expansion to the Kern River pipeline into=20 California. The expanded capacity will import relatively low-cost natural g= as=20 from the Rocky Mountain region for use in California's gas-fired power=20 plants. This should help deflect some price pressure that built up last yea= r=20 at a pipeline choke point on the California-Arizona border.=20 HOW HIGH COULD CALIFORNIA'S ELECTRIC BILL GO? SPREADSHEET But even this bright spot looks a bit cloudy, said Mike Farina, a power=20 consultant with RDI Consulting in Boulder, Colo. Uncertainty remains over= =20 whether Kern River's extra gas capacity can make it through a second=20 unrelated congestion point at Wheeler Ridge, Calif. There, the pipeline=20 connects with a web of in-state distribution pipes. What's more, low hydro= =20 supplies will lead to even more reliance on gas-fired power plants for=20 electricity. And, Farina said, a cold snap could boost demand for natural g= as=20 for space heating. That could cause an unexpected twin demand peak coincide= nt=20 with electric generation demand. A similar dual peak occurred last summer,= =20 adding to upward pressures on natural gas prices.=20 READ MORE ABOUT THE GAS FACTOR Sending price signals On the demand side, a key factor will be how effective the recent rate=20 increase approved by the California Public Utilities Commission is at=20 dampening consumer demand.=20 The rate hike could send a powerful price signal for consumers to reduce=20 demand, said John Egan, director of strategic and marketing issues for=20 Boulder, Colo.-based E Source, the retail consulting division of Financial= =20 Times Energy. Reports already have made much of the fact that California's= =20 market lacks a good set of demand-side tools to send price signals to=20 consumers. One exception has been in the industrial sector where=20 interruptible contracts and real-time metering have regularly forced=20 conservation responses.=20 AVERAGE ELECTRIC WHOLESALE PRICES SPREADSHEET Indeed, large energy users have already reacted to the crisis by moving awa= y=20 from interruptible contracts and toward aggressive energy hedging strategie= s=20 just to remain in business, said Brennan Higgins, market intelligence manag= er=20 for Louisville, Ky.-based Summit Energy. His clients include large end-user= s=20 nationwide. "Manufacturers have quit looking at rates in terms of saving=20 money and now are looking at their ability to run their plants," he said.= =20 READ MORE ABOUT CALIFORNIA'S CAPACITY ISSUES Looking beyond the summer, a primary factor for California's recovery will = be=20 how much new generating capacity is added. As one gauge, insiders watch to= =20 see how lenders and developers respond to what some say are frequent and=20 numerous rule changes within the state.=20 "The rules change almost on a real-time basis," said Jerry Pfeffer, a=20 Washington, D.C.-based attorney who specializes in utility finance. As a=20 result, risk premiums have risen and may work against the state's efforts t= o=20 expand its generating capacity.=20 In the past, baseload coal or nuclear plants were all but impossible to mov= e=20 once they were approved for a specific location. Today, natural gas turbine= =20 technologies=01*and the money to build them=01*are more mobile. With other = parts of=20 the country growing anxious for new generating capacity, lenders and=20 developers can take their turbines to states offering less political=20 volatility and uncertainty.=20 The power supply assessment for California and the Pacific Northwest this= =20 summer appears bleak. Uncontrollable forces of nature=01*temperature, rainf= all=20 and fire=01*may make or break a market where political blunders have expose= d=20 gaping vulnerabilities. As a result, the "Harvey factor," as the game of=20 energy politics in California is coming to be known, emerges as a central= =20 theme for California and the West.=20 READ MORE ABOUT THE HARVEY FACTOR In California this summer, said E Source's John Egan, "there is a much=20 shorter list of things that could go right."=20 To read more analysis about the California energy situation, click on the= =20 links below. READ MORE ABOUT CONSERVE READ MORE ABOUT HYDRO READ MORE ABOUT MONEY TALKS READ MORE ABOUT SOLUTIONS

dasovich-j/all_documents/12100.

dasovich-j

Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/12100. ===================================== Please see the following articles: Sac Bee, Mon, 5/7: "It's crunch time on power rates" SD Union, Sun, 5/6: "SDG&E shutoff notices increasing" SD Union, Sun, 5/6: "State OKs $7 billion contract" SD Union, Sun, 5/6: "The energy crisis gives Filner some easy targets" SD Union, Sat, 5/5: "Gephardt tells rally here he's pushing price caps" LA Times, Mon, 5/7: "Proud Linemen Take a Hit" LA Times, Sun, 5/6: "Utility's Workers Watch Helplessly as Company Falls" LA Times, Mon, 5/7: "Utility Bills Are Just One Way People Pay for Energy= =20 Crisis" LA Times, Mon, 5/7: "Questions Remains Who'll Take Brunt of the Rate Hikes= " LA Times, Sun, 5/6: "Riordan and Freeman's Feud Erupts in Public" LA Times, Sat, 5/5: "Cheney Rejects Price Caps, Aid for Calif. Power Crisi= s" SF Chron, Mon, 5/7: "Rolling Health Hazards=20 Summer Blackouts May Pose Public Health Risks" SF Chron, Mon, 5/7: "Oh, that boom in 2002 " SF Chron (AP), Mon, 5/7: "Developments in California's energy crisis"=20 SF Chron, Mon, 5/7: "U.S. considers withdrawing lawsuits against coal=20 industry=20 Pollution controls affect power plants " SF Chron, Mon, 5/7: "Swimming pool owners get PG&E discounts=20 Operating pumps at night saves energy " SF Chron, Sun, 5/6: "Legislators plan to sue U.S. panel on energy=20 Top state Democrats want cap on prices" SF Chron, Sun, 5/6: "Nevada's winning hand -- power=20 State sees profit in California's crisis" Mercury News, Mon, 5/7: "Share prices rise amid news of big energy deals" Mercury News, Mon, 5/7: "Florida shrugs off Calif-blackout scenario" Mercury News, Mon, 5/7: "Hot days worry energy watchers" OC Register, Mon, 5/7: "Unplugged Manking has lived thousands of years without electricity. The Amish still = do. Californians may have to. We called an Ohio hardware store to find out how" Individual.com (AP), Mon, 5/7: "Mexico Continues Power Exports To=20 California" WSJ, Mon, 5/7: "Charged Up: Texas May Face a Glut of Electricity, but that Won't Aid Rest of U.S." Energy Insight, Mon, 5/7: "Out of Eden: California on the edge" ---------------------------------------------------------------------------= --- ---------------------------------------------------- It's crunch time on power rates By Carrie Peyton Bee Staff Writer (Published May 7, 2001)=20 In a San Francisco hearing room, lawyers settled into squeaky green seats,= =20 flopped their briefcases onto the orange carpet and waited.=20 Where was Gov. Gray Davis' plan for how a whopping electric rate hike shoul= d=20 be spread among homes and stores, farms and offices?=20 Where were the underlying calculations that explained why Pacific Gas and= =20 Electric Co. customers should pay a stiffer increase than Southern Californ= ia=20 Edison's customers?=20 And where was the sworn witness who would answer tough questions after=20 formally introducing the governor's plan at quasi-legal rate hearings at th= e=20 state Public Utilities Commission?=20 The Governor's Office knew that business and utility lawyers were asking fo= r=20 details and for someone they could cross-examine, Administrative Law Judge= =20 Christine Walwyn assured those gathered in the dingy hearing room last week= .=20 "We have relayed all parties' comments to their office. There has been no= =20 response," she said.=20 Chuckles and snorts played over the room. "Surprise, surprise" one attorney= =20 muttered.=20 "Frankly, it was handled terribly," Shelly Sharp, PG&E's director of rates,= =20 said later. "It's sort of a mockery of the process."=20 Rarely has the interplay between Sacramento and San Francisco been as visib= ly=20 strained as it was in the rate-making drama that has unfolded for the past= =20 month.=20 At stake are issues that will touch virtually every home and business in th= e=20 state and could drastically alter California's power landscape.=20 The right rates could spur conservation, reduce summer blackouts and drive= =20 down wholesale costs, many believe. The wrong ones could decimate businesse= s=20 and kill jobs, regulators have been warned.=20 The PUC, which regulates rates, has been gathering data to decide which=20 consumers will get hit hardest by the $4.8 billion rate hike approved in la= te=20 March. Normally, it takes six months to a year to make such decisions.=20 Now, the PUC is trying to do the job in about six weeks, and Walwyn is=20 scheduled to release her draft decision Tuesday. Community hearings will be= =20 held across the state before commissioners vote May 14, two weeks before th= e=20 new charges start showing up on customers' bills June 1.=20 Hanging over it all have been two patches of fog. The state did not give=20 regulators the details on how much money it thinks it needs in rates until= =20 Wednesday -- so late it was "useless" for this round of rate design, said a= =20 source familiar with the process.=20 The wait for the data has been "just purely frustrating and leaves everyone= =20 in the dark," said Ed Yates, vice president of the California League of Foo= d=20 Processors.=20 And the governor, who outlined some general ideas for rates in a speech Apr= il=20 5, followed up two weeks later by trying to submit, as written testimony, a= =20 short question-and-answer summary and slides from his Web site.=20 "There's no meat on the bones. There are hardly any bones," said Bob=20 Finkelstein, an attorney for The Utility Reform Network in San Francisco.= =20 Ultimately, the judge refused to admit Davis' offerings as testimony, letti= ng=20 them into the record only as "reference items" that do not carry the weight= =20 of evidence.=20 The governor's press office has said it believes Davis' opinions will be=20 thoroughly considered by the commission in that format.=20 Davis gave the PUC the same template he gave the Legislature, said spokesma= n=20 Steve Maviglio, and "the outlines of the plan are clear." He added that PUC= =20 staffers assured the Governor's Office the information was "acceptable."=20 The episode was nerve-wracking for participants because of the clout Davis = is=20 believed to carry at the PUC, where three of the five commissioners are his= =20 appointees.=20 "The parties are legitimately afraid that the governor's proposal might be= =20 rammed down their throats," consumer advocate James Weil said.=20 The parties include everyone from winemakers to oil refineries. They've bee= n=20 presenting witnesses, firing off briefs and trying to persuade regulators t= o=20 set rates in ways that will have the least possible effect on their=20 operations.=20 Do this wrong, and "you're going to lose whole industries," lobbyist D.J.= =20 Smith warned in an interview.=20 Do this wrong, and "we're going to have severe economic disruption of the= =20 state, of the sort we haven't seen in 30 years," energy economist Severin= =20 Borenstein testified.=20 Taking the first stab at sorting the wrong choices from the right ones will= =20 be Walwyn, the judge and former Nevada PUC commissioner whom business group= s=20 accuse of tending to favor small consumers. She will have to sift conflicti= ng=20 arguments on two key issues and scores of smaller ones, often with hundreds= =20 of millions of dollars at stake:=20 First, how can rates be designed to encourage conservation?=20 Borenstein, who heads the University of California Energy Institute, urged= =20 the commission to get tough with virtually everyone, despite political=20 pressure. Big users should be forced onto real-time rates that fluctuate wi= th=20 the power market, and household users should get rebates for cutting use an= d=20 face steep charges if they surpass baseline rates.=20 Such calls have met with strong opposition from businesses least able to cu= t=20 consumption when prices are highest, such as canneries that operate around= =20 the clock and department stores that want to stay open at peak hours.=20 A second, equally contentious issue is who should bear the brunt of the rat= e=20 hike.=20 PUC President Loretta Lynch, the commissioner assigned to oversee this rate= =20 case, suggested early on that her colleagues should consider reversing a=20 long-standing policy of charging the biggest users some of the lowest price= s.=20 Before this year's twin rate hikes, PG&E's household rates averaged more th= an=20 10 cents a kilowatt-hour while its largest industrial customers paid less= =20 than 5 cents. Heavy industries contend such imbalances are fair because the= =20 biggest power users cost less to serve. They consume steady amounts of=20 electricity around the clock, while homeowners' consumption shoots up durin= g=20 high-priced peaks.=20 The overall rate hike approved unanimously by commissioners March 27 gives= =20 PG&E and Edison the right to collect the equivalent of an extra 3 cents for= =20 every kilowatt-hour of electricity they sell.=20 There are at least two ways to do that: Charge everyone 3 cents more or sen= d=20 everyone's rates up about 29 percent for PG&E customers and 26 percent for= =20 Edison's.=20 "Any time you use an equal-cents allocation, it's going to be to the benefi= t=20 of smaller customers," said Sharp, PG&E's rate director. The equal-cent=20 method is also fairer than equal percentage hikes, she said, because those= =20 are based on "very, very old" calculations about how much it costs to serve= =20 different customers.=20 But Edison has taken the opposite stand, urging the commission to go easier= =20 on its biggest customers, with rate hikes that top out at about 30 percent= =20 for any one group. "We want to ensure that the increase is allocated fairly= =20 among customer classes," said Akbar Jazayeri, Edison's manager of pricing a= nd=20 tariffs.=20 The Bee's Carrie Peyton can be reached at (916) 321-1086 or=20 cpeyton@sacbee.com.=20 ---------------------------------------------------------------------------= --- --------------------------------------------- SDG&E shutoff notices increasing=20 By Jeff McDonald=20 UNION-TRIBUNE STAFF WRITER=20 May 6, 2001=20 Not much bigger than a postcard, the final notice from San Diego Gas &=20 Electric Co. came curled inside the front gate of her Lakeside mobile home.= =20 Marie Maurer found it only after hearing rustling outside. The bill collect= or=20 was already on his way to a nearby mobile home, without having spoken a wor= d=20 to the 72-year-old woman.=20 The news was not good. SDG&E wanted $200 -- a big chunk of her $283.95 debt= =20 -- and Maurer was $47 short. The retired nurse had three days to come up wi= th=20 the money or have her electricity shut off.=20 "I try so hard to save and to budget," said Maurer, who gets by on a few=20 hundred dollars a week in Social Security and government rental assistance.= =20 "I don't go anywhere. I collect cans. I pawn stuff."=20 Maurer is among a growing number of fixed-income senior citizens,=20 small-business owners and others getting pinched by rising electricity cost= s=20 -- and increasingly fearful of what the hot summer months might bring.=20 Unable to meet the commanding debt piling up on their electric and=20 natural-gas bills, ratepayers such as Maurer are facing 72-hour disconnect= =20 notices, or in many cases agreeing to what amounts to revolving=20 pay-as-you-can accounts.=20 SDG&E refused to say how many customers have had their power shut off for= =20 nonpayment in recent months, saying such information is proprietary and=20 confidential.=20 But consumer groups and business resource centers report a fresh influx of= =20 calls for help in finding what little relief is available.=20 "I'm getting more people contacting me with disconnection notices," said Jo= di=20 Beebe, an analyst with the Utility Consumers' Action Network. "They're=20 flooded. It's very frustrating for many people."=20 Ken M. Clark of the Small Business Development Center at Southwestern Colle= ge=20 said he gets 10 or 12 calls a week from business owners worried about the= =20 price of power. At this time last year, he was receiving none.=20 "Some of them are looking for a shoulder to cry on," Clark said. "They're n= ot=20 necessarily looking to solve the energy crisis, but possibly to buy some ti= me=20 or make a strategy to get through this."=20 The situation could grow worse in a hurry. Gov. Gray Davis has suggested th= at=20 the Public Utilities Commission allow SDG&E to raise its electricity rate b= y=20 44 percent.=20 Not only that, but barely half the low-income ratepayers in California=20 eligible for relief programs have enrolled. Regulators blame the low figure= =20 on less-than-diligent outreach efforts by the utilities.=20 At their meeting last week, commissioners warned utility companies to work= =20 harder at signing up more of the 2 million or so customers eligible for the= =20 California Alternate Rates for Energy program.=20 "If they don't, we'll order them to," PUC President Loretta Lynch said.=20 Eligibility rules allow customers with incomes of up to 175 percent of the= =20 federal poverty level to qualify. A one-or two-resident home is now eligibl= e=20 with an income of $21,233 or less; a three-person home, $25,083.=20 The program, which offers a 15 percent discount on electricity, is funded b= y=20 a 25-to 50-cent surcharge on the bills of other customers. That fee may ris= e=20 once regulators decide how to implement the latest rate increase.=20 Low-income customers are exempt from the recent rate hike.=20 Officials at SDG&E, where almost 20 percent of the 1.2 million ratepayers a= re=20 eligible for discounted electric rates, say they steer as many customers as= =20 they can into the programs. Customer service representatives also are=20 available to help consumers arrange payment plans, the utility said.=20 "Whenever we hear that a customer has a problem, we want to contact them an= d=20 see if we can't solve the problem," spokesman Ed Van Herik said. "We work t= o=20 keep customers' power on."=20 Jane Johnson isn't so sure.=20 The disabled woman from San Diego's Lomita neighborhood received a disconne= ct=20 notice Friday. SDG&E demanded $210 to avoid shutting off the power within= =20 three business days.=20 "We were fairly good, but every now and then the bill was late," Johnson=20 said. "Last August our bills tripled, and ever since then I have not been= =20 able to get caught up."=20 The run-up in electricity costs last summer prompted state regulators to=20 order SDG&E to stop shutting off power to customers who could not pay their= =20 bills. But that directive lasted only through October.=20 By November, the utility began asking larger users to bring their bills=20 current, and the same request was made of small businesses in December. SDG= &E=20 began requiring residential customers to pay off their debts in January.=20 Those who cannot pay are subject to a $15 disconnect fee and a $9 charge fo= r=20 delivering final notices. Even more daunting, a deposit equal to twice the= =20 consumer's highest monthly bill may be required before service is restored.= =20 It is difficult to gauge how deeply the crisis has hurt low-income people.= =20 SDG&E will only discuss in vague terms the numbers of customers who have be= en=20 issued disconnect notices or been forced into revolving payment plans.=20 "After resuming credit collections, we did have an accelerated number of=20 customers who entered into pay agreements," Van Herik said.=20 For Maurer and Johnson, assistance came in the form of intervention by Beeb= e,=20 the Utility Consumers' Action Network analyst who works with SDG&E in=20 restructuring customer payments.=20 Nonetheless, "it's a constant worry," said Maurer, who said she had to sell= a=20 gold watch to finance part of her latest utility bill. "I don't think we're= =20 going to have any real relief for two or three years." The Associated Press contributed to this report.=20 ---------------------------------------------------------------------------= --- --------------------------------------------- State OKs $7 billion contract=20 Sempra unit to sell half its power output By Ed Mendel=20 UNION-TRIBUNE STAFF WRITER=20 May 6, 2001=20 SACRAMENTO -- A San Diego-based firm that is building several efficient,=20 clean-burning power plants has agreed to sell about half its output to the= =20 state under a 10-year contract worth $7 billion.=20 Sempra Energy Resources becomes the second-largest provider as the state pu= ts=20 together a portfolio of cheaper long-term power contracts, lowering the cos= t=20 of buying power for utility customers on the expensive spot market.=20 As the state struggles to find power at reasonable prices to keep the light= s=20 and air conditioners on this summer, Sempra Energy Resources will begin=20 providing 250 megawatts next month during peak-load periods, enough to supp= ly=20 power to 188,000 to 250,000 households.=20 Sempra Energy Resources, an unregulated sister company to San Diego Gas &= =20 Electric, will provide as much as 1,900 megawatts by 2004 as new plants at= =20 Bakersfield, Phoenix and Mexicali come on-line. The company is seeking=20 permits for a new plant in Escondido and an expansion of a plant near Las= =20 Vegas.=20 "The fact that we are taking roughly half of our output and committing that= =20 to the state I think is a good outcome for us and the state," said Donald= =20 Felsinger, group president of Sempra Energy's unregulated units.=20 State officials said the price paid for power under the Sempra contract is= =20 lower than the portfolio long-term average of 6.9 cents per kilowatt-hour a= nd=20 that the price will be a third to a half cheaper this summer than current= =20 spot market prices. They have not revealed the exact price of power specifi= ed=20 in any of the energy contracts.=20 "This is a positive step toward increasing the available power supply to=20 California at a significantly lower price than currently found on the spot= =20 market," Gov. Gray Davis said in a statement.=20 Felsinger said Sempra is investing $2 billion in power plants with the late= st=20 technology capable of using about 40 percent less natural gas while produci= ng=20 the same amount of power as older models.=20 "We are probably one of the more attractive prices that has been negotiated= ,"=20 said Felsinger, "because we have a brand-new, efficient fleet."=20 Sempra Energy of San Diego is the parent firm of Sempra Energy Resources an= d=20 SDG&E, the local utility.=20 In one of the ironies of the California electricity crisis, the state will = be=20 buying power from one unit of Sempra Energy and providing the power to the= =20 customers of another Sempra unit, SDG&E.=20 The state began buying power for utility customers in January after Souther= n=20 California Edison and Pacific Gas and Electric, whose rates were frozen und= er=20 deregulation as wholesale power costs soared, ran up a $13 billion debt and= =20 were no longer able to borrow.=20 Monthly bills for customers of SDG&E, the first utility to be deregulated,= =20 doubled and tripled last summer before they were capped by legislation in= =20 September.=20 The state has spent about $6 billion buying power for the customers of the= =20 three investor-owned utilities. Davis wants to repay the state general fund= =20 with a $12.5 billion bond that would be paid off by ratepayers over 15 year= s.=20 Assembly Republicans have proposed that the state surplus be used to pay fo= r=20 $5 billion of the power costs, lowering the bond to $8 billion and reducing= =20 monthly bills for ratepayers in the months ahead.=20 There are grim predictions of blackouts and soaring costs as the demand for= =20 power increases this summer, traditionally by about half because of air=20 conditioning and other factors.=20 The agency that manages the power grid, the Independent System Operator, ha= s=20 forecast that the peak demand could reach 50,303 megawatts next month, 3,64= 7=20 megawatts above the generation expected to be available in the region.=20 The state has to purchase only about a third of the total supply -- the "ne= t=20 short" remaining after the power provided from utility generators and small= =20 nonutility generators operating under the federal "qualifying facilities"= =20 program.=20 The state contract with Sempra, which jointly operates a 480-megawatt plant= =20 near Las Vegas with Reliant Energy of Houston, does not add new generation= =20 but will lower state spending.=20 An analysis issued by the governor's consultants last week forecast that 37= =20 percent of the power that the state will have to buy from July through=20 September will be covered by long-term contracts.=20 The rest of the power will have to be purchased on the expensive spot marke= t.=20 Some think the analysts' prediction that the average price will be 19.5 cen= ts=20 per kilowatt-hour is optimistic.=20 The analysts expect a decline in the average price of 35 cents per=20 kilowatt-hour from April through June because of additional small plants=20 operating during peak periods and conservation, including "sticker shock"= =20 from a rate increase that may boost the average residential bill 26 percent= .=20 The state Department of Water Resources, which purchases power for the stat= e,=20 also is trying to negotiate more contracts like the Sempra agreement that= =20 will help lower costs this summer.=20 "I don't think we have any others quite that large under negotiation," said= =20 Ray Hart, DWR deputy director, "but we are still working on a number of=20 contracts."=20 Hart said that only a contract with a San Jose-based firm, Calpine, is larg= er=20 than the Sempra contract announced yesterday. Calpine reportedly has an=20 agreement to sell the state $12.9 billion worth of power. ---------------------------------------------------------------------------= --- -------------------------------------------------- The energy crisis gives Filner some easy targets=20 He's carving new niche, bringing state woes to Washington's attention By Philip J. LaVelle=20 UNION-TRIBUNE STAFF WRITER=20 May 6, 2001=20 When he passed on the 2000 San Diego mayor's race, Rep. Bob Filner based hi= s=20 decision, at least in part, on a flawed political calculation.=20 "I thought the Democrats would be in the majority in Congress," Filner said= =20 in a recent interview. "Given my seniority, I would have a large role to=20 play."=20 He was dead wrong. In November, Republicans retained slim control in the=20 107th Congress while the Electoral College gave the White House to a=20 Republican who now governs from the right.=20 Hard times for an old-school liberal like Filner?=20 Not to hear him tell it.=20 His party may be out of power, but Filner, 58, is carving a niche for himse= lf=20 in California's energy crisis, an issue he caught on to last year, long=20 before it popped up on Washington's radar screens.=20 Filner is attacking the issue with his well-known brand of aggressive actio= n.=20 As a San Diego City Council member (1987-1992) he led the Gang of Five, a= =20 dissident bloc that opposed then-Mayor Maureen O'Connor.=20 As a congressman, the San Diego Democrat reveled in making life difficult f= or=20 visiting GOP big shots, crashing local events featuring former Senate=20 Majority Leader Bob Dole and ex-House Speaker Newt Gingrich.=20 He peppers county newsrooms with news releases of his energy pronouncements= =20 and frenetic schedule, including a protest Friday with House Minority Leade= r=20 Dick Gephardt, D-Mo., outside Duke Energy's South Bay plant.=20 The crisis provides easy targets:=20 Democratic Gov. Gray Davis? "You cannot be moderate to solve this problem,"= =20 Filner said.=20 Republican President Bush? "Basically a prop of the big, big corporations,= =20 and the energy crisis shows it."=20 Out-of-state energy producers? "They know they can rob our state blind=20 because they have a friend in the White House."=20 Energy prices actually began their rise through the stratosphere when=20 Democrat Bill Clinton was president.=20 Fifth term Voters in Filner's solidly Democratic 50th Congressional District seem to= =20 approve. In November they handed him a fifth term with a commanding 69=20 percent of the vote against light opposition.=20 A tough campaigner, Filner has consistently won re-election in his South Ba= y=20 district by comfortable margins, and ran unopposed in 1998. His biggest=20 primary challenge came from Democrat Juan Vargas, then on the City Council,= =20 who lost to Filner by 9 percent in 1996. Vargas is now a state assemblyman.= =20 Filner follows the late House Speaker Tip O'Neill's maxim that all politics= =20 is local. After first meeting Filner, people of all stripes typically recei= ve=20 great-to-meet-you letters, usually within 48 hours.=20 His district, which abuts the U.S.-Mexico border, includes the southern hal= f=20 of the city of San Diego, plus National City and Chula Vista. It is one of= =20 the most ethnically diverse in the nation, at 41 percent Latino, 29 percent= =20 Anglo, 15 percent Filipino and 15 percent African-American.=20 Back in Washington, despite the Republican domination, Filner says he is we= ll=20 positioned to pursue national leadership roles in the energy crisis and=20 border infrastructure.=20 Filner sits on the House Veterans Affairs Committee and the Transportation= =20 and Infrastructure Committee. His successes include helping get an=20 international sewage treatment plant built here; securing limited benefits= =20 for Filipino veterans of the U.S. military; and securing greater benefits f= or=20 all veterans.=20 He has failed, so far, in efforts to restore full benefits to Filipino=20 veterans of World War II.=20 Wide interests At times, Filner's interests range far afield, from championing a homeland= =20 for the Kurds, a policy rejected by the U.S. government, to co-sponsoring= =20 legislation this term condemning destruction of pre-Islamic statues in=20 Afghanistan by the Taliban regime.=20 On core issues, Filner swims against a strong tide. Congress "is totally=20 controlled by the Republican majority," said UC San Diego political scienti= st=20 Gary Jacobson, making "the role of the minority severely circumscribed."=20 Filner's top areas of interest have been slow to gain traction in the=20 Beltway. The border is a neglected issue there, but the energy crisis has= =20 finally become a national story.=20 On border infrastructure -- "my key thing" -- Filner supports completing=20 state Route 905 to link the Otay Mesa crossing with the interstate freeway= =20 system. He also hopes to revive the San Diego & Arizona Eastern Railway to= =20 create a "jobs train" that could spur commerce here.=20 "If we can do this border infrastructure .?.?. we not only help trade betwe= en=20 the two nations, we transform the economy of this region," he said.=20 Julie Meier Wright, president of the San Diego Regional Economic Developmen= t=20 Corp., applauds Filner's focus but finds his positions inconsistent, given= =20 his opposition to the North American Free Trade Agreement. "Border=20 infrastructure is needed in significant part because of the increased=20 economic activity" spurred by NAFTA, she said.=20 Being anti-NAFTA fits his political base; organized labor, which opposed=20 NAFTA, ranks consistently among Filner's biggest institutional sources of= =20 campaign cash, according to the Center for Responsive Politics.=20 Paul Ganster, director of San Diego State University's Institute for Region= al=20 Studies of the Californias, sees no inconsistency. "It's possible to be ver= y=20 critical of NAFTA and at the same time recognize there are very positive=20 benefits that can be brought by free trade," he said.=20 Border problems Filner and others are concerned that the NAFTA has increased problems along= =20 the border that are not being addressed.=20 "That's my biggest disappointment, that we have not been able to bring the= =20 border to its rightful place in national consciousness. .?.?. Nobody gives = a=20 damn about it in Washington," said Filner, who attended Mexican President= =20 Vicente Fox's inauguration and is in his second year of Spanish lessons.=20 Filner got on the energy crisis last year when San Diego became the first= =20 California city to bear the brunt of the state's 1996 deregulation=20 legislation. His working-class district has been particularly hard hit.=20 In January, he introduced a bill to force the Federal Energy Regulatory=20 Commission to cap energy rates, retroactive to last June. It was supported = by=20 Rep. Duncan Hunter, R-El Cajon, a conservative about as far from Filner on= =20 the political spectrum as one can get. Filner now supports another energy= =20 bill advanced by representatives from California, Washington and Oregon.=20 Filner may have no desire to ever run for governor -- but if he held the jo= b,=20 he said, there would be no mistaking him for Gov. Davis on the energy issue= .=20 "I'd be all over the place. .?.?. I'd probably be in jail because I'd be=20 joining protests."=20 He's been there before.=20 In 1961, as a Cornell University undergraduate, Filner took on segregation= =20 and went to Mississippi as a Freedom Rider. He integrated a lunch counter,= =20 which landed him in state prison for a few months.=20 A Pittsburgh native raised in New York City, Filner, with a doctorate in th= e=20 history of science, is one of the most highly educated members of Congress.= =20 He taught history at SDSU for 20 years. In the mid-1970s he was an aide to= =20 the late Sen. Hubert H. Humphrey. Filner was on the San Diego school board= =20 from 1978 to 1983 before being elected to the City Council.=20 Will Filner run for mayor in 2004?=20 "It's a possibility," he said. But if Mayor Dick Murphy "continues the job= =20 he's doing, he's there for two terms, and that puts me a pretty old guy." H= e=20 may choose instead to attempt a long House career, hoping the Democrats=20 become the majority in next year's midterm elections. "The more terms --=20 assuming you stay in touch with your constituents -- gives you a chance to = do=20 all kinds of things."=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------ Gephardt tells rally here he's pushing price caps=20 By Ronald W. Powell and Craig D. Rose=20 UNION-TRIBUNE STAFF WRITERS=20 May 5, 2001=20 CHULA VISTA -- The nation's electric power crisis heated up here yesterday = as=20 House Minority Leader Richard Gephardt demanded that President Bush and the= =20 Federal Energy Regulatory Commission work to immediately curb runaway=20 electric rates.=20 Standing before a noontime crowd of more than 300 angry electricity consume= rs=20 outside the bay-front South Bay Power Plant, Gephardt said Bush should tell= =20 the commission to cap the prices power companies can charge. And he said he= =20 is pushing a bill that would impose caps on energy prices.=20 The former presidential aspirant from Missouri exhorted the throng to=20 organize and fight against the power generators that have dramatically rais= ed=20 rates in California and the West.=20 "This is your country," said Gephardt, pounding the podium to rousing cheer= s.=20 "If you vote, if you make yourself heard, we can solve this problem."=20 Rep. Bob Filner, D-San Diego, who organized the rally, said federal=20 regulators should order more refunds to consumers for overcharges by what h= e=20 described as an "energy cartel."=20 "This is the kind of pressure that will bring down prices," Filner said.=20 Filner chose the South Bay plant as the backdrop for the rally because=20 critics are accusing the facility, operated by Duke Energy, of charging=20 exorbitant electric rates after receiving a low-cost lease from the San Die= go=20 Unified Port District. The 10-year deal was negotiated in 1998.=20 According to the terms of the deal, Duke is obligated to build a replacemen= t=20 plant off-site before its lease expires. Duke then should dismantle the=20 existing plant and turn over to the port 200 acres, including the plant=20 property, free of contamination and ready for development.=20 But critics say taxpayers may not get what was advertised because Duke want= s=20 to build the new plant on 30 of the promised acres.=20 Filner is joining those who say the existing plant and any new plant should= =20 be publicly owned and offer affordable rates. He said Duke and other=20 generators are using their facilities to charge illegal power prices -- a= =20 breach of the lease.=20 "They have broken the terms of the lease and we should take it back," Filne= r=20 said.=20 Jerry Butkiewicz, secretary-treasurer of the San Diego-Imperial Counties=20 Labor Council, accused Duke of gouging consumers.=20 "We want the government and the port to take back this property," Butkiewic= z=20 told the crowd. "We own this (plant)."=20 Duke officials insist the company is abiding by its lease with the port.=20 After the rally, Duke spokesman Tom Williams said the company does not have= =20 to do anything about building a replacement plant at this time, but is acti= ng=20 "proactively" by exploring the possibility of constructing a new generating= =20 plant on the same site.=20 Chula Vista Mayor Shirley Horton, interviewed at the rally, chided Gephardt= =20 and the other congressional representatives, including Rep. Susan Davis,=20 D-San Diego, for criticizing Duke for raising electric rates while doing=20 nothing about power plants owned by the federal government that have also= =20 hiked rates.=20 "What are they doing to provide affordable energy at reasonable prices (at= =20 the federally operated plants)?" Horton asked. Horton wants to see a new=20 power plant built on a part of the 200-acre site that is south of the curre= nt=20 facility and inland from the bay. She said Chula Vista is negotiating with= =20 Duke in hopes of striking a deal that would allow joint ownership of a new= =20 plant.=20 Michael Aguirre, a local lawyer suing power companies on behalf of Lt. Gov.= =20 Cruz Bustamante and on behalf of ratepayers in a separate class-action case= ,=20 said Duke is among a handful of companies in an energy cartel that have=20 manipulated prices statewide. Aguirre said the port should move to void its= =20 lease with the company.=20 But Williams, the Duke spokesman, denied accusations that the South Bay pla= nt=20 sold power at illegal prices. The Federal Energy Regulatory Commission=20 recently required the company to issue refunds, but Williams said those=20 payments are related to surcharges the company imposed on power sales to=20 compensate for growing credit risks in California.=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------- Second of three articles EDISON'S AGONY Proud Linemen Take a Hit=20 Energy: Morale sinks as the utility's workers are forced to do the=20 unthinkable: leave customers in the dark.=20 By NANCY CLEELAND, Times Staff Writer=20 ?????Lineman Ernie Lopez has been rousted out of bed on countless cold, rai= ny=20 nights. He's climbed 100-foot utility poles in heavy winds and grabbed live= =20 electrical lines with nothing but a pair of rubber gloves to protect him.= =20 ?????But the hardest thing Lopez has done in 20 years at Southern Californi= a=20 Edison is walk away from a darkened apartment building while residents=20 pleaded for their heat. Lineman Ernie Lopez repairs ground wire in Hacienda Heights. He doesn't loo= k=20 forward to work like he used to. BRIAN WALSKI / Los Angeles Times ?????It happened in late January. Sinking in debt, Edison had just announce= d=20 drastic budget cuts, including a ban on most overtime. The new rule: If it'= s=20 not a public safety problem, it has to wait until the next business day.=20 ?????Edison's 990 linemen, as well as the people they left shivering in the= =20 dark, howled. Within a week, the utility loosened its overtime restriction.= =20 But Lopez had already done the unthinkable--twice--and remained shellshocke= d. ?????"You get the lights on at all costs. That was bred into us from the=20 get-go," he said two weeks after leaving customers without power in Whittie= r=20 and La Puente. "It's in the preamble of our [union] contract."=20 ?????Months of uncertainty and bad press have chipped away at the pride=20 linemen like Lopez once took in their jobs. Customers harangue him,=20 complaining about rate increases and fat Edison salaries. Service levels ar= e=20 deteriorating. It's going to be a terrible summer. "I don't look forward to= =20 coming to work as much as I used to." ?????As Lopez drives toward an outage in Covina, he shouts into a cell phon= e=20 over the rattling of his big white truck. "I just wish I knew what directio= n=20 they're heading in," he says. "They're not telling us much. . . . We're not= =20 so sure they care about us or the customers anymore." ?????Edison Lacks Enough Veteran Linemen ?????This is bad news for anyone in Edison territory. The utility can't=20 afford to alienate its veteran linemen because there aren't enough to go=20 around. Journeymen are in short supply, drawing big signing bonuses and=20 promises of generous overtime. Edison was trying to hire more than 100 when= =20 the financial crisis hit last summer. Now it faces the triple whammy of a= =20 hiring freeze, low morale and overtime pay cuts that could set off an exodu= s=20 of talent.=20 ?????Already, there have been some defections, including several to the flu= sh=20 cross-town rival, the Los Angeles Department of Water and Power. Lopez and= =20 other veterans remain loyal, but they're checking the Internet, just in cas= e.=20 "Everybody's depressed, bummed out," he says. Ernie Lopez now spends more time with his family in Chino Hills. Cutbacks a= t=20 Edison have meant less overtime for linemen. BRIAN WALSKI / Los Angeles Times ?????Linemen like to see themselves as roughneck heroes, riding into town t= o=20 turn on the lights, to help the kitty out of the tree. Many are loners,=20 outsiders, proud of their cowboy culture. They don't tend to move up to=20 office jobs. They prefer to be out in the field. They are well paid, but wh= at=20 many love even more are the small signs of gratitude, the cup of coffee fro= m=20 a customer, the sound of applause when the lights go back on.=20 ?????"We don't do it for the money. We do it for the glory," says Lopez,=20 almost serious.=20 ?????Along with weathered faces and fallen arches from standing astride=20 poles, most linemen have developed a rigid sense of civic duty. It is what= =20 makes them leave a warm bed and barge into a downpour at 3 a.m. They've=20 missed birthdays, anniversaries, Christmas with the kids for their jobs.=20 Every one of them has stories, of working through hurricanes, ice storms an= d=20 earthquakes. Some have been close to death. Some have watched other linemen= =20 die.=20 ?????"Our whole careers have been designed to provide people with power, no= t=20 cut it off," says Pat Lavin, a veteran Edison lineman, now business agent f= or=20 the International Brotherhood of Electrical Workers, Local 47. "I think our= =20 members would probably offer to work for free if they thought it would help= .=20 They like working for Edison. It's a pride thing." ?????Team Spirit Takes a Hit ?????You see this ethos in Kansas City, home of the International Lineman's= =20 Rodeo. Every September, hundreds of utility field-worker teams pour in from= =20 as far as Jamaica and England to test their skills and stamina against othe= r=20 linemen.=20 ?????They scramble up wooden poles in seconds, replace transformers and=20 rescue "hurt man" dummies from the wires. In one event that tests focus as= =20 well as strength and dexterity, a lineman climbs a 45-foot pole holding the= =20 handle of a bucket in his teeth. In the bucket is an egg. At the top, the= =20 lineman ties the bucket to a wire, puts the egg in his mouth and climbs bac= k=20 down, taking care not to bite. ?????Last year, Edison's senior team--45 years and older--placed fourth out= =20 of 213. It was a huge coup and a career highlight for team member Joe Baker= ,=20 a crew foreman and 25-year Edison veteran working out of the Barstow office= .=20 His parents came down from Iowa to watch. His wife and son--an Edison=20 apprentice--were cheering from the bleachers. Baker had been training for= =20 months, and was in top form. "If you look at the scores," he notes, "you'll= =20 see that we were awfully close to first." ?????He might have made it to the top this year, but Edison won't be sendin= g=20 linemen to Kansas City in September. The rodeo team is one more casualty of= =20 the California crisis. ?????Seven months after his big win, Baker watches as pieces of Barstow go= =20 dark. Planned blackouts sweep across the southern part of the state for the= =20 first time since World War II. Traffic lights blink off; drivers skid into= =20 intersections. Manufacturing lines stop cold. Root canals go unfinished.=20 Customers call, confused and angry. They see the men in the white trucks an= d=20 wonder, are they pulling the switch? ?????"Today I went into a grocery store. I had on an Edison hat," Baker sai= d=20 in early April. "The store manager, who's a friend of mine, says, 'Is it sa= fe=20 to wear that around here?' He wasn't joking. These days, people look at you= =20 funny, like it's all your fault." ?????Union Opposed Deregulation Plan ?????For decades, Edison's linemen enjoyed a strong safety record,=20 top-of-the-line equipment and lifetime job security. Then came=20 deregulation--a concept that the linemen's union opposed long before the 19= 96=20 state law was adopted, convinced it would destabilize their lives. ?????They were downsized. Their jobs were contracted out or given to=20 temporary workers. They felt exposed and vulnerable. As early as 1998, an= =20 Edison veteran warned on a linemen's Web site: "All you guys, look out when= =20 deregulation comes your way. . . . SCE is still good, but not like the old= =20 days." ?????Among the 2,000 jobs Edison cut in January were hundreds of contracted= =20 linemen working on large construction projects. Veteran linemen absorbed hu= ge=20 losses in their half-million-dollar retirement accounts based on Edison sto= ck. Joe Baker, a 25-year Edison veteran who works in Barstow, says he's noticed= a=20 change in public attitude since power crisis began. BRIAN WALSKI / Los Angeles Times ?????The utility was on the TV news every night. Linemen began spending mor= e=20 time with customers, explaining, defending. They blamed the state regulator= s=20 who set up the dysfunctional market and the energy suppliers who took=20 advantage and reaped huge profits, but they also wondered: Why isn't the=20 company doing more to get the facts out? Why isn't it being more aggressive= ? ?????In February, the union launched its own campaign, organizing a protest= =20 march at a Huntington Beach generating plant owned by AES, a giant=20 Texas-based energy wholesaler. The message was that Edison was the victim o= f=20 gouging by the generators. But what motorists saw as they drove by were ang= ry=20 picketers at a power plant, wearing Edison hats and jackets. Victim and=20 villain were confused. The problem was too complex to fit on a placard. No= =20 more protests are planned. ?????Soon after Edison's belt-tightening, the electrical workers union file= d=20 objections with the state Public Utilities Commission, arguing that the=20 layoffs and overtime restrictions would seriously reduce the level of servi= ce=20 in Edison territory--a violation of PUC rules. ?????Two months later, the PUC agreed and ordered Edison to restore jobs an= d=20 hours that could affect service. By then, some linemen argued, it was too= =20 late. "The customers will remember we weren't there for them," says Lopez, = a=20 longtime union activist and an officer of Local 47. ?????Even after the PUC ruling, overtime restrictions for routine work=20 continue to cut linemen's pay by at least 20%, far more in some cases. It's= a=20 traumatic loss for those who have grown accustomed to fat checks, and to=20 nearly doubling their base pay of about $65,000. ?????"For someone with no college degree, earning six figures is not bad,"= =20 says Russ Neal, a supervisor in the Santa Ana distribution center. "But kee= p=20 in mind, this job is hard on personal lives. A lot of these guys are paying= =20 ex-wives, child support. They're not all choosing between a boat and a=20 camper." ?????For some, the change has been a partial blessing. Elite "troublemen"= =20 like Lopez, who are the first on the scene of an outage, get to sleep throu= gh=20 the night, spend more time with their children and read them bedtime storie= s. ?????"Having Dad home has been wonderful," says Peggy Lopez, Ernie's wife o= f=20 20 years. "We have a son, and there's been a lot of bonding lately." ?????But they all miss what the linemen call blood money. The Lopez family = is=20 scaling back on weekend trips and dinners out. Peggy wonders whether she'll= =20 need to go back to work after staying home for 11 years with her two=20 children. Nine-year-old Albert is in tears after a day of teasing at school= :=20 Your dad's going to lose his job, the kids taunt. ?????"We hadn't shared with the children how serious it was," says Peggy.= =20 "Afterward, he and Ernie had that talk. Now we just pray that things get=20 worked out." ?????Job-wise, Edison's linemen are probably safe, no matter what happens.= =20 After all, someone has to keep the power going, even through bankruptcy or= =20 state ownership. Still, it's unsettling. Linemen who were once disciplined= =20 for accidentally tripping brief outages are now ordered to cut off customer= s=20 for an hour at a stretch. They're nervous and distracted. They want this=20 crisis to end, but see no end in sight. Supervisors worry about their=20 linemen's ability to concentrate, to stay focused. After all, in this job, = a=20 moment's carelessness can be deadly. ?????"It's important that we talk to them more and let them vent a little,"= =20 says Bob Woods, who manages Edison's Santa Ana operating center. "When you= =20 read that your company is on the verge of bankruptcy, it's frightening. We= =20 don't want them thinking about that out in the field." ?????Into Woods' office walks Paul Miller, a clean-cut 34-year-old=20 troubleman, earnest, eager. He's been with the company 15 years. His job is= =20 to make the scene safe, restore as much power as possible, then call in the= =20 regular field crews for heavy-duty work. ?????He's out a lot on weekend nights, when drunk drivers tend to knock dow= n=20 poles. He's busy when the weather is lousy. He missed Christmas with his wi= fe=20 and toddler son last year when winds blew lines down all over north Orange= =20 County. Woods called him in for a 12-hour day, along with the station's 11= =20 other troublemen. "I didn't hear one complaint," Woods says. ?????Miller is so proud of his job that he had his name embroidered on his= =20 khaki Edison uniform, along with that odd title, Troubleman. He hopes to=20 retire from Edison someday. He hasn't had to walk away from a job, not yet.= =20 But it bothered him when he was sent to a Santa Ana apartment building that= =20 had been without power all night.=20 ?????"They were pretty unhappy. Nobody's used to that kind of service. We'v= e=20 always been right there. . . . I can't stand it, actually, leaving people= =20 off." Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------ EDISON'S AGONY Utility's Workers Watch Helplessly as?Company Falls Energy: Proud engineers and technicians, wincing as the firm is pilloried,= =20 blame deregulation rules. Firm was "dragged into this kicking and screaming= ,"=20 one says. By NANCY CLEELAND, Times Staff Writer "I'd cry if I had any more emotion." John Ballance keeper of Southern?California Edison's transmission and=20 distribution grid for most of he past 32 years. ?????There are hundreds of them at Southern California Edison--engineers an= d=20 technicians hired a generation ago at the height of California's=20 build-and-grow frenzy. Steady Eddies. Methodical thinkers. ?????They designed massive things like nuclear reactors and gas-fired=20 generators and kept electrons flowing over 50,000 square miles of territory= .=20 They did their jobs so well that no one ever noticed. ?????For more than 100 years their precise, problem-solving nature defined= =20 Edison culture, and distinguished the company as one of the country's most= =20 highly regarded utilities. ?????Then came deregulation, which eventually cut the financial guts out of= =20 Edison, creating a crisis solvable only by political consensus. ?????For once the engineers were stumped. Mathematical logic no longer=20 served. They lacked the intangibles--the finesse, the gifts of spin and=20 horse-trading--to put their company back together. ?????Today they draw up intricate plans to salvage the company, but the pla= ns=20 go nowhere with regulators and politicians. ?????The world hates and blames Edison, and the engineers cannot understand= =20 why. They brandish the truth--Blame a flawed deregulation system, not us!--= as=20 if it might redeem them. Yet each week finds them more marginalized.=20 Bewildered, some have been reduced to waiting, with nothing to do but watch= =20 their legacy disintegrate. It's a cruel way to end a career that was built = on=20 long-term planning and the power of rational thought. ?????"I'd cry if I had any more emotion," says John Ballance, keeper of=20 Edison's transmission and distribution grid for most of the last 32 years. ?????He is a soft-spoken, church-volunteering grandfather with twinkling ey= es=20 and a navy blue cardigan. Mr. Rogers with a slide rule. He was hired in the= =20 late 1960s straight out of UC Berkeley, where he played clarinet in the=20 marching band. Edison brought him back to his hometown. It was a dream job. ?????Now 53, Ballance still gets excited thinking about the highlights: tha= t=20 hot early summer when he installed six temporary transformers in a weekend = to=20 avoid blackouts. That post-earthquake scramble when he guided crews to=20 restore a substation that powered Ventura and Santa Barbara counties. Seven= =20 years later, he remembers every detail: 23 lines tripped at 4:17 a.m., all= =20 back up by 12:30 p.m. ?????"It was a good day when you had a problem come up that wasn't=20 anticipated but you had a contingency plan for it, and it worked," he says= =20 nostalgically. ?????No one anticipated this: Edison on the verge of bankruptcy. And so far= ,=20 none of the contingency plans has worked. ?????By early January, Edison has had to pay so much money to power=20 wholesalers that it owes several billion dollars and is bleeding nearly $20= =20 million more a day. Each time a customer turns on a light or a computer or = a=20 hair dryer, the debt grows. ?????Here's what passes for humor at utility headquarters in suburban=20 Rosemead, 10 miles east of downtown Los Angeles: When you lose money on eve= ry=20 kilowatt, you don't make it up in volume. ?????Edison defaults on loans and suspends its dividends for the first time= =20 in its history. Creditors threaten to haul it=20 Edison engineer John Ballance, left, with systems operator Kenneth House,= =20 never dreamed the firm would be on the brink of bankruptcy. ??Photos by BRIAN WALSKI /=20 Los Angeles Times into bankruptcy court. Budgets are slashed, and nearly 2,000 employees get= =20 pink slips. More than 100 executives work a week for free. ?????"It's very depressing," says Donald Fellows, who once designed power= =20 plants and is now reduced to feeding numbers to the state commission that= =20 sets utility rates. "Most people go to work for a utility because they have= =20 high security needs. You don't find a lot of risk takers here." ?????A large, balding man with a penchant for mirthful sarcasm and a tenden= cy=20 to answer questions by pulling out a calculator, Fellows becomes downright= =20 grumpy when talking about his current job: manager of revenues and tariffs. ?????Pure frustration, he huffs. He spends far too much time in hearing=20 rooms, listening to "self-serving drivel" from Edison's many critics and=20 second-guessers, who seem to pass right over the numbers Fellows so=20 meticulously gathers. ?????In his view, state regulators micro-managed Edison into this mess, by= =20 forcing it to buy power on the volatile spot market. Wholesale prices=20 exploded, from 3 to 30 cents a kilowatt. Now the people who made the rules= =20 are blaming Edison for letting it happen. And getting away with it. ?????"You sit in those hearings and sometimes it's like Alice in Wonderland= ,=20 the way things get twisted," he says. "You look around and wonder: Did I fa= ll=20 into a trapdoor?" ?????He is just back from a Public Utilities Commission meeting in San=20 Francisco, where he pleads Edison's case for a 30% rate hike. Nothing less= =20 will keep the utility solvent, he warns. ?????Consumer advocates are hostile, suspicious. The commission compromises= =20 by raising rates about 10%. Edison's stock plunges, at one point losing hal= f=20 its value in a few hours of trading. Credit agencies downgrade its investme= nt=20 rating to just above junk status. Banks suspend corporate credit cards. ?????Fellows, who put in 28 mostly good years at Edison, loses the bonus th= at=20 was nearly half his salary last year. He looks at his worthless stock optio= ns=20 and wonders whether he can still afford that early retirement in May, when = he=20 turns 55. And if so, should he take it? Is it right to walk away? ?????Panicked Retirees Flood Firm With Calls ?????The winter passes in a painful fog of uncertainty across the bland=20 1970s-era Edison complex, home to 4,000 engineers, lawyers, managers and=20 clerks. Employees keep their heads down, but they cannot escape the crisis. ?????It jumps out from the cafeteria entrance, where a posting advertises= =20 brown-bag sessions on resume writing and interview techniques. It startles= =20 them every evening at 5, when a too-loud recorded voice warns that power wi= ll=20 soon shut down to emergency levels. Television crews camp outside, lining u= p=20 for live shots every few hours. Employees pray for other breaking news,=20 anything to take them off the front page for a while. Managers cut budgets,= =20 look for expendable jobs. Public relations spokesmen set up a SWAT team to= =20 deal with all the calls. ?????Jo Ann Goddard, parent company Edison International's vice president f= or=20 investor relations, fields calls from dozens of panicked retirees. One=20 80-year-old man, who lost a fourth of his income when dividends were=20 suspended, calls every week for an update. He always takes time to ask how= =20 she's holding up. ?????Pam Bass, Southern California Edison's vice president for customer=20 relations, takes flak from angry business owners in the state-regulated=20 "interruptibles" program, which was designed to handle rare emergencies. Fo= r=20 weeks now, the businesses have had to shut down several hours a day. Some= =20 have lost millions and laid off entire shifts. ?????As the company's value dives, it takes down children's college funds,= =20 vacation dreams, early starts on retirement. Yet many engineers are even mo= re=20 troubled by the steep erosion of service. ?????Ballance is close to tears as he guts his construction budget, canceli= ng=20 orders and contracts that were eagerly placed just six months earlier. This= =20 was going to be a big year, a chance to fix Edison's aging collection of=20 poles, substations and wires. ?????He hesitates, scarcely believing what he is about to say: "We're=20 knowingly taking on risk. . . . If we get extreme temperatures this summer,= =20 only a few pockets out could cause serious problems." ?????Through his office window, he looks out on a trail of hulking=20 transmission towers marching toward the horizon, a solid, sturdy bit of=20 evidence that Edison is still the proud source of power for Southern=20 California. What he doesn't know is that the lines themselves will soon be= =20 caught up in the energy debacle. ?????An Odd Sense of Hope and Mission ?????Along with nail-biting anxiety, January brings an odd sense of hope an= d=20 mission to Edison headquarters. State and federal legislators are finally= =20 paying attention, trying to understand what happened. Auditors are going=20 through the books. Gov. Gray Davis says he will consider a state plan to=20 rescue California's private utilities, but with a daunting pair of=20 parameters--no utility bankruptcies and no rate increases. ?????Edison must analyze hundreds of contract, rate and transmission-cost= =20 variables--months of work--within a couple of days. At last the problem=20 solvers have something to sink their teeth into. ?????"I've seen this time and again over the 21 years I've worked here," sa= ys=20 an optimistic Charles Basham, who runs Edison's internal Web site and=20 considers himself its unofficial historian. "We work best in a crisis." ?????Corridors that thread past gray cubicles and into wood-paneled executi= ve=20 offices are strangely silent. No gossip around the water coolers. No shriek= s=20 of exasperation. Just lots of conference calls and long nights with cold=20 pizza and coffee. ?????Alan J. Fohrer, who helped design the San Onofre nuclear plant, has co= me=20 back to help. These days he runs Irvine-based Edison Mission Energy, a=20 fast-growing, unregulated sister company to Southern California Edison that= =20 owns and operates generating plants around the world. ?????Fohrer's wife is out of town. At dawn he dashes home to Arcadia to wak= e=20 his kids before they notice he's gone, make their lunches and get them off = to=20 school. Then he rushes back for another day of calculations. ?????After 36 hours, Fohrer wears a tentative smile. There is a way--if a= =20 series of events falls perfectly in line--to pay off Edison's debts without= =20 raising rates. ?????"We have an opportunity," says the 50-year-old executive, laying out a= ll=20 the little pieces. "But we have to move quickly. The problem gets bigger=20 every day." ?????Weeks pass. Fohrer's plan becomes moot because state legislative=20 proposals keep adding demands: Edison must hand over a chunk of company=20 stock. Or all of its prized hydroelectric system. Or its valuable=20 transmission lines. These ideas come and go, almost whimsically, without ev= er=20 taking solid form. The urgency that once distracted Edison employees=20 dissolves into a numbing sense of powerlessness. ?????Fohrer--intense, serious, focused, a veteran of the 1990s deregulation= =20 debate, when he says most of his ideas were ignored--struggles for words to= =20 describe his frustration, then finally sputters, "This is silly." ?????He graduated from USC in 1973 with a degree in civil engineering. He= =20 dreamed of designing huge, complex structures like oil refineries, and talk= ed=20 to all the major international firms. Then Edison courted him, and Fohrer w= as=20 charmed. Edison was at the tail end of a five-year hiring binge, ramping up= =20 to design and build dozens of new power plants for the fast-growing state. ?????The expansion didn't last long. Inflation hit, raising the cost of=20 construction. The Arab oil embargo struck, straining supplies and making=20 conservation look like a good idea. The Three Mile Island nuclear plant=20 leaked radiation, setting off a fierce antinuclear backlash. Edison built= =20 only two generators after 1973. ?????None of that compares to the current mess, says John L. Jurewitz, an= =20 economist and Edison's manager of regulatory policy. Like many veterans, he= =20 knows precisely when it started: April 1994, when the PUC announced that it= =20 was moving to an open retail market. ?????"Starting at that point," Jurewitz says, "we were in damage control=20 mode." ?????Edison executives worked with state legislators to fashion the 1996=20 state law that became the framework for restructuring. But Ballance, Fohrer= ,=20 Jurewitz and others directly involved in those talks insist that what they= =20 lobbied for was a far cry from what was later implemented. ?????They want the world to know that, as Fellows puts it, "the utility was= =20 dragged into this kicking and screaming." They highlight passages and fax= =20 reports and letters dating back to 1993. ?????But the old papers are dense and complicated. Southern California=20 Edison--big, familiar, accessible--continues to be a target. ?????The engineers shout at the television. They cringe at the morning=20 newspaper. They riffle through their files to find the old documents that= =20 will prove their point. But by then it's too late. The media, the=20 politicians, the public have moved from one oversimplified idea to the next= . ?????And these consumer advocates! ?????"How do they get coverage so easy just because they sound good?" asks= =20 Danny Haberern, an engineer who lost his Illinois railroad job when the lin= e=20 went bankrupt, then fled to a "safe," regulated utility. He's now district= =20 supervisor in Edison's Montebello center. "I don't get it." ?????Edison is getting bundles of hate mail. Edison is the butt of shock=20 radio programs. Edison employees are being snubbed at their children's=20 basketball games. ?????It's not our fault, they say, a little too desperately. We never wante= d=20 to sell our power plants. We asked for long-term contracts four years ago. = We=20 pleaded for a rate hike in December. When we ran the system, it never faile= d. ?????Facing the new market, Edison slashed its staff through a series of=20 layoffs and voluntary retirements in the mid-1990s. In 1998, to comply with= =20 deregulation, it sold 12 gas-fired power plants and bought the electricity= =20 back through a state-supervised market where prices fluctuate daily. ?????Other retailers are invited to jump in and compete, but retail=20 competition never materializes in force, and prices do not drop but soar. B= y=20 last December, it is clear that the market is dysfunctional. Under the=20 deregulation law, Edison cannot respond by raising rates. By the end of the= =20 year, the utility is out of cash and comes within a filament of cutting pow= er=20 to customers. ?????Back in the old days, John Ballance could make a troubled generator=20 continue running if the grid needed juice. He could get on the phone and te= ll=20 the manager, "You'll just have to hang on for a few hours, until we get pas= t=20 the peak." And it would happen. ?????Now those same plants go offline whenever the new owners say, and all= =20 the begging in the world won't bring them back. ?????In February an international energy firm, PA Management Group, names= =20 Edison the most reliable utility in the Western region, based on 1999=20 figures. The veterans chuckle. They know it will be many years before Ediso= n=20 is lauded for reliability again. They try not to think about it, gathered i= n=20 the cafeteria, graying heads bent over the tortilla soup. ?????"It used to be something to be proud of, to work for the utility," say= s=20 John R. Fielder, 56, a senior vice president for regulation, who once=20 directed Edison's information technology team. ?????"There was an ethic and an attitude, being good citizens, financially= =20 healthy, part of the communities we serve," he says. "Now people don't=20 understand. They wonder, 'How did you let this happen? Who's going to get= =20 fired?' It's just destroying the whole fabric of the place." ?????Ballance leaves for a long-planned family vacation, to visit his new= =20 grandchild in Massachusetts. "I wonder if I'll have a job to come back to,"= =20 he says. He checks the Internet for news every morning and night, and draws= a=20 blank. ?????It's only after his return that Ballance learns the state will buy=20 Edison's transmission grid--half of his job--in exchange for a "bailout." T= he=20 federal government won't let it happen, he says. Besides, it makes no sense= . ?????"I fail to see what the state or customers are going to actually get f= or=20 all of this," Ballance says, hours after Gov. Gray Davis announces a=20 tentative deal for the wires in late February. "I just don't understand the= =20 rationale, when it seems to me that there's a fairly simple solution, and= =20 that is to raise the rates of electricity." ?????In March, saturated with frustration, Fellows decides to take that ear= ly=20 retirement. He will move to central Oregon with his wife, his mother and hi= s=20 28-year-old paraplegic son. He will play golf and try to forget about=20 California's new, deregulated world. ?????"It's hard," he says. "You almost feel like you're abandoning the plac= e.=20 I've wrestled with that for a while. But my wife wants to go, and I've come= =20 to the conclusion that I'm probably not indispensable after all." ?????He stays around long enough to watch California's other struggling=20 utility, Pacific Gas & Electric, file for bankruptcy protection. It happens= =20 April 6, a Friday. On Saturday, members of Fellows' staff work through the= =20 night, gathering numbers for a final deal with the state, which Davis unvei= ls=20 with great fanfare Monday. ?????Already disengaged, watching from an emotional distance, Fellows=20 pronounces the deal DOA; the Legislature won't approve it. His voice is=20 uncharacteristically unburdened. This is no longer his problem. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------------------- Utility Bills Are Just One Way People Pay for Energy Crisis=20 Money: From hotel rates to zoo admission, fees are being added.=20 By JENIFER WARREN, Times Staff Writer=20 ?????Do you depend on a dry-cleaner? Dine out now and then? Do you patroniz= e=20 a hair salon, pump iron at a gym, send flowers occasionally or plan to take= a=20 vacation this year? ?????If so, you'll probably be paying an energy surcharge on those and many= =20 other goods and services. In some cases, you already are. ?????Visitors at the San Diego Zoo found a $1.50 "energy assistance fee"=20 tacked onto the admission as of last week. The Water Grill in downtown Los= =20 Angeles raised prices about 3% last month. And the San Francisco Federal=20 Reserve Bank predicts the average Californian will spend at least $750 extr= a=20 over the next year on new energy-related costs. ?????Hotels were the first to pass on the pain of the state's spiking utili= ty=20 costs, but now the practice is spreading. The result: Many Californians wil= l=20 get stung by the energy crisis multiple times: once through rate hikes comi= ng=20 next month, then again and again through special fees tacked on by business= es=20 coping with their own power bills. ?????The surcharges aren't popping up just on luxuries such as a stay at a= =20 beach-side inn or an hour in a tanning bed. Even staples such as milk could= =20 cost more. ?????Milk processors have asked the state Department of Food and Agricultur= e=20 for a price adjustment, a shift that--if approved at a hearing late this=20 month--could bump up costs at the supermarket. And gasoline prices--already= =20 about $2 a gallon--could be nudged further upward if summer blackouts shut= =20 down refineries and pinch fuel supplies. ?????For some Californians, the risks are more basic. Some businesses,=20 reluctant to raise prices too high for fear of scaring off customers, will= =20 offset soaring utility costs by laying off employees, cutting wages or=20 slashing benefits. ?????"We will see an impact on unemployment rates, we will see an impact on= =20 wages, we will see an impact on benefits," said Shirley Knight, assistant= =20 state director of the National Federation of Independent Business. "When=20 you're a small business owner and your [power] bill triples, you simply hav= e=20 no choice." ?????Four months after the energy crisis hit California full force, financi= al=20 repercussions continue to multiply. The state is spending upward of $50=20 million a day buying energy for struggling utilities, and the sale of $12.5= =20 billion in bonds to return that money to government coffers is clouded by= =20 politics and a legal dispute. ?????Summer Blackouts Threaten Economy ?????The state's $1.25-trillion economy, while still strong, is already=20 showing wear and tear as uncertainty about energy costs and supply endure,= =20 some economists say. A summer of blackouts, meanwhile, threatens to hurt=20 business productivity, discourage new investment and push inflation rates u= p,=20 they say. ?????"Elevated energy costs present a significant drag on the economy and c= an=20 be expected to reduce growth and economic output and employment," a study b= y=20 the Bay Area Economic Forum said. The study said 42% of Bay Area businesses= =20 report that power problems have already hurt their profit margins and their= =20 competitiveness relative to competitors outside the region. ?????Steven Cochrane, a senior economist at Economy.com in West Chester, Pa= .,=20 is not surprised: "There are strong downsides to this [energy crisis] for t= he=20 state both short term and long term. Everyone is watching California." ?????For most residents of the Golden State, the most visceral blow will be= =20 felt through rate hikes, beginning--but probably not ending--with the=20 increase reaching as high as 46% for some that will show up in June bills. ?????But the effects go far beyond that, and some analysts are attempting t= o=20 quantify them. The San Francisco Federal Reserve Bank study estimating a $7= 50=20 annual hit for an average Californian figures $250 for electricity bill=20 increases, $200 for additional natural gas charges and $300 for the indirec= t,=20 day-to-day costs that will rise because of power-related surcharges and pri= ce=20 hikes. ?????The report's authors emphasize that their figure "would rise=20 substantially" if the full increase in wholesale electricity prices borne b= y=20 the state was taken into account. ?????Even so, $750--representing 1.5% of the average Californian's annual= =20 income--is a very real bite, especially for the poor. Already, community=20 organizations report increases in calls for help from people forced to choo= se=20 among keeping their power on, buying food or paying for day care. ?????"It's that whole fixed-income thing," said Dennis Osmer, who runs a=20 nonprofit organization in Santa Cruz County that helps the poor pay their= =20 energy bills. "If they're living on Social Security and just getting by, an= y=20 kind of increase in anything can push them right off the edge." ?????Extra Outlay Just 'Sunk Down a Hole' ?????Veterans of the state's consumer groups warn that the consequences of= =20 the energy crisis for Californians--and the fiscal health of the state as a= =20 whole--are staggering, and not yet fully known. Harry Snyder, a senior=20 advocate for Consumers Union, likens it to "a 7.0 earthquake that hits=20 everyone, everywhere." ?????"Wherever you turn, there's an impact," Snyder said. "The cafe owner= =20 around the corner said his utility costs doubled in the last year and are n= ow=20 the same as his rent. A friend who owns a bakery says his suppliers have=20 added a 20% surcharge. This all gets passed on to us, and it's just money= =20 sunk down a hole--it's not spending that advances our well-being in any way= ." ?????California business owners say they have little choice but to tack on= =20 costs to help with their own ballooning bills. And they say that along with= =20 the rising natural gas and electricity bills, they have been hit with a jum= p=20 in the minimum wage--by 50 cents in January--and high gasoline prices.=20 Workers' compensation rates are up as well. ?????Hotels, which spend about 3.6% of their revenue on energy costs, led t= he=20 charge in passing on the extra expense. In January, most began adding fees= =20 ranging from $1 to $4. Stay at the venerable Westin St. Francis on San=20 Francisco's Union Square and you're looking at $2.85 extra per night, per= =20 room. At the Quality Inn in Mammoth Lakes, it's $2.50. ?????In San Diego, the zoo added the energy charge Thursday. Though many=20 visitors might not think of the zoo as a big energy gobbler, public relatio= ns=20 director Ted Molter said many exhibits consume lots of kilowatts. ?????Reptiles, for example, require warm temperatures and lighting, while= =20 pumps and filtration systems run constantly to keep water clear in the=20 underwater viewing portion of the hippo enclosure. ?????Molter said the zoo, a nonprofit organization, experienced a 290%=20 increase in the amount it pays per kilowatt hour during the last year. "We= =20 don't take this fee lightly and look forward to the day when we can roll it= =20 back," he said. ?????At the Calistoga Village Inn & Spa near Napa, Manager Gisela Schaefer= =20 said the natural gas bill has risen 500%--to $7,000 in March--making a pric= e=20 increase at the 41-room compound inevitable. The spa includes numerous=20 energy-guzzling Jacuzzis, pools and saunas, and its natural hot springs=20 require pumps to draw water from underground. ?????But Californians need not travel to the wine country to experience=20 energy surcharges. At Foasberg Cleaners in Long Beach, owners in February= =20 posted signs announcing a fee--about 3% per item--to account for spiking=20 utility costs. ?????Vice President James Foasberg said the cleaners' natural gas bill has= =20 tripled in the last year, and he expects his June bill from Southern=20 California Edison to show a 40% increase in his electricity rate. ?????"We hate to do this, but we have no choice," said Foasberg, who has al= so=20 been pinched by high gasoline prices that cost him more for deliveries. "So= me=20 of our smaller competitors are afraid to raise prices, so they're just=20 closing down a few days a week. It's terrible." ?????Restaurant owners also are getting hit from two sides: reeling from=20 higher utility costs and getting squeezed by linen, dairy and produce=20 suppliers who are raising prices because of the energy crisis. Signs advisi= ng=20 customers of surcharges have begun popping up next to the cream pitchers at= =20 coffee shops, while managers of some restaurants are reluctantly opting to= =20 charge more for meals. ?????Jeff King is chairman of a company that owns 11 restaurants from=20 Calabasas to San Diego, including the Water Grill in Los Angeles and iCugin= i=20 and Ocean Avenue Seafood in Santa Monica. King said energy costs for the=20 eateries rose by $150,000 during the last four months, prompting him to rai= se=20 menu prices about 3% last month. ?????"The last thing you want to do is charge the guests more," King said.= =20 "But this is a major hit. And unfortunately, I think it's just the beginnin= g." ?????Economist Cochrane agrees, predicting the energy debacle will cause a = 2%=20 increase in California's inflation rate overall, showing up in price hikes= =20 for every conceivable product and service. ?????"Power is such an essential component of production, so for most=20 businesses there's no escape," said Cochrane, who studies California for hi= s=20 economic forecasting company. "These rate increases are so large, and they'= re=20 hitting so quickly, that those businesses that don't go under have no choic= e=20 but to raise prices." ---=20 ?????Times researcher Patti Williams contributed to this story. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------- Question Remains Who'll Take Brunt of the Rate Hikes=20 Power: Everyone has opinions on how to allocate the increases. PUC will hol= d=20 hearings before selecting a plan.=20 By TIM REITERMAN, Times Staff Writer=20 ?????SAN FRANCISCO--When the California Public Utilities Commission approve= d=20 the largest electricity rate hike in state history, it ignited debate over= =20 how the pain of almost $5 billion in increased power charges will be shared= . ?????Everyone from the governor and the PUC president to consumer groups an= d=20 industry associations has weighed in, with about 20 plans. ?????They all say their formulas translate into equitable charges that will= =20 encourage serious energy belt-tightening. ?????The PUC, as the state's chief regulator, must decide how to divvy the= =20 rate increase among millions of utility customers, ranging from single-fami= ly=20 homes to factories that employ thousands of people. ?????Beginning today in Santa Monica, the commission will hold a series of= =20 hearings to let the general public have its say before the scheduled adopti= on=20 of a rate plan on May 14. ?????PUC officials say rates will increase by an average of almost 30%. The= =20 question is: Who gets hit the hardest? ?????The rate structuring is a pivotal piece of California's strategy for= =20 surviving the summer without economic devastation and extricating the state= =20 from a crisis that already has wreaked hardship on the state budget,=20 utilities and customers alike. ?????The PUC not only must assess a welter of competing proposals that=20 sometimes clash head-on. It also must design the rate structure without=20 knowing with certainty how much money the state will need to buy power in t= he=20 future. ?????Roughly half of residential users--including low-income customers--wou= ld=20 see no rate increases, and that number could grow, experts say, if customer= s=20 conserve significantly. Under proposals from Pacific Gas & Electric Co. and= =20 Southern California Edison, rates for heavy users would increase by 50% or= =20 more. ?????One battle shaping up is over whether residential customers alone shou= ld=20 pay for the increased cost of delivering power to those conserving enough t= o=20 be exempted from the rate hikes. Or should it be shared with businesses and= =20 other nonresidential customers? ?????The answers are politically and economically tricky because someone is= =20 going to feel the pinch. ?????"It is enough money to cause a noticeable increase for customers to wh= om=20 it is allocated," Paul Clanon, head of the PUC energy division, said.=20 ?????PUC President Loretta Lynch, Gov. Gray Davis and others say rates shou= ld=20 be tiered to reward energy savers and punish heavy users. The proposals=20 involve fluctuation of a customer's baseline, an amount utilities determine= =20 as the minimum level needed for household usage, varying by climate and=20 region. ?????Some proposals call for four tiers of residential users; others for fi= ve. ?????Under Southern California Edison's proposal, residential customers wou= ld=20 receive a 5% rate hike for usage that sometimes exceeds 130% of their=20 baseline amount but falls below 200%. Customers who use 300% above the=20 baseline less than six months a year would see a 45% increase. Above that,= =20 the rate would climb to 70%. ?????Lynch's proposed rate design attempts to reduce the gap between what= =20 residential customers pay and the lower rates paid by commercial and=20 industrial customers. ?????The California Large Energy Consumers Assn., representing big steel an= d=20 cement companies, said a rate hike of 3 cents a kilowatt hour--approved in= =20 March by the PUC--amounts to a huge increase for large industrial users who= =20 currently pay substantially lower rates than residential customers. ?????"One class should not pay an increase that is twice or three times [th= e=20 percentage] . . . as others," said William H. Booth, lawyer for the=20 association. ?????Farmers and food processors express concerns that they would take a=20 heavy hit because, unlike some industries, they are less able than some=20 customers to shift power use to nonpeak times. ?????"The bulk of the crops go to processors in the summer," said Ron=20 Liebert, staff attorney for the 94,000-member California Farm Bureau=20 Federation. "We can't say we'll do a double shift at night. Some crops have= =20 to be irrigated around the clock." ?????The commission also must resolve a $1 billion disagreement over how mu= ch=20 money the rate increase will raise. ?????If the utilities have their way, the 3 cents per kilowatt hour increas= e=20 will be multiplied by the total number of kilowatt hours used by its=20 residential, commercial and industrial customers. ?????However, The Utility Reform Network (TURN) contends that total should= =20 not reflect energy usage by low-income customers and other residential=20 customers who consume less than 130% baseline--groups exempted from rate=20 increases. That means the utilities would collect a total of about $4 billi= on=20 from customers, not $5 billion.=20 ?????TURN's proposal, according to staff attorney Bob Finkelstein, also wou= ld=20 mean "less money will be flowing to [the Department of Water Resources] for= =20 power purchases." Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ------------------------------------------------------------ Riordan and Freeman's Feud Erupts in Public=20 Power: Each questions the other's role in keeping the city free of=20 California's energy crisis. By MICHAEL FINNEGAN and TERENCE MONMANEY, Times Staff Writers ?????With California mired in energy troubles, Mayor Richard Riordan and hi= s=20 former power chief S. David Freeman trumpet the extraordinary fortune of Lo= s=20 Angeles: no rate hikes and no blackouts. ?????Yet Riordan and Freeman have sullied their mutual success story by=20 waging bitter campaigns to discredit one another--at first behind the scene= s=20 but now in public. ?????Pettiness, ingratitude, conflicts of interest, overblown claims of=20 achievement: Such is the back and forth between two leaders who would seem = to=20 have good reason to pat one another on the back. ?????To Freeman, who has resigned as general manager of the L.A. Department= =20 of Water and Power to become chief energy advisor to Gov. Gray Davis, it=20 seems Riordan resents his high-profile role in trying to steer California o= ut=20 of the energy crisis. ?????So the mayor, Freeman charged, has elbowed his way into energy issues= =20 that he is ill-equipped to handle and taken steps along the way that could= =20 harm the environment. ?????"With all due respect, I have 25 years of experience and knowledge--an= d=20 he has 25 days," Freeman said. "But he's the mayor, and he didn't like it= =20 that I didn't just say yes to everything he came up with." ?????To Riordan, Freeman's efforts to fight air pollution have given short= =20 shrift to the threat of skyrocketing power rates in Los Angeles. The mayor= =20 said Freeman also failed to recognize potential conflicts of interest betwe= en=20 his city and state roles in the power crisis. And he scoffed at Freeman for= =20 saying he had lifted morale at DWP. ?????"Morale was terrible under him," Riordan said. "I mean, they are so=20 relieved right now." ?????The backbiting has left associates suspecting the clash is really abou= t=20 egos. City Councilwoman Ruth Galanter sees Riordan and Freeman as proud,=20 successful men unable to say, "I couldn't have done it without X, Y and Z." ?????"Each of them is used to being the boss and taking pleasure at being= =20 recognized as the boss," she said.=20 ?????Much of the conflict has taken place in private meetings. And the mayo= r,=20 a Republican multimillionaire, has taken pains to play down his dispute wit= h=20 Freeman, a liberal Democrat from Tennessee who wears a cowboy hat and speak= s=20 with a Southern drawl. ?????In an interview after his resignation, Freeman laid out the conflict= =20 point by point, often in terms bluntly critical of the mayor. One of his=20 concerns, Freeman said, was that Riordan in his final two months as mayor= =20 could reverse the agency's progress in protecting the environment. ?????Freeman cited Riordan's plans concerning coal-fired power plants in=20 Nevada and Utah that are partly controlled by the DWP, the nation's largest= =20 municipal utility. The first is the Mohave Generating Station in Laughlin,= =20 Nev., a plant that has been blamed for spreading some of the haze that=20 shrouds the Grand Canyon. The DWP had planned to sell its stake in the plan= t,=20 but Freeman said Riordan ordered him to back out of the sale. ?????He described the mayor's move as a sign that Riordan and his appointee= s=20 on the board that oversees DWP were "completely insensitive to the fact tha= t=20 that power plant is one of the most environmentally troubling plants in the= =20 West." ?????"I've worked real hard to try to build some environmental sensitivity= =20 into the DWP policy," Freeman said. "And I am concerned as to whether the= =20 current commissioners and the mayor have that sensitivity, and what they=20 might do in the interim to basically overturn the progress we've made." ?????The other plant is part of the Intermountain Power Project in central= =20 Utah. Riordan has proposed building a new coal-fired generating unit there,= =20 but Freeman said he objected because of the pollution it would cause. ?????In both cases, Riordan said he was striking the appropriate balance=20 between protecting the environment and meeting the energy needs of Los=20 Angeles at an affordable cost. By keeping its share of the Mohave plant and= =20 expanding the Utah plant, Los Angeles can avert the astronomical price hike= s=20 of natural gas--and the sharp rise in ratepayers' bills that would follow,= =20 Riordan said.=20 ?????Natural gas, which provides 26% of the fuel for DWP plants, causes les= s=20 air pollution than coal, which provides 51%. The rest is mainly nuclear and= =20 hydroelectric. Los Angeles has averted rate hikes and blackouts in part=20 because the DWP relies less on natural gas than most other California power= =20 providers. ?????"I favor clean air and more natural gas, but not to the point where=20 we're going to destroy the economy of Los Angeles," Riordan said. ?????On the Mohave plant, Riordan questioned the benefit of selling the=20 city's share to a buyer that would simply continue running it. ?????"It's still going to be coal-driven," he said. "How does selling it he= lp=20 the environment?" ?????The tension between the two has built steadily as the state power cris= is=20 has worsened. With the charismatic DWP chief drawing favorable news coverag= e=20 in stories on how L.A. has dodged the crisis, Riordan and the DWP=20 commissioners began to view him as "too big for my britches," Freeman said. ?????The conflict reached its peak on April 17, the day Freeman resigned to= =20 become the governor's advisor. The DWP board president, Kenneth T. Lombard,= =20 said the mayor told commissioners that day that "it made the most sense to= =20 release him immediately." ?????"All we were doing, frankly, was release him from his responsibilities= ,=20 and then whatever time he needed to clean out his office was fine with us,"= =20 Lombard said. ?????From Riordan's standpoint, Freeman needed to be stripped of his=20 authority right away because of a potential conflict of interest: The city= =20 utility sells surplus power to the state, so Freeman would be on both sides= =20 of the sales. ?????Freeman, who had voluntarily bowed out of a DWP meeting on the state= =20 power crisis earlier that day, was outraged at his sudden release, in part= =20 because he was denied the chance to say goodbye to agency employees. In an= =20 interview, he called the conflict of interest assertion "complete malarkey.= " ?????"The insinuation that I have done anything less than protect the=20 interests of the city of Los Angeles is bordering on slanderous, considerin= g=20 what I've accomplished here," he said. ?????Brian D'Arcy, who heads the union local that represents 6,000 DWP=20 employees, agreed that Riordan and his commissioners "kind of ran him out o= f=20 here. For David to be summarily jettisoned out of here without even a=20 howdy-do is absolutely tacky," D'Arcy said.=20 ?????Riordan said Freeman deserves "an A-plus" for his work at DWP. The may= or=20 conceded that he knew of nothing that Freeman had done "to hurt Los Angeles= ."=20 But, he added, "when you have a conflict of interest, you have to act befor= e=20 anything happens." ?????Freeman has long bridled at the oversight of DWP, not just by the mayo= r,=20 but by the agency's board and the City Council. In 1998, he called for City= =20 Charter amendments to consolidate authority in a more independent board of= =20 directors. The proposal went nowhere. ?????Freeman's concerns were echoed in a report to be released Monday. The= =20 Rand Enterprise Analysis report was commissioned by the DWP. It calls for= =20 restructuring DWP management much the way Freeman proposed. But Riordan and= =20 Galanter, who chairs the Council's Commerce, Energy and Natural Resources= =20 Committee, rejected the concept. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ----------------------------------------------------------------------- Cheney Rejects Price Caps, Aid for Calif. Power Crisis By DOYLE McMANUS and RICHARD SIMON, Times Staff Writers ?????WASHINGTON--Vice President Dick Cheney said Friday that there is littl= e=20 more the Bush administration can do to alleviate California's energy crisis= =20 this year and declared his opposition to further federal intervention in th= e=20 energy market even if the problem threatens the nation's economy. ?????"It's all you can do in the short term," Cheney said of the modest=20 energy conservation measures President Bush announced earlier this week, su= ch=20 as turning down air conditioners in federal buildings. ?????In an interview with The Times, Cheney, whom Bush has put in charge of= =20 designing a new national energy policy, said he strongly believes that ener= gy=20 prices should not be capped or regulated under any circumstances. ?????He said he disagreed with the Federal Energy Regulatory Commission's= =20 decision last month to place limits on wholesale electricity prices during= =20 emergency shortages. ?????"I'm a skeptic. I've never seen price regulations that I've felt very= =20 good about," Cheney said. ?????"If I had been at FERC, I would never had voted for short-term price= =20 caps. But that's their decision. . . . I hope for their sake, and=20 California's, it works." ?????FERC, an independent regulatory commission, decided April 25 to cap=20 wholesale prices when statewide electricity reserves fall below 7%, using a= =20 formula pegged to the cost of production for the least efficient generating= =20 plant. ?????Consumer groups and Democratic members of Congress have criticized the= =20 decision as too soft, but Cheney--like other advocates of=20 deregulation--condemned it as a step too far. ?????"Price caps are not a help. They take us in exactly the wrong=20 direction," the vice president said. "The way you address these issues is y= ou=20 either have to reduce demand or increase supply. And anything that doesn't = do=20 that is counterproductive, especially if it takes us in the opposite=20 direction, which to some extent price caps may because they discourage=20 investment." ?????"Ultimately, I think we're going to be better off if we have a=20 deregulated energy market in this country," he added. ?????Asked whether he might soften his opposition to price controls if the= =20 energy crisis began to produce significant damage to the national economy,= =20 Cheney shook his head ruefully. ?????"I start with a strong view, based on prior experience, that governmen= t=20 should intervene in the marketplace with great reluctance. ?????"I admit that I was traumatized in my youth by being part of the Nixon= =20 wage and price controls," he said with a wry smile. In 1971, when President= =20 Nixon sought to tame inflation with federal controls, Cheney was an obscure= =20 White House official. ?????"I remember how we started out with 14 pages of regulations . . . whic= h=20 I typed up myself." A few years later, "we had a roomful." ?????More important, Cheney recalled, the Nixon price controls led to a=20 series of "unintended consequences," including a decline in domestic=20 production of oil, increased reliance on foreign energy sources and the=20 failure of the U.S. automobile industry to build fuel-efficient cars. ?????Cheney, speaking in his West Wing office, acknowledged that the=20 administration's tough position against price caps could offend many=20 California voters in the short run, but he said he was confident that=20 Californians would come to accept his position in the long run. ?????"There is a much greater willingness today . . . to have this debate,"= =20 he said. ?????Cheney said the administration has done "virtually everything" that Go= v.=20 Gray Davis has asked, except to impose price controls. ?????"We're doing everything we can. Remember, we've been here 100 days. Ou= r=20 predecessor left this area virtually untouched, I think primarily because i= t=20 involves very tough issues. It means you've got to go out and address some = of=20 the most sensitive political issues . . . and we're doing that. That should= =20 have been done years ago. If it had been done years ago, California wouldn'= t=20 have trouble today." ?????Cheney said the national energy policy manifesto he plans to issue lat= er=20 this month will touch on California--but largely as an example for the rest= =20 of the nation to shun, not as a focus for federal action. ?????"We talk about California; there are a lot of examples there in terms = of=20 what needs to be done and, to some extent, what to avoid. . . . [But] the= =20 things we focus on with respect to policy are long-term in nature and aren'= t=20 going to provide any relief this summer." ?????Cheney offered a glimpse of his strategy for building political suppor= t=20 for a national energy policy that is expected to promote domestic productio= n=20 of oil, gas, coal and nuclear power. ?????Contending that technological advancements have reduced the=20 environmental risks of oil and gas exploration on public lands, he said, "W= e=20 can, in fact, have both: a clean environment and adequate supplies of energ= y." ?????While Cheney has been criticized for emphasizing the supply side over= =20 energy conservation, he said, "Conservation has a role to play, but it's no= t=20 sufficient. You cannot build an energy policy just on the notion of=20 conservation. . . . People have used the conservation arguments in order to= =20 avoid some of the tough issues associated with increasing supply." ?????Acknowledging that increased reliance on nuclear power--an issue he ha= s=20 embraced--has been a tough sell, Cheney said public attitudes appear to be= =20 changing. He said he recently asked a group of moderate lawmakers whether= =20 they would be open to construction of new nuclear power plants. "Nearly eve= ry=20 hand went up," he said, touting the "environmental values" of nuclear power= . ?????Cheney also said that, although he believes that unilateral economic= =20 sanctions "rarely work," he understands there are "special problems" in=20 removing sanctions against oil exporters such as Libya and Iran. Bush has= =20 said he has no intention at the moment of removing sanctions on Libya and= =20 Iran; Cheney said he favors a review of sanctions. ?????The task force report will deal with another controversial proposal:= =20 industry efforts to allow federal authorities to exercise the power of=20 eminent domain to obtain rights-of-way for new electrical transmission line= s,=20 as they already do for gas pipelines. ?????Cheney would not say whether the task force would recommend that=20 authority. But such a proposal is likely to face opposition from state and= =20 local officials. Copyright 2001 Los Angeles Times=20 ---------------------------------------------------------------------------= --- ----------------------------------------------------------------------- Rolling Health Hazards=20 Summer Blackouts May Pose Public Health Risks=20 David Bragi, Special to SF Gate Monday, May 7, 2001=20 ,2001 SF Gate=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/gate/archive/2001/05/07/h= ealth watch.DTL=20 On May 1, just prior to putting the finishing touches on this column from m= y=20 El Cerrito home, I heard the low, mournful howl of a disaster siren in the= =20 neighboring city of Richmond. A car had slammed into a utility pole, knocki= ng=20 out electrical power to the General Chemical Corp. plant.=20 The company's backup generators had failed to kick in and the ensuing power= =20 outage tripped a safety valve which shut down the compressor. After power w= as=20 restored, the safety valve would not reopen, causing a leakage of sulfuric= =20 gas into the air. By the time workers plugged the leak, approximately 100= =20 people, all in Richmond, had arrived at area hospitals with minor ailments.= =20 Although not caused by the state's energy crisis, this electrical outage=20 highlights how the prospect of chronic blackouts could pose some very real= =20 and unexpected threats to public health. So far we have been lucky, with=20 planned rolling blackouts lasting no longer than about 90 minutes.=20 But if sudden, unexpected shortfalls in electrical supply cause outages=20 lasting longer than a few hours, Californians may face such health hazards = as=20 unclean drinking water, food spoilage, vaccine shortages, heat stroke and= =20 disabled and elderly residents living without electricity.=20 For instance, widespread outages could affect the availability and safety o= f=20 water supplies. Local water districts are concerned that the state Public= =20 Utilities Commission has not exempted their facilities, such as pumping=20 stations that transport water uphill and treatment plants that purify water= ,=20 from rolling blackouts.=20 "In addition to our own facilities, outages could affect the State Water=20 Project and the Central Valley Project's ability to get water to us," said= =20 Marty Grimes, public information representative for the Santa Clara Valley= =20 Water District, which provides wholesale water supplies to Santa Clara=20 County. On the retail level, some of the smaller suppliers lack large stora= ge=20 tanks and would themselves run out of water quickly.=20 If treatment plants go off-line, water quality might also decline in some= =20 areas, in which case consumers would have to boil their tap water for at=20 least 20 minutes before drinking it. "We are doing all we can to minimize= =20 this possibility and see it as unlikely," says Grimes. "If that were to=20 happen, we'd be ready to inform everyone in the affected area immediately."= =20 To help keep the water flowing during outages, the district has installed= =20 backup generators in treatment facilities and key pumping stations, and is= =20 keeping Anderson Reservoir as full as possible. "It is high enough in=20 altitude that electricity is not needed to get the water to our treatment= =20 plants. Gravity does all the work," says Grimes.=20 The district also recommends that consumers use less water when the weather= =20 is very hot or outages are likely to occur. "In essence," says Grimes,=20 "saving water can save energy."=20 Since refrigerators and freezers run on electricity, when the power goes ou= t,=20 so does your ability to keep perishables fresh. One health risk occurs when= =20 somebody carelessly reheats and eats yesterday's frozen casserole long afte= r=20 a blackout has already thawed it back to life.=20 "It goes way beyond spoilage," says Susan Conley, director of food safety= =20 education for the Food Safety and Inspection Service at the U.S. Department= =20 of Agriculture. "If, because of the blackouts, the temperature in the=20 refrigerator or the freezer goes above dangerous levels, then you could hav= e=20 a problem with bacterial contamination," such as botulism.=20 Contrary to popular opinion, simply sniffing around is not a good way to te= ll=20 whether food is safe to eat, since not all bacteria produce noticeable odor= s.=20 A better course is to learn how to keep your food cold for as long as=20 possible and which foods last for how long at what temperatures.=20 For instance, a blackout lasting under four hours will not spoil the food i= n=20 your refrigerator. A freezer will keep frozen food safe for at least a day.= =20 To keep the cold air inside, keep refrigerator and freezer doors closed=20 unless you absolutely need to retrieve food.=20 Some foods, muffins for instance, will last longer than others, such as egg= s.=20 For an easy-to-read spoilage chart that recommends when to use, refreeze or= =20 discard various foods, go to the USDA's Keeping Food Safe During A Power=20 Outage page. It also has a collection of practical tips, such as safe=20 temperature levels, using thermometers, and handling dry ice.=20 As for food spoilage at grocery stores, I asked a butcher at Armond's Quali= ty=20 Meats in El Cerrito how well the meats in the store's refrigerated glass=20 display counter would hold up during an extended outage. He said they would= =20 keep the counter closed; since the case is kept at just above freezing, the= =20 meat would remain safe until the next day.=20 Medical facilities also rely upon refrigerators to keep perishables cold an= d=20 safe. Unfortunately, like water facilities, smaller clinics and hospitals i= n=20 California are not exempt from planned blackouts, although major hospitals= =20 are.=20 According to Dr. Barbara Ramsey, medical director the Native American Healt= h=20 Center's community health clinic in Oakland, if power goes down for more th= an=20 two hours, their biggest problem will be vaccine spoilage. In addition,=20 replacing them may also prove difficult if power outages to other clinics= =20 across the state or nation result in widespread shortages.=20 "We have episodic vaccine shortages without blackouts," she says, largely= =20 because drug manufacturers allegedly limit the supply of medicines to impro= ve=20 profit margins. "We just had one with tetanus. For those vaccines that aren= 't=20 profitable, I would see a particular risk."=20 Ramsey recommends that parents of children between 15 months and 30 months= =20 and 4 to 6 years get them vaccinated as soon as possible, especially if the= y=20 expect to enroll them in a school or day care center that requires=20 inoculations prior to admission. Often, says Ramsey, "the parents go, 'Oh,= =20 the kid turned 4 but I've two years to do these vaccines.' Then suddenly th= e=20 parent wants boosters given today because preschool starts tomorrow. But if= I=20 don't have the vaccine, tough luck."=20 Otherwise, having experienced a rolling blackout a few weeks ago, she gives= =20 mixed reviews about the clinic's ability to operate without power. Since th= e=20 clinic is "a fairly low-tech operation," Ramsey says she is confident that = it=20 can continue to provide basic services, with the exception of the EKG machi= ne=20 and dental equipment. "Just to shine that light in your mouth requires=20 electricity," she says.=20 Other medical issues must be dealt with in the home, especially for elderly= =20 and disabled residents. Medicines kept in the refrigerator can spoil,=20 life-support equipment can shut down, and heat stroke can result in serious= =20 illness or death. Some Bay Area communities plan to open summer "cooling=20 shelters" for seniors during hot days.=20 Keeping tabs on San Francisco's homebound elderly and disabled residents=20 during a disaster is largely the responsibility of a volunteer disaster=20 preparedness program called NERT, for Neighborhood Emergency Response Team.= =20 In other cities it might go by another acronym, such as NEAT (Neighborhood= =20 Emergency Assistance Team) or CERT (Community Emergency Response Team).=20 While distributing informational flyers, Susan Yip, NERT coordinator for Sa= n=20 Francisco's Balboa Terrace neighborhood, noticed some notes pasted to a fro= nt=20 door indicating that a disabled person lived inside. So she left a note of= =20 her own asking if the occupant would like to contact her in order to be=20 placed on a list of local residents who may have special needs during a=20 neighborhood-wide emergency.=20 "His son phoned me and told me about his father, who lived alone in the=20 house," was in his late 90s, mostly bedridden, and on an oxygen machine, sa= ys=20 Yip. "He explained to me which window to climb in and that he has a chair= =20 right there to jump down on, that kind of thing."=20 Not long after, a rolling blackout hit the neighborhood. She quickly paged= =20 the son, they met at the father's house, and went inside together.=20 Fortunately, the oxygen machine did not depend upon AC power and was=20 operating normally. "Because the rolling blackout happened during the dayti= me=20 and it just lasted an hour and a half, it was just a good drill for us," sh= e=20 says.=20 Yip is more concerned about the consequences of nighttime outages. "If it= =20 were dark and he went to turn on his light and that didn't go on, there mig= ht=20 just be that fear of what's going on." So an important part of a NERT=20 volunteer's job is providing neighbors with information, reassurance and a= =20 sense of hope.=20 Even in a power outage, the greatest impediments to good health are apathy= =20 and ignorance. So if we take steps to protect health and safety during the= =20 energy crisis, then the next string of blackouts may end not with a trip to= =20 the hospital and a lot of embarrassing questions, but with an excuse to sit= =20 on the front porch and enjoy the balmy evenings of summer.=20 If you would like a NERT volunteer to visit an elderly or disabled San=20 Francisco resident during a community-wide emergency, call (415) 554-9960. = If=20 you live in another community, contact your local fire department for=20 information.=20 =09 David Bragi, a freelance journalist who lives in El Cerrito, California, is= =20 Editor of the multicultural webzine New Tribal Dawn. =09?=20 ,2001 SF Gate ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Oh, that boom in 2002=20 Jon Carroll Monday, May 7, 2001=20 ,2001 San Francisco Chronicle=20 URL: http://www.sfgate.com/cgi-bin/article.cgi?f=3D/c/a/2001/05/07/DD168333= .DTL=20 I THINK WE must now believe and accept that there is no bailout coming, no= =20 miracle cure. Human behavior will remain the same, which takes care of the= =20 demand end, and human avarice and incompetence are also reliable, which tak= es=20 care of the supply end.=20 Which means we will have blackouts this summer.=20 It seems ironic in the inner Bay Area, where our power needs drop=20 precipitously from May to October (except for a little furnace action on=20 those brisk, foggy summer days), but the rest of the state wants to stay co= ol=20 cool cool.=20 I can't blame it. If I lived in Fresno, I would succumb to temptation, I'm= =20 pretty sure. What with those rotating blocks, I'd get hit only once every= =20 fourth blackout or so. I could live with that.=20 Hell, I will live with it, even though I don't own an air conditioner, even= =20 though daylight saving will cut my illumination needs substantially, even= =20 though we have already unplugged the freezer and turned out lights like=20 little Boy Scouts. And, of course, like little Girl Scouts -- equally=20 virtuous energy savers.=20 Nevertheless, we are all in this together, just like in the old days. We ar= e=20 experiencing solidarity in our misery. Maybe we'll make up folk songs as we= =20 sit around the blocks of ice.=20 Perhaps you remember 1989, when the bridge fell down. Everything was=20 different for a while. Many of us took ferries and said, "God, this is the= =20 only way to travel. I'm never going back to my car again."=20 Yes, well. Bad habits die hard.=20 SO I AM thinking what it might be like when the great blackouts start to=20 happen. I am thinking of people learning to live without television or=20 computers. I am thinking about people at loose ends, wandering around their= =20 homes or places of businesses.=20 "What did people do for fun before there was electricity?" Various=20 suggestions will come up: quoits, bearbaiting, starting a land war in Asia.= =20 And then Person A will look at Person B and remember the oldest recreation= =20 known to humanity. It's free, it gets better the more you do it, it wastes= =20 not a gram of our precious fossil-fuel resources. Batteries are not even=20 necessary (although, of course, optional). Salmon habitats are untouched; a= ir=20 quality remains the same.=20 The heat, of course, would be a deterrent. The boredom, on the other hand,= =20 would be a goad. It would be the old heat/boredom dilemma. I'm betting on= =20 boredom here. "The hell with it, we can always take a cold shower," some=20 romantic person can say.=20 I am envisioning people putting locks on the Xerox-room door. You know what= =20 I'm saying?=20 SO LET US think big picture. Let us think downstream. Let us count to nine= =20 starting from July: August, September . . . May! I am strongly suggesting= =20 here that obstetrics wards staff up for May 2002. Extra beds, extra people.= =20 Hospitals may already be preparing the budgets for that time frame -- don't= =20 be caught off guard.=20 Oh, and think of the names. Blackie will suddenly be fashionable for boys,= =20 and maybe Blaze for the girls. Or even Heather, with a little hyphen betwee= n=20 the t and the h. Wouldn't that be cunning? I suspect we may see a few kids= =20 named Xerox too.=20 Couples will not be able to hear the phrase "rolling blackout" without=20 giggling.=20 Maybe, under the pressure of circumstance, old fires will be rekindled. Two= =20 parents might suddenly come home from their darkened workplaces in the midd= le=20 of the day to a blessedly silent house . . . violins and roses. People in= =20 cubicles facing dead computers might begin to chat . . . incense and=20 peppermints. People will say, "This is great! We should keep doing it even= =20 when the energy crisis is just a memory!"=20 Just like we're all riding the ferry now.=20 Giving a whole new meaning to the phrase "gridlock," it's fun in the dark.= =20 Skyrockets in flight, afternoon jcarroll@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?B - 10=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Developments in California's energy crisis=20 The Associated Press Monday, May 7, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/07/s= tate0 940EDT0145.DTL&type=3Dnews=20 , , -- (05-07) 06:40 PDT Developments in California's energy crisis:=20 MONDAY: --Democrat state lawmakers say they will announce that they are suing feder= al=20 energy regulators for refusing to cap the spiraling cost of electricity.=20 -- A legislative committee is expected to vote on a bill to tax power=20 generators' windfall profits.=20 -- The state Assembly could consider a bill to authorize $12.5 billion in= =20 bonds for power buys. Republican members have balked at financing that much= =20 money, suggesting that the state instead use some of its surplus to buy=20 electricity for customers of three cash-strapped utilities.=20 -- The state remains free of power alerts as reserves stay above 7 percent.= =20 FRIDAY: -- Customers of Pacific Gas and Electric Co. will have their own committee = in=20 the utility's bankruptcy proceedings, a move to which PG&E officials=20 immediately objected. The nine-member committee will be the consumers' voic= e=20 at the bargaining table, says Nettie Hoge, executive director of The Utilit= y=20 Reform Network, and a member of the panel appointed by the U.S. Trustee's= =20 office. PG&E spokesman Ron Low says ratepayers could be represented by the= =20 state attorney general and didn't need a committee.=20 -- California's power buyers announce a $7 billion contract with Sempra=20 Energy Resources for electricity for the customers of three utilities. The= =20 10-year contract will provide 250 megawatts of electricity starting June 1,= =20 eventually increasing to 1,900 megawatts, the governor's office says. One= =20 megawatt is roughly enough power for 750 homes.=20 -- Southern California Edison and several organizations kick off an=20 advertising campaign Saturday to urge support for Gov. Gray Davis' plan to= =20 rescue the utility by purchasing its power lines. Among the members of the= =20 coalition running the television and radio ads are the California Small=20 Business Roundtable, California Professional Firefighters and the Californi= a=20 Taxpayers Association.=20 -- Energy Secretary Spencer Abraham visits San Francisco to trumpet a Bush= =20 administration plan directing federal facilities to conserve electricity.= =20 Abraham says the effort, which does not specify how much power must be save= d,=20 is an important step as the administration prepares to release its national= =20 energy policy later this month. But he also stresses that conservation is n= ot=20 the panacea to California's power affliction and that the state also must= =20 build new power generators.=20 -- Shares of Edison International closed at $9.25, down 3 cents. PG&E Corp.= =20 closed at $9, up 14 cents.=20 -- No power alerts are reported as reserves stay above 7 percent.=20 WHAT'S NEXT: -- The governor meets Wednesday with the CEOs of several major energy=20 suppliers to discuss the money they're owed by the state's two largest=20 utilities, the state's creditworthiness and how wholesalers can help the=20 state during the energy crisis. Davis says he won't be discussing any of th= e=20 investigations into price manipulation in the wholesale market.=20 -- Davis' representatives continue negotiating with Sempra, the parent=20 company of San Diego Gas and Electric Co., to buy the utility's transmissio= n=20 lines.=20 THE PROBLEM: High demand, high wholesale energy costs, transmission glitches and a tight= =20 supply worsened by scarce hydroelectric power in the Northwest and=20 maintenance at aging California power plants are all factors in California'= s=20 electricity crisis.=20 Edison and PG&E say they've lost nearly $14 billion since June to high=20 wholesale prices the state's electricity deregulation law bars them from=20 passing on to consumers. PG&E, saying it hasn't received the help it needs= =20 from regulators or state lawmakers, filed for federal bankruptcy protection= =20 April 6.=20 Electricity and natural gas suppliers, scared off by the two companies' poo= r=20 credit ratings, are refusing to sell to them, leading the state in January = to=20 start buying power for the utilities' nearly 9 million residential and=20 business customers. The state is also buying power for a third investor-own= ed=20 utility, San Diego Gas & Electric, which is in better financial shape than= =20 much larger Edison and PG&E but also struggling with high wholesale power= =20 costs.=20 The Public Utilities Commission has raised rates as much as 46 percent to= =20 help finance the state's multibillion-dollar power buys.=20 ,2001 Associated Press ?=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- U.S. considers withdrawing lawsuits against coal industry=20 Pollution controls affect power plants=20 Katharine Q. Seelye, New York Times Monday, May 7, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /07/M N213627.DTL&type=3Dnews=20 Washington -- The Bush administration is considering pleas from coal and=20 electric companies to drop a series of government lawsuits initiated by the= =20 Clinton administration to require the utilities to install modern pollution= =20 controls on old, coal-fired power plants.=20 The request, which the coal industry says would let it quickly increase its= =20 output of power, has touched off a debate within the administration. Christ= ie=20 Whitman, administrator of the Environmental Protection Agency, which=20 initiated the litigation, is resisting the industry's suggestion, while Vic= e=20 President Dick Cheney and Energy Secretary Spencer Abraham are sympathetic.= =20 The Bush administration is determined to increase the nation's use of fossi= l=20 fuels to produce power in response to what it deems an energy crisis.=20 The coal industry says the EPA's enforcement of the Clean Air Act is=20 preventing investments that would generate tens of thousands of megawatts o= f=20 electricity from existing coal-fired plants and that the cost of new=20 pollution controls would have to be paid by consumers.=20 "There is a recognition that plants aren't modernizing because the burden i= s=20 too onerous," a White House official said yesterday.=20 Discussions within the administration about the lawsuits have intensified i= n=20 recent days, as the White House completes a report by a energy task force= =20 headed by Cheney. The report is to be printed this evening.=20 "The coal industry is pushing very hard to lock this in and make it part of= =20 the report," said an environmentalist who has been following the case=20 closely.=20 At stake are emissions that would cost millions of dollars to control and= =20 that account for a significant share of the nation's air pollution.=20 The Clean Air Act exempted many older plants from strict emissions controls= ,=20 but required modern controls when owners modified plants in ways that=20 increased emissions.=20 For years, the agency says, plants evaded the requirements by insisting tha= t=20 certain modifications were merely "routine maintenance." But the agency fou= nd=20 that a number of major electric utilities had been modernizing their plants= =20 with projects that increased emissions.=20 Since 1988, the EPA has sued 11 companies over controls at 49 power plants.= =20 If the administration dropped these lawsuits and otherwise softened=20 regulations, the council argues, coal-fired plants could provide an increas= ed=20 capacity of 40,000 megawatts within three years, almost twice the capacity = of=20 all new power plants built last year, and 5 percent of the total generating= =20 capacity available nationwide.=20 ,2001 San Francisco Chronicle ? Page?A - 3=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Swimming pool owners get PG&E discounts=20 Operating pumps at night saves energy=20 Michael McCabe, Chronicle Staff Writer Monday, May 7, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /07/M N121100.DTL&type=3Dnews=20 A penny here, a penny there, a megawatt here and a megawatt there, for=20 Pacific Gas and Electric Co it all adds up -- maybe.=20 In the fervent hope and fear that each tiny zap of electricity is going to= =20 count this summer, PG&E is offering owners of private swimming pools $20 if= =20 they set their pool timers to operate the pumps during off-peak hours.=20 Shifting 15 megawatts off peak demand, the daylight time of day when power= =20 shortages are most likely to occur, may sound like a drop in the bucket. Bu= t=20 PG&E says 134,000 private pools exist in Northern and Central California, a= nd=20 that's enough to save 15 megawatts, or enough to power 15,000 homes at any= =20 one moment.=20 And that could add up to a sizable savings in light of the grim predictions= =20 for this summer.=20 The Independent System Operator, which oversees the state's power market,= =20 estimates that on any given day in June, the state will fall 6,815 megawatt= s=20 short of demand. That would put nearly 7 million homes in the dark.=20 So PG&E figures every bit of conservation helps, even pumping dirt and debr= is=20 and other foreign matter out of swimming pools at night or in the early=20 morning.=20 To qualify for the $20 check -- a one-time rebate, owners of in-ground=20 swimming pools must agree to set their timers to operate the pumps between = 8=20 p. m. and 10 a.m.=20 The offer does not extend to public pools for public health reasons or to= =20 solar-heated pools, which do not use power from the grid.=20 "Obviously, this is not a silver bullet to solving the energy crisis, but i= t=20 is one BB among many," said Staci Homrig, a PG&E spokeswoman. "Every little= =20 bit helps, and this is just our latest among many programs offering=20 incentives to customers who are more energy efficient at home." Other PG&E= =20 programs include offering $3 off energy star-labeled compact fluorescent=20 lamps, which use 75 percent less energy than standard incandescent bulbs; $= 75=20 rebates for Energy Star-labeled clothes washers and $50 for dishwashers. PG= &E=20 also offers $75 rebates for refrigerators that meet the 2001 Department of= =20 Energy efficiency standard.=20 Some pool installation companies say the $20 offer sounds like a good idea,= =20 generally. But they caution that pool owners who operate their sometimes=20 noisy pumps only at night may run into problems with local noise-abatement= =20 ordinances.=20 "If you run your pumps at night, then you are going to hear it running," sa= id=20 John Maguire, owner of the Pool Man, which serves Sonoma County. "But I'm= =20 sure PG&E will get a good response -- a lot of people will be happy to take= =20 $20."=20 Other pool experts said, however, that the most modern pool equipment is ve= ry=20 quiet and pumps manufactured in recent years should not cause a noise=20 problem.=20 Generally, though, the reaction was that PG&E probably could spend whatever= =20 money it has left more wisely.=20 "The trouble is that $20 is not a whole lot of money," said Rick Wolpin,=20 director of Sales and Marketing for Lifetime Pools in Palo Alto. "If it was= =20 $20 a month off their bill, I could see people jumping at it."=20 At least one pool owner agrees.=20 "I don't think 20 bucks is much of an incentive, but I probably would have= =20 done it anyway -- and also take the $20," said Deborah Clark, who has a lap= =20 pool in her San Jose backyard.=20 Indeed, most pool owners already shut their pumps down during the day, said= =20 Randy Saunders, division manager for Adams Pool Solutions based in=20 Pleasanton. "I would bet 90 percent of the pool owners would be happy to do= =20 that because the backyard pool doesn't care what time of day it is as long = as=20 it gets four to eight hours of circulation," Saunders said. "I think it's a= =20 terrific idea, assuming PG&E can afford it."=20 PG&E officials say they will have little problem coming up with the $2=20 million or so the program may cost if 80 percent of its pool-owning custome= rs=20 enroll in the program.=20 PG&E's Homrig said all the rebates will come after the bankruptcy filing, a= nd=20 so will not be affected by its filing for Chapter 11 on April 6. She said t= he=20 money for the rebates will come from the utility's customers, who pay a sma= ll=20 portion of each month's bill for energy efficient programs.=20 To make sure that those who sign up for the $20 are actually turning off=20 their pumps during the day, PG&E plans random inspections, Homrig said. The= =20 utility is also counting on the honesty of their valued customers, she said= .=20 E-mail Michael McCabe at mmccabe@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 13=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Legislators plan to sue U.S. panel on energy=20 Top state Democrats want cap on prices=20 Jim Herron Zamora, Chronicle Staff Writer Sunday, May 6, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /06/M N233207.DTL&type=3Dnews=20 The two top leaders in the California Legislature said yesterday that they= =20 plan to sue federal energy regulators for allowing electricity rates to=20 spiral out of control.=20 "The commission is not complying with the law," Senate President Pro Tem Jo= hn=20 Burton said of the Federal Energy Regulatory Commission.=20 "The Federal Power Act requires (the commission) to make sure that energy= =20 prices are just and reasonable," he said. "Clearly, rates are anything but= =20 just and reasonable."=20 Burton, D-San Francisco, said yesterday that he and Assembly Speaker Robert= =20 Hertzberg, D-Sherman Oaks, will file the suit tomorrow in federal court. Th= e=20 suit will accuse the commission of neglecting its duty by refusing to cap t= he=20 escalating cost of electricity in the midst of the power crisis.=20 Gov. Gray Davis is not a party to the suit, but "is supportive of any effor= t=20 to make sure FERC does its job," said Davis spokesman Steve Maviglio.=20 No one answered the phones at the federal commission's media office=20 yesterday, and commission officials could not be reached for comment.=20 Late last month, the commission ordered a one-year cap on electricity sold= =20 into the state during power emergencies, when power reserves fall below 7.5= =20 percent, in order to avoid rolling blackouts.=20 But the Democratic governor and state power regulators dismissed the cap as= =20 too little, too late.=20 The pending lawsuit follows months of lobbying by Davis and legislative=20 leaders of both parties. Hertzberg also is working on a tri-state plan to= =20 lower electricity costs and cut the risk of blackouts in the drought-strick= en=20 Pacific Northwest.=20 Burton said those efforts may bear fruit, but that legal action against the= =20 commission is needed as well.=20 "California is in a crisis, and we need FERC to do its job," Burton said. "= 'I=20 don't know if they have fallen asleep or if they are trying to screw=20 California, but the net effect is the same -- we are being gouged by energy= =20 wholesalers."=20 Joseph Cotchett, a Burlingame-based attorney with strong political=20 connections to Democratic leaders, will represent the legislative leaders f= or=20 $1 a month.=20 This will be the second suit filed in less than a week alleging that=20 Californians have been gouged during the power crisis.=20 On Wednesday, Lt. Gov. Cruz Bustamante filed a suit against wholesale energ= y=20 producers on behalf of California's taxpayers.=20 Bustamante's suit accuses Duke Energy Inc., Dynegy Inc., Reliant Energy Inc= .=20 , Mirant Corp. and the Williams power company of engaging in a price-fixing= =20 conspiracy and using unlawful trading practices to manipulate the state's= =20 electricity market.=20 Chronicle news services contributed to this report. / E-mail Jim Herron=20 Zamora at jzamora@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 16=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Nevada's winning hand -- power=20 State sees profit in California's crisis=20 David Lazarus, Chronicle Staff Writer Sunday, May 6, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /06/M N18476.DTL&type=3Dnews=20 Reno -- California's energy crisis is possibly the best thing to happen to= =20 Nevada since gangster Bugsy Siegel chanced upon a backwater town called Las= =20 Vegas in the 1940s.=20 Construction workers are scrambling not to erect new casinos but nearly a= =20 dozen new power plants -- an ambitious scheme hatched by state leaders and= =20 power companies to profit from California's chronic shortages.=20 While California may get fresh power supplies, Nevada, by hosting the plant= s,=20 will benefit from additional tax revenues and jobs, a more stable electrici= ty=20 network and a level of energy self-sufficiency the Golden State can only=20 dream of achieving.=20 And, to a great extent, Nevada's gains will be financed by California=20 ratepayers.=20 "While you guys in California have been putzing around politically, we got= =20 together and figured out what to do," said Nevada state Sen. Randolph=20 Townsend,=20 chairman of the Committee on Commerce and Labor that oversees energy matter= s.=20 "We're bringing the same mentality to power plants that we brought to=20 casinos," he said. "You build, and then you build some more."=20 In embarking on an unprecedented energy building boom, Nevada's first=20 priority is to secure enough electricity to meet all its needs for years to= =20 come.=20 No less importantly, though, the state is looking to position itself as the= =20 battery pack of the West -- a regional energy hub that will be to electrici= ty=20 what Texas is to oil.=20 California's acute need for juice, at virtually any price, is what will mak= e=20 this otherwise fanciful goal a reality.=20 "Our strategy is to overbuild," Nevada Gov. Kenny Guinn said during an=20 interview in his Carson City office. "We have short-term plans and long-ter= m=20 plans, and those plans affect California tremendously."=20 Those plans also include trade-offs that some environmentalists fear place= =20 business interests ahead of natural resources, as well as hardball tactics= =20 intended to force generators to provide at least a portion of their output = to=20 Nevada, rather than sell it all across the border.=20 "Energy developers are looking at us with big grins and drooling chops," sa= id=20 Jane Feldman, a spokeswoman for the southern Nevada branch of the Sierra=20 Club. "This really makes us nervous."=20 While California Gov. Gray Davis has been forced to take a crash course in= =20 energy issues, Nevada's Guinn boasts 20 years of experience in the utility= =20 business, including a stint as head of Southwest Gas Corp., a leading natur= al=20 gas supplier.=20 He said he has discussed California's energy troubles with Davis several=20 times, and each time urged Davis to be more aggressive in building new powe= r=20 plants.=20 "I think he's frustrated that he can't move as fast as we can," Guinn said,= =20 with a satisfied smile. The Nevada governor is a Republican. His California= =20 counterpart is a Democrat.=20 Of course, Nevada's commitment to energy independence is not solely the=20 result of political will. It also is what the gaming industry wants, and=20 Nevada lawmakers take notice when the casinos flex their considerable muscl= e.=20 Today, Las Vegas is the fastest-growing city in America, and the glitzy=20 gaming palaces that are its lifeblood soak up about 10 percent of all=20 available power.=20 Casinos and related sales and services account for no less than 60 percent = of=20 Nevada's economy, according to the state Commission on Economic Development= .=20 Six of every 10 Nevadans work for a casino or a casino-related company.=20 "The casino industry cannot tolerate blackouts like you've had in=20 California," said Harvey Whittemore, legislative counsel for the Nevada=20 Resort Association in Las Vegas. "We need predictable and reliable energy= =20 resources."=20 Not surprisingly, Nevada legislators voted last month to halt deregulation = of=20 the state's electricity market in its tracks and to shield local utilities= =20 from the sort of financial ruin that led Pacific Gas and Electric Co. to fi= le=20 for bankruptcy protection.=20 They also wasted no time in rolling out the red carpet for power companies= =20 eager to build new plants while California electricity prices remain at sky= -=20 high levels.=20 The governor stood alongside executives from four leading power companies t= o=20 announce that his state will fast-track approval of new plants so it can=20 double Nevada's electricity output within just two years.=20 A licensing process that might take as long as four years in California has= =20 been reduced to months in Nevada.=20 "We don't want to be like other states, like California, who can't control= =20 their own destiny," Guinn said.=20 This is music to the ears of power companies, which see Nevada as an=20 affordable and hospitable base from which to pump electricity into the=20 captive California market.=20 "If you could, you would build all your California plants in Nevada," said= =20 Jack Farley, president of western operations for Houston's Reliant Energy.= =20 "The political climate is more stable, there's no state income tax and the= =20 labor is cheaper."=20 Reliant will spend about $1 billion on three new plants outside Las Vegas,= =20 which together will generate enough power to light about 1.4 million homes.= =20 North Carolina's Duke Energy Corp., meanwhile, is looking to build a=20 sprawling facility near Las Vegas capable of lighting more than 1 million= =20 homes and a second plant about half that size near Reno.=20 Tom Williams, a Duke spokesman, said one reason power companies are heading= =20 into Nevada is because they hope to rapidly recover their construction cost= s=20 from California consumers.=20 "Clearly, building a plant rapidly in a market that has a shortfall is an= =20 objective," he said. "The sooner you get to a market that has a desperate= =20 need for power, the better off you will be."=20 In a desert canyon outside Reno, along the same path once followed by the= =20 ill-fated Donner Party, the West's newest power plant is due to begin=20 operating by the end of the month.=20 The $130 million facility, bankrolled by brokerage Morgan Stanley, will not= =20 only fuel Reno's lavish resorts but also pump electricity over the mountain= s=20 and into neighboring California.=20 Huge gray transformers and turbines dominate the construction site as worke= rs=20 battle dust storms and the harsh sun to meet their deadline.=20 "If we could have a year to do this, it would be simple," said Ray Kaufman,= a=20 technical consultant with Energy Services, the engineering firm hired by=20 Morgan Stanley to build the plant. "Doing it in four months is very=20 difficult."=20 State officials insist that no environmental regulations were waived to get= =20 Nevada's new power plants off the drawing board in record time. They say th= e=20 normally slow bureaucratic process was simply streamlined.=20 Consumer activists are not so sure.=20 "The state is moving too fast," said Kalynda Tilges, a spokeswoman for Las= =20 Vegas' grassroots Citizen Alert. "There needs to be more discussion."=20 At the same time, she and other activists worry that Nevada will be giving = up=20 precious natural resources for power plants that will be producing=20 electricity for consumers elsewhere.=20 The new plants require groundwater for cooling -- something Nevada does not= =20 have in abundance.=20 "I don't think most Nevadans realize what's happening," Tilges said. "They= =20 have no idea how much groundwater will be used, and how much of the power= =20 will be going to California."=20 To ensure that at least some of the output stays close to home, Nevada=20 authorities have driven a hard bargain with power companies. Access to=20 groundwater will be permitted in return for 25 percent of all electricity= =20 produced, which is to be sold to Nevada utilities at low rates.=20 Richard Wimmer, deputy general manager of the Southern Nevada Water=20 Authority, said he was surprised to find that power companies seemed=20 comfortable with, and perhaps even respected, his state's strong-arm tactic= s.=20 "This is what these people do all the time," he observed, adding that Nevad= a=20 saw how poorly California fared when it attempted to negotiate without any= =20 leverage.=20 In this sense, Nevada and the big energy companies have gotten off to a fin= e=20 start. They both speak the same language -- a readiness to seize=20 opportunities and to roll the dice on risky endeavors.=20 "Our economy may not have been built by gamblers, but it's a spirit we like= ,=20 " said Sen. Townsend. "Just turn us loose and let us get things done.=20 "It's not so much that we want to profit from California," he added. "We're= =20 just trying to survive."=20 E-mail David Lazarus at dlazarus@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 ---------------------------------------------------------------------------= --- --------------------------------------------------------------- Share prices rise amid news of big energy deals=20 Posted at 7:44 a.m. PDT Monday, May 7, 2001=20 NEW YORK (AP) -- Share prices rose tentatively in early trading Monday as= =20 investors tried to absorb the impact of two big energy mergers and weakness= =20 in the hand-held computer sector.=20 In early trading, the Dow Jones industrial average was up 28.50 at 10,979.7= 4.=20 The Nasdaq composite index rose 16.54 to 2,208.07, while the Standard &=20 Poor's 500 index was up 1.56 at 1,268.17.=20 Two energy deals were announced in the hours just before the market opening= .=20 Williams Companies of Tulsa, Okla., said Monday it will buy natural gas=20 producer Barrett Resources for $2.3 billion in cash and stock, topping a $2= =20 billion hostile bid by the U.S. unit of Royal Dutch/Shell Group.=20 Denver-based Barrett put itself up for sale in a formal auction after Shell= =20 mounted its effort in March.=20 Shares in Barrett soared $2.79 to $70.09, while Williams' stock was down=20 $2.77 at $38.90.=20 Meanwhile, Valero Energy Corp. said it was buying Texas rival Ultramar=20 Diamond Shamrock Corp. for about $4 billion in cash and stock in a deal tha= t=20 will make Valero the second-largest U.S. refiner of petroleum products. The= =20 companies said the deal was approved by both boards over the weekend, but= =20 still must be sanctioned by regulators.=20 Valero's shares dropped 37 cents to $45.10, while those in Ultramar Diamond= =20 Shamrock were up $9.38 at $52.09.=20 In the high-tech sector, Handspring Inc. announced that it was lowering the= =20 price of its Visor Deluxe handheld computers to $199 from $249. The company= =20 also said it was offering two promotions: a $50 rebate on the purchase of a= ny=20 new Visor Platinum and $30 rebates on select Springboard modules with the= =20 purchase of any Visor handheld.=20 Investors feared the action would set off a price-war in the sector, which= =20 has been dominated by Palm Inc.=20 Shares in Handspring were down 45 cents at $12.58. Palm's were up 13 cents = at=20 $8.52.=20 Also Monday, 3Com Corp., which spun off Palm last year, announced a second= =20 round of layoffs Monday, cutting 3,000 jobs. The networking company aims to= =20 trim costs by $1 billion a year.=20 Its shares were up 20 cents to $7.10 on the news.=20 The market last week ended on an upbeat note after dismal unemployment=20 figures led investors to expect the Federal Reserve to aggressively cut=20 interest rates when it meets next week. Most analysts expect the Fed to cut= =20 interest rates at least a half a percentage point for the fifth time this= =20 year.=20 The Russell 2000 index, which measures the performance of smaller companies= =20 stocks, was up 1.07 at 493.96.=20 Advancing issues were slightly ahead of declining issues on the New York=20 Stock Exchange, where volume came to 114.58 million shares, compared with= =20 138.10 at the same time last Friday.=20 Overseas markets were mixed on Monday. In afternoon trading in Europe,=20 Germany's DAX index was off 0.18 percent at 6,127.15. France's CAC-40 was u= p=20 0.79 percent at 5,498.45, and Britain's FT-SE 100 was up 1.81 percent at=20 5,870.30.=20 The benchmark 225-issue Nikkei Stock Average rose 107.77 points, or 0.74=20 percent, to 14,529.41. It was the strongest close since the index registere= d=20 14,552.29 on Dec. 15.=20 ------=20 On the Net:=20 New York Stock Exchange: http://www.nyse.com=20 Nasdaq Stock Market: http://www.nasdaq.com=20 AP-WS-05-07-01 1036EDT ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------- Florida shrugs off Calif.-blackout scenario=20 Posted at 7:38 a.m. PDT Monday, May 7, 2001=20 BY JOAN GRALLA=20 NEW YORK (Reuters) - Florida is confident it will not face next year the=20 rolling power blackouts that have bedeviled California, but one analyst who= =20 foresaw trouble for the West Coast says the same problems may lie ahead for= =20 the Gold Coast.=20 California's self-imposed black eye with deregulation has left a number of= =20 states, from Wisconsin to Florida, disinclined to go ahead with similar=20 plans. That is especially true in the Southeast, where states have less=20 reason to deregulate because their power costs are fairly low.=20 Florida residents are not expected to experience soaring power prices this= =20 summer when the thermometer rises since power companies say they have enoug= h=20 supply to meet customer needs.=20 But whether Floridians run short of power next year might be decided by=20 factors beyond the state's control: how hot the summer is, whether utilitie= s=20 accurately predict demand growth, and whether they can add new power as fas= t=20 as they project, analyst Mark Bernstein recently told Reuters.=20 ``Two-and-a-half years ago we said California could face a problem. It wasn= 't=20 a prediction, it was one of our scenarios,'' said the policy analyst with t= he=20 Santa Monica, California-based think tank RAND.=20 But California ran into some tough luck, including a drought that dried up= =20 hydropower. ``For California to have the problem it had, everything had to = go=20 wrong,'' Bernstein said.=20 California's crisis stems from a flawed 1996 deregulation plan that allowed= =20 wholesale energy prices to soar but capped retail rates. The result has bee= n=20 rolling blackouts, soaring prices and the bankruptcy of the state's biggest= =20 utility.=20 Bernstein sees an eerie similarity between what California experts said two= =20 years ago and what Florida analysts now say. ''What they're saying in Flori= da=20 is the same thing they said in California a couple of years ago. We're not= =20 predicting problems in Florida, but if you look at the direction they're=20 going in they could have the same problems as California.''=20 Tom Ballinger, an energy supervisor with the Division of Safety and=20 Electricity Reliability for Florida's Public Service Commission, said he wa= s=20 confident the state could meet demand.=20 For 2002, for example, the peninsula area, which accounts for some 90 perce= nt=20 of Florida demand, has a 19 percent reserve margin. That will climb to 26= =20 percent by 2005 before drifting back down to 23-25 percent in the years=20 ahead.=20 ``The peninsula in times past has gotten by with a 15 percent reserve=20 margin,'' Bernstein pointed out.=20 DEREGULATION LOOKS LESS DESIRABLE=20 Back in 1995, Wisconsin was tracking California on the path to electricity= =20 deregulation, although it planned a slower approach. But the process ground= =20 to a halt after California's problems singed its reputation, economy and=20 living standards.=20 ``When California occurred, it froze everybody,'' said State Rep. Tim Hoven= ,=20 a Republican from Port Washington and chairman of the Wisconsin Legislature= =20 utilities oversight committee. He said the state now was focusing more on= =20 reliability, adding, ''We don't want to duplicate what they did in=20 California.''=20 In an interim report, a Florida study group recommended creating a=20 competitive wholesale market.=20 That would not be done by requiring utilities to divest themselves of=20 generators, as New York State has done, for example; Florida utilities woul= d=20 transfer power sources to an affiliate or third party, said Billy Stiles,= =20 executive director of the Florida Energy 2020 Study Commission.=20 Once the generators were transferred, the utilities would have long-term=20 contracts with their old units -- unlike California, whose utilities could= =20 buy only on the spot market. The amount of power Florida utilities contract= ed=20 for would decline over time, opening the market up to merchant power plants= ,=20 Stiles explained.=20 ``Once the transition is over ... they have the ability to buy (power) from= =20 anybody selling in the market, including their own affiliate or merchant,''= =20 he said.=20 Florida's deregulation proposal stalled partly because of concerns that=20 consumers might not get repaid for the hugely expensive power generators th= ey=20 helped pay for in the form of higher electricity rates.=20 The study group proposed transferring power plants at their book value: how= =20 much the plant is listed at on the utility's balance sheet. But some critic= s=20 charged the plants were worth more than their book value, and after they we= re=20 transferred they eventually might be sold to other independent power=20 producers.=20 ``There was a belief that the gain on the sale of plants will escape=20 recognition of the regulator ... that the customers will be deprived of tha= t=20 gain,'' Stiles said.=20 He did not agree that power plants necessarily would fetch more than their= =20 book values. Still, he added, ``some mechanisms may need to be devised to= =20 recognize that gain.''=20 FLORIDA SEES POWER SUPPLY AS SATISFACTORY=20 Among the concerns Bernstein raised about Florida's plans were questions=20 about whether its utilities might experience delays in building new power= =20 sources.=20 ``If those plans actually emerge on time, maybe they'll be OK, but years of= =20 experience on things like this (shows) things get delayed,'' the RAND analy= st=20 said.=20 Ballinger, the Florida Public Service Commission expert, recognized that as= a=20 risk, but only over the longer term. He said he was confident the utilities= '=20 demand projections, on which the state relies, were solid.=20 ``They're looking at it all the time,'' he said, explaining that utilities= =20 routinely analyzed population growth, customer accounts, the economy and=20 other factors.=20 Bernstein also raised the possibility Florida's weather might turn aberrant= ,=20 with a warmer winter than usual, for example, which could raise demand for= =20 cooling. Balllinger said the state's assumptions -- compiled from data=20 provided by its utilities -- were based on normal temperatures.=20 Although parts of the Northeast such as New York have gone ahead with at=20 least partial deregulation, they had a fairly strong incentive to do so.=20 New York's retail rates ran around 14.2 cents per kilowatt hour, according = to=20 the Energy Information Administration. In contrast, Floridians paid only=20 about 8 cents, and such low rates were the norm for most states in the=20 Southeast, giving them less incentive to deregulate.=20 ``I don't think you're going to see deregulation in the South anytime soon,= ''=20 said John Sell, a spokesman for Southern Company, which owns power provider= s=20 in Georgia, the Florida Panhandle, Alabama and Mississippi.=20 REUTERS Reut10:26 05-07-01=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------ Hot days worry energy watchers=20 Published Monday, May 7, 2001, in the San Jose Mercury News=20 BY GARY RICHARDS=20 Mercury News=20 Hot weather will cover the state today and Tuesday, and edgy energy officia= ls=20 are asking people not to turn on air conditioners or fans at home or at wor= k.=20 Temperatures are expected to remain in the high 80s in Silicon Valley today= =20 and the low 90s in Sacramento and Southern California. That could lead to a= n=20 energy drain and more threats of rolling blackouts as the workweek begins.= =20 ``When it warms up, demand does skyrocket and we're definitely on guard and= =20 asking consumers to step up their conservation,'' said Stephanie McCorkle, = a=20 spokeswoman for the California Independent System Operator.=20 However, energy watchers won't know until this morning whether California h= as=20 enough power to get through these warm days. The peak demand doesn't hit=20 until about 4 p.m. in spring and summer. Weather forecasters say temperatur= es=20 will return to the mid-70s by Wednesday, which is normal for this time of= =20 year. Sunday's high was 87 in San Jose, far short of the record 99 for May = 6.=20 Contact Gary Richards at mrroadshow@sjmercury.com or (408) 920-5335.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------ Unplugged=20 Mankind has lived thousands of years without electricity. The Amish still d= o.=20 Californians may have to. We called an Ohio hardware store to find out how.= =20 May 7, 2001=20 By ANDRE MOUCHARD The Orange County Register This spring, nearly 16 months after Y2K failed to unplug our=20 electricity-addicted world and just weeks before we figure to get browned o= ut=20 by our erratic power suppliers, Southern California is turning its eyes to= =20 the Amish of northern Ohio.=20 The Amish, like us, are busy. They run farms and small manufacturing=20 companies and even dabble in real estate. And while they might shun things= =20 like SportsCenter and Marilyn Manson, they're not totally without comfort.= =20 The Amish, like us, like their clothes clean, their food hot and their coff= ee=20 beans ground to a powder suitable for drip-style brewing.=20 What the Amish don't like is electricity. They live as plug-free as possibl= e.=20 Here in backward Southern California (where an almost totally non-Amish=20 population sucks down more electricity than anybody in the world) many wond= er=20 how. Hence our sudden interest in northern Ohio.=20 "Nowadays, we get calls nearly every day from people in Southern California= ,"=20 says Glenda Lehman-Ervin, marketing director of Lehman's Hardware and=20 Appliances Inc., a Kidron, Ohio-based retailer that, since 1955, has=20 specialized in selling non-electric appliances to, among others, the Amish,= =20 survivalists and Martha Stewart.=20 Lehman's, which is privately held, says only that its non-electric applianc= e=20 sales to California have "dramatically increased" in the past year,=20 particularly as power outages and rate hikes have become the norm.=20 "Apparently, there is some concern out there about electricity."=20 Apparently.=20 So even with a blackout summer only weeks away, it's not too late to go=20 plugless. The process might not be cheap. It might involve some damp=20 undergarments. And it almost certainly won't include a curling iron or a ha= ir=20 dryer. But some unplugging - without batteries even - is possible.=20 Here's a breakdown of some non-battery-powered devices that can unplug the= =20 most electric of all events - the morning ritual:=20 STEP 1: WAKING UP=20 One way to save a lot of electricity would be to sleep in so long that you= =20 get fired. You could then hang out all day by a pool or the ocean and live= =20 almost exclusively on solar power.=20 Sigh.=20 Let's assume you're not yet so dedicated to easing our strained power grid.= =20 Let's assume you've got to wake up. To do that, unplugged, you'll need a=20 mechanical alarm clock.=20 Mechanicals are no oddity. They dominated time keeping from about 1000 AD= =20 until just after World War II. Most run on power generated by gravity or=20 springs. And when they're attached to bells, they double as extremely loud= =20 alarm clocks.=20 Some companies still make mechanicals (one way to find them is to look on t= he=20 Internet under the words "mechanical alarm clocks"). Some say new mechanica= ls=20 aren't as good as old mechanicals. But one company that made the old=20 mechanicals is still around.=20 A new Westclox mechanical will cost about $20, and a near antique - from th= e=20 early 1900s - will run around $50, according to Aaron Kaplan, owner of=20 Friendly Clock and Watch Repair in Santa Ana.=20 "They're still pretty functional," Kaplan says. "If you maintain them=20 properly, they'll keep time to within a minute or two."=20 Amishness rating: 100=20 STEP 2: CLEAN DUDS=20 In the larger world of waking up and putting on clothes, one thing is alway= s=20 true: clean and dry is better than dirty and wet.=20 In Southern California, most clean, dry clothes come out of a washer and=20 dryer, two machines that also are electricity hogs.=20 But it doesn't have to work that way.=20 An Amish family, for example, might get its clean, dry clothes from a=20 washboard (technology circa 500 AD) and a clothesline. That's fine if you'v= e=20 got about eight hours to get ready for work and you don't mind a T-shirt th= at=20 crunches.=20 Other unplugged washing options are hand-cranked, mechanical washers follow= ed=20 up by hand-cranked ringers that make line-drying faster. Lehman's sells a f= ew=20 of these products. There are also dozens of alternative energy washers and= =20 dryers on the market. Like clocks, those can be found over the Internet.=20 A San Diego company, Explorer Appliances, even sells an alternative energy= =20 combo device, a washer/dryer that runs on propane, natural gas or even=20 wind-created power. The machine also drinks less water than conventional=20 washer/dryer combos, according to Explorer VP Paul Real.=20 What it doesn't provide, necessarily, is socks that come out of the dryer= =20 toasty warm.=20 "Centrifugal force," Real says, describing how the washer-dryer dries. "Tha= t=20 gets almost all the moisture out."=20 Unplugging other parts of the morning's clothing thing isn't that tricky. Y= ou=20 can find irons that reuse heat from the stove. Lehman's also sells an iron= =20 that runs on burning embers. "You need a small shovel or something to get t= he=20 embers in there. It's kind of fun," spokeswoman Lehman-Ervin says.=20 Amishness rating: 75 (subtract 25 points if your clothes are synthetic or= =20 brightly colored.)=20 STEP 3: VITTLES=20 Eating plug-free isn't as easy as it looks. You can eat raw stuff, but that= 's=20 probably going to involve a refrigerator and, in most homes, that involves = a=20 plug. You can decide to cook some stuff, look at your gas-powered range, an= d=20 think you're OK. But you're not. Check out the oven. Electric. Bummer.=20 Anyway, all of this gets particularly tricky in the morning. Breakfast is a= =20 huge electricity user. Milk (if it's cold) needs a plug. Toast has its own= =20 plug-in machine. Same for waffles. And coffee, the absolutely must-have dri= nk=20 for most morning routines, needs a plug-in machine for brewing and another= =20 plug-in machine to grind the beans.=20 Or not.=20 See, the good news is there are non-electric versions of virtually every=20 kitchen appliance. The fridge can run on propane or natural gas or wind if= =20 you're so inclined. (Check the Internet under "alternative energy=20 appliances.") And Lehmans, among others, sells wood stoves, including a mod= el=20 that has a catalytic converter that'll make your wood-stove electricity fre= e=20 and a smog-buster at the same time.=20 "Think about your car 30 years ago. You didn't have airbags or seat belts a= nd=20 things like that. And it didn't get good mileage. Well, wood stoves have=20 gotten a lot better over the years, just like cars," Lehman-Ervin says.=20 Lehman's and others also sell toasters that toast using the heat from the= =20 stove and a waffle iron that does the same thing. The company (as well as= =20 some coffee shops) also sells hand-cranked coffee bean grinders, something= =20 that's quiet and, because it doesn't generate a lot of bean-burning heat,= =20 better for the coffee. After that, you can use a water-drip device to make= =20 the coffee without a plug.=20 If you care to go further, you can grind your own grain and churn your own= =20 butter with non-electric devices.=20 "We even have a hand-crank blender," Lehman-Ervin says.=20 "The Amish like it for milkshakes, but out there, in California, maybe you= =20 could use it for margaritas."=20 Not before work.=20 Amishness rating: 10=20 STEP 4: BLOW DRYING=20 "Sacrifices must be made."=20 That's not the opening line to your pink slip. It's what Lehman-Ervin and= =20 others say when asked about how to unplug the morning routine. Essentially,= =20 there are parts of waking up and getting ready for work that must be change= d,=20 not unplugged.=20 "There is no non-electric blow dryer, except maybe when you stick your head= =20 out the window of your car or something," Lehman-Ervin says.=20 Curling irons fall into this category. Electric shavers, too, but they're= =20 easy to replace with foam and hot water and a razor.=20 Television, CD and DVD players, Nintendo - they all need a plug or a batter= y=20 which, for our purposes, rule them out. Same for microwaves and trash=20 compactors.=20 Eventually, unplugging - even in the morning - boils down to a question of= =20 "what you really need vs. what you simply want," Lehman-Ervin says.=20 "The biggest benefit is self-sufficiency. As you're finding out in=20 California, it's not always great to rely on somebody else to maintain your= =20 lifestyle.=20 "But there are many, many people in this country who don't have electricity= =20 or who have unreliable electricity, and they manage to wake up and get read= y=20 for work.=20 "If you absolutely have to have something, there is probably a non-electric= =20 version of it."=20 So how can you find out more?=20 "Uh, with a computer," Lehaman-Ervin says, laughing.=20 And that, she adds, "needs a plug."=20 Amishness: 0=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ------------------------------- Mexico Continues Power Exports To California MEXICO CITY, May 4, 2001 (El Economista/Infolatina via COMTEX) via NewsEdg= e=20 Corporation - Mexican state-owned power utility the Federal Electricity Commission (CFE) will=20 continue to supply the U.S. state of California with electricity, in light of the=20 state's ongoing power shortage, CFE head Alfredo Elias Ayub said Thursday. Speaking= =20 to a gathering of California officials and business leaders, Elias said excess electricity supply from the northern Mexican state of Baja California would continue to be exported to the United States, Mexican financial daily El Economista reported. Baja California, for geographical reasons, is not=20 connected to Mexico's national power grid, and the state's excess supply, therefore, cannot be channeled to areas of the country suffering supply shortfalls or = low operating reserve margins, explained Elias. He said rapidly rising demand f= or electricity on both sides of the border made expansion of interconnection capacity a priority. Interconnection capacity currently stands at 400=20 megawatts, he said. New transmission lines, to be completed by 2002, will boost cross-border interconnection capacity to 2,000 megawatts, he said. ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ----------------------------------- Charged Up: Texas May Face a Glut Of Electricity, but That Won't Aid Rest of U.S. --- Pride and Policy Make State A Magnet for Power Plants And an Island Unto Itself --- A Wire Enshrined in Lucite=20 By Alexei Barrionuevo and Russell Gold=20 ?=20 05/07/2001=20 The Wall Street Journal=20 Page A1=20 (Copyright (c) 2001, Dow Jones & Company, Inc.)=20 While California struggles to keep its lights on and New York City braces f= or=20 possible electricity shortages this summer, Texas utilities could soon face= =20 the opposite problem: a power glut.=20 Texas' wide-open spaces and relatively weak zoning and environmental rules= =20 have helped make the Lone Star state a magnet for power-generation companie= s=20 as it prepares to deregulate its electricity market next year. The result:= =20 Texas' electricity-production capacity this summer is expected to exceed it= s=20 peak power demand by 11,000 megawatts -- nearly enough to light up New York= =20 City. By the summer of 2002, the excess may be closer to 15,000 megawatts,= =20 enough to power 15 million homes. And with 27 new generating plants under= =20 construction, more than any other state, some power producers fear that=20 overbuilding ultimately could send Texas' wholesale electricity prices into= a=20 tailspin.=20 All this sounds like good news for the electricity-starved East and West=20 Coasts -- but it isn't. That's because the U.S. is divided into three major= =20 power grids -- with the West on one, the East on another and most of Texas = on=20 a third, with very few links to the rest of the country. In the world of=20 electricity, that makes Texas "an island with a couple of little footpaths= =20 over to it," says Larry Makovich, senior director for electric power resear= ch=20 at Cambridge Energy Research Associates, a Cambridge, Mass., consulting fir= m.=20 Some Texas utility executives argue that their state's island status is=20 principally an accident of geography. But no one disputes the fact that goo= d=20 old Texas pride -- and a deep-seated skepticism toward federal regulation -= -=20 also played a role in shaping the state's grid. So, too, did a renegade=20 utility's desperate 1976 bid to save itself from a corporate breakup and th= e=20 resulting four-year legal battle, which the industry later dubbed the "Texa= s=20 Range War."=20 Texas' isolation isn't expected to end anytime soon. If Texas became fully= =20 interconnected, its big utilities say, the state could become more=20 susceptible to blackouts, if other regions drew off too much power. "From a= =20 reliability standpoint, it would be a degradation to the Texas grid," says= =20 Steve Schaeffer, a senior vice president at Reliant Energy Inc., the former= =20 Houston Lighting & Power Co.=20 Moreover, the utilities estimate that building the transmission lines neede= d=20 for a full connection to the nation's other grids would take at least three= =20 years and cost Texas ratepayers about $600 million. They don't want to inve= st=20 that much money to sell power to California or New York to ease what they= =20 view as temporary imbalances.=20 Some in the state also believe low rates and excess power could give it an= =20 advantage in persuading businesses to locate there. "America will be shy=20 enough electricity that this will be one of our greatest inducements for=20 growing Texas," says Matthew Simmons, president of Houston investment bank= =20 Simmons & Co.=20 Texas is an extreme example of the haphazard way electricity grids develope= d=20 in the U.S. Until the 1960s, most power plants were built near the customer= s=20 they served. Then, utilities began building larger, more-efficient coal and= =20 nuclear plants, connecting them with their neighbors to ensure that if one = of=20 these big plants went down, there would be a backup ready to keep the power= =20 flowing.=20 But the old-line Texas utilities, which have long benefited from the state'= s=20 plentiful supplies of fuels such as natural gas and lignite coal, were=20 reluctant to join in this wave of interconnections. Back then, in the mid- = to=20 late 1970s, electricity outside Texas was generally more costly. And=20 surrounding states weren't planning big enough plants to back up the huge n= ew=20 ones Texas was building to power its fast-growing cities and energy-thirsty= =20 petrochemical industry. "There was no big money to be made by shipping powe= r=20 one way or the other over the lines," says Reliant's Mr. Schaeffer.=20 By confining their grid to Texas, state utilities also avoided oversight by= =20 the Federal Energy Regulatory Commission. Thus, FERC couldn't force Texas t= o=20 send power out of state in case of an emergency.=20 The state's dominant utilities -- Texas Utilities Inc., the Dallas-based=20 predecessor of what is now TXU Corp., and Houston Lighting -- went to great= =20 lengths to ensure there were no interstate connections. The switches at a= =20 hydroelectric plant on the Texas-Oklahoma border were wired to prevent powe= r=20 from flowing between the states. Elsewhere along the border, a system of=20 relays was installed to prevent unauthorized interstate transmissions.=20 Only one big utility didn't like the setup: Central & South West Corp., a= =20 Dallas holding company that owned power plants in both Texas and Oklahoma. = In=20 1976, it faced a crisis. If it couldn't show that its plants in both states= =20 were interconnected, it ran the risk of being broken up under a federal law= .=20 The law, which barred holding companies from owning unconnected utilities i= n=20 separate states, was decades old. But, until then, it hadn't been strictly= =20 enforced.=20 On May 4, 1976 -- eight days before the Securities and Exchange Commission= =20 was set to consider the matter -- Central & South West took an extraordinar= y=20 step. At 5:30 a.m., it sent one of its line crews to secretly rewire a=20 substation in Vernon, Texas, near the Oklahoma border, allowing power to fl= ow=20 freely between the two states. For a few hours, the grids were connected by= a=20 minuscule thread. Later that morning, officials at Central & South West=20 phoned other Texas utilities to tell them the company was engaged in=20 interstate commerce.=20 Texas' other major utilities reacted angrily. "The sons of bitches are tryi= ng=20 to steal my lignite!" Texas Utilities Chairman Louis Austin bellowed,=20 according to former Texas Public Utility Commissioner George Cowden, who=20 recalls Mr. Austin making the remark during a private meeting between the t= wo=20 men.=20 Around noon, Houston Lighting cut its system off from the rest of the state= 's=20 utilities. Texas Utilities followed suit hours later. By day's end, the=20 state's utilities had broken the grid into a half-dozen pieces.=20 That same day, one of Texas Utilities' chief lawyers, a 6-foot-6 former=20 college-football star named J.A. "Tiny" Gooch, dispatched one of his=20 company's crews to disconnect the link Central & South West had made betwee= n=20 Vernon and Altus, Okla. "They made it so it was physically impossible to=20 [connect] it again," says Mr. Gooch's son, Gordon, then a lawyer representi= ng=20 Houston Lighting. The elder Mr. Gooch, who died in 1986, is considered the= =20 patron saint of Texas' electrical independence.=20 At an emergency meeting of the utility commission three days later, Mr.=20 Austin of Texas Utilities expressed disgust at the prospect of having to bu= rn=20 Texas lignite and natural gas to satisfy "Yankees," according to a=20 transcript. And, he added: "I don't like federal regulations." (Mr. Austin= =20 died in 1997.)=20 A wire reputed to have formed part of Central & South West's brief=20 Texas-Oklahoma interconnection later was cut into pieces, encased in Lucite= =20 and given out as paperweights by Dallas law firm Worsham, Forsythe &=20 Woolridge, which represented Texas Utilities.=20 Alan Erwin, a state utility commissioner in 1976 who still has the souvenir= =20 on his desk, used the wiring episode as fodder for a 1979 novel, "The Power= =20 Exchange," in which a winter storm cripples Northeast power production and= =20 the nation turns to Texas for electricity. Texas refuses to ship the=20 electricity, fearful that other regions would drain it of "what little chea= p=20 fuel was left." Ultimately, Texas becomes a scapegoat and ends up seceding= =20 from the union.=20 In reality, the outcome was less dramatic. The grid conflict wound its way= =20 through many courtrooms. Central & South West -- recently acquired by=20 American Electric Power Co. of Columbus, Ohio -- lost almost every round.= =20 After about four years, the utilities hashed out a compromise, at the urgin= g=20 of the federal government.=20 Rather than link the Texas grid to the East, so that electricity could flow= =20 freely across state borders through alternating-current cables, they agreed= =20 to build two direct-current lines. Operators could control the flow over=20 these bridges, which at peak capacity could carry a mere 820 megawatts. The= =20 parties to the deal, which included the federal government, agreed these=20 links wouldn't bring the Texas grid under federal jurisdiction. Today, Texa= s=20 power continues to be regulated in Austin, not Washington.=20 "It's just a Texas thing," says Pat Wood III, chairman of the state utility= =20 commission and a recent Bush administration nominee to FERC. "We want contr= ol=20 of our own destiny."=20 That independent attitude has extended in recent years to Texas'=20 business-friendly approach to deregulating its power industry. Unlike=20 California, with its stringent emissions and zoning rules, Texas has made i= t=20 quick and easy for power companies to locate their plants almost anywhere= =20 they can find a place to hook up to the grid. Last year, Texas completed a= =20 major upgrade to alleviate bottlenecks on the grid, and it has six similar= =20 projects under way. Unlike most other states, it decided to charge grid use= rs=20 a flat rate to move power anywhere in the state, so they could put plants i= n=20 low-cost rural areas, far from their customers.=20 Those policies, as well as projections that the state's electricity demand= =20 would grow by a robust 3.5% a year, set off a flurry of power-plant=20 construction, beginning in 1998. Since then, $11 billion worth of power=20 plants have been completed or started in Texas, and more are on the drawing= =20 board.=20 By contrast to California's approach to deregulation, which largely failed = to=20 bring new plants online, Texas' strategy "encouraged an overbuild," says Mr= .=20 Makovich, of Cambridge Energy Research Associates.=20 Consider tiny Seguin in south central Texas, where Constellation Energy Gro= up=20 Inc. of Baltimore is building an 800-megawatt gas-powered plant in a former= =20 cornfield. Fifteen miles to the west, Texas Independent Energy LP of Dallas= =20 recently finished a 1,000-megawatt plant. About the same distance to the=20 north, American National Power, a Houston-based unit of Britain's=20 International Power PLC, is building a 1,100-megawatt plant.=20 If generators don't get cold feet, Texas is on track to have a capacity=20 surplus of 9% this summer and 11% by summer 2002, says Cambridge Energy=20 Research Associates. That's in addition to the 15% surplus that most expert= s=20 consider an adequate cushion. Some areas of the country, including parts of= =20 the Southeast, Upper Midwest, New York City and the West, are struggling wi= th=20 razor-thin capacity margins. After factoring in a similar 15% cushion, the= =20 West has an 8% capacity deficit and the Upper Midwest has a 4% deficit.=20 As a result, while electricity futures prices for summer are running at as= =20 much as $400 per megawatt hour in the Northwest and around $100 in the=20 Northeast, Texas futures prices are averaging only $72 to $74 per megawatt= =20 hour.=20 Calpine Corp. of San Jose, Calif., is making the boldest wager that=20 overcapacity and a lack of export possibilities won't sink Texas' wholesale= =20 electricity prices. The company has six plants under construction in the=20 state, two of which are expected to come on line next month. And it plans t= o=20 add an additional five plants over the next two years. Altogether, Calpine= =20 plans to spend about $2.8 billion in the state, its largest investment=20 outside California.=20 "People from day one probably thought Calpine was crazy," says Darrell=20 Hayslip, a company vice president. "But so far, we are absolutely convinced= =20 that this is the right bet." He says Calpine's newer gas-fired plants are 4= 0%=20 more efficient than older plants in the state, a third of which are at leas= t=20 30 years old. Calpine expects that edge to force rivals to retire older=20 plants, thus keeping electricity prices from sagging.=20 Others aren't so sure. After initially planning new plants in Texas, Duke= =20 Energy Corp. began to worry that the state was getting overbuilt. Last May,= =20 Duke, of Charlotte, N.C., sold its 80% stake in a plant under construction = in=20 south Texas to Calpine. "We sized up the market early, and then realized to= o=20 many followers were doing the same thing," says Jim Donnell, president and= =20 CEO of Duke Energy North America.=20 If the electricity situation outside Texas grows too grim and too much supp= ly=20 sinks prices in the state, there could be "renewed pressure" for Texas to= =20 study interconnection options, says John Stauffacher, vice president for=20 regulatory affairs at Houston-based Dynegy Inc., which has 1,000 megawatts = of=20 capacity in Texas.=20 Calpine, for one, wouldn't mind sharing Texas power with the East and West.= =20 "I would love to be able to wheel power from Texas to California," says Mr.= =20 Hayslip. But, so far, the Texas utilities haven't budged in their oppositio= n=20 to exports.=20 A few generators are trying to find the best of both worlds. Tenaska Inc. o= f=20 Omaha, Neb., is building plants at the border between the Texas and eastern= =20 grids. Though utilities aren't allowed to be connected to both grids at onc= e,=20 the plants are designed to allow the company to switch between grids as=20 demand and prices warrant.=20 In rural Grimes County, about 90 miles outside Houston, Tenaska plant manag= er=20 Frank Carelli boasts that his 830-megawatt plant could disconnect from one= =20 grid, connect to the other and be back at full power within an hour. A=20 similar Tenaska plant is slated to begin operations this month in Rusk=20 County, near the Louisiana border.=20 ---------------------------------------------------------------------------= --- ---------------------------------------------------------------------------= --- ---------------------------------- By David Wagman dwagman@ftenergy.com "And it never failed that during the dry years the people forgot about the= =20 rich years, and during the wet years they lost all memory of the dry years.= =20 It was always that way." -John Steinbeck East of Eden, 1952 Electricity in the West this summer will rise and fall on the whim of=20 nature's elemental forces: water for power generation, weather for its effe= ct=20 on demand, and fire=01*or the threat of it=01*for its potential damage to= =20 transmission lines and the grid. And then there's Harvey Rosenfield.=20 A force of nature in his own right, perhaps no one wields more clout over= =20 California's politicians and the rest of the West than Rosenfield. Politica= l=20 watchers say his skill as a consumer advocate and master of California's=20 potent ballot initiative process is so great that he has all but sapped Gov= .=20 Gray Davis' ability to act decisively in this crisis.=20 Given California's role as the West's largest state and biggest economy, th= is=20 leadership gridlock leaves the region facing a virtual political vacuum eve= n=20 as it gropes to find a broader solution to problems of supply and price tha= t=20 are poised to infect at least Oregon and Washington.=20 Running for cover California's political gridlock is so bad that one observer equates the=20 situation to the uncertainty and confusion of a mob during a riot. "Politicians respond when there is a quantifiable problem," said Dan Walter= s,=20 political columnist for the Sacramento Bee newspaper. But the energy crisis= =20 is a "fourth-dimensional problem that mutates every day," making it tough f= or=20 politicians to respond. Walters said a growing sense within the California= =20 state legislature is that the die is cast for this summer and it's time to= =20 run for political cover.=20 But a governor and a legislature bent on self-preservation may be unwilling= =20 or unable to act on a number of important energy issues.=20 "We hope the legislature doesn't become dysfunctional because there's some= =20 stuff that's gotta move," said Tom Williams, a California-based spokesman f= or=20 Duke Energy.=20 One of many priorities is legislative action on the proposed Southern=20 California Edison (SoCal Ed) transmission asset buyout and what observers s= ay=20 is an almost mandatory fix to the imbalance between wholesale and retail=20 markets. Approval of this item has been clouded by questions about the valu= e=20 of owning only a portion of the state's transmission system. Members of=20 Davis' own party appear unconvinced by arguments that SoCal Ed could follow= =20 PG&E into bankruptcy protection.=20 "I've never been afraid of bankruptcy from the beginning," Democratic Senat= e=20 leader John Burton told the Orange County Register in mid-April. "Bankruptc= y=20 court is a better venue for open discussion and investigation."=20 The outlook for action on the second big legislative item may be even worse= =20 as California politicians hope to shield the consuming/voting public from= =20 market forces for as long as possible.=20 "Californians are paying for a product below cost. Customers need to see th= e=20 link between wholesale and retail prices," said Alex Papalexopoulos,=20 president of ECCO International, a San Francisco-based company that designs= =20 regional market structures.=20 News reports also revealed the state spent nearly $5 billion buying power= =20 between January and mid-April. In one two-week stretch from late March to= =20 mid-April, the state's average weekday power costs rose from $45.8 million = to=20 $73 million, a 60% increase. Gov. Davis blamed generators for the higher=20 costs, saying they face greater risk of not being paid. But observers worry= =20 the state itself may be headed toward bankruptcy if it continues to spend f= or=20 electric supplies.=20 CALIFORNIA'S RISING DAILY ELECTRICITY BILL Against this fast-changing backdrop, annual assessments for summer power=20 supplies for California and the West are being released. Perhaps more than = at=20 any other time, the politics of energy are as critical for industry insider= s=20 to understand as the more traditional forecasts of hydro flow, gas=20 availability and transmission constraints.=20 Bleak assessment By those more traditional measures, the summer power assessment is bad=20 enough. Below-normal precipitation in the Northwest has led power planners = to=20 say for months the region will be short of power. The California Independen= t=20 System Operator (ISO) said if consumers use the same amount of electricity= =20 this summer as last the state could face 34 days of rotating blackouts.=20 The Western States Coordinating Council's summer assessment forecasts a pea= k=20 demand of 53,893 MW in the U.S. portion of its California-Mexico subregion.= =20 Load management and interruptible demand are expected to account for almost= =20 1,000 MW of demand, leaving a net internal demand of 52,899 MW, expected fo= r=20 August.=20 But California's tight power supply market may be squeezed further by=20 conditions in the Pacific Northwest. There, electricity prices have recentl= y=20 outpaced California's, according to daily prices reported by Megawatt Daily= .=20 Those high prices suggest the Northwest's hydro shortage is driving the=20 region's crisis, said Doug Logan, principal with RDI Consulting.=20 MONTHLY PEAK PRICE TRENDS IN THE WEST SPREADSHEET "California is screaming, but the Northwest is desperate" for power, he sai= d.=20 Market vulnerabilities Published reports also suggest that almost anything short of a cool summer= =20 will overtax supplies and lead to rolling blackouts in California. Unexpect= ed=20 power plant outages also could trigger blackouts and price spikes, a=20 possibility some say points to market manipulation by power generators.=20 Others say the outages are a natural result of running older plants harder= =20 and longer than ever before.=20 For example, Duke Energy's 165-MW Oakland plant, built in 1895 and=20 revitalized in 1978, typically ran no more than 70 hours a year, said=20 spokesman Tom Williams. During 2000, Oakland ran for 800 hours before its= =20 turbines burned up. Its loss prompted a call from the California ISO, which= =20 said the plant was still needed for baseload operation, Williams said.=20 The danger for much of California is that as the state's older generating= =20 plants are called on to run harder and longer this summer, they will break= =20 down more often and add to the supply problem. With supplies constrained, t= he=20 loss of even a single plant could throw the market into turmoil.=20 "It doesn't matter what the market demand is like if supply is tight," said= =20 Papalexopoulos. Under tight supply conditions, "every market breaks down."= =20 Another critical factor will be environmental controls mandated by the=20 federal Clean Air Act and administered by state air quality management=20 districts. Plants whose NOx emissions exceeded permitted levels last year h= ad=20 to enter the market to buy emission credits. At one point, demand for the= =20 credits was so high they were all but unavailable at any price. When credit= s=20 were available, their price left some power generators paying almost as muc= h=20 for them as for wholesale power. Thus, a crucial factor to watch will be th= e=20 willingness (or ability) of air quality management districts to ease or=20 modify environmental restrictions.=20 CALIFORNIA SUPPLY & DEMAND FROM ECONOMIC FORUM SPREADSHEET Kern River rescue One bright spot seems to be natural gas supplies, which appear adequate or= =20 even improved compared with last year. The improved outlook is due in part = to=20 the fast-track approval by the Federal Energy Regulatory Commission of a 13= 5=20 million-cubic-foot per day expansion to the Kern River pipeline into=20 California. The expanded capacity will import relatively low-cost natural g= as=20 from the Rocky Mountain region for use in California's gas-fired power=20 plants. This should help deflect some price pressure that built up last yea= r=20 at a pipeline choke point on the California-Arizona border.=20 HOW HIGH COULD CALIFORNIA'S ELECTRIC BILL GO? SPREADSHEET But even this bright spot looks a bit cloudy, said Mike Farina, a power=20 consultant with RDI Consulting in Boulder, Colo. Uncertainty remains over= =20 whether Kern River's extra gas capacity can make it through a second=20 unrelated congestion point at Wheeler Ridge, Calif. There, the pipeline=20 connects with a web of in-state distribution pipes. What's more, low hydro= =20 supplies will lead to even more reliance on gas-fired power plants for=20 electricity. And, Farina said, a cold snap could boost demand for natural g= as=20 for space heating. That could cause an unexpected twin demand peak coincide= nt=20 with electric generation demand. A similar dual peak occurred last summer,= =20 adding to upward pressures on natural gas prices.=20 READ MORE ABOUT THE GAS FACTOR Sending price signals On the demand side, a key factor will be how effective the recent rate=20 increase approved by the California Public Utilities Commission is at=20 dampening consumer demand.=20 The rate hike could send a powerful price signal for consumers to reduce=20 demand, said John Egan, director of strategic and marketing issues for=20 Boulder, Colo.-based E Source, the retail consulting division of Financial= =20 Times Energy. Reports already have made much of the fact that California's= =20 market lacks a good set of demand-side tools to send price signals to=20 consumers. One exception has been in the industrial sector where=20 interruptible contracts and real-time metering have regularly forced=20 conservation responses.=20 AVERAGE ELECTRIC WHOLESALE PRICES SPREADSHEET Indeed, large energy users have already reacted to the crisis by moving awa= y=20 from interruptible contracts and toward aggressive energy hedging strategie= s=20 just to remain in business, said Brennan Higgins, market intelligence manag= er=20 for Louisville, Ky.-based Summit Energy. His clients include large end-user= s=20 nationwide. "Manufacturers have quit looking at rates in terms of saving=20 money and now are looking at their ability to run their plants," he said.= =20 READ MORE ABOUT CALIFORNIA'S CAPACITY ISSUES Looking beyond the summer, a primary factor for California's recovery will = be=20 how much new generating capacity is added. As one gauge, insiders watch to= =20 see how lenders and developers respond to what some say are frequent and=20 numerous rule changes within the state.=20 "The rules change almost on a real-time basis," said Jerry Pfeffer, a=20 Washington, D.C.-based attorney who specializes in utility finance. As a=20 result, risk premiums have risen and may work against the state's efforts t= o=20 expand its generating capacity.=20 In the past, baseload coal or nuclear plants were all but impossible to mov= e=20 once they were approved for a specific location. Today, natural gas turbine= =20 technologies=01*and the money to build them=01*are more mobile. With other = parts of=20 the country growing anxious for new generating capacity, lenders and=20 developers can take their turbines to states offering less political=20 volatility and uncertainty.=20 The power supply assessment for California and the Pacific Northwest this= =20 summer appears bleak. Uncontrollable forces of nature=01*temperature, rainf= all=20 and fire=01*may make or break a market where political blunders have expose= d=20 gaping vulnerabilities. As a result, the "Harvey factor," as the game of=20 energy politics in California is coming to be known, emerges as a central= =20 theme for California and the West.=20 READ MORE ABOUT THE HARVEY FACTOR In California this summer, said E Source's John Egan, "there is a much=20 shorter list of things that could go right."=20 To read more analysis about the California energy situation, click on the= =20 links below. READ MORE ABOUT CONSERVE READ MORE ABOUT HYDRO READ MORE ABOUT MONEY TALKS READ MORE ABOUT SOLUTIONS =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Fri, 7/27: Hopes dim for a quick Edison deal SD Union, Fri, 7/27: Sempra's trading unit generates a windfall LA Times, Fri, 7/27: Smog Rules May Be Eased LA Times, Fri, 7/27: Federal Caps Didn't Deter Higher Prices SF Chron, Fri, 7/27: Calpine profits double on skyrocketing sales Escalating power prices inspire plant building program SF Chron, Fri, 7/27: Generators continue to set high electricity prices SF Chron, Fri, 7/27: THE ENERGY CRUNCH Environmental suit against power plant Expansion called danger to slough OC Register, Fri, 7/27: Let's make a real deal with Edison (Editorial) LA Times, Fri, 7/27: California Sempra Continues Improved Results LA Times, Fri, 7/27: California Calpine Doubles Earnings, Beats Forecasts Energy: San Jose-based company credits higher electricity prices in California and sales from new plants LA Times, Fri, 7/27: Cap No Bar to Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the U.S.-imposed limits WSJ, Fri, 7/27: Calpine Net Soars On Added Plants; Sempra Profit Rises ------------------------------------------------------------------------------ ---------------------------------------------- Hopes dim for a quick Edison deal By Kevin Yamamura Bee Capitol Bureau (Published July 27, 2001) The Assembly will not return this week to consider a plan to save California's second-largest utility from bankruptcy, all but ending hopes that legislation would reach Gov. Gray Davis by a mid-August deadline. A group of legislators and Davis staffers has worked this week on an agreement that would restore Southern California Edison's credit and relieve the state of having to purchase energy for the utility. Assembly leaders, who convened the group, set an ambitious schedule that would have led to a vote today had they reached consensus and been able to recall enough of the 80 Assembly members from summer recess destinations. But the newly formed plan, which would issue $2.9 billion in consumer-backed bonds in exchange for several Edison concessions, remains too rough for a vote, said Paul Hefner, a spokesman for Assembly Speaker Robert Hertzberg, D-Sherman Oaks. Hefner was quick to note that Hertzberg has the Assembly "on call" for the scheduled monthlong break and is prepared to ask members to return if a deal comes in the next three weeks. But staff and lawmakers said earlier that organizing a mass return after today would prove nearly impossible because Assembly members are expected to travel throughout the state and beyond. Davis set an Aug. 15 deadline in his original Edison deal and recently said he could call a special session forcing legislators to return if they do not authorize a plan by then. His spokesman, Steven Maviglio, said Thursday the governor is not ruling out that idea but is waiting to see what comes of further legislative discussions. "It's pretty clear that everyone's working pretty hard to form a consensus, but they're just not there," Maviglio said. "The governor is optimistic about the Aug. 15 date." Even so, Edison does not expect a solution by then. Company officials stated earlier this week that they would wait for a political deal at least until lawmakers return Aug. 20. The Bee's Kevin Yamamura can be reached at (916) 326-5542 or kyamamura@sacbee.com <mailto:kyamamura@sacbee.com>. Sempra's trading unit generates a windfall \ objattph By Craig D. Rose UNION-TRIBUNE STAFF WRITER July 27, 2001 Sempra Energy, the parent company of SDG&E, reported a 25 percent surge in profit to $137 million last quarter but said yesterday it lost money on the sale of electricity under a long-term contract to California. On the other hand, Sempra said its largest source of profits was its energy trading unit, a middleman that earned $69 million during the quarter buying and selling energy produced by others. The results underscore the transformation of relatively simple utility companies into diversified energy holding companies that have learned to profit in new ways from the deregulation of electricity and the turmoil in energy markets. The surprising announcement -- that a company lost money selling power during California's run-up in electricity prices -- was explained by Sempra as an intentional consequence of the long-term contract it signed with the state to provide power. Stephen Baum, chairman and chief executive officer of Sempra, said the company agreed to provide a steep discount to California during the summer months but would recoup the losses later in the 10-year deal. California sought long-term electricity purchase contracts so it could reduce its purchases in daily and near-term power markets, where prices reached record levels. Critics say Gov. Gray Davis rushed into long-term deals because of concerns about getting through next year's election. They also say the contracts will saddle customers with higher costs for years. The governor has acknowledged that long-term contracts might cause consumers to pay relatively high prices for electricity in later years, but he maintains it is a fair price to pay for lowering prices that were devastating the state economy. Michael Shames, executive director of the Utility Consumers' Action Network in San Diego, said the steep discount Sempra provided to the state on power this summer raised questions about the governor's proposal to help San Diego Gas & Electric Co. clear a debt of $750 million. SDG&E says it is owed that money for power purchases on behalf of its customers. In a media conference last month, Davis said the agreement would eliminate the threat of a possible balloon payment for consumers, who he said might have faced the so-called balancing account debt as early as next year. Shames says the proposal, which took the form of a memorandum of understanding, or MOU, is costly for consumers and a bonanza for Sempra. He said the relatively cheap power provided by Sempra this summer "makes the MOU sound like more of a hidden payback to Sempra than a real relief plan for local ratepayers." Shames said he will release an analysis of the state's Sempra plan next week. The state Public Utilities Commission is expected to rule on the plan in August. A Sempra spokesman said there is no connection between discount power and the tentative agreement to clear the $750 million debt. Doug Kline, the Sempra spokesman, said the power contract with the state was signed in early May and the agreement on the balancing account was reached in mid-June. Sempra Energy Trading, meanwhile, said only 10 percent of its $69 million profit was earned from sales of energy in the western region, which includes California. The trading operation earned $40 million in profit during the comparable period last year. California's Independent System Operator, which manages most of the state power grid, and other investigators have said trading and bidding strategies were tools used by energy companies to raise prices during the California power crisis. Though Sempra earned money on trading, its wholesale power generating business lost $9 million during the quarter. Baum said the discounts on electricity provided the state were the prime cause of the loss for Sempra Energy Resources but added that a plant outage also contributed. Sempra Energy Resources, which co-owns a generating plant near Las Vegas with Reliant Energy, earned $2 million during the second quarter last year. Baum added that Sempra's long-term contract with the state -- under which it will provide up to 1,900 megawatts -- has allowed its wholesale business to pre-sell about half the power it expects to generate from the Nevada plant, which will be expanded, and three generating facilities it expects to build. Profits at SDG&E slipped to $37 million during the quarter ended June 30, down from $40 million last year, according to Sempra. SDG&E, whose business is restricted to delivering gas and electricity, said it provided increased customer service during the crisis, which lowered profits. Wall Street analysts generally applauded Sempra's results, noting that the company was ahead of its plan to generate at least a third of its profits from its newer businesses by 2003. "They're really two years ahead of schedule for their non-utility businesses," said Brian Youngberg, an analyst with Edward Jones & Co. Bud Leedom, a San Diego-based analyst with Wells Fargo Van Kasper, said Sempra's move into energy trading now seems shrewd. "We never dreamed they were setting themselves for a windfall like this," Leedom said. Investors pushed Sempra shares up 17 cents yesterday, to close at $25.49 in trading on The New York Stock Exchange. Bloomberg news service contributed to this report. Smog Rules May Be Eased Power plants: EPA proposes a sweeping change in how utilities' emissions are curbed, a flexible approach favored by the industry. By GARY POLAKOVIC and ELIZABETH SHOGREN Times Staff Writers July 27 2001 WASHINGTON -- U.S. Environmental Protection Agency Administrator Christie Whitman proposed sweeping changes Thursday in the regulation of power plant pollution that would replace five of the government's toughest programs with a single, flexible approach favored by utilities. Whitman outlined a plan for cleaning up major components of power plant smog that represents a significant departure from the EPA's traditional regulatory dictums. She called for a major expansion of pollution credit trading, which, up to now, has had varying success. Under the new plan, the EPA would scrap some of the most stringent measures devised by the agency to deal with power plant emissions. One provision to be set aside aims to cut harmful mercury emissions; another is meant to reduce emissions from Midwestern power plants by 85%; another is designed to restore visibility at national parks. Especially unpopular with industry, one measure, known as new source review, requires the installation of advanced pollution controls whenever power plants are expanded or modified. It too would be phased out. "New source review is certainly one of those regulatory aspects that would no longer be necessary," Whitman told Sen. George Voinovich (R-Ohio) at the hearing by the Environment and Public Works Committee. "All of those [programs] could be aligned into one regulatory process" that she said would work better than existing rules. Whitman's comments offer the first peek into the administration's plans for cleaning some of the dirtiest polluters left in the nation. Debate over the administration's clean-air approach has shifted to Congress as it considers whether to revise the national Clean Air Act. The magnitude of the proposed revisions caught environmentalists by surprise but buoyed industry representatives who say existing controls are costly and inefficient. "She has raised an appalling prospect of junking virtually every rule and strategy to deal with emissions of electric companies in return for some vague industry-sought plan for an emissions trading scheme," said Frank O'Donnell, executive director of the Clean Air Trust, an environmental advocacy group. "If they go forward with this, it means a wholesale fight over the Clean Air Act in Congress." After the hearing, Whitman stressed that the overall goal is to clean the air more efficiently than current rules do. Although the administration has not yet released a so-called multipollutant cleanup strategy, Whitman contended that collapsing several regulations into one far-reaching approach would be easier for regulators and industry to manage. "What we're looking for is targets under this legislation that significantly clean up the air beyond what our current regulatory, statutory requirements would do," Whitman said. She added that new source review, for example, "could potentially be no longer necessary if you have the right kind of targets set in a multi-emissions bill. We have to wait and see where the targets are set." Utilities have lobbied Vice President Dick Cheney's energy task force to prevent the EPA from aggressively enforcing the new source review regulation. Industry and administration officials say the provision is onerous and prevents plant upgrades, although EPA officials say it is a key tool for forcing dirty, old plants to cut emissions by up to 95%. During the Clinton administration, federal officials charged that 32 coal-fired power plants in several Southern and Midwestern states ignored a requirement that companies install advanced emission controls when their plants were upgraded. The government reached settlement with three utilities, but a provision in the Bush administration's energy plan stalled those enforcement actions pending a review of power plant controls. C. Boyden Gray, attorney for the Electric Reliability Coordinating Council and former White House counsel for the first President Bush in the 1980s, praised the administration's proposal. He said major utility companies he represents, including Southern Co., Duke Energy Co. and the Tennessee Valley Authority, could clean up with greater flexibility and less cost under the plan outlined by Whitman. "To put everything in a market-incentives basis is a great step. It would be a real breakthrough and a plus for the business community," Gray said. For example, Gray said EPA has four separate measures to control nitrogen oxides from power plant combustion, including programs to cut acid rain, ozone and haze. Another program scheduled to take effect in May 2004 requires power plants in 19 states to cut summer emissions by 1 million tons annually. He said those programs can be confusing and costly and could easily be replaced by a credit-trading program run largely by power companies. Under the program being considered by the Bush administration, an emission limit could be established at hundreds of power plants followed by annual reductions in mercury, a toxic metal, as well as smog-forming nitrogen and sulfur oxides. However, a provision to reduce carbon dioxide, a gas implicated in global warming, was dropped under industry pressure. Power companies that reduce beyond their limits could sell emission credits, which represent a pound of pollution, to companies that exceed their limits. Although industry and free-market advocates favor such programs, they are not without controversy. The record of market-driven programs is mixed. On the one hand, the nation's acid rain program uses marketable permits and is widely credited with cutting sulfur oxides at less cost. On the other hand, the world's first market-driven program to tackle urban smog has not worked in Los Angeles, where nearly 400 power companies and manufacturers failed to achieve significant cleanup for the nearly eight years the program has been in effect. Further, many environmental groups are wary of market-driven programs because by design they preclude active government intervention. Critics say such programs could potentially limit public review of power plant operations, allow emissions to concentrate in poor communities and slow efforts to cut haze in national parks downwind from plants that elect to buy pollution credits instead of cleaning up. The Bush administration's power plant strategy was aired before the Senate Environment and Public Works Committee, which is chaired by Sen. James M. Jeffords (I-Vt.), whose dramatic departure from the GOP threw control of the Senate to the Democrats. Jeffords is proposing legislation, different from the administration's approach, that would control four power plant pollutants, including the greenhouse gas carbon dioxide, an approach rejected by the Bush administration. Prospects appear to be increasing that Congress will pass one or more measures designed to reduce carbon dioxide emissions, a belated response to this week's decision by more than 180 countries to deal with the problem without the involvement of the United States. Indeed, in recent weeks several members in the GOP-led House and Democratic Senate have voted on bills with the intention of disassociating themselves from President Bush's environmental policies before the next election. Among the votes, the House struck down a provision supported by the Bush administration that could hinder progress on global climate change policy. The Senate banned new coal mining and oil and gas drilling in national monuments. Other recent rebuffs included rejections of administration initiatives on such issues as the Endangered Species Act, hard-rock mining regulations and offshore drilling for oil and gas. Copyright 2001, Los Angeles Times <http://www.latimes.com> Federal Caps Didn't Deter Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the imposed limits. By NANCY VOGEL TIMES STAFF WRITER July 27 2001 SACRAMENTO -- After federal regulators limited wholesale electricity prices last month, big private sellers of power in California continued to ask as much as five times more for electricity than the federal cap, according to a confidential study by state grid operators. The analysis by the California Independent System Operator covers only the first week after the caps were imposed June 20. Cal-ISO has submitted the data to federal regulators for potential investigation. The report is a summary of what Cal-ISO calls possible anti-competitive behavior by Duke Energy, Williams Cos., Mirant Corp., Reliant Energy and Dynegy Corp. "In a truly competitive market we would expect these suppliers to bid very close to their actual operating cost," said Greg Cook, senior policy analyst with Cal-ISO's Department of Market Analysis. The state did not necessarily purchase any power at the high prices being demanded. Instead, the significance of the bids is that they show how California could find itself paying exorbitant prices for electricity again if hot weather returns and conservation slackens, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California, the bids submitted by generators could be very costly to California." Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates of what each paid for natural gas to fuel the plants. The average cost for the five was $105 per megawatt-hour, which closely matches the federal price limit in California, which now stands at $101 per megawatt-hour. According to the power bidding procedures, companies that bid at or below their cost of production often still get paid a higher price, allowing them to make a substantial profit. On average, four of the five companies submitted bids either slightly below or slightly above their cost of production. But with the exception of Atlanta-based Mirant, each company at times submitted bids that were substantially higher. Houston-based Reliant, for example, bid as much as $540 per megawatt-hour, more than five times its estimated cost. Overall, Reliant's average bid was close to costs, according to the analysis. Cal-ISO identified companies by code in its report. Sources familiar with the study identified the companies for The Times. The Cal-ISO report singled out "Supplier 5," identified by sources as Charlotte, N.C.-based Duke Energy, saying the company "continues to bid significantly in excess of its operating costs." Duke owns two large power plants on the central coast. It marked up its bids an average of 88% beyond its cost to produce electricity, according to the analysis. For example, it cost Duke $85 to $121 to generate a megawatt-hour of electricity in the time period studied, the report shows, but the company offered to sell a megawatt-hour from $149 to $195. Duke spokesman Tom Williams on Thursday said, "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood." Duke sells nearly the entire output of its power plants under long-term contracts, and not on the spot market, which the Cal-ISO report studied, he noted. Reliant spokesman Richard Wheatley said, "We're looking at the data, and we question whether or not it is correct." A combination of cool weather, heavy conservation, the start-up of new power plants and recently signed long-term power contracts that guarantee supplies have eased the state's electricity crisis in recent weeks. Market prices that as recently as May averaged $271 per megawatt-hour have dropped to less than $100 per megawatt-hour. The more abundant power supplies have freed grid operators to ignore higher-priced bids. But they will have to consider paying such prices to avoid blackouts if supplies tighten, Wolak said. Such a scenario would test the effectiveness of the Federal Energy Regulatory Commission order issued June 19, he said. The bids of the five companies analyzed were offers of sales to Cal-ISO, a Folsom-based agency that manages the electrical transmission grid serving 75% of California. Cal-ISO buys power on short notice to smooth the flow on the state's electrical freeway and avert blackouts. As California's fledgling market began to go haywire last fall, Cal-ISO workers struggled to purchase as much as 30% of the state's power demand with just hours to spare. Since then, the market has stabilized, and Cal-ISO's purchases now amount to roughly 5% of the electricity California consumes. RELATED STORY Power profits: Power plant operator Calpine said its quarterly profit more than doubled. C2 Copyright 2001, Los Angeles Times <http://www.latimes.com> Calpine profits double on skyrocketing sales Escalating power prices inspire plant building program Carolyn Said, Chronicle Staff Writer <mailto:csaid@sfchronicle.com> Friday, July 27, 2001 ,2001 San Francisco Chronicle </chronicle/info/copyright> URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/27/ BU234287.DTL> Fueled by high electricity prices, power generator Calpine Corp. reported strong second-quarter results yesterday. Calpine of San Jose said profit for the quarter ended June 30 almost doubled to $107.7 million (32 cents per share) from $59.5 million (20 cents) during the year-ago quarter. Revenue almost quadrupled to $1.61 billion from $417.2 million a year ago. Excluding charges related to the acquisition of Canada's Encal Energy, Calpine's net income was $132.2 million (39 cents), well above the 31 cents per share predicted by analysts, according to Thomson Financial/First Call. Calpine is on an ambitious path to expand its roster of generating plants. By the end of 2005, it expects to have 75,000 megawatts in operation in the United States, including 12,000 megawatts in California. A megawatt is about enough power for 1,000 homes. The company, which generates 2,428 megawatts in California, this summer opened the state's first two major power plants in a decade. The new plants in Yuba City (Sutter County) and Pittsburg generate 547 and 555 megawatts, respectively. Combined with a new plant in Arizona that sells power to California, Calpine's new facilities helped the state stave off threatened blackouts this summer, Chief Executive Officer Peter Cartwright said. Calpine is building the 847-megawatt Delta Energy Center in Pittsburg, scheduled to open in May, and a 750-megawatt plant in Kern County, due in June 2003. It is also awaiting an August decision by the California Energy Commission on its proposed 600-megawatt Metcalf Energy Center in San Jose. "California is a very good market for us," said Bill Highlander, a Calpine spokesman. "The pricing in California has benefited Calpine." However, he said, the company was not one of the traders that focused on making top dollar in California's volatile spot market, because its business model concentrated on selling electricity through long-term contracts. During the past few months, Calpine signed 10-year and 20-year contracts with the state for as much as 2,500 megawatts, at prices ranging from $58.60 to $73 per megawatt hour. With most of its plants fired by natural gas, Calpine wants to control about a quarter of the gas it uses, Highlander said. Its April purchase of Encal Energy for $1.77 billion more than doubled its gas reserves, to about 1. 7 trillion cubic feet equivalent, according to Hoover's Online. Calpine's stock closed up $1.08 at $36.89 yesterday. E-mail Carolyn Said at csaid@sfchronicle.com <mailto:csaid@sfchronicle.com>. ,2001 San Francisco Chronicle </chronicle/info/copyright> Page B - 1 Generators continue to set high electricity prices Friday, July 27, 2001 ,2001 Associated Press URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/27/state 0359EDT0121.DTL> (07-27) 00:59 PDT LOS ANGELES (AP) -- Power wholesalers continued to demand higher prices for energy despite federal regulation that capped electricity rates, according to a confidential report by the California Independent System Operator. In one case, an energy company charged as much as five times more for electricity than the federal cap, which were imposed June 20. State grid operators have given the study to federal regulators for a possible investigation, the Los Angeles Times reported Friday. Five companies were identified by code in the report and sources familiar with the study named the wholesalers for the Times. They include Duke Energy, Dynegy Corp., Mirant Corp., Reliant Corp., and Williams Cos. The average price charged by the five power companies was $105 per megawatt-hour, which closely matches the federal price limit in California set at $101 per megawatt-hour. Four of the five companies submitted bids either just below or just above their cost of production. Houston-based Reliant, however, asked as much as $540 per megawatt-hour in some cases. Overall, the company's average bid was close to costs, the report said. The state wasn't required to purchase power at the rates set by wholesalers but the bids reflect a potential repeat of charging exorbitant electricity prices if temperatures soar and conservation dwindles, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California, the bids submitted by generators could be very costly to California." The Cal-ISO report singled out Duke Energy, noting it "continues to bid significantly in excess of its operating costs." The report shows the company's cost to produce electricity was between $85 and $121 but it offered to sell a megawatt-hour from $149 to $195. Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates what each paid for natural gas to fuel the plants. "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood," said Duke spokesman Tom Williams. ,2001 Associated Press THE ENERGY CRUNCH Environmental suit against power plant Expansion called danger to slough Christian Berthelsen, Scott Winokur, Chronicle Staff Writers <mailto:cberthelsen@sfchronicle.com> Friday, July 27, 2001 ,2001 San Francisco Chronicle </chronicle/info/copyright> URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/27/ MN236840.DTL> An environmental group filed suit yesterday to overturn a permit granted to Duke Energy Co. to expand a major power plant south of Santa Cruz. Saying the permit was illegally awarded, the suit warns that the resulting project will damage the ecologically important Elkorn Slough. Voices of the Wetlands accuses the board that awarded the permit of violating federal law by not requiring Duke to use the best possible technology to minimize impacts on the environment around the Moss Landing power plant. If plans to expand the plant proceed without change, the group said, it would kill off critical organisms at the bottom of the food chain. The suit, filed in Monterey County against the California State Water Resources Control Board and the regional board that serves the central coast, seeks a court order to return the case to the regional water district so that more environmentally sensitive cooling technology can be ordered for use at the plant. State officials said yesterday that the issues raised in the suit were considered and rejected during the initial permit approval process last year, and again during the appeal process this year. The case comes amid enormous pressure on state officials, in light of California's energy crisis, to rapidly accelerate power plant approvals and expand the amount of power generation available. Against this backdrop, the state water board on June 21 essentially rejected environmental groups' appeal that had sought to overturn the district board's decision approving the Moss Landing expansion permit. On another front, board members of the California Energy Commission took testimony earlier this week on a proposal to curtail public review of plant project proposals, with one board member, Robert A. Laurie, acknowledging in an interview that he believed "in some cases" it posed one of the most time- consuming aspects of project approval. A recommendation is expected within the next month. Duke, of Charlotte, N.C., bought the Moss Landing plant from Pacific Gas & Electric Co. in 1998, when the Northern California utility sold off many of its facilities to prepare for deregulation of the energy market. The plant was built in 1950 using a cooling system technology that sucks water out of the Elkorn Slough and Monterey Bay to cool generating turbines before spitting the water out into the Pacific Ocean. The group says wildlife conditions and sea otter population have improved markedly since PG&E mothballed many of the generating units at Moss Landing in 1995. But Duke now is proposing to resurrect parts of the cooling system in a major expansion that will make Moss Landing the state's largest power plant after its completion next summer. With an output of 2,538 megawatts, the plant when completed is expected to account for 30 percent of all new electricity generated in California next year, serving about 2.5 million households in the Monterey, Santa Cruz and southern Santa Clara County areas, including San Jose. Regional water quality board officials declined comment yesterday, citing the pending litigation. But in public documents filed yesterday, water officials said cooling alternatives had been considered and rejected. The documents did not elaborate on why they were not mandated. Duke had acknowledged during the process that more ecologically sensitive technologies were available, but at prohibitive costs of $20 million to $50 million more. Deborah Sivas, an attorney for the Earthjustice Environmental Law Clinic, which filed the suit on behalf of Voices of the Wetlands, considered the best technology alternatives mandatory, not optional. She said the board had not considered alternative approaches in reaching its conclusions. E-mail the writers at swinokur@sfchronicle.com <mailto:swinokur@sfchronicle.com> and cberthelsen@sfchronicle.com <mailto:cberthelsen@sfchronicle.com>. ,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 3 Let's make a real deal with Edison July 27, 2001 By JONATHAN LANSNER The Orange County Register When any government official tries to play business executive, it's time to get nervous. Take the Edison bail out as evidence. At its essence, the deal works like this: Taxpayers give the utility a big pile of cash; the state gets some old, rickety transmission lines in return. Don't be fooled: The power bounty is basically a political ploy. The state doesn't need to control electric distribution. What politicos need is a face-saving trade as evidence that this is a business deal - not a government handout. The state probably should just write the check and eat its losses. But if bureaucrats wanted real remuneration from this bail out, California would eye some juicy Edison assets. As a public service, I'll list a few. Now, for argument's sake, I won't differentiate between the utility and its parent company, Edison International. Hey, lawyers built those walls between the two. Let 'em figure out how to take 'em down. For starters, you'd figure an energy-strapped state would like some regional power plants, no? Like the San Onofre facility. However, it might be laughable to see Sacramento-types defending their future handling of the local nuclear plant. OK, if that's a tad too dicey for the state, how about a coal-fired plant in Nevada? Heck, Edison had a buyer at half a billion bucks before the state oddly quashed that deal. Maybe the state could grab it from Edison -- then flip it to pay off electricity-related debts. Of course, buying one of the out-of-town power plants that Edison's sister company in Irvine has acquired might be educational for Sacramento. Owning a plant in Illinois or Pennsylvania or possibly New Zealand might show state honchos how easy - or not - it is to rig supply and prices. Alternatively, the state could demand a small entity called Edison Capital. Basically, it's a bank. One specialty: the politically correct field of affordable-housing lending. A good fit for bureaucrats. Speaking of money, there's the Edison pension plan. Governments are really good at running retirement benefits. Heck, California already has a huge one. There's got to be some economies of scale - real cash savings - in merging the Edison plan with some state pension fund. Do note that Edison's plan might be overfunded by about $400 million. You can bet, though, that the state would never have the nerve to play 1980s corporate raider: profiting by grabbing some of a company's overfunded retirement kitty. Finally, there's Edison International Field in Anaheim. Stadium naming-rights contracts must have some value since corporations always seem to fight over these promotional gimmicks. (The utility's parent company paid $50 million in 1997 for two decades of "free" publicity.) Imagine the buzz the state could get out of the huge sign age on a nationally renowned stadium. Plus, maybe the Angels could be good corporate citizens and tie into this deal. It's possible they'd allow a slight change in the team name to better emphasize the state's role in the ballpark. So, how does "California Angels" sound to you? Business; Financial Desk California Sempra Continues Improved Results NANCY RIVERA BROOKS 07/27/2001 Los Angeles Times Home Edition Page C-2 Copyright 2001 / The Times Mirror Company Sempra Energy on Thursday reported another quarter of higher earnings and revenue, a sharp contrast to California 's bigger and beleaguered investor-owned utilities. Although California 's electricity crisis has pushed Southern California Edison and Pacific Gas & Electricity into insolvency--and PG&E into U.S. Bankruptcy Court--the parent of San Diego Gas & Electric and Southern California Gas continues to post improved results on the strength of its non-utility businesses. Net income for the period ended June 30 rose 25% to $137 million, or 66 cents a share, up $25 million, or 55 cents, earned a year ago, the San Diego-based utility holding company said. Revenue jumped 40% to $2.1 billion. Pretax operating income rose 24% to $291 million. Sempra's earnings came in just ahead of the 65-cent average estimate of analysts surveyed by First Call/Thomson Financial. "Our strong second-quarter performance is primarily the result of our efforts to accelerate growth through new businesses," Stephen L. Baum, Sempra's chairman, chief executive and president, told analysts in a conference call. Sempra is in a vastly different position than Edison International and PG&E Corp. because its electric utility arm was able to avoid the deep financial woes afflicting their respective Southern California Edison and Pacific Gas & Electric utilities. SDG&E was first to sell its power plants two years ago and thus was freed from a rate freeze. That in turn allowed the utility to pass along to customers the soaring costs of electricity beginning last summer. The state Legislature eventually rolled back and capped the rates for SDG&E customers, but promised the utility it would be allowed to recover those losses. Edison and PG&E, however, continued to accumulate staggering debts because their retail rate freezes remained in place. In contrast, Sempra is solvent, with $1.5 billion in cash and $1 billion in available credit, Baum said. The performance of its utilities was lackluster, with Southern California Gas earning $47 million, unchanged from the second quarter of 2000, and SDG&E earning $37 million, down from $40 million in the year-ago period. But Sempra's unregulated businesses--including energy trading, power plant construction and operation, international electricity operations and energy services--turned in an overall strong performance, contributing 39% of the parent company's earnings. Sempra's trading unit provided most of that profit, contributing $69 million to second-quarter net income compared with $40 million in the same quarter last year. Sempra's stock gained 17 cents to close at $25.49 on the New York Stock Exchange. Business; Financial Desk California Calpine Doubles Earnings, Beats Forecasts Energy: San Jose-based company credits higher electricity prices in California and sales from new plants. 07/27/2001 Los Angeles Times Home Edition Page C-2 Copyright 2001 / The Times Mirror Company Calpine Corp., one of the biggest U.S. power-plant builders, said Thursday that second-quarter earnings more than doubled, beating estimates, because of higher electricity prices in California and sales from new plants. Profit from operations rose to $132.2 million, or 39 cents a share, from net income of $59.5 million, or 20 cents, a year earlier. Revenue almost quadrupled to $1.61 billion. San Jose-based Calpine opened plants in the U.S. with a combined capacity of 1,545 megawatts--enough to light 1.5 million average homes--and benefited from existing plants in California . Calpine has insulated itself from rising fuel costs by buying natural-gas fields to supply its plants. "Given the strategy they have chosen, they're following through quite well," said Andre Meade, an analyst at Commerzbank Capital Markets Co. "They are growing from a small base and adding a lot of plants, so we'd expect high growth." Profit topped the 31-cent average estimate of analysts surveyed by First Call/Thomson Financial. Calpine said it expects to earn $2 a share this year. The average First Call forecast was $1.92, with a range of $1.80 to $2.04. Calpine's shares rose $1.08, or 3%, to close at $36.89 on the New York Stock Exchange. The shares had fallen 21% this year amid concern that generators might have to give back some of the profit they made selling power in California during the last year. In addition, cooler-than-normal weather and conservation efforts recently reduced power prices in the state. Calpine runs or is building natural gas plants in 29 U.S. states and Canada that produce more than 30,000 megawatts of power. The company plans to more than double capacity to 70,000 megawatts by the end of 2005. Calpine this month opened the $350-million Sutter plant, California 's first major generator in more than a decade. The company is building 11 plants to run during times of peak demand in the state and getting permits for four more, James Macias, who oversees Calpine's West Coast power plants, said in a conference call with analysts and investors. Separately, Arlington, Va.-based AES Corp., a power producer that supplies California and operates in 27 countries, said second-quarter profit fell 20% because of losses tied to currency fluctuations and the sale of a U.S. electricity retailer. Net income fell to $112 million, or 21 cents a share, from $140 million, or 28 cents, a year earlier. Sales rose 26% to $2.21 billion. California ; Metro Desk Cap No Bar to Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the U.S.-imposed limits. NANCY VOGEL 07/27/2001 Los Angeles Times Ventura County Edition Page B-1 Copyright 2001 / The Times Mirror Company SACRAMENTO -- After federal regulators limited wholesale electricity prices last month, big private sellers of power in California continued to ask as much as five times more for electricity than the federal cap, according to a confidential study by state grid operators. The analysis by the California Independent System Operator covers only the first week after the caps were imposed June 20. Cal-ISO has submitted the data to federal regulators for potential investigation. The report is a summary of what Cal-ISO calls possible anti-competitive behavior by Duke Energy, Williams Cos., Mirant Corp., Reliant Energy and Dynegy Corp. "In a truly competitive market we would expect these suppliers to bid very close to their actual operating cost," said Greg Cook, senior policy analyst with Cal-ISO's Department of Market Analysis. The state did not necessarily purchase any power at the high prices being demanded. Instead, the significance of the bids is that they show how California could find itself paying exorbitant prices for electricity again if hot weather returns and conservation slackens, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California , the bids submitted by generators could be very costly to California ." Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates of what each paid for natural gas to fuel the plants. The average cost for the five was $105 per megawatt-hour, which closely matches the federal price limit in California , which now stands at $101 per megawatt-hour. According to the power bidding procedures, companies that bid at or below their cost of production often still get paid a higher price, allowing them to make a substantial profit. On average, four of the five companies submitted bids either slightly below or slightly above their cost of production. But with the exception of Atlanta-based Mirant, each company at times submitted bids that were substantially higher. Houston-based Reliant, for example, bid as much as $540 per megawatt-hour, more than five times its estimated cost. Overall, Reliant's average bid was close to costs, according to the analysis. Cal-ISO identified companies by code in its report. Sources familiar with the study identified the companies for The Times. The Cal-ISO report singled out "Supplier 5," identified by sources as Charlotte, N.C.-based Duke Energy, saying the company "continues to bid significantly in excess of its operating costs." Duke owns two large power plants on the central coast. It marked up its bids an average of 88% beyond its cost to produce electricity , according to the analysis. For example, it cost Duke $85 to $121 to generate a megawatt-hour of electricity in the time period studied, the report shows, but the company's bids ranged from $149 to $195 per megawatt-hour. Duke spokesman Tom Williams on Thursday said, "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood." Duke sells nearly the entire output of its power plants under long-term contracts, and not on the spot market, which the Cal-ISO report studied, he noted. Calpine Net Soars On Added Plants; Sempra Profit Rises By Rebecca Smith 07/27/2001 The Wall Street Journal Page B4 (Copyright (c) 2001, Dow Jones & Company, Inc.) Calpine Corp. reported net income nearly doubled in the second quarter, reflecting the independent power producer's aggressive plant-building program. Meanwhile, the parent of a San Diego utility said profit rose 25%. Calpine, of San Jose, Calif., said net was $107.7 million, or 32 cents a share, up from $59.5 million, or 20 cents a share, a year earlier. The latest results, which were in line with analysts' expectations, included a special charge of seven cents a share related to Calpine's purchase of Encal Energy Ltd., a natural-gas company. Revenue grew even more strongly, soaring to $1.61 billion from $417.2 million. Separately, Sempra Energy, parent of electric utility San Diego Gas & Electric, reported profit rose to $137 million from $110 million a year earlier. Revenue jumped 40% to $2.1 billion from $1.5 billion. Sempra Chairman Steve Baum attributed the growth, which stands in marked contrast to the financial woes of California 's other electric-utility-owning energy companies, to Sempra's unregulated operations. Calpine's profit increased despite paying substantially more for natural gas to fuel its plants. It spent an average of $4.80 per million British Thermal Units for natural gas, up from $3.31 a year before. At the same time, Calpine's revenue per megawatt hour of electricity sold also rose, to $71.03 in the latest period from $64.80 a year earlier. At Sempra, Mr. Baum said profit from Sempra's biggest utility unit, San Diego Gas & Electric, fell 7.5% to $37 million from $40 million. Results were flat at its gas-distribution company, Southern California Gas Co. Sempra Energy Trading was the big profit center, generating half its total profit, or $69 million, compared with $40 million a year earlier. Mr. Baum said Sempra's stock, which trades at a low price/earnings multiple of 10, still is being "affected negatively by the California situation." He also said the company made less money in spot-power markets than in prior quarters but nevertheless intends to invest $2 billion in new power plants. In 4 p.m. New York Stock Exchange composite trading, Calpine shares rose $1.08 to $36.89, while Sempra climbed 17 cents to $25.49.

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Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['bhansen@lhom.com', 'rob.bradley@enron.com', 'joseph.alamo@enron.com', 'angela.wilson@enron.com'] File: dasovich-j/all_documents/29177. ===================================== Please see the following articles: Sac Bee, Fri, 7/27: Hopes dim for a quick Edison deal SD Union, Fri, 7/27: Sempra's trading unit generates a windfall LA Times, Fri, 7/27: Smog Rules May Be Eased LA Times, Fri, 7/27: Federal Caps Didn't Deter Higher Prices SF Chron, Fri, 7/27: Calpine profits double on skyrocketing sales Escalating power prices inspire plant building program SF Chron, Fri, 7/27: Generators continue to set high electricity prices SF Chron, Fri, 7/27: THE ENERGY CRUNCH Environmental suit against power plant Expansion called danger to slough OC Register, Fri, 7/27: Let's make a real deal with Edison (Editorial) LA Times, Fri, 7/27: California Sempra Continues Improved Results LA Times, Fri, 7/27: California Calpine Doubles Earnings, Beats Forecasts Energy: San Jose-based company credits higher electricity prices in California and sales from new plants LA Times, Fri, 7/27: Cap No Bar to Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the U.S.-imposed limits WSJ, Fri, 7/27: Calpine Net Soars On Added Plants; Sempra Profit Rises ------------------------------------------------------------------------------ ---------------------------------------------- Hopes dim for a quick Edison deal By Kevin Yamamura Bee Capitol Bureau (Published July 27, 2001) The Assembly will not return this week to consider a plan to save California's second-largest utility from bankruptcy, all but ending hopes that legislation would reach Gov. Gray Davis by a mid-August deadline. A group of legislators and Davis staffers has worked this week on an agreement that would restore Southern California Edison's credit and relieve the state of having to purchase energy for the utility. Assembly leaders, who convened the group, set an ambitious schedule that would have led to a vote today had they reached consensus and been able to recall enough of the 80 Assembly members from summer recess destinations. But the newly formed plan, which would issue $2.9 billion in consumer-backed bonds in exchange for several Edison concessions, remains too rough for a vote, said Paul Hefner, a spokesman for Assembly Speaker Robert Hertzberg, D-Sherman Oaks. Hefner was quick to note that Hertzberg has the Assembly "on call" for the scheduled monthlong break and is prepared to ask members to return if a deal comes in the next three weeks. But staff and lawmakers said earlier that organizing a mass return after today would prove nearly impossible because Assembly members are expected to travel throughout the state and beyond. Davis set an Aug. 15 deadline in his original Edison deal and recently said he could call a special session forcing legislators to return if they do not authorize a plan by then. His spokesman, Steven Maviglio, said Thursday the governor is not ruling out that idea but is waiting to see what comes of further legislative discussions. "It's pretty clear that everyone's working pretty hard to form a consensus, but they're just not there," Maviglio said. "The governor is optimistic about the Aug. 15 date." Even so, Edison does not expect a solution by then. Company officials stated earlier this week that they would wait for a political deal at least until lawmakers return Aug. 20. The Bee's Kevin Yamamura can be reached at (916) 326-5542 or kyamamura@sacbee.com <mailto:kyamamura@sacbee.com>. Sempra's trading unit generates a windfall \ objattph By Craig D. Rose UNION-TRIBUNE STAFF WRITER July 27, 2001 Sempra Energy, the parent company of SDG&E, reported a 25 percent surge in profit to $137 million last quarter but said yesterday it lost money on the sale of electricity under a long-term contract to California. On the other hand, Sempra said its largest source of profits was its energy trading unit, a middleman that earned $69 million during the quarter buying and selling energy produced by others. The results underscore the transformation of relatively simple utility companies into diversified energy holding companies that have learned to profit in new ways from the deregulation of electricity and the turmoil in energy markets. The surprising announcement -- that a company lost money selling power during California's run-up in electricity prices -- was explained by Sempra as an intentional consequence of the long-term contract it signed with the state to provide power. Stephen Baum, chairman and chief executive officer of Sempra, said the company agreed to provide a steep discount to California during the summer months but would recoup the losses later in the 10-year deal. California sought long-term electricity purchase contracts so it could reduce its purchases in daily and near-term power markets, where prices reached record levels. Critics say Gov. Gray Davis rushed into long-term deals because of concerns about getting through next year's election. They also say the contracts will saddle customers with higher costs for years. The governor has acknowledged that long-term contracts might cause consumers to pay relatively high prices for electricity in later years, but he maintains it is a fair price to pay for lowering prices that were devastating the state economy. Michael Shames, executive director of the Utility Consumers' Action Network in San Diego, said the steep discount Sempra provided to the state on power this summer raised questions about the governor's proposal to help San Diego Gas & Electric Co. clear a debt of $750 million. SDG&E says it is owed that money for power purchases on behalf of its customers. In a media conference last month, Davis said the agreement would eliminate the threat of a possible balloon payment for consumers, who he said might have faced the so-called balancing account debt as early as next year. Shames says the proposal, which took the form of a memorandum of understanding, or MOU, is costly for consumers and a bonanza for Sempra. He said the relatively cheap power provided by Sempra this summer "makes the MOU sound like more of a hidden payback to Sempra than a real relief plan for local ratepayers." Shames said he will release an analysis of the state's Sempra plan next week. The state Public Utilities Commission is expected to rule on the plan in August. A Sempra spokesman said there is no connection between discount power and the tentative agreement to clear the $750 million debt. Doug Kline, the Sempra spokesman, said the power contract with the state was signed in early May and the agreement on the balancing account was reached in mid-June. Sempra Energy Trading, meanwhile, said only 10 percent of its $69 million profit was earned from sales of energy in the western region, which includes California. The trading operation earned $40 million in profit during the comparable period last year. California's Independent System Operator, which manages most of the state power grid, and other investigators have said trading and bidding strategies were tools used by energy companies to raise prices during the California power crisis. Though Sempra earned money on trading, its wholesale power generating business lost $9 million during the quarter. Baum said the discounts on electricity provided the state were the prime cause of the loss for Sempra Energy Resources but added that a plant outage also contributed. Sempra Energy Resources, which co-owns a generating plant near Las Vegas with Reliant Energy, earned $2 million during the second quarter last year. Baum added that Sempra's long-term contract with the state -- under which it will provide up to 1,900 megawatts -- has allowed its wholesale business to pre-sell about half the power it expects to generate from the Nevada plant, which will be expanded, and three generating facilities it expects to build. Profits at SDG&E slipped to $37 million during the quarter ended June 30, down from $40 million last year, according to Sempra. SDG&E, whose business is restricted to delivering gas and electricity, said it provided increased customer service during the crisis, which lowered profits. Wall Street analysts generally applauded Sempra's results, noting that the company was ahead of its plan to generate at least a third of its profits from its newer businesses by 2003. "They're really two years ahead of schedule for their non-utility businesses," said Brian Youngberg, an analyst with Edward Jones & Co. Bud Leedom, a San Diego-based analyst with Wells Fargo Van Kasper, said Sempra's move into energy trading now seems shrewd. "We never dreamed they were setting themselves for a windfall like this," Leedom said. Investors pushed Sempra shares up 17 cents yesterday, to close at $25.49 in trading on The New York Stock Exchange. Bloomberg news service contributed to this report. Smog Rules May Be Eased Power plants: EPA proposes a sweeping change in how utilities' emissions are curbed, a flexible approach favored by the industry. By GARY POLAKOVIC and ELIZABETH SHOGREN Times Staff Writers July 27 2001 WASHINGTON -- U.S. Environmental Protection Agency Administrator Christie Whitman proposed sweeping changes Thursday in the regulation of power plant pollution that would replace five of the government's toughest programs with a single, flexible approach favored by utilities. Whitman outlined a plan for cleaning up major components of power plant smog that represents a significant departure from the EPA's traditional regulatory dictums. She called for a major expansion of pollution credit trading, which, up to now, has had varying success. Under the new plan, the EPA would scrap some of the most stringent measures devised by the agency to deal with power plant emissions. One provision to be set aside aims to cut harmful mercury emissions; another is meant to reduce emissions from Midwestern power plants by 85%; another is designed to restore visibility at national parks. Especially unpopular with industry, one measure, known as new source review, requires the installation of advanced pollution controls whenever power plants are expanded or modified. It too would be phased out. "New source review is certainly one of those regulatory aspects that would no longer be necessary," Whitman told Sen. George Voinovich (R-Ohio) at the hearing by the Environment and Public Works Committee. "All of those [programs] could be aligned into one regulatory process" that she said would work better than existing rules. Whitman's comments offer the first peek into the administration's plans for cleaning some of the dirtiest polluters left in the nation. Debate over the administration's clean-air approach has shifted to Congress as it considers whether to revise the national Clean Air Act. The magnitude of the proposed revisions caught environmentalists by surprise but buoyed industry representatives who say existing controls are costly and inefficient. "She has raised an appalling prospect of junking virtually every rule and strategy to deal with emissions of electric companies in return for some vague industry-sought plan for an emissions trading scheme," said Frank O'Donnell, executive director of the Clean Air Trust, an environmental advocacy group. "If they go forward with this, it means a wholesale fight over the Clean Air Act in Congress." After the hearing, Whitman stressed that the overall goal is to clean the air more efficiently than current rules do. Although the administration has not yet released a so-called multipollutant cleanup strategy, Whitman contended that collapsing several regulations into one far-reaching approach would be easier for regulators and industry to manage. "What we're looking for is targets under this legislation that significantly clean up the air beyond what our current regulatory, statutory requirements would do," Whitman said. She added that new source review, for example, "could potentially be no longer necessary if you have the right kind of targets set in a multi-emissions bill. We have to wait and see where the targets are set." Utilities have lobbied Vice President Dick Cheney's energy task force to prevent the EPA from aggressively enforcing the new source review regulation. Industry and administration officials say the provision is onerous and prevents plant upgrades, although EPA officials say it is a key tool for forcing dirty, old plants to cut emissions by up to 95%. During the Clinton administration, federal officials charged that 32 coal-fired power plants in several Southern and Midwestern states ignored a requirement that companies install advanced emission controls when their plants were upgraded. The government reached settlement with three utilities, but a provision in the Bush administration's energy plan stalled those enforcement actions pending a review of power plant controls. C. Boyden Gray, attorney for the Electric Reliability Coordinating Council and former White House counsel for the first President Bush in the 1980s, praised the administration's proposal. He said major utility companies he represents, including Southern Co., Duke Energy Co. and the Tennessee Valley Authority, could clean up with greater flexibility and less cost under the plan outlined by Whitman. "To put everything in a market-incentives basis is a great step. It would be a real breakthrough and a plus for the business community," Gray said. For example, Gray said EPA has four separate measures to control nitrogen oxides from power plant combustion, including programs to cut acid rain, ozone and haze. Another program scheduled to take effect in May 2004 requires power plants in 19 states to cut summer emissions by 1 million tons annually. He said those programs can be confusing and costly and could easily be replaced by a credit-trading program run largely by power companies. Under the program being considered by the Bush administration, an emission limit could be established at hundreds of power plants followed by annual reductions in mercury, a toxic metal, as well as smog-forming nitrogen and sulfur oxides. However, a provision to reduce carbon dioxide, a gas implicated in global warming, was dropped under industry pressure. Power companies that reduce beyond their limits could sell emission credits, which represent a pound of pollution, to companies that exceed their limits. Although industry and free-market advocates favor such programs, they are not without controversy. The record of market-driven programs is mixed. On the one hand, the nation's acid rain program uses marketable permits and is widely credited with cutting sulfur oxides at less cost. On the other hand, the world's first market-driven program to tackle urban smog has not worked in Los Angeles, where nearly 400 power companies and manufacturers failed to achieve significant cleanup for the nearly eight years the program has been in effect. Further, many environmental groups are wary of market-driven programs because by design they preclude active government intervention. Critics say such programs could potentially limit public review of power plant operations, allow emissions to concentrate in poor communities and slow efforts to cut haze in national parks downwind from plants that elect to buy pollution credits instead of cleaning up. The Bush administration's power plant strategy was aired before the Senate Environment and Public Works Committee, which is chaired by Sen. James M. Jeffords (I-Vt.), whose dramatic departure from the GOP threw control of the Senate to the Democrats. Jeffords is proposing legislation, different from the administration's approach, that would control four power plant pollutants, including the greenhouse gas carbon dioxide, an approach rejected by the Bush administration. Prospects appear to be increasing that Congress will pass one or more measures designed to reduce carbon dioxide emissions, a belated response to this week's decision by more than 180 countries to deal with the problem without the involvement of the United States. Indeed, in recent weeks several members in the GOP-led House and Democratic Senate have voted on bills with the intention of disassociating themselves from President Bush's environmental policies before the next election. Among the votes, the House struck down a provision supported by the Bush administration that could hinder progress on global climate change policy. The Senate banned new coal mining and oil and gas drilling in national monuments. Other recent rebuffs included rejections of administration initiatives on such issues as the Endangered Species Act, hard-rock mining regulations and offshore drilling for oil and gas. Copyright 2001, Los Angeles Times <http://www.latimes.com> Federal Caps Didn't Deter Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the imposed limits. By NANCY VOGEL TIMES STAFF WRITER July 27 2001 SACRAMENTO -- After federal regulators limited wholesale electricity prices last month, big private sellers of power in California continued to ask as much as five times more for electricity than the federal cap, according to a confidential study by state grid operators. The analysis by the California Independent System Operator covers only the first week after the caps were imposed June 20. Cal-ISO has submitted the data to federal regulators for potential investigation. The report is a summary of what Cal-ISO calls possible anti-competitive behavior by Duke Energy, Williams Cos., Mirant Corp., Reliant Energy and Dynegy Corp. "In a truly competitive market we would expect these suppliers to bid very close to their actual operating cost," said Greg Cook, senior policy analyst with Cal-ISO's Department of Market Analysis. The state did not necessarily purchase any power at the high prices being demanded. Instead, the significance of the bids is that they show how California could find itself paying exorbitant prices for electricity again if hot weather returns and conservation slackens, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California, the bids submitted by generators could be very costly to California." Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates of what each paid for natural gas to fuel the plants. The average cost for the five was $105 per megawatt-hour, which closely matches the federal price limit in California, which now stands at $101 per megawatt-hour. According to the power bidding procedures, companies that bid at or below their cost of production often still get paid a higher price, allowing them to make a substantial profit. On average, four of the five companies submitted bids either slightly below or slightly above their cost of production. But with the exception of Atlanta-based Mirant, each company at times submitted bids that were substantially higher. Houston-based Reliant, for example, bid as much as $540 per megawatt-hour, more than five times its estimated cost. Overall, Reliant's average bid was close to costs, according to the analysis. Cal-ISO identified companies by code in its report. Sources familiar with the study identified the companies for The Times. The Cal-ISO report singled out "Supplier 5," identified by sources as Charlotte, N.C.-based Duke Energy, saying the company "continues to bid significantly in excess of its operating costs." Duke owns two large power plants on the central coast. It marked up its bids an average of 88% beyond its cost to produce electricity, according to the analysis. For example, it cost Duke $85 to $121 to generate a megawatt-hour of electricity in the time period studied, the report shows, but the company offered to sell a megawatt-hour from $149 to $195. Duke spokesman Tom Williams on Thursday said, "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood." Duke sells nearly the entire output of its power plants under long-term contracts, and not on the spot market, which the Cal-ISO report studied, he noted. Reliant spokesman Richard Wheatley said, "We're looking at the data, and we question whether or not it is correct." A combination of cool weather, heavy conservation, the start-up of new power plants and recently signed long-term power contracts that guarantee supplies have eased the state's electricity crisis in recent weeks. Market prices that as recently as May averaged $271 per megawatt-hour have dropped to less than $100 per megawatt-hour. The more abundant power supplies have freed grid operators to ignore higher-priced bids. But they will have to consider paying such prices to avoid blackouts if supplies tighten, Wolak said. Such a scenario would test the effectiveness of the Federal Energy Regulatory Commission order issued June 19, he said. The bids of the five companies analyzed were offers of sales to Cal-ISO, a Folsom-based agency that manages the electrical transmission grid serving 75% of California. Cal-ISO buys power on short notice to smooth the flow on the state's electrical freeway and avert blackouts. As California's fledgling market began to go haywire last fall, Cal-ISO workers struggled to purchase as much as 30% of the state's power demand with just hours to spare. Since then, the market has stabilized, and Cal-ISO's purchases now amount to roughly 5% of the electricity California consumes. RELATED STORY Power profits: Power plant operator Calpine said its quarterly profit more than doubled. C2 Copyright 2001, Los Angeles Times <http://www.latimes.com> Calpine profits double on skyrocketing sales Escalating power prices inspire plant building program Carolyn Said, Chronicle Staff Writer <mailto:csaid@sfchronicle.com> Friday, July 27, 2001 ,2001 San Francisco Chronicle </chronicle/info/copyright> URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/27/ BU234287.DTL> Fueled by high electricity prices, power generator Calpine Corp. reported strong second-quarter results yesterday. Calpine of San Jose said profit for the quarter ended June 30 almost doubled to $107.7 million (32 cents per share) from $59.5 million (20 cents) during the year-ago quarter. Revenue almost quadrupled to $1.61 billion from $417.2 million a year ago. Excluding charges related to the acquisition of Canada's Encal Energy, Calpine's net income was $132.2 million (39 cents), well above the 31 cents per share predicted by analysts, according to Thomson Financial/First Call. Calpine is on an ambitious path to expand its roster of generating plants. By the end of 2005, it expects to have 75,000 megawatts in operation in the United States, including 12,000 megawatts in California. A megawatt is about enough power for 1,000 homes. The company, which generates 2,428 megawatts in California, this summer opened the state's first two major power plants in a decade. The new plants in Yuba City (Sutter County) and Pittsburg generate 547 and 555 megawatts, respectively. Combined with a new plant in Arizona that sells power to California, Calpine's new facilities helped the state stave off threatened blackouts this summer, Chief Executive Officer Peter Cartwright said. Calpine is building the 847-megawatt Delta Energy Center in Pittsburg, scheduled to open in May, and a 750-megawatt plant in Kern County, due in June 2003. It is also awaiting an August decision by the California Energy Commission on its proposed 600-megawatt Metcalf Energy Center in San Jose. "California is a very good market for us," said Bill Highlander, a Calpine spokesman. "The pricing in California has benefited Calpine." However, he said, the company was not one of the traders that focused on making top dollar in California's volatile spot market, because its business model concentrated on selling electricity through long-term contracts. During the past few months, Calpine signed 10-year and 20-year contracts with the state for as much as 2,500 megawatts, at prices ranging from $58.60 to $73 per megawatt hour. With most of its plants fired by natural gas, Calpine wants to control about a quarter of the gas it uses, Highlander said. Its April purchase of Encal Energy for $1.77 billion more than doubled its gas reserves, to about 1. 7 trillion cubic feet equivalent, according to Hoover's Online. Calpine's stock closed up $1.08 at $36.89 yesterday. E-mail Carolyn Said at csaid@sfchronicle.com <mailto:csaid@sfchronicle.com>. ,2001 San Francisco Chronicle </chronicle/info/copyright> Page B - 1 Generators continue to set high electricity prices Friday, July 27, 2001 ,2001 Associated Press URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/07/27/state 0359EDT0121.DTL> (07-27) 00:59 PDT LOS ANGELES (AP) -- Power wholesalers continued to demand higher prices for energy despite federal regulation that capped electricity rates, according to a confidential report by the California Independent System Operator. In one case, an energy company charged as much as five times more for electricity than the federal cap, which were imposed June 20. State grid operators have given the study to federal regulators for a possible investigation, the Los Angeles Times reported Friday. Five companies were identified by code in the report and sources familiar with the study named the wholesalers for the Times. They include Duke Energy, Dynegy Corp., Mirant Corp., Reliant Corp., and Williams Cos. The average price charged by the five power companies was $105 per megawatt-hour, which closely matches the federal price limit in California set at $101 per megawatt-hour. Four of the five companies submitted bids either just below or just above their cost of production. Houston-based Reliant, however, asked as much as $540 per megawatt-hour in some cases. Overall, the company's average bid was close to costs, the report said. The state wasn't required to purchase power at the rates set by wholesalers but the bids reflect a potential repeat of charging exorbitant electricity prices if temperatures soar and conservation dwindles, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California, the bids submitted by generators could be very costly to California." The Cal-ISO report singled out Duke Energy, noting it "continues to bid significantly in excess of its operating costs." The report shows the company's cost to produce electricity was between $85 and $121 but it offered to sell a megawatt-hour from $149 to $195. Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates what each paid for natural gas to fuel the plants. "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood," said Duke spokesman Tom Williams. ,2001 Associated Press THE ENERGY CRUNCH Environmental suit against power plant Expansion called danger to slough Christian Berthelsen, Scott Winokur, Chronicle Staff Writers <mailto:cberthelsen@sfchronicle.com> Friday, July 27, 2001 ,2001 San Francisco Chronicle </chronicle/info/copyright> URL: <http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/07/27/ MN236840.DTL> An environmental group filed suit yesterday to overturn a permit granted to Duke Energy Co. to expand a major power plant south of Santa Cruz. Saying the permit was illegally awarded, the suit warns that the resulting project will damage the ecologically important Elkorn Slough. Voices of the Wetlands accuses the board that awarded the permit of violating federal law by not requiring Duke to use the best possible technology to minimize impacts on the environment around the Moss Landing power plant. If plans to expand the plant proceed without change, the group said, it would kill off critical organisms at the bottom of the food chain. The suit, filed in Monterey County against the California State Water Resources Control Board and the regional board that serves the central coast, seeks a court order to return the case to the regional water district so that more environmentally sensitive cooling technology can be ordered for use at the plant. State officials said yesterday that the issues raised in the suit were considered and rejected during the initial permit approval process last year, and again during the appeal process this year. The case comes amid enormous pressure on state officials, in light of California's energy crisis, to rapidly accelerate power plant approvals and expand the amount of power generation available. Against this backdrop, the state water board on June 21 essentially rejected environmental groups' appeal that had sought to overturn the district board's decision approving the Moss Landing expansion permit. On another front, board members of the California Energy Commission took testimony earlier this week on a proposal to curtail public review of plant project proposals, with one board member, Robert A. Laurie, acknowledging in an interview that he believed "in some cases" it posed one of the most time- consuming aspects of project approval. A recommendation is expected within the next month. Duke, of Charlotte, N.C., bought the Moss Landing plant from Pacific Gas & Electric Co. in 1998, when the Northern California utility sold off many of its facilities to prepare for deregulation of the energy market. The plant was built in 1950 using a cooling system technology that sucks water out of the Elkorn Slough and Monterey Bay to cool generating turbines before spitting the water out into the Pacific Ocean. The group says wildlife conditions and sea otter population have improved markedly since PG&E mothballed many of the generating units at Moss Landing in 1995. But Duke now is proposing to resurrect parts of the cooling system in a major expansion that will make Moss Landing the state's largest power plant after its completion next summer. With an output of 2,538 megawatts, the plant when completed is expected to account for 30 percent of all new electricity generated in California next year, serving about 2.5 million households in the Monterey, Santa Cruz and southern Santa Clara County areas, including San Jose. Regional water quality board officials declined comment yesterday, citing the pending litigation. But in public documents filed yesterday, water officials said cooling alternatives had been considered and rejected. The documents did not elaborate on why they were not mandated. Duke had acknowledged during the process that more ecologically sensitive technologies were available, but at prohibitive costs of $20 million to $50 million more. Deborah Sivas, an attorney for the Earthjustice Environmental Law Clinic, which filed the suit on behalf of Voices of the Wetlands, considered the best technology alternatives mandatory, not optional. She said the board had not considered alternative approaches in reaching its conclusions. E-mail the writers at swinokur@sfchronicle.com <mailto:swinokur@sfchronicle.com> and cberthelsen@sfchronicle.com <mailto:cberthelsen@sfchronicle.com>. ,2001 San Francisco Chronicle </chronicle/info/copyright> Page A - 3 Let's make a real deal with Edison July 27, 2001 By JONATHAN LANSNER The Orange County Register When any government official tries to play business executive, it's time to get nervous. Take the Edison bail out as evidence. At its essence, the deal works like this: Taxpayers give the utility a big pile of cash; the state gets some old, rickety transmission lines in return. Don't be fooled: The power bounty is basically a political ploy. The state doesn't need to control electric distribution. What politicos need is a face-saving trade as evidence that this is a business deal - not a government handout. The state probably should just write the check and eat its losses. But if bureaucrats wanted real remuneration from this bail out, California would eye some juicy Edison assets. As a public service, I'll list a few. Now, for argument's sake, I won't differentiate between the utility and its parent company, Edison International. Hey, lawyers built those walls between the two. Let 'em figure out how to take 'em down. For starters, you'd figure an energy-strapped state would like some regional power plants, no? Like the San Onofre facility. However, it might be laughable to see Sacramento-types defending their future handling of the local nuclear plant. OK, if that's a tad too dicey for the state, how about a coal-fired plant in Nevada? Heck, Edison had a buyer at half a billion bucks before the state oddly quashed that deal. Maybe the state could grab it from Edison -- then flip it to pay off electricity-related debts. Of course, buying one of the out-of-town power plants that Edison's sister company in Irvine has acquired might be educational for Sacramento. Owning a plant in Illinois or Pennsylvania or possibly New Zealand might show state honchos how easy - or not - it is to rig supply and prices. Alternatively, the state could demand a small entity called Edison Capital. Basically, it's a bank. One specialty: the politically correct field of affordable-housing lending. A good fit for bureaucrats. Speaking of money, there's the Edison pension plan. Governments are really good at running retirement benefits. Heck, California already has a huge one. There's got to be some economies of scale - real cash savings - in merging the Edison plan with some state pension fund. Do note that Edison's plan might be overfunded by about $400 million. You can bet, though, that the state would never have the nerve to play 1980s corporate raider: profiting by grabbing some of a company's overfunded retirement kitty. Finally, there's Edison International Field in Anaheim. Stadium naming-rights contracts must have some value since corporations always seem to fight over these promotional gimmicks. (The utility's parent company paid $50 million in 1997 for two decades of "free" publicity.) Imagine the buzz the state could get out of the huge sign age on a nationally renowned stadium. Plus, maybe the Angels could be good corporate citizens and tie into this deal. It's possible they'd allow a slight change in the team name to better emphasize the state's role in the ballpark. So, how does "California Angels" sound to you? Business; Financial Desk California Sempra Continues Improved Results NANCY RIVERA BROOKS 07/27/2001 Los Angeles Times Home Edition Page C-2 Copyright 2001 / The Times Mirror Company Sempra Energy on Thursday reported another quarter of higher earnings and revenue, a sharp contrast to California 's bigger and beleaguered investor-owned utilities. Although California 's electricity crisis has pushed Southern California Edison and Pacific Gas & Electricity into insolvency--and PG&E into U.S. Bankruptcy Court--the parent of San Diego Gas & Electric and Southern California Gas continues to post improved results on the strength of its non-utility businesses. Net income for the period ended June 30 rose 25% to $137 million, or 66 cents a share, up $25 million, or 55 cents, earned a year ago, the San Diego-based utility holding company said. Revenue jumped 40% to $2.1 billion. Pretax operating income rose 24% to $291 million. Sempra's earnings came in just ahead of the 65-cent average estimate of analysts surveyed by First Call/Thomson Financial. "Our strong second-quarter performance is primarily the result of our efforts to accelerate growth through new businesses," Stephen L. Baum, Sempra's chairman, chief executive and president, told analysts in a conference call. Sempra is in a vastly different position than Edison International and PG&E Corp. because its electric utility arm was able to avoid the deep financial woes afflicting their respective Southern California Edison and Pacific Gas & Electric utilities. SDG&E was first to sell its power plants two years ago and thus was freed from a rate freeze. That in turn allowed the utility to pass along to customers the soaring costs of electricity beginning last summer. The state Legislature eventually rolled back and capped the rates for SDG&E customers, but promised the utility it would be allowed to recover those losses. Edison and PG&E, however, continued to accumulate staggering debts because their retail rate freezes remained in place. In contrast, Sempra is solvent, with $1.5 billion in cash and $1 billion in available credit, Baum said. The performance of its utilities was lackluster, with Southern California Gas earning $47 million, unchanged from the second quarter of 2000, and SDG&E earning $37 million, down from $40 million in the year-ago period. But Sempra's unregulated businesses--including energy trading, power plant construction and operation, international electricity operations and energy services--turned in an overall strong performance, contributing 39% of the parent company's earnings. Sempra's trading unit provided most of that profit, contributing $69 million to second-quarter net income compared with $40 million in the same quarter last year. Sempra's stock gained 17 cents to close at $25.49 on the New York Stock Exchange. Business; Financial Desk California Calpine Doubles Earnings, Beats Forecasts Energy: San Jose-based company credits higher electricity prices in California and sales from new plants. 07/27/2001 Los Angeles Times Home Edition Page C-2 Copyright 2001 / The Times Mirror Company Calpine Corp., one of the biggest U.S. power-plant builders, said Thursday that second-quarter earnings more than doubled, beating estimates, because of higher electricity prices in California and sales from new plants. Profit from operations rose to $132.2 million, or 39 cents a share, from net income of $59.5 million, or 20 cents, a year earlier. Revenue almost quadrupled to $1.61 billion. San Jose-based Calpine opened plants in the U.S. with a combined capacity of 1,545 megawatts--enough to light 1.5 million average homes--and benefited from existing plants in California . Calpine has insulated itself from rising fuel costs by buying natural-gas fields to supply its plants. "Given the strategy they have chosen, they're following through quite well," said Andre Meade, an analyst at Commerzbank Capital Markets Co. "They are growing from a small base and adding a lot of plants, so we'd expect high growth." Profit topped the 31-cent average estimate of analysts surveyed by First Call/Thomson Financial. Calpine said it expects to earn $2 a share this year. The average First Call forecast was $1.92, with a range of $1.80 to $2.04. Calpine's shares rose $1.08, or 3%, to close at $36.89 on the New York Stock Exchange. The shares had fallen 21% this year amid concern that generators might have to give back some of the profit they made selling power in California during the last year. In addition, cooler-than-normal weather and conservation efforts recently reduced power prices in the state. Calpine runs or is building natural gas plants in 29 U.S. states and Canada that produce more than 30,000 megawatts of power. The company plans to more than double capacity to 70,000 megawatts by the end of 2005. Calpine this month opened the $350-million Sutter plant, California 's first major generator in more than a decade. The company is building 11 plants to run during times of peak demand in the state and getting permits for four more, James Macias, who oversees Calpine's West Coast power plants, said in a conference call with analysts and investors. Separately, Arlington, Va.-based AES Corp., a power producer that supplies California and operates in 27 countries, said second-quarter profit fell 20% because of losses tied to currency fluctuations and the sale of a U.S. electricity retailer. Net income fell to $112 million, or 21 cents a share, from $140 million, or 28 cents, a year earlier. Sales rose 26% to $2.21 billion. California ; Metro Desk Cap No Bar to Higher Prices Power: Cal-ISO study says suppliers continued to charge as much as five times more than the U.S.-imposed limits. NANCY VOGEL 07/27/2001 Los Angeles Times Ventura County Edition Page B-1 Copyright 2001 / The Times Mirror Company SACRAMENTO -- After federal regulators limited wholesale electricity prices last month, big private sellers of power in California continued to ask as much as five times more for electricity than the federal cap, according to a confidential study by state grid operators. The analysis by the California Independent System Operator covers only the first week after the caps were imposed June 20. Cal-ISO has submitted the data to federal regulators for potential investigation. The report is a summary of what Cal-ISO calls possible anti-competitive behavior by Duke Energy, Williams Cos., Mirant Corp., Reliant Energy and Dynegy Corp. "In a truly competitive market we would expect these suppliers to bid very close to their actual operating cost," said Greg Cook, senior policy analyst with Cal-ISO's Department of Market Analysis. The state did not necessarily purchase any power at the high prices being demanded. Instead, the significance of the bids is that they show how California could find itself paying exorbitant prices for electricity again if hot weather returns and conservation slackens, said Frank Wolak, a Stanford University economist who studies the California electricity market. "The bottom line is that the generators are putting out these bids in expectation of high demand," he said. "If weather all of a sudden gets really hot from Southern to Northern California , the bids submitted by generators could be very costly to California ." Cal-ISO calculated the cost of production for each company based on the efficiency of its power plants and estimates of what each paid for natural gas to fuel the plants. The average cost for the five was $105 per megawatt-hour, which closely matches the federal price limit in California , which now stands at $101 per megawatt-hour. According to the power bidding procedures, companies that bid at or below their cost of production often still get paid a higher price, allowing them to make a substantial profit. On average, four of the five companies submitted bids either slightly below or slightly above their cost of production. But with the exception of Atlanta-based Mirant, each company at times submitted bids that were substantially higher. Houston-based Reliant, for example, bid as much as $540 per megawatt-hour, more than five times its estimated cost. Overall, Reliant's average bid was close to costs, according to the analysis. Cal-ISO identified companies by code in its report. Sources familiar with the study identified the companies for The Times. The Cal-ISO report singled out "Supplier 5," identified by sources as Charlotte, N.C.-based Duke Energy, saying the company "continues to bid significantly in excess of its operating costs." Duke owns two large power plants on the central coast. It marked up its bids an average of 88% beyond its cost to produce electricity , according to the analysis. For example, it cost Duke $85 to $121 to generate a megawatt-hour of electricity in the time period studied, the report shows, but the company's bids ranged from $149 to $195 per megawatt-hour. Duke spokesman Tom Williams on Thursday said, "The use of the data in some cases doesn't appear to add up and in all cases appears to be selective and could easily be misunderstood." Duke sells nearly the entire output of its power plants under long-term contracts, and not on the spot market, which the Cal-ISO report studied, he noted. Calpine Net Soars On Added Plants; Sempra Profit Rises By Rebecca Smith 07/27/2001 The Wall Street Journal Page B4 (Copyright (c) 2001, Dow Jones & Company, Inc.) Calpine Corp. reported net income nearly doubled in the second quarter, reflecting the independent power producer's aggressive plant-building program. Meanwhile, the parent of a San Diego utility said profit rose 25%. Calpine, of San Jose, Calif., said net was $107.7 million, or 32 cents a share, up from $59.5 million, or 20 cents a share, a year earlier. The latest results, which were in line with analysts' expectations, included a special charge of seven cents a share related to Calpine's purchase of Encal Energy Ltd., a natural-gas company. Revenue grew even more strongly, soaring to $1.61 billion from $417.2 million. Separately, Sempra Energy, parent of electric utility San Diego Gas & Electric, reported profit rose to $137 million from $110 million a year earlier. Revenue jumped 40% to $2.1 billion from $1.5 billion. Sempra Chairman Steve Baum attributed the growth, which stands in marked contrast to the financial woes of California 's other electric-utility-owning energy companies, to Sempra's unregulated operations. Calpine's profit increased despite paying substantially more for natural gas to fuel its plants. It spent an average of $4.80 per million British Thermal Units for natural gas, up from $3.31 a year before. At the same time, Calpine's revenue per megawatt hour of electricity sold also rose, to $71.03 in the latest period from $64.80 a year earlier. At Sempra, Mr. Baum said profit from Sempra's biggest utility unit, San Diego Gas & Electric, fell 7.5% to $37 million from $40 million. Results were flat at its gas-distribution company, Southern California Gas Co. Sempra Energy Trading was the big profit center, generating half its total profit, or $69 million, compared with $40 million a year earlier. Mr. Baum said Sempra's stock, which trades at a low price/earnings multiple of 10, still is being "affected negatively by the California situation." He also said the company made less money in spot-power markets than in prior quarters but nevertheless intends to invest $2 billion in new power plants. In 4 p.m. New York Stock Exchange composite trading, Calpine shares rose $1.08 to $36.89, while Sempra climbed 17 cents to $25.49. =====================================

miyung.buster@enron.com

Energy Issues

Please see the following articles: Sac Bee, Tues, 5/29: Lodi just says no to powers that be:=20 Four times since March, the city kept the lights on as other towns went dar= k Sac Bee, Tues, 5/29: Dan Walters: Debt dilemmas plague energy executives,= =20 ordinary workers alike SD Union (AP), Tues, 5/29: Governor's rescue plan garners no support, a newspaper reports SD Union, Tues, 5/29: In power crisis, is there ray of light at end of mur= ky=20 tunnel? SD Union, Mon, 5/28: Bush, Davis on collision course SD Union, Sun, 5/27: Republicans fiddle while Californians burn SD Union (AP), Sun, 5/27: Energy executive seeks state GOP support (Enron= =20 mentioned) SD Union (AP), Sat, 5/26: State demands FERC close loopholes =20 SD Union, Sat, 5/26: Changes in Senate could offer state relief (Enr= on=20 mentioned) SD Union, Sat, 5/26: Natural gas CEO denies deal was improper LA Times, Tues, 5/29: Kern County Basks in Role as State's Blackout-Buster LA Times, Mon, 5/28: Plan to Rescue Edison Stalls LA Times, Mon, 5/28: Bush Could Boost Green Power With Buying Power LA Times, Sun, 5/27: Suddenly, Dirty Old Coal Is the Fossil Fuel of the=20 Future LA Times, Sun, 5/27: Power Firm Chief Lists Solutions for Crisis LA Times, Sat, 5/26: State Renews Demand for Power Price Relief LA Times, Sat, 5/26: El Paso CEO Admits Approving Subsidiaries' Natural Ga= s=20 Deal LA Times, Sat, 5/26: Police Support 48-Hour Alerts for Blackouts LA Times, Sat, 5/26: Outdoor Lights Still Burning LA Times, Sat, 5/26: Businesses Hopeful on Blackout Warnings LA Times, Tues, 5/29: Power Crisis Has Mileage for Bush =20 (Commentary) SF Chron (AP), Tues, 5/29: Bush announcing low-income aid, but no price ca= ps =09=09=09 SF Chron, Tues, 5/29: Bush facing Davis' heat over energy=20 In first visit to state as president, he'll hear governor's plea for help SF Chron, Tues, 5/29: Bush's first visit not so welcome=20 SF Chron (AP), Tues, 5/29: Californians revert to clotheslines, fans as th= ey=20 gear up for blackouts=20 SF Chron, Tues, 5/29: Crisis no sweat to some offices=20 Many offices keep cool in crisis=20 Air conditioners blast in state's energy centers=20 SF Chron (AP), Tues, 5/29: Stakes are high for Davis meeting with Bush SF Chron, Tues, 5/29: State gives president tepid ratings=20 Power crisis blamed for 42% approval SF Chron (AP), Mon, 5/28: Calif. pawn businesses boom as energy bills ris= e SF Chron (AP), Mon, 5/28: Californians brace for a summer of blackouts SF Chron, Mon, 5/28: New Nevada-California energy plan surfaces at last=20 minute Mercury News, Tues, 5/29: Bush feeling weight of state's energy crisis Mercury News, Tues, 5/29: New energy moves by W.House before Bush-Davis me= et OC Register, Tues, 5/29: California should try true deregulation =20 (Commentary) Energy Insight, Tues, 5/29: Look for more wellhead-power plant deals=20 ---------------------------------------------------------------------------= --- -------------------------------------------------------- Lodi just says no to powers that be: Four times since March, the city kept= =20 the lights on as other towns went dark. By Stuart Leavenworth Bee Staff Writer=20 (Published May 29, 2001) LODI -- In this old farm town, where ferment is largely confined to wine=20 bottles, leaders are staging a Boston Tea Party against California's energy= =20 crisis.=20 Lodi, population 57,000, is refusing to participate in the rolling blackout= s=20 that have swept across California. Four times since March, Lodi's electric= =20 utility has snubbed the state's power managers and kept its lights on while= =20 others went dark.=20 The rock band Creedence Clearwater Revival once derided Lodi as a=20 conservative backwater, but now, this town is leading an unlikely revolt th= at=20 is being picked up by others statewide.=20 "Lodi has something of an independent streak," said Steve Mann, a former ci= ty=20 councilman in Lodi and one of many residents who support the city's utility= .=20 "It doesn't make sense that we should participate in blackouts when we have= =20 done everything we can to make sure we can avoid that."=20 So far, Lodi has the only utility in the state to openly defy an on-the-spo= t=20 call for blackouts. They did so twice in March, then twice again this month= .=20 This week, however, Riverside's utility said it, too, would not participate= =20 in forced outages, and leaders of some other "munis" may follow suit.=20 Worried about a political snowball, Gov. Gray Davis met with leaders of the= =20 munis last week, but refused to exempt them from further blackouts. If that= =20 happened, the state's power managers would be unable to spread blackouts to= =20 25 percent of the state's households, putting the brunt on other parts of t= he=20 state.=20 "I'm sympathetic," said David Freeman, the governor's top energy adviser an= d=20 a former leader of municipal utilities in Sacramento and Los Angeles. But= =20 Freeman, speaking with uncharacteristic guardedness, said it may not be=20 practical "to separate out utilities that are an integral part of the grid.= "=20 The self-proclaimed "wine grape capital of the world," Lodi would seem an= =20 unlikely hotbed for dissent. Creedence Clearwater once bemoaned being "stuc= k=20 in Lodi." Instead of being offended by the song, many residents are glad=20 their town isn't inhabited by a bunch of long-haired rabble-rousers.=20 Even so, Lodi likes to defy convention when it comes to protecting its own.= =20 Two years ago, the city started waging battle against big insurance compani= es=20 that didn't want to pay to clean up toxic substances from local businesses= =20 that had trickled into water supplies.=20 In recent years, Lodi has spent millions sprucing up its once-dilapidated= =20 downtown, which soon will be crowned by a new 12-screen cineplex.=20 But the town's biggest source of pride is its taxpayer-owned utility, which= =20 started in the 1890s when two brothers, Ed and Fred Carey, launched a water= =20 and electric utility. In 1910, they sold it to the city of Lodi for $35,000= .=20 Now, the utility provides $4 million to the town's coffers every year, with= a=20 $30 million annual budget.=20 Like many other municipal utilities in Northern California, Lodi has more= =20 power lined up than it needs, but is dependent on Pacific Gas and Electric= =20 Co. to deliver that power to its doorstep.=20 As a result, "Lodi's relationship with PG&E has been tenuous throughout its= =20 history," said Mann. One point of contention is the interconnection agreeme= nt=20 among PG&E, Lodi and the town's fellow members in the Northern California= =20 Power Agency.=20 PG&E officials say the agreement requires Lodi to shed power during any pow= er=20 shortfall. But Lodi contends the pact obligates the utility to impose=20 blackouts only during "physical emergencies," such as a wind storm that=20 knocks out transformers.=20 "We don't see any compelling reason why Lodi should have to participate in= =20 rolling blackouts," said Alan Vallow, director of the city's utility. "You= =20 want me to turn customers off when we have the capacity to keep them on? Th= at=20 doesn't work for me."=20 During a statewide call for blackouts, PG&E conceivably could just switch o= ff=20 power for Lodi if the city's utility didn't heed the call voluntarily. But= =20 Vallow doubts PG&E would take such a step. "That would be pretty extreme," = he=20 said.=20 An engineer who used to work for Los Angeles' utility, Vallow has become=20 "something of a folk hero" because of his stance, said Mann. Vallow is=20 especially popular with Lodi's canneries, which need reliable power in the= =20 summer to pack fruit before it rots in the field. And most Lodites "are 100= =20 percent behind Mr. Vallow," said Marie Saunders, a longtime local resident.= =20 On the other hand, Lodi's City Council hasn't officially endorsed Vallow's= =20 decision, giving it an out should PG&E or state officials seek revenge.=20 "If we weren't supportive, we would let Alan know," said Alan Nakanishi, th= e=20 mayor of Lodi. "On the other hand, if we do get retribution, we may say to= =20 Al, 'Hey, what is all this about?' "=20 So far, PG&E hasn't threatened any action against Lodi, but experts say the= =20 town is venturing into murky legal territory.=20 "It is a legal question that hasn't been resolved," said John Fistolera,=20 legislative director of the Northern California Power Agency, a group of=20 municipal utilities that includes Lodi.=20 The Sacramento Municipal Utility District, which is not part of NCPA, also= =20 has taken a cautious approach. Earlier this year, at least one SMUD board= =20 member recommended the utility follow Lodi's example. But the idea was=20 dropped amid fears that SMUD, being a bigger utility, could face a legal=20 fight that PG&E wouldn't mount against little Lodi.=20 "I really admire what Lodi has done," said Linda Davis, a SMUD board member= .=20 "But I don't want to end up in court, and I fear SMUD would end up in court= ."=20 Instead of an open rebellion, SMUD has joined the Southern California town = of=20 Vernon and 13 other cities in appealing to the Federal Energy Regulatory=20 Commission. They want FERC to exempt them from blackouts ordered by the=20 state's grid manager, the Independent System Operator.=20 ISO officials argue that "load shedding" from the municipal utilities is=20 vital for maintaining balance on the grid during shortfalls. But SMUD and t= he=20 other municipalities say they shouldn't be penalized for lining up power=20 reserves that have eluded the state's big utilities, especially with the=20 state facing dozens of blackouts this summer.=20 "Like Vernon, SMUD has grave concerns over the prospect of sharply escalati= ng=20 the number and duration of blackout occurrences directed by the ISO on a=20 grid-wise basis over the upcoming summer months," SMUD wrote to FERC.=20 Last week, the Riverside City Council voted to stop participating in=20 blackouts ordered by the ISO. Like Lodi, Riverside says its conservation=20 programs should be taken into account in ISO's attempts to deal with power= =20 shortages.=20 Vallow says Lodi has done everything it can to help the state. In January,= =20 the city complied with blackout orders, then purchased long-term contracts= =20 that gave it a 40 percent surplus in power reserves.=20 To pay for those reserves, the utility increased customer rates by as much = as=20 15 percent.=20 Since then, the city has sold excess power back to the state to help with= =20 shortages. But Vallow also has told the state that Lodi will not participat= e=20 in further blackouts.=20 Vallow calls it the "SET" program, which stands for "System, Electric suppl= y=20 and Team."=20 "We've done everything the state should have done to avoid the crisis we ar= e=20 in now," said Vallow. "We are SET."=20 The Bee's Stuart Leavenworth can be reached at (916) 321-1185 or=20 sleavenworth@sacbee.com. Dan Walters: Debt dilemmas plague energy executives, ordinary workers alike (Published May 29, 2001)=20 The Bible, in one of its many warnings to the faithful about incurring debt= ,=20 makes this pithy observation: "The rich rule over the poor and the borrower= =20 is servant to the lender."=20 Credit may have become the essential underpinning of a modern industrial=20 society, from the billions of dollars in operational financing arranged by= =20 governments and corporations to the credit card transactions of everyday=20 consumers, but our uneasiness about debt continues.=20 California's two major utilities ran up more than $13 billion in debt to bu= y=20 power at prices far higher than consumers were paying, until lenders cut of= f=20 their credit. And the state government then stepped in and has incurred an= =20 additional $7.7 billion in debt -- with plans to nearly double its borrowin= g=20 to over $13 billion -- to keep the lights burning. One utility has sought= =20 bankruptcy protection and another is on the verge; the state's heavy power= =20 purchase debts have undermined its credit rating and its ability to finance= =20 other spending.=20 While the governor and state legislators ponder these multibillion-dollar= =20 questions of debt, they also must decide what to do, if anything, about the= =20 relatively tiny debts that poor Californians are incurring. The practices o= f=20 so-called "payday lenders" and those making home-secured loans to the elder= ly=20 and working poor are generating sharp conflicts in the Capitol.=20 The "payday loan" business has mushroomed since being expressly authorized = by=20 1996 state legislation. Storefront businesses offering short-term loans at= =20 high interest rates have exploded from almost none to more than 3,000 in th= e=20 state, often replacing pawnbrokers as lenders of last resort.=20 Critics see the trade as legalized usury, in which cash-poor borrowers not= =20 only are tapped for very high interest rates -- as much as 900 percent per= =20 year -- and are forced, in effect, to roll over the loans week after week.= =20 Sen. Don Perata, D-Alameda, is carrying a measure that would tighten up=20 payday loan practices, the latest in a long string of proposals that have= =20 died at the hands of fellow Democrats in legislative committees, thanks to= =20 the efforts of lenders and their lobbyists. Assemblyman Dario Frommer, D-Lo= s=20 Angeles, meanwhile, is carrying a measure that lenders back as a compromise= ,=20 although it's been denounced by consumerists as a smoke screen.=20 A similar battle is being waged over what critics describe as "predatory=20 lending" by home loan subsidiaries of major banks. Consumer activists argue= =20 that the lenders are enticing low-income and/or elderly borrowers into=20 pledging their homes for "subprime" loans -- even many who could qualify fo= r=20 more conventional, lower-cost mortgages. The borrowers, say critics, are=20 paying higher interest rates and higher fees, are being saddled with unneed= ed=20 mortgage life insurance and often are at risk of losing their homes to=20 foreclosures.=20 Sen. Joseph Dunn, D-Santa Ana, is carrying a consumer group-backed bill,=20 pending in the Senate Banking Committee, but bankers have mounted a stiff= =20 opposition campaign and the fate of the bill is in doubt. Dunn and his=20 supporters need five of the six Democrats on the committee to vote for the= =20 bill, and the heaviest lobbying attention is being focused on two uncommitt= ed=20 Democrats from conservative Central Valley districts -- Mike Machado of=20 Linden and Jim Costa of Fresno. Last week, consumer activists staged a=20 symbolic march on the Capitol to press their cause.=20 The questions that surround both issues are similar: Should the state prote= ct=20 borrowers from agreeing to loans that carry high interest rates and other= =20 charges, as long as they are aware of the risks and costs they are incurrin= g?=20 Are those rates and fees justified by the higher costs, including higher=20 default rates, that lenders experience in making loans to those of marginal= =20 creditworthiness?=20 They are not dissimilar to the questions that are being raised about the hu= ge=20 debts that the utilities and the state -- institutions presumably operated = by=20 sophisticated executives -- have assumed. The blue-collar worker who takes= =20 out a high-cost payday loan to keep his own lights burning is not that much= =20 different from the governor.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . Governor's rescue plan garners no support, a newspaper reports=20 ASSOCIATED PRESS=20 May 28, 2001=20 LOS ANGELES =01) Leaders of both houses are against Gov. Gray Davis' plan t= o=20 rescue Southern California Edison from bankruptcy, the Los Angeles Times=20 reported Monday.=20 Not only has the more than $3 billion plan failed to garner support but=20 efforts by lawmakers to come up with an alternative are also falling by the= =20 wayside.=20 The stakes are high, because restoring Edison to financial health and=20 requiring Edison to temporarily sell power at lower prices are vital to=20 Davis' plan to get the state out of the business of buying electricity.=20 Nevertheless, leaders in the Legislature say the governor's approach has fe= w=20 backers.=20 "I don't think the governor's (plan) has support in either party in either= =20 house," Assembly Speaker Bob Hertzberg, D-Sherman Oaks, told the Times. "Th= e=20 issue is whether we can come up with something else, and I think we can."= =20 Senate leader John Burton, D-San Francisco, has been critical of the deal= =20 Davis and Edison put together from the outset. He said it is certainly dead= =20 in the Legislature, but that a more far-reaching proposal may still emerge.= =20 "Hopefully, we will find a long-term solution" to the state's energy crisis= ,=20 Burton said. The Edison deal alone "is not going to solve anything. It is n= ot=20 going to reduce rates, and it is not going to prevent blackouts," he said.= =20 In both the Assembly and Senate, most Democrats and Republicans are convinc= ed=20 there is no way for them to save Edison without appearing to sanction a hug= e=20 bailout. Therefore, they want to get something of value in return from Edis= on=20 =01) high-voltage transmission lines, hydroelectric power plants or guarant= ees=20 that the utility will boost energy supplies =01) but are sharply split on w= hat=20 is best.=20 Democrats, who hold majorities in both houses, cannot agree on how to save= =20 the utility =01) or whether it is even proper for the government to do so. = Some=20 believe that the state would be better off letting Edison file bankruptcy= =20 like Pacific Gas & Electric.=20 Meanwhile, their efforts to forge a bipartisan solution with Republicans ha= ve=20 are not going well.=20 Despite the setbacks, Davis and many lawmakers still say some form of the= =20 Edison rescue plan will clear the Senate and Assembly this summer. But sinc= e=20 Davis announced he had reached a deal with Edison executives to save the=20 utility in April, nothing has been accomplished in the Legislature to=20 implement it.=20 The rescue deal Davis reached with Edison calls for the state to pay the=20 utility $2.76 billion for its power transmission lines. It would allow the= =20 state to issue bonds to finance the purchase, and declares that Edison is t= o=20 use the money to reduce its estimated $3.5 billion debt.=20 The deal also would set aside a portion of ratepayers' monthly utility bill= s=20 to pay off Edison's "undercollections," huge debts the utility incurred las= t=20 year and early this year because it was not allowed by the state to pass on= =20 to consumers the full cost of wholesale power.=20 In return, Edison would agree to sell the electricity it generates from its= =20 power plants at cost for the next decade, lowering the state's overall=20 power-buying expenses.=20 Lawmakers from both parties have called the deal overly generous and=20 questioned the benefit to the public.=20 In power crisis, is there ray of light at end of murky tunnel?=20 By Ed Mendel=20 May 28, 2001=20 SACRAMENTO -- Is California, at long last, about to catch a break in the=20 electricity crisis, or will the cost of power this summer short-circuit the= =20 state budget, forcing painful cuts?=20 Among the doom and gloom of blackout preparations last week, there were a f= ew=20 faint flickers of hope.=20 Some prices for summer power have dropped. State power buyers smoothly=20 handled high loads during two hot days. A big generator, Mirant, unexpected= ly=20 agreed to provide 500 megawatts through the summer at a reasonable price.= =20 Davis administration officials are sticking with their forecast, derided by= =20 some as a "hope and expectation," that the average price the state will pay= =20 for non-contracted power will drop this summer.=20 "It's very doable," said Ray Hart, head of the power purchasing unit in the= =20 state Department of Water Resources.=20 The forecast by Davis consultants expects the average of $346 per megawatt= =20 hour paid by the state for non-contracted power in April through June to dr= op=20 to $195 in July through September.=20 But skeptics fear that as heat drives up the demand for power, the state wi= ll=20 get a double whammy -- soaring spot-market prices because of a regional pow= er=20 shortage, and a series of disruptive and dangerous blackouts.=20 The state, in what Vice President Dick Cheney calls a "harebrained scheme,"= =20 began buying power for utility customers in January after a failed=20 deregulation plan forced the utilities deep into debt.=20 The Davis administration notified the Legislature last Wednesday that in 10= =20 days the state general fund will begin spending another $500 million=20 increment for power, bringing the total since January to $7.7 billion.=20 Now it's nervous time at the Capitol until the general fund is repaid by a= =20 bond issue of up to $13.4 billion, which is expected to be issued in late= =20 August and September and paid off by ratepayers over 15 years.=20 What if there is a snag? Or spending on power soars? State Controller=20 Kathleen Connell is predicting that the state will have to borrow more mone= y=20 than planned, perhaps an additional $4 billion.=20 As for the flicker of hope, a reporter for a publication that tracks power= =20 said prices at the Palo Verde hub, which serves Southern California, have= =20 dropped significantly since April for deliveries in July through September.= =20 "My personal opinion is, they probably won't get back up to where they were= =20 during the highs," said Mike Wilczek of Platts Power Market Week.=20 Another journalist who tracks power prices, Arthur O'Donnell, editor of=20 California Energy Markets, sees no trend other than volatility.=20 "It depends largely on what the weather is," O'Donnell said. "The expectati= on=20 is that August is going to be the ugly month, and that is being reflected i= n=20 the future prices."=20 O'Donnell said he was encouraged that the state Department of Water=20 Resources, which lined up some power purchases in advance, handled=20 heat-driven high loads last Monday and Tuesday without declaring an=20 emergency.=20 "What it tells me is, DWR is learning its job," O'Donnell said.=20 The state is counting on an ad campaign and "sticker shock" from rate=20 increases to reduce power use this summer. And the amount of cheaper power= =20 obtained through contracts, now less than half the total, is expected to=20 increase to about two-thirds in June through August.=20 "I think this month is a harder month to get through than those months," sa= id=20 DWR's Hart.=20 Ed Mendel is Capitol bureau chief for the Union-Tribune.=20 Bush, Davis on collision course=20 President, Cheney firm: No price caps By Toby Eckert=20 COPLEY NEWS SERVICE=20 May 27, 2001=20 WASHINGTON -- When President Bush and Gov. Gray Davis meet this week to=20 discuss California's power crisis, it will be a close-up clash of ideologie= s=20 that until now have been playing out long distance.=20 To Californians struggling with rolling blackouts and skyrocketing power=20 bills, Bush's allegiance to free-market principles and his rejection of=20 electricity price controls can seem baffling -- if not payback for the=20 state's vote against him in the presidential election.=20 Yet a look at the record shows that Bush and his energy czar, Vice Presiden= t=20 Dick Cheney, share an unshakable faith in open power markets shaped by=20 conservative politics and their long association with an industry that has= =20 benefited greatly from deregulation. It is a view fortified by energy company executives who enjoy easy access t= o=20 top administration officials and counsel against measures like price=20 controls. One company in particular, power marketer Enron Corp., appears to= =20 wield great influence with the White House on energy policy.=20 Davis argues that because the deregulation plan adopted by the state in 199= 6=20 turned out to be deeply flawed, a truly free market doesn't exist. Power=20 marketers and generators now have enough leverage to charge, on average, mo= re=20 than $330 per megawatt-hour of electricity, 10 times what they were getting= =20 just a year ago.=20 Temporary Western price controls -- based on the cost of producing the powe= r=20 and a hefty, built-in profit margin for the power sellers -- would provide = a=20 respite until the problems are fixed, Davis contends. A recent Field Poll= =20 shows that an overwhelming majority of Californians, Republican and Democra= t,=20 share that view.=20 "It would be a grave mistake for the Bush administration to allow rigid=20 ideology to stand in the way of doing what's best for our country," a=20 frustrated Davis said recently. "Deregulation is not a religion."=20 The White House flatly denies it is looking at the issue with ideological= =20 blinders on, or through an energy industry prism. Bush and other=20 administration officials argue that price controls have a proven history of= =20 backfiring -- drying up energy supplies at the same time they encourage mor= e=20 consumption.=20 "The president and this administration do not support price caps because th= ey=20 don't work," said White House spokeswoman Claire Buchan.=20 The folly of price controls is an article of faith in the oil industry, whi= ch=20 was long subjected to them. Both Bush and Cheney prospered in that industry= .=20 Bush founded an oil company in his native West Texas in 1977, shortly after= =20 graduating from business school. Arbusto Energy didn't find much oil, but= =20 Bush profited greatly in the boom-and-bust industry through mergers with=20 bigger industry players.=20 Before Bush plucked him out of the private sector, Cheney headed Halliburto= n=20 Co., a leading oil-field services firm based in Dallas.=20 "I think there's no doubt that their views have been shaped by their=20 backgrounds in the industry and their broader ideological views about=20 markets," said political analyst Stuart Rothenberg.=20 Cheney in particular has expressed a visceral aversion to price controls. H= is=20 experience helping to craft broad wage and price limits in the Nixon=20 administration left an indelible mark.=20 "The night the control regulations went to the Federal Register to be=20 published, they were 14 pages long. I know, because I typed them," Cheney= =20 said recently. "When we got through a couple years later, we had a roomful = of=20 regulations."=20 The price controls aggravated the oil shortage that plunged the nation into= =20 an energy crisis in the 1970s, Cheney argues.=20 "You could control domestic oil prices, but you couldn't control the price = of=20 imports that were set by the international market. .?.?. A lot of companies= =20 shut down, quit producing domestically," he said.=20 The new breed of power generators and marketers spawned by the nationwide= =20 move toward electricity deregulation are also, by and large, fierce opponen= ts=20 of price controls. Houston-based Enron in particular has positioned itself = as=20 a major player in the world of freewheeling power sales, including in=20 California.=20 Enron and its executives have been among Bush's biggest supporters througho= ut=20 his political career and enjoy an unusually close relationship with the=20 president. Company Chairman Kenneth Lay was one of the "Pioneers" who raise= d=20 at least $100,000 for Bush during the presidential campaign.=20 Enron's political action committee and its executives poured $113,800 into= =20 Bush's coffers and put a corporate jet at his disposal, according to the=20 Center for Responsive Politics, which tracks political spending.=20 Two top Bush administration officials -- economic adviser Lawrence Lindsey= =20 and U.S. Trade Representative Robert Zoellick -- once served on an Enron=20 advisory board.=20 As Cheney was crafting the administration's recently unveiled energy policy= ,=20 Lay was one of the handful of people who got to meet with him. Lay presente= d=20 a three-page, eight-point list of priorities for open power markets,=20 including an admonition that the administration "should reject any attempt = to=20 re-regulate wholesale power markets" with price caps or other controls.=20 Davis, by contrast, was invited to simply submit a one-page memo to the=20 energy task force, his spokesman said.=20 Lay also reportedly advised the Bush administration on appointments to the= =20 Federal Energy Regulatory Commission. The commission has the power to impos= e=20 price controls, but has so far balked at Davis' proposal.=20 Enron's clout with the administration has stoked the suspicions of critics.= =20 "It's Lay that drives the policy," said Craig McDonald, director of Texans= =20 for Public Justice, which tracks political spending in that state.=20 Enron spokesman Mark Palmer dismissed such talk as "outrageous."=20 "The Cheney task force met with dozens of trade groups, industry=20 representatives, politicians, regulators," Palmer said.=20 But in recent weeks, even the normally cautious Davis has highlighted the= =20 Texas ties of the energy companies that have profited from California's=20 travails, saying at one point that the Bush administration was allowing the= =20 companies "to get away with murder."=20 The White House says such allegations are just overheated rhetoric.=20 "That's goofy. It doesn't even merit a response," Cheney said when asked=20 about Davis' comments. "The president and I are making decisions and policy= =20 based on what we think makes sense for the country."=20 Republicans fiddle while Californians burn=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 May 27, 2001=20 CALIFORNIA'S POWER CRISIS=20 SACRAMENTO -- Once upon a time, California Republicans faced a Democratic= =20 governor with ratings in the stratosphere, a Legislature dominated by his= =20 party and no popular issues to help improve their lowly status.=20 Then the energy crisis hit. As power prices jumped, blackouts hit and the= =20 governor hesitated, the formerly unbeatable candidate and his party suddenl= y=20 seemed vulnerable.=20 Yet California Republicans are having trouble taking advantage of this=20 seemingly golden political opportunity. As Davis struggles to extricate=20 himself from the energy quagmire, GOP leaders are also flailing about, mire= d=20 in contradiction, indecision and debate.=20 Although most Californians blame the power generators for the crisis, the= =20 Republicans' reflexive support of big business makes them unwilling to=20 criticize the out-of-state "entrepreneurs." Meanwhile, the party's lack of = a=20 strong leader or well-known gubernatorial candidate means that it doesn't= =20 have a loud voice in the Capitol.=20 Republican consultant Dan Schnur, whose former boss, Gov. Pete Wilson, thru= st=20 deregulation upon the state, said Republican leaders made a mistake by not= =20 offering an alternative plan once the crisis hit.=20 "Keeping their heads down did nothing but leave the playing field open to= =20 Gray Davis," he said.=20 Republicans have recently sketched out some proposals, but these appear=20 contradictory and politically dangerous.=20 The party opposes Davis' creation of a state power authority, with some=20 blasting it as "socialism."=20 "America is built on a capitalist system -- not on socialization," said=20 Assembly Republican Leader Dave Cox, R-Fair Oaks. "Socialism has failed=20 throughout the rest of the world."=20 Yet Assembly Republicans want to make it easier for San Diego County to=20 create a publicly owned municipal utility district.=20 Cox said local power isn't socialism because its board members are elected.= =20 The board of the state authority is composed of appointed and elected=20 officials.=20 Assemblyman Mark Wyland, R-Escondido, who is pushing a San Diego utility=20 district, said he believes the difference is local control.=20 "People want to control their own energy destiny," he said. "They don't hav= e=20 any control over a statewide bureaucracy."=20 Davis chastised Republicans for putting ideology above pragmatism.=20 "They're very quick to say we need more supply, but when you have a measure= =20 that would lead to more supply, they quickly retreat to their ideological= =20 point of view and refuse to be problem solvers," he said.=20 Republicans also opposed the Democrats' plan to replenish the state treasur= y=20 for the money it has spent on buying power by floating a $13.4 billion bond= =20 that would be repaid by ratepayers. They claimed that the bond was so large= =20 it was fiscally irresponsible.=20 Yet the Assembly Republicans' alternative plan would have led to massive=20 budget cuts. They wanted the state to give away about $5 billion it had to= =20 spend to buy electricity on the spot market -- and that money would have be= en=20 a subsidy largely to business and large users of electricity.=20 Democrats passed the bond plan anyway, but the Republicans' opposition=20 delayed the sale until August. Davis charged the delay cost the state an=20 extra $50 million to $150 million in bond charges.=20 Republicans have also been hurt by their unwillingness to crack down on the= =20 mostly out-of-state generating companies and natural gas companies.=20 According to last week's nonpartisan Field Poll, the vast majority of=20 Californians believe that these companies are to blame for piling up enormo= us=20 profits at California's expense.=20 Davis and the Democratic leaders have proposed a windfall profits tax on=20 generators.=20 By contrast, Cox opposes the tax, worrying that it will hurt the business= =20 climate. Davis calls the power producers "price gougers," while Cox refers = to=20 them as "entrepreneurs trying to maximize profits."=20 A recent Assembly investigation into California's high natural gas prices= =20 highlighted the GOP's reluctance to criticize energy companies.=20 Assembly Democrats issued a report accusing a Texas natural gas company, El= =20 Paso Corp., of making a sweetheart deal with an affiliate that allowed it t= o=20 manipulate the natural gas market. That deal, the report charged, contribut= ed=20 to soaring prices for California consumers and astronomical profits for the= =20 company.=20 The key Republican committee member, Assemblyman John Campbell, R-Irvine,= =20 issued a dissenting report, attributing El Paso's profits to supply and=20 demand.=20 Assemblyman Juan Vargas, D-San Diego, said Republicans are backing the wron= g=20 side.=20 "They're siding with Texas oil interests and Texas gas interests and that's= =20 going to get them in trouble," he said.=20 Republicans may also suffer from association with President Bush, who is=20 visiting California this week. The Republican president's close ties to the= =20 oil industry and refusal to back wholesale electricity price caps have made= =20 him unpopular with California voters, said Bruce Cain, a UC Berkeley=20 political scientist whose view is backed by state polls.=20 Bill Jones, the only announced Republican candidate for governor, commended= =20 Bush's energy plan -- even without price caps.=20 Jones, secretary of state, released his plan so quietly some wondered wheth= er=20 he was trying to avoid publicity. Jones criticized Davis for "socializing t= he=20 delivery" of power and called on the state to help its utilities by loaning= =20 them money.=20 Despite their missteps, though, the Republicans still have time to develop = a=20 coherent alternative. The energy crisis isn't going away.=20 "Most voters understand that the Democratic plan hasn't worked," said Schnu= r,=20 "but at some point they'll want to see an alternative. The Republicans are= =20 starting to do that."=20 Republicans can claim credit for urging Davis to act more quickly. Last=20 summer when the price spikes hit San Diego and threatened to spread, they= =20 asked the governor to call a special session. He ignored their pleas.=20 And Republicans voted against the January measure that got the state into t= he=20 power buying business, a move that Democrats said was required to keep the= =20 lights on, but now threatens the state's fiscal health.=20 Still, if the generators remain unpopular, the GOP could suffer.=20 "The Republicans have an inability to distinguish between market manipulati= on=20 and a well-functioning market," said Cain. "The perception that the party i= s=20 tied to the big energy companies isn't helpful."=20 ANALYSIS Energy executive seeks state GOP support=20 Politicians, celebs at secret meeting ASSOCIATED PRESS=20 May 27, 2001=20 SAN FRANCISCO -- In a move to garner support from prominent California=20 Republicans, a Texas energy executive attended a secret meeting to push for= =20 the preservation of the state's deregulated power market, a newspaper=20 reported yesterday.=20 Houston-based Enron Corp. Chairman Kenneth Lay met with well-known=20 Republicans, including movie star Arnold Schwarzenegger, Los Angeles Mayor= =20 Richard Riordan and Michael Milken, who pleaded guilty to fraud charges in= =20 1990 as head of the Drexel Burnham Lambert investment banking firm, the San= =20 Francisco Chronicle reported. The 90-minute private meeting took place May = 11=20 at a Beverly Hills hotel.=20 Schwarzenegger and Riordan have both been courted as Republican candidates= =20 for California governor.=20 Enron distributed a four-page plan at the meeting calling for ratepayers to= =20 cover the billions in debt racked up by the state's public utilities and=20 contending that state and federal investigations of price gouging are=20 hindering the situation, the Chronicle reported after obtaining a copy of t= he=20 paper.=20 "Southern California Edison is very close to bankruptcy, and no one around= =20 the table wanted that to happen," Enron spokeswoman Karen Denne said=20 yesterday. "There was considerable frustration that a solution is not being= =20 advanced at the legislative level."=20 But Gov. Gray Davis' spokesman Steve Maviglio called the paper a "generator= 's=20 wish list," saying it goes against the governor's policy on the energy=20 crisis.=20 "The governor is not calling off the dogs," Maviglio said yesterday. "To=20 suggest that ratepayers should shoulder the entire burden of deregulation i= s=20 totally the opposite of what the governor is calling for."=20 Lay and Davis have disagreed about how California's power crisis should be= =20 handled, and Lay says his company is being used as a scapegoat.=20 The meeting was hosted by Kevin Sharer of biotech giant Amgen. About a doze= n=20 people attended, including chief executives Ray Irani of Occidental Petrole= um=20 and Bruce Karatz of home builder Kaufman & Broad, Denne said.=20 Lay, who is a friend of President Bush and one of his largest campaign=20 contributors, has built the world's largest energy-trading company by buyin= g=20 electricity from generators and selling it to consumers. During the first= =20 quarter of this year, Enron's revenue increased 281 percent to $50.1 billio= n.=20 State demands FERC close loopholes=20 By Jennifer Coleman=20 ASSOCIATED PRESS=20 May 26, 2001=20 SACRAMENTO -- California made new demands for tough federal electricity pri= ce=20 caps yesterday and singled out two generators that it said should roll back= =20 rates immediately.=20 The filings by several state agencies were in response to a Federal Energy= =20 Regulatory Commission order last month that offered limited price controls = in=20 exchange for concessions on control of the state's power grid.=20 "FERC's pricing plan is laced with loopholes," Gov. Gray Davis said. "It's= =20 worse than too little, too late. It's simply a fig leaf that does nothing t= o=20 address the impact of the energy crisis on California and our nation."=20 The state's multiple filings also said that two generators, Williams and AE= S,=20 have profited excessively by exercising market power.=20 The Electricity Oversight Board, the Public Utilities Commission and the=20 Independent System Operator asked FERC to require the generators to use=20 cost-based rates, which limit company profits to a percentage above the cos= ts=20 to produce power.=20 In order to escape charging cost-based rates, generators must prove to FERC= =20 that they don't have market power -- the ability to charge whatever price= =20 they want without consequence.=20 The ISO, keeper of the state's power grid, said the two companies have=20 exhibited that they have market power and the ability to charge market-base= d=20 rates should be revoked.=20 Aaron Thomas, spokesman for the Arlington, Va.-based AES, said the company= =20 has applied to have its ability to charge market-based rates renewed, and= =20 expects FERC to approve that request.=20 "The governor, for six months now, has been calling for a form of cost-base= d=20 rates from FERC, so I don't think anything has changed," said Thomas.=20 Earlier this month, Tulsa-based Williams agreed to pay $8 million to settle= =20 charges with FERC that the company was purposely withholding electricity fr= om=20 California's power market. The company admitted no wrongdoing, and official= s=20 said a full hearing would have cleared the company.=20 ISO attorney Charles Robinson said the agency is also considering similar= =20 requests for revocation of the market-power authority of three other=20 generators -- Duke Energy, Reliant and Mirant.=20 Sen. Joe Dunn, D-Garden Grove, chairman of the Senate subcommittee=20 investigating the electricity wholesale market, said FERC has never adopted= a=20 definition of market power, leaving open the question of how they can=20 determine if the generators don't have it.=20 "That calls into question whether FERC must revoke market-based rate=20 authority retroactively," Dunn said. "That may require a reimbursement of t= he=20 difference between what would have been cost-based rates and what they've= =20 been charging."=20 The FERC order in April establishes some price controls when the state's=20 power reserves drop below 7.5 percent. That is scheduled to take effect=20 Tuesday, unless the FERC orders otherwise over the holiday weekend, Robinso= n=20 said.=20 The state Assembly, in documents to be filed Tuesday, said those price=20 controls should cover all hours -- not just during power emergencies. The= =20 Assembly's filing calls that order "arbitrary and capricious," and says the= =20 order does nothing to curtail unreasonable prices unless reserves drop.=20 Earlier ISO studies have estimated that California was overcharged more tha= n=20 $6 billion in the last year. FERC has ordered refunds for a fraction of tha= t=20 -- $125 million -- saying it can only examine prices for power sold during= =20 Stage 3 emergencies, when reserves drop to below 1.5 percent.=20 The Assembly's filing also will object to FERC's requirement that the state= =20 join a regional transmission organization in order to get price controls.= =20 Robinson, the ISO attorney, said the ISO would make a decision next week=20 whether to file a plan to join an RTO.=20 The state agencies also objected to a FERC plan to put a surcharge on energ= y=20 rates to pay money owed to generators.=20 Changes in Senate could offer state relief=20 By Finlay Lewis and Toby Eckert=20 COPLEY NEWS SERVICE=20 May 26, 2001=20 WASHINGTON -- After weeks of impasse, a plan to bring emergency relief to= =20 California's suffering electricity customers suddenly seems likely in the= =20 Senate because a sympathetic friend unexpectedly finds himself in a positio= n=20 to help.=20 This dramatic reversal of fortune will occur when Sen. Jeff Bingaman, D-N.M= .,=20 becomes chairman of the Senate Energy and Natural Resources Committee becau= se=20 of Vermont Sen. James Jeffords' defection from the GOP.=20 Bingaman is expected to take control of the committee next week when Jeffor= ds=20 officially becomes a political independent and throws control of the chambe= r=20 to the Democratic Party. Bingaman will replace Sen. Frank Murkowski,=20 R-Alaska, a strong ally of the energy industry.=20 Unlike Murkowski, Bingaman supports a bill championed by Sens. Dianne=20 Feinstein, D-Calif., and Gordon Smith, R-Ore., to impose temporary restrain= ts=20 on wholesale power sales in the West. The bill is likely to command a=20 majority if it comes to a vote in the committee.=20 The price caps still face fierce resistance in the House and at the other e= nd=20 of Pennsylvania Avenue, where President Bush, armed with a veto pen, and Vi= ce=20 President Dick Cheney steadfastly resist movement toward any form of price= =20 controls.=20 But because of a committee chairman's agenda-setting power, Bingaman's=20 ascension would dramatically shift the prospects of the Feinstein bill and= =20 other energy issues in the Senate.=20 Bush's proposal to open the Arctic National Wildlife Refuge to oil=20 exploration already faced difficulty, but now opponents will have easier=20 means to block it. And other environmentally contentious energy proposals= =20 could face tough scrutiny from Jeffords, who is expected to become chairman= =20 of the Senate's Environment and Public Works Committee.=20 Still, the president will have the power to enact the bulk of his energy=20 program because fewer than two dozen of his 105 proposals need congressiona= l=20 action.=20 But the shift in the Senate allows Democrats to advance their own plan. At= =20 the top of the list are temporary price controls.=20 "It's a priority for Sen. Bingaman," said Jude McCartin, a spokeswoman for= =20 the senator. "He would like to act quickly to meet the challenges."=20 "Bingaman is from a Western state, unlike Murkowski," said Ashley Brown,=20 executive director of an electricity-policy think tank at Harvard Universit= y.=20 "His geographic outlook is going to be different. He is also going to be=20 sensitive to Democratic senators from California. It's going to mean more t= o=20 him than it meant to Murkowski."=20 McCartin and aides to Feinstein were guardedly optimistic about the measure= 's=20 prospects should the bill reach the Senate floor, where its bipartisan=20 parentage will likely guarantee bipartisan backing.=20 That does not mean Feinstein's bill is home-free.=20 Bush and Cheney's opposition to price caps is rooted firmly in their belief= =20 that they would discourage investment in the energy industry, thereby=20 resulting in even shorter power supplies and more California blackouts.=20 In the House, a companion bill to the Feinstein-Smith measure is snarled in= =20 complex and inconclusive negotiations in the House Energy and Commerce=20 Committee, and the House Republican leadership would be poised to bury any= =20 measure that might make it to the floor in defiance of Bush's wishes.=20 But other factors may be bolstering prospects for action to ease the=20 California crisis.=20 McCartin pointed to the Senate's unanimous vote yesterday afternoon=20 confirming two Bush nominees to posts on the Federal Energy Regulatory=20 Commission as signaling a possibly more activist bureaucratic policy in=20 dealing with the state's problems.=20 The two new members of the nation's major regulatory authority over the pow= er=20 industry are Pat Wood III, the head of the Texas Utility Commission, and No= ra=20 Brownell, a Pennsylvania utility regulator.=20 Bush reportedly plans to replace FERC Chairman Curtis Hebert with Wood.=20 While observers say it is unlikely that Wood and Brownell would defy the=20 White House, they note that the appointees have indicated they might take a= =20 more expansive view than most current FERC commissioners to bring relief to= =20 California.=20 Once the Democrats take formal control of the Senate, probably about June 5= ,=20 there could be other actions affecting California's power problems.=20 Feinstein yesterday urged the likely chairman of the Senate Governmental=20 Affairs Committee, Sen. Joseph Lieberman, D-Conn., to investigate whether= =20 energy companies are improperly influencing the FERC.=20 She cited a report in yesterday's New York Times that Kenneth Lay, the head= =20 of Enron Corp., a Houston-based power marketing company, had offered to bac= k=20 Hebert in his effort to remain at the commission's helm if Hebert supported= =20 Enron's positions on electricity deregulation.=20 Enron outpaced all other energy companies last year in contributing to GOP= =20 campaigns, while Lay has personally been one of Bush's most generous=20 financial backers.=20 "Since FERC has refused to fulfill its legally mandated function under the= =20 Federal Power Act to restore 'just and reasonable' electricity rates, we ne= ed=20 to ask whether undue influence by the companies that FERC regulates has=20 resulted in its failure to act," Feinstein wrote in a letter to Lieberman.= =20 Senate passage of the Feinstein-Smith bill would send the measure to the=20 House, where some Republican House members from California face close=20 re-election races next year.=20 A Field Poll recently showed that 75 percent of state residents view the=20 electricity situation as "very serious" and that 59 percent say it was caus= ed=20 by energy companies seeking to increase profits.=20 Democratic strategists, citing those findings, say some California lawmaker= s=20 visiting their districts over the Memorial Day recess may come under pressu= re=20 to take strong action to restrain energy prices.=20 Natural gas CEO denies deal was improper=20 By Joe Cantlupe=20 COPLEY NEWS SERVICE=20 May 26, 2001=20 WASHINGTON -- The head of a Texas energy company that is accused of=20 wrongfully driving up California's natural gas prices told a federal=20 administrative law judge yesterday that he approved a deal between two=20 subsidiaries, but denied that it was an improper, sweetheart arrangement.= =20 William Wise, the chief executive officer of El Paso Corp., said the=20 Houston-based company has "stringent" rules that separate the operations of= =20 its pipeline subsidiary, El Paso Natural Gas, from its gas marketing=20 division, El Paso Merchant Energy.=20 "Functionally, that is the way they perform," said Wise of the corporate=20 subsidiaries. "They can be very autonomous from each other and the parent= =20 company."=20 Wise defended the corporation's practices in testimony before Curtis L.=20 Wagner, Federal Energy Regulatory Commission administrative law judge.=20 Wagner is examining allegations by California officials that El Paso and it= s=20 divisions entered into improper business practices before the deal was=20 struck. California officials charge that El Paso bolstered profits by=20 withholding natural gas capacity, costing the state about $3.7 billion. El= =20 Paso officials deny the allegations.=20 FERC's governing body has dismissed allegations of an improper relationship= =20 between the subsidiaries, but Wagner said he is still examining the issue= =20 before making recommendations to FERC.=20 Wise was hastily summoned to testify yesterday, a day after Wagner sharply= =20 criticized the credibility of another top El Paso Corp. executive about=20 Wise's involvement in discussions about the Merchant bid.=20 In his testimony, Wise said he gave the OK, on Valentine's Day 2000, to all= ow=20 Merchant Energy officials to bid on the natural gas capacity within the El= =20 Paso Natural Gas Co. pipeline. Wise said he was unaware of details about th= e=20 bid.=20 The El Paso Merchant Energy subsidiary eventually won the $38.5 million bid= =20 on the pipeline, which supplies about one-sixth of the natural gas that=20 California imports from throughout the Southwest. The company earned more= =20 than $180 million in profits.=20 If El Paso is found to have manipulated the power market, it could face=20 hundreds of millions of dollars in penalties.=20 Kern County Basks in Role as State's Blackout-Buster=20 Electricity: Six new plants will bolster its status as energy center.=20 By MITCHELL LANDSBERG, Times Staff Writer=20 ?????McKITTRICK, Calif.--You could think of this as California's own little= =20 slice of west Texas. ?????Here in the scruffy brown hills of western Kern County, oil rigs grow= =20 more easily than trees, pickups are more common than cars, and chicken frie= d=20 steak is the most popular dish at Mike and Annie's McKittrick Hotel. Tom Romesberg, general manager of La Paloma plant being built in Kern Count= y,=20 stands next to the unit's cooling tower. AL SEIB / Los Angeles Times ?????The hotel--which no longer offers lodging, just food and drink, and=20 plenty of it--is bustling these days with the roustabout energy of a Lone= =20 Star construction camp. Just down the road, a mammoth electrical power plan= t=20 is rising out of the sagebrush, its generators housed in four boxy building= s=20 the size of airplane hangars. ?????It is one of six new major gas-fired power plants expected to be built= =20 in Kern County over the next several years, an electrical construction boom= =20 unmatched anywhere in California. Kern, which already has a large surplus o= f=20 electricity, is cementing its place as California's energy capital, assumin= g=20 far more than its share of the burden in recharging the state's drained pow= er=20 supplies. ?????Over the next several years, the county will add nearly 5,000 megawatt= s=20 of power to the statewide grid. That is more than California now imports, o= n=20 average, from out-of-state suppliers. It's enough to supply about five=20 counties the size of Kern, which fills the dusty southern rim of the San=20 Joaquin Valley and has a population of 662,000. ?????In some parts of the state, a proposal to build a new power plant is a= =20 call to throw up the barricades. In recent months, intense community=20 opposition has forced developers to pull back proposals to build major plan= ts=20 in South Gate and San Jose, although Gov. Gray Davis has tried to revive=20 plans for the San Jose plant. ?????You don't hear a lot of not-in-my-backyard talk in Kern County. ?????"There should be power plants in everybody's backyard," said Paul Gipe= ,=20 chairman of the Kern chapter of the Sierra Club, which did not oppose any o= f=20 the new plants. "If people are concerned about having too many power plants= ,=20 they should think twice when they flip on the light switch." ?????New, natural gas-fired power plants, Gipe reasoned, are relatively cle= an=20 and will not add significantly to the county's serious air pollution=20 problems. Ideally, he said, they will allow the state to close some older,= =20 dirtier plants that cause considerably more environmental damage. ?????If environmentalists don't oppose the plants, it's not too much of a= =20 leap to guess that some people might be positively thrilled about them. ?????Just try, for instance, asking somebody in Taft, an oil center south o= f=20 McKittrick. "It's more money coming into Kern County--that's the way I look= =20 at it," said Pamela Dunlap, who runs a downtown thrift shop. ?????An Economy Rooted in the Oil Industry ?????She stood in the twilight outside her shop, on a street that embodies= =20 many of the most attractive attributes of small town Americana--with one=20 small difference. Where some towns might have statues of their founders or= =20 war heroes in prominent public places, Taft has erected small oil rigs and= =20 other pieces of drilling machinery, a reminder of its economic roots. ?????That Kern County has stepped up as California's blackout-buster is,=20 perhaps, not surprising. ?????To begin with, there's geography. Kern stands astride California's maj= or=20 north-south electrical transmission lines at precisely the spot at which th= ey=20 divide between the service areas of Pacific Gas & Electric, which serves=20 Northern California, and Southern California Edison. That spot can be=20 pinpointed as the Midway substation, a vast jungle of humming wires,=20 transformers and circuit breakers that lies a short distance west of=20 Interstate 5 in the town of Buttonwillow. ?????Already, massive new circuit-breakers--they look like Frankenstein=20 helmets sprouting 5-foot-long sparkplugs--are being erected at Midway to=20 handle the power from two major plants that will be revving up in the comin= g=20 months: PG&E National Energy's La Paloma plant, the one near McKittrick; an= d=20 Edison Mission Energy's Sunrise plant, just south of Taft. ?????The county is served by two major natural gas pipelines, which will be= =20 tapped to run the plants. In fact, Kern contains the state's largest known= =20 reservoirs of natural gas. ?????Another of Kern's geographic advantages? ?????"You look around, and you'll see there aren't a lot of people living= =20 around here," observed Stephen Whaley, who is overseeing construction of th= e=20 Sunrise plant. In the surrounding hills, an orchard of oil rigs bobbed in t= he=20 morning haze. Dirt roads cut crudely across the landscape, bisecting a=20 crisscross of steam pipes, fuel lines and electrical wires. ?????"This area is all about oil," Whaley said. Casting a glance at the=20 modular 560-megawatt plant rising behind him, he added with a wry smile, "Y= ou=20 know, I guess you could look at this from the road, and you could make the= =20 argument that it improves the looks." ?????The Sunrise plant, a relatively simple single-cycle plant, is expected= =20 to fire up 320 megawatts of its total output by Aug. 1, a scant nine months= =20 after construction began. The other plants--more complex and efficient=20 dual-cycle operations--will be opening over the next several years, assumin= g=20 all receive final approval. ?????The lack of major opposition to the plants is, of course, another reas= on=20 developers see Kern County as a good place to build. The county has long ha= d=20 a more intimate relationship with energy--oil, gas, electricity--than most= =20 places. To people here, the link between a natural gas well and a lightbulb= ,=20 or an oil derrick and a gas pedal, is neither theoretical nor especially=20 threatening. They're comfortable with energy. ?????Kern produces more crude oil than any other county in the United State= s=20 outside Alaska. Property taxes from oil companies have helped build handsom= e=20 new schools in Bakersfield, the county seat and largest city. The companies= '=20 big payrolls have helped populate elegant subdivisions with names that soun= d=20 vaguely Houstonian: Seven Oaks, River Oaks, Landmark Estates. ?????Which brings us to the Texas connection. ?????It's hard to overlook it, in a county that runs on oil and cotton and= =20 boasts a country music scene to rival Austin's. Conversations in the finer= =20 Bakersfield restaurants are filled with references to trips to Texas, of=20 colleagues in Midland and Odessa. A Bakersfield radio station was running a= =20 contest recently: The winners would be flown to a bull riding championship = in=20 Houston. ?????Until December 1999, American Airlines offered direct jet service=20 between Bakersfield and Dallas. It stopped after Occidental Petroleum moved= =20 its headquarters from Bakersfield to Houston. ?????This is a county where President Bush received more support in the=20 November election than he did in Texas, his home state. But then, Bush=20 already had a Bakersfield connection: He lived there briefly as a child whe= n=20 his father, former President George Bush, worked in the Kern oil fields. ?????"You look at the topography around Bakersfield, and the county's moral= s=20 and ethics--that predominantly conservative attitude that we have around=20 here--and you look at the oil, and you could be in Midland," said John Alle= n,=20 the general manager of Occidental of Elk Hills, which is developing a power= =20 plant in tandem with Sempra Energy of San Diego. ?????A lot of people in Kern County will tell you they don't mind being an= =20 energy farm for the state. It's a living, after all. ?????"It's good to be working at home," said Joe Ryan, a Bakersfield pipe= =20 welder who has spent years on the road seeking the heavy construction work= =20 that seemed to have vanished in his hometown. Now he's working at the La=20 Paloma plant, a 1,048-megawatt behemoth that will come online in phases=20 beginning in December. ?????About 800 people are at work on the plant, and several hundred more wi= ll=20 be employed in the coming months. And after that plant is done, there will = be=20 others to build. ?????"This is a good job here, I tell you what," said Ryan, 47, who has bee= n=20 banking his overtime on six 10-hour days a week--sometimes more. ?????County Sees Itself as 'Part of the Solution' ?????But there are some signs of simmering resentment, especially among=20 county leadership. After all, if every other county produced just half the= =20 electricity that Kern generates, California wouldn't have an energy crisis.= =20 And people in Kern County are getting hit with the same spring-loaded=20 electricity bills, the same rolling blackouts as everybody else. ?????"I think the people of California are either going to be part of the= =20 solution or part of the problem," said Assemblyman Roy Ashburn=20 (R-Bakersfield). "And in Kern County, we have a long history of being part = of=20 the solution, especially when it comes to energy issues." ?????Elsewhere in the state, Ashburn sees "a lot of arrogance--people who= =20 enjoy the benefits of a very high quality of life, enjoy the benefits of=20 electric power for jobs and for their personal life, but with an exclusivit= y=20 that it's someone else's problem to create that for them. We don't have tha= t=20 attitude in Kern County." Copyright 2001 Los Angeles Times=20 Plan to Rescue Edison Stalls=20 Power: Few lawmakers back Davis in the deal he reached with the utility.=20 Alternatives are being crafted, but legislators are wary of being blamed fo= r=20 new failures. Some see benefits in bankruptcy.=20 By MIGUEL BUSTILLO and CARL INGRAM, Times Staff Writers=20 ?????SACRAMENTO--Despite months of negotiations, Gov. Gray Davis' plan to= =20 save Southern California Edison, one of California's biggest utilities, is= =20 effectively dead in the state Legislature, leaders of both houses now agree= . ?????Not only has Davis failed to garner support for his more than $3-billi= on=20 plan to keep the utility out of bankruptcy--in part by having the state=20 purchase its transmission lines--but follow-up efforts by leading lawmakers= =20 to fashion an alternative are also falling flat. As a result, any alternati= ve=20 proposal to rescue Edison will probably have to be approved on a party-line= =20 vote by Democrats. ?????The reasons are complex, according to legislators working to close the= =20 Edison deal, but ultimately come down to simple politics, and are emblemati= c=20 of what has been a plodding, partisan response in the state Capitol to the= =20 energy crisis. ?????The stakes are high, because restoring Edison to financial health and= =20 requiring the utility to temporarily sell power at lower prices are linchpi= ns=20 of Davis' plan to get the state out of the business of buying electricity. ?????Nevertheless, leaders in the Legislature say Davis' approach has few= =20 backers. ?????"I don't think the governor's [plan] has support in either party in=20 either house," said Assembly Speaker Bob Hertzberg (D-Sherman Oaks). "The= =20 issue is whether we can come up with something else, and I think we can." ?????Senate leader John Burton (D-San Francisco), who has been critical of= =20 the deal Davis and Edison put together from the outset, said it is certainl= y=20 dead in the Legislature, but that a more far-reaching proposal may still=20 emerge. ?????"Hopefully, we will find a long-term solution" to the state's energy= =20 mess, Burton said. The Edison deal alone "is not going to solve anything. I= t=20 is not going to reduce rates, and it is not going to prevent blackouts." ?????Since January, California has authorized more than $7 billion in=20 taxpayer money to buy power for private utilities in order to avoid mass=20 blackouts. It is a perilous fiscal situation that has drained the state=20 budget and led to downgrades of the state's credit rating on Wall Street. ?????Lawmakers are wary of making an even greater blunder than they did in= =20 1996, when they unanimously approved what is now widely considered to be a= =20 botched scheme to deregulate electricity in California. In both the Assembl= y=20 and Senate, most Democrats and Republicans are convinced there is no way fo= r=20 them to save Edison without appearing to sanction a huge bailout similar to= =20 the federal government's rescue of Chrysler in 1980--one with less financia= l=20 reward for the state. ?????As a result, they all want to get something of value in return from=20 Edison--high-voltage transmission lines, hydroelectric power plants or=20 guarantees that the utility will boost energy supplies--but are sharply spl= it=20 on what is best. ?????A core element of all Edison rescue programs being considered is a=20 proposal to use a chunk of customers' monthly electric bills to repay the= =20 utility's huge debt, a solution many election-conscious legislators find as= =20 appetizing as a suicide pill. ?????Consumer Activists Threaten Initiative ?????The deal only requires a majority vote, but without two-thirds approva= l=20 it would be wide open to an initiative challenge--a prospect that frightens= =20 politicians. Consumer activists have already threatened to strike back with= a=20 referendum next year, when Davis and lawmakers will be seeking reelection. ?????Democrats, who hold majorities in both houses, cannot agree on how to= =20 save Edison--or whether it is even proper for government to do so. Some hav= e=20 grown convinced that California would be better off letting Edison follow= =20 Pacific Gas & Electric Co. into U.S. Bankruptcy Court. Indeed, after PG&E= =20 filed for protection from creditors in Bankruptcy Court last month, and=20 massive blackouts failed to materialize, legislative momentum to save Ediso= n=20 from a similar fate all but vanished. ?????"The urgency of doing anything on behalf of Edison is gone," said Sen.= =20 Don Perata (D-Alameda). ?????Meanwhile, Democratic efforts to forge a bipartisan solution with=20 Republicans have unraveled, and GOP lawmakers are now advancing their own= =20 plan. Legislative leaders realized early on that liberals and conservatives= =20 were unlikely to ever agree on details of a deal, so some Democrats and=20 Republicans attempted to form a centrist coalition. But the parties have=20 become increasingly distrustful of each other as the climate in Sacramento= =20 over who is to blame for California's power problems grows ever more partis= an. ?????Sensing they were being frozen out of negotiations, Assembly Republica= ns=20 rolled out a rival proposal last week that was focused on increasing power= =20 supplies in exchange for the rescue. Assembly Republican leader Dave Cox=20 (R-Fair Oaks) said he had hoped to pursue a bipartisan solution, but,=20 "Regrettably, it appears that [the Legislature] is not moving in that=20 direction now." ?????The Republicans' decision surprised and angered members of the "Plan B= =20 Group," a loose-knit cadre of Democratic lawmakers that has been working wi= th=20 Republicans to hash out an alternative to Davis' proposal. Members of the= =20 group say they are close to unveiling a complex counterproposal that could= =20 garner greater support, but now fear that they may have to seek approval on= a=20 party-line basis. ?????Despite the setbacks, Davis and many lawmakers still say some form of= =20 the Edison rescue plan will clear the Senate and Assembly this summer. But= =20 since Davis announced he had reached a deal with Edison executives to save= =20 the utility in April, nothing has been accomplished in the Legislature to= =20 implement it. ?????The long delay is adding to the problem. Every day that passes increas= es=20 the likelihood that one of Edison's numerous creditors will drag the=20 debt-strapped utility into an involuntary bankruptcy. ?????The lack of progress also increases the chances that Edison, like PG&E= ,=20 will lose patience with politicians in Sacramento and take itself into=20 bankruptcy court. ?????Edison has ramped up its public relations efforts in recent weeks and= =20 has launched an aggressive multimedia campaign to pressure legislators into= =20 approving the deal, replete with firefighter testimonials on television and= =20 direct mail pitches to stockholders asking them to write their state=20 representatives. ?????The rescue deal Davis reached with Edison calls for the state to pay t= he=20 utility $2.76 billion for its network of high-voltage transmission lines. I= t=20 would allow the state to issue bonds to finance the purchase, and declares= =20 that Edison is to use the money to pare down its debt, estimated at $3.5=20 billion. ?????Most important, the deal would set aside a portion of ratepayers'=20 monthly utility bills to pay off Edison's "undercollections," huge debts th= e=20 utility incurred last year and early this year because it was not allowed b= y=20 the state to pass on to consumers the full cost of wholesale power. ?????In return, Edison would agree to sell the electricity it generates fro= m=20 its power plants at cost for the next decade, lowering the state's overall= =20 power-buying expenses. ?????From the minute it was announced, however, lawmakers from both parties= =20 have called Davis' deal overly generous and questioned the benefit to the= =20 public. ?????Republicans, who have opposed the takeover from the outset, are=20 supporting an alternative they call "Plan R." Like Davis' proposal, the=20 Assembly GOP plan allows Edison to recover debts by siphoning a portion of= =20 electric rates, but requires in to bolster power supplies in return. ?????"This whole electricity crisis is a supply-demand imbalance," said=20 Assemblyman Keith Richman (R-Northridge), one of the architects of the=20 Republican plan. "We need to get to a point where there is a supply surplus= ." ?????In addition, the GOP plan calls for the electricity generators owed=20 billions by Edison to "take a haircut," Capitol parlance for forgiving some= =20 of what they are owed. Davis and Burton have also called for the generators= =20 to accept a 30% reduction in outstanding payments, and the idea is part of= =20 the alternative Edison deal being pieced together by the Democrats' Plan B= =20 Group. ?????Assemblyman John Dutra (D-Fremont), one of the group's leaders, said i= ts=20 members have been meeting with consumer groups, Edison representatives and= =20 others, and believe they are close to satisfying the groups at odds over th= e=20 rescue plan. But because of lingering differences with Republicans, Dutra= =20 said they may have to try passing partisan legislation. ?????"This is not a situation where we should be playing a political game,"= =20 he said. "We have to find a solution, because the alternative for the state= =20 is social and economic chaos." ?????Assemblyman Bill Leonard (R-San Bernardino) said he was disappointed= =20 that what started out in January as a bipartisan effort to resolve energy= =20 issues had collapsed into a nasty partisan standoff. Leonard said he feared= =20 that the bipartisan spirit would not return. ?????"The reservoirs of goodwill are not full right now," Leonard said.=20 "We're in a goodwill drought." Copyright 2001 Los Angeles Times=20 WASHINGTON OUTLOOK Bush Could Boost Green Power With Buying Power=20 By RONALD BROWNSTEIN, Times Staff Writer=20 ?????Today, the south wall of the Energy Department's fortress-like=20 Washington headquarters is a fitting symbol for an agency that itself has= =20 never quite established an identity: a 32,100-square-foot blank slab of=20 concrete. ?????Shortly before leaving office, however, the Clinton administration=20 awarded a Chicago architectural firm a contract to explore converting the= =20 wall into something quite different: a vast solar array that would provide= =20 much of the building's heat and power. ?????The firm--Solomon Cordwell Buenz & Associates--has produced a=20 spectacular design of a graceful, canopy-like Sun Wall that utilizes both= =20 photovoltaic panels and hydronic systems, a liquid-filled vacuum tube that= =20 warms with the sun's rays and can heat the building in winter. Now the firm= =20 is working to estimate the cost of constructing its creation. "We think it= =20 would certainly draw attention to this whole new type of energy," says Mart= in=20 Wolf, one of the designers. "Which would be quite timely given where we are= =20 as a nation." ?????The Sun Wall stands as a riveting symbol of Washington's potential to= =20 advance the development of renewable energy through a tool that's received= =20 almost no attention in the energy debate: the purchasing power of the feder= al=20 government itself. Through all its departments and agencies, the federal=20 government spends about $8 billion a year on energy--probably more than any= =20 other single consumer in the world. That buying power gives the government= =20 enormous leverage to speed the growth of renewable energy sources such as= =20 solar, wind, geothermal and biomass. ?????Today, all of these renewable sources (leaving aside hydropower) provi= de=20 only 2% to 3% of the nation's electricity, mostly because they are too=20 expensive to compete with conventional sources. Renewables are in the same= =20 Catch-22 as many new technologies: Because they are too expensive, they=20 cannot attract the sales that their makers need to both generate economies = of=20 scale and invest in more advanced manufacturing techniques. ?????Government can break the logjam by providing a market that allows=20 renewable manufacturers to advance up the learning curve and lower the pric= e=20 of their technologies to a level that makes them commercially competitive. ?????Washington has done precisely this before, most important with a produ= ct=20 that has literally transformed modern life: the microchip at the heart of t= he=20 computer revolution. The first microchips were much too expensive to attrac= t=20 commercial customers, but in the early 1960s, both NASA (using the chips fo= r=20 the Apollo space program) and the Defense Department (embedding the chips i= n=20 nuclear weapons) provided a guaranteed market--buying the chips without=20 regard to cost. ?????As author T.R. Reid recounted in "The Chip," his history of the=20 microchip: "The government's willingness to buy chips in quantity at premiu= m=20 prices provided the money the semiconductor firms needed to hone their skil= ls=20 in designing and producing [the] circuits. . . . As experience taught ways = to=20 solve the most common production problems, the cost of making a chip began = to=20 fall." ?????Three years after the government first started buying, the cost fell f= ar=20 enough that the microchip attracted its first commercial customers. Its bee= n=20 a breakneck race to the future ever since. ?????An alliance of centrist House Democrats has sensibly proposed that=20 Washington do the same for renewables. Earlier this month, the House New=20 Democrat Coalition introduced legislation that would commit the federal=20 government to purchasing a fixed percentage of its power from renewable=20 sources; the bill also would provide grants and loans to encourage state=20 governments and nonprofit organizations to also buy green. "Today, you can'= t=20 generate the revenue to make these technologies more commercially viable,"= =20 says Rep. Adam Smith (D-Wash.), one of the bill's principal authors. "The w= ay=20 to get around that is to use the market power of the federal government to= =20 help create a market." ?????With little attention, former President Clinton already committed the= =20 federal government to that course. In 1999, he signed an executive order=20 mandating that Washington expand its use of renewable energy; later, his=20 administration set a goal of obtaining 2.5% of its electricity from renewab= le=20 sources by 2005, almost eight times more than today. Smith believes that go= al=20 is already too low, largely because renewables are becoming more competitiv= e=20 as conventional sources grow more expensive. ?????Even so, this initiative is already spurring new thinking. As part of= =20 the overall plan, the Clinton administration committed to installing 20,000= =20 solar systems on government facilities by 2010; by the time he left office,= =20 2,000 were already in place. ?????"It's out in the national parks, where instead of having to string pow= er=20 lines to remote buildings, they are putting up solar systems," says Dan=20 Reicher, the assistant secretary for energy efficiency and renewable energy= =20 under Clinton. "There are several thousand units of naval housing in Hawaii= =20 that are now using solar. They are being used at the Coast Guard Station in= =20 Boston, a post office in Nantucket." ?????Another dramatic project is underway in Nevada. Shortly before Clinton= =20 left office, his administration signed an agreement with a private consorti= um=20 to lease part of an old nuclear test site in the desert northwest of Las=20 Vegas as a giant wind power facility that would be the nation's second=20 largest. Eventually the site is expected to provide power for California an= d=20 Nevada and the Energy Department itself from 500 wind turbines. ?????President Bush hasn't tipped his hand entirely on leveraging governmen= t=20 buying power to boost renewables. Disturbingly, the national energy plan th= at=20 Bush released earlier this month says not a word about the use of governmen= t=20 procurement. But Jill Schroeder, an Energy Department spokeswoman, says the= =20 administration has indicated no intention to revoke the Clinton executive= =20 order--and the green power purchasing goal it includes. ?????As for the Sun Wall, Energy Department officials sound dubious--but th= ey=20 are reserving judgment until Wolf's firm completes its cost estimates. The= =20 cost could indeed be intimidating; even the Clinton team hadn't committed= =20 itself to construction. But such a strategic purchase can pay dividends for= =20 decades--a fact evident in the debt that everyone who uses a computer still= =20 owes to the critical investments NASA and the Defense Department made in=20 another technology 40 years ago. ---=20 ?????Ronald Brownstein's column appears every Monday.=20 Copyright 2001 Los Angeles Times=20 Suddenly, Dirty Old Coal Is the Fossil Fuel of the Future=20 Energy: The power crisis--and Bush's plan to deal with it--has lifted the= =20 mining lobby and the industry it promotes.=20 By GERALDINE BAUM, Times Staff Writer ?????WASHINGTON--The National Mining Assn. represents a fuel that many=20 Americans think went out with Charles Dickens. ?????Just last week, a California congressman's aide asked an association= =20 lobbyist wide-eyed: "Do we still use coal in this country?" ?????The answer is yes--and lots of it. More than half of America's=20 electricity is coal-fired, but polls show that most Americans don't know it= . ?????Considered the voice of coal in Washington, the mining association has= =20 been denigrated by critics as a venal hired gun for an industry that doesn'= t=20 give a whit about acid rain, global warming, black lung disease or slag hea= ps=20 that scar the land. The industry was under siege in the final years of the= =20 Clinton administration, when Washington launched an aggressive effort to ma= ke=20 owners of coal-fired power plants undertake expensive pollution control=20 improvements. ?????"It was like waking up every morning with a six-chamber gun pointed at= =20 your head, and each chamber contained a lethal bullet," said Thomas Altmeye= r,=20 the association's top lobbyist. ?????Suddenly, it's a new day for coal in America. That much became clear t= o=20 Altmeyer the other day as he found himself at the White House, where Vice= =20 President Dick Cheney personally briefed about 40 industry types on the Bus= h=20 administration's new energy plan. ?????"It was really nice to hear it from him," says Altmeyer.=20 ?????A lot has changed in the short time since George W. Bush beat Al Gore = in=20 West Virginia (and lots of other places), and California's power crisis=20 transformed dirty old coal into a fossil fuel of the future. ?????Now, when the mining association faxes position papers to the U.S.=20 Environmental Protection Agency, they are read. Now, when its lobbyists cal= l=20 over to the U.S. Interior Department with suggestions for job candidates,= =20 they talk with old friends occupying key positions. Now, those at the top= =20 don't need to be told that coal supplies more than half of America's=20 electricity: Bush comes from Texas, which uses more coal-fired power than a= ny=20 other state in the union; Cheney hails from Wyoming, the largest=20 coal-producing state. ?????When the Bush-Cheney team took over, mining association employees were= =20 invited to serve on transition teams. The White House had not had a new=20 occupant but two months before Bush reversed himself on carbon dioxide=20 emissions, deciding to forgo new rules on a gas that scientists say=20 contributes to global warming. Coal-fired power plants are a key source of= =20 the gas.=20 ?????Yet, like poor relatives who have finally been invited over for=20 Christmas dinner, the coal people are not quite comfortable with their=20 newfound popularity in Washington. When asked how it feels to go from class= =20 pariah to homecoming king, the best that Altmeyer and his boss, mining=20 association President Jack Gerard, can come up with is that they're, well .= .=20 . pleased. ?????But their friends know better: The chief of staff to a Southern=20 Republican senator said he saw the usually low-key, all-business Altmeyer a= t=20 an inaugural party in January. "He was downright elated," said the aide,=20 chuckling. ?????A coal-friendly Democratic senator slapped Altmeyer on the back at a= =20 fund-raiser recently and said, "Tom, I can't believe it, but we really have= =20 an opportunity to do something. All the liberal senators are running scared= =20 about this California energy crisis. Now they'll listen to us." The next da= y,=20 Altmeyer shipped him a list of suggestions to share with his liberal=20 colleagues. ?????"We're not going to waste this opportunity to educate people, no way,"= =20 says Altmeyer.=20 ?????The association's president, Gerard, 42, a native of Idaho and a forme= r=20 consultant to the mining industry, is not ready to celebrate. He is new at= =20 his job: He took over the NMA shortly before Bush took over the White House= ,=20 but he has been around mining long enough to remember other times when the= =20 industry was left for dead but rebounded with an energy crisis. ?????And so, he says, he is merely "cautiously optimistic." ?????"You might sense some excitement in the industry," he allows, "that we= =20 have a White House that recognizes the facts." He then rattles off a bunch:= =20 The U.S. has enough reserves in the ground to burn coal at its current rate= =20 for 250 years; since implementation of the 1970 Clean Air Act, coal use for= =20 electricity has tripled while emissions have dropped 30%. ?????"We play an important role in society and the White House knows it,"= =20 Gerard says. "Does that make us gleeful? Not necessarily." ?????Perhaps it's because coal is still a hard sell to many people.=20 ?????Gerard is the speaker at a conference of 400 scientists interested in= =20 "carbon sequestration," a theoretical solution to coal's contribution to=20 global warming. But he spends about half of his time attacking=20 environmentalists and saying things like, "California represents a failed= =20 experiment in energy policy." ?????When a professor takes issue with his combative "tone," Gerard smiles= =20 pleasantly. He is not fazed. On the cab ride back to his office, he explain= s,=20 "Look, the professor is looking for a technical paper. That's not what we d= o.=20 I'm trying to talk about what is at stake and the future." ?????In recent years, the NMA has tried to refashion its industry's dark=20 legacy and image. It spent less time calling scientific evidence against co= al=20 "bunk" and more time on the bandwagon to clean up three of the four main=20 pollutants caused by its use. And now coal-related businesses are trying to= =20 act like winners. Besides backing Bush's $2-billion plan for more "clean=20 coal" technology, they're spending $10 million of their own money on a=20 campaign to buff up their image.=20 ?????More than image-building, however, the real work of the mining=20 association these days is in the massive Capitol building and House and=20 Senate offices. There is where the administration's energy plan will be=20 fashioned into action; there is where the president's budget will buy the= =20 coal industry time to develop new anti-pollution technology; there is where= =20 they can get government to ease up. ?????Altmeyer is a tall, strapping fellow. But, although he was born in Wes= t=20 Virginia, he wasn't born to its coal. His father was an undertaker. ?????After earning degrees in law and business, Altmeyer went to work for t= he=20 late Democratic Sen. Jennings Randolph of West Virginia, and he got to know= =20 "lots of coal miners who were proud of what they're doing," he says.=20 ?????In the mid-1980s, he went with a trade association that evolved into t= he=20 NMA. He has spent most of his career shepherding companies through=20 anti-pollution legislation. ?????He can't quite abide the way coal is treated like a "black hat" in the= =20 media--even now. "You don't see banner headlines, 'U.S. has record coal=20 production in the year 2000, and we did it in a way much more environmental= ly=20 responsible.' " ?????Instead, he says, media reports emphasize renegade coal companies that= =20 break laws and exaggerated claims about climate change. ?????But coal has never been appealing to California, which uses very littl= e=20 coal-fired power because it's so dirty. California Resources Secretary Mary= =20 Nichols does not buy the coal lobby's Rodney Dangerfield act. ?????"They don't get no respect?" mocks Nichols, who ran the EPA's air and= =20 radiation department for President Clinton. "But they have over the years.= =20 We've spent billions trying to clean up coal. Nobody is suggesting we stop.= =20 But how much attention should it get as a fuel of the future? Not much,=20 because under any scenario, the cost of cleaning up carbon emissions and th= e=20 way it's mined is too high."=20 ?????Altmeyer is no fan of Nichols, either. It may be a new day, but the ol= d=20 battles remain fresh. ?????"It was like living in a banana republic with a dictator who made=20 arbitrary decisions," he says of the Clinton years. He won't even speculate= =20 what the industry would be facing if Gore had been elected president. "I=20 would have rather had Woody Allen in the White House." Copyright 2001 Los Angeles Times=20 Power Firm Chief Lists Solutions for Crisis=20 By KURT STREETER, Times Staff Writer ????? A Texas business executive whose company has profited enormously from= =20 California's energy crisis says California needs more deregulation, not les= s. ?????Kenneth Lay, the head of Houston-based Enron Corp., handed out a=20 four-page plan detailing his solution to California's energy crisis at a=20 meeting with Los Angeles Mayor Richard Riordan and other state business and= =20 political leaders at a Beverly Hills hotel May 17. ?????The report details several ways to solve California's energy crisis. ?????"Get deregulation right in California," it reads. "California never=20 deregulated. . . . There is more regulation than ever."=20 ?????Among the document's other points are calls for consumers to pay the= =20 billions of dollars in debt the state's public utilities have incurred, and= =20 an assertion that federal investigations into price gouging by private firm= s=20 such as Enron are contributing to the problems.=20 ?????Lay also suggests increasing conservation efforts, partly through=20 pricing that would cost consumers more for using electricity during peak=20 times. ?????Reached for comment, Steve Maviglio, a spokesman for Gov. Gray Davis,= =20 called the paper a "generator's wish list," saying it goes against the=20 governor's policy on the energy crisis. ?????"The governor is not calling off the dogs," Maviglio said Saturday. "T= o=20 suggest that ratepayers should shoulder the entire burden of deregulation i= s=20 totally the opposite of what the governor is calling for." ?????Lay, one of President Bush's biggest campaign contributors and a key= =20 advisor on the Bush energy plan, has built a powerful energy company by=20 buying electricity from generators and then selling it. Enron reported=20 first-quarter revenue of $50.1 billion, nearly a 281% increase over the sam= e=20 quarter last year.=20 ?????Lay met with Riordan and luminaries including actor Arnold=20 Schwarzenegger and financier Michael Milken--plus about a dozen others--at= =20 the Peninsula Hotel. ?????Enron spokesman Mark Palmer said: "Our position is simple." California= =20 needs to "increase the supply of energy and decrease the demand." --- ?????Associated Press contributed to this story.=20 Copyright 2001 Los Angeles Times=20 State Renews Demand for Power Price Relief=20 Energy: Officials ask FERC to reconsider ruling. Cheney reiterates oppositi= on=20 to caps.=20 By NANCY VOGEL and DAN MORAIN, Times Staff Writers ?????SACRAMENTO--California officials launched a full-scale formal effort= =20 Friday to persuade the federal government to act more forcefully to push do= wn=20 wholesale electricity prices, saying that existing plans have "utterly=20 failed." ?????At the same time, Vice President Dick Cheney strongly reiterated the= =20 Bush administration's opposition to any price caps. Price controls are "a= =20 mistake," he told a Washington audience. "It's not a solution; it's adding = to=20 the problem," he said. "There isn't anything that can be done short term to= =20 produce more kilowatts this summer." ?????State officials have repeatedly demanded price controls, only to be=20 rebuffed, and Cheney's remarks illustrate the depth of the administration's= =20 opposition to the idea. ?????But the politics of the energy crisis have changed since the last time= =20 the Federal Energy Regulatory Commission rejected broad price caps. The=20 Senate is about to move from Republican to Democratic control, giving=20 opponents of the administration's energy policies a much more potent=20 platform; the Senate has confirmed two new members to the five-member FERC;= =20 and the existing members of the commission have shown doubts about whether= =20 deregulation of energy prices is working. ?????Gov. Gray Davis described the state's actions--detailed in a set of=20 filings delivered Friday to FERC--as a "full frontal attack" on what he ter= ms=20 the commission's industry-friendly policies. ?????"This agency has failed its duties miserably," he said. "It's time for= =20 FERC to wake [up] and take action on a crisis that threatens our nation's= =20 economy." ?????With the governor's backing, the California Public Utilities Commissio= n,=20 California Independent System Operator and Electricity Oversight Board said= =20 FERC's actions to date have failed "to extinguish the fire that is rapidly= =20 consuming California's economy." They petitioned the commission to reconsid= er=20 its April 25 order to limit prices during power shortages in California. ?????A second petition asks the federal government to revoke the rights of= =20 Oklahoma-based Williams Cos. and Virginia-based AES Corp. to sell electrici= ty=20 at whatever price the market will bear. ?????The companies' right to do so was granted by FERC three years ago, whe= n=20 California opened its $28-billion electricity industry to competition, but= =20 that right has come up for renewal. State officials said they will similarl= y=20 challenge other power sellers, arguing that it is illegal for FERC to allow= =20 the companies to sell at whatever price the market will bear when the marke= t=20 is obviously broken. ?????The state's filings and the evidence about wholesale prices they conta= in=20 are sure to be fodder for Davis' scheduled meeting Tuesday with President= =20 Bush in Los Angeles. ?????California's petitions also come the day that Bush won Senate=20 confirmation of his two appointees to FERC. With the current members split = 2=20 to 1 on last month's FERC order, the new commissioners--Pat Wood III of Tex= as=20 and Nora Mead Brownell of Pennsylvania--would cast the deciding votes on=20 California's request for a rehearing. In their confirmation hearings, both= =20 Wood and Brownell expressed support for more aggressive federal efforts to= =20 protect California consumers. ?????Since last June, after prices began to soar in California's partly=20 deregulated electricity market, Davis has beseeched the federal agency to= =20 take swift action, including imposing price caps. The agency is charged by= =20 federal law with ensuring that prices for wholesale electricity are just an= d=20 reasonable. ?????But its commissioners have declined to cap prices across the West's=20 interconnected electrical transmission system. Instead, they have attempted= =20 to stabilize wholesale power costs through its April 25 order that would=20 limit how much power sellers can earn whenever California's reserves have= =20 slipped to 7% or less, which triggers what is known as a Stage 1 emergency. ?????But some economists have concluded that California's market is so flaw= ed=20 that sellers are able to boost prices even when electricity demand is not= =20 particularly high, such as at night or on weekends. ?????State officials have also faulted the federal plan for exempting=20 marketers--companies that trade electricity but do not generate it--from th= e=20 limited price caps. Such a loophole, they say, would allow power producers = to=20 escape the caps by making arrangements with marketers--a process called=20 "megawatt laundering." ?????"FERC's pricing plan is laced with loopholes," Davis said in a written= =20 statement. "It's simply a fig leaf that does nothing to address the impact = of=20 the energy crisis on California and our nation." ?????The state's filings homed in on wholesale electricity prices charged i= n=20 April, when electricity usage was down compared with that of a year earlier= .=20 Prices averaged $370 per megawatt-hour last month, significantly higher tha= n=20 those of January and February. (That's enough to supply 750 typical homes f= or=20 an hour.) ?????Officials with the California Independent System Operator, which manag= es=20 three-quarters of the state's electricity transmission grid, said they=20 measured greater manipulation of prices by power sellers in April than in a= ny=20 month since June 2000. ?????In 1999, the first full year of deregulation in California, wholesale= =20 electricity prices averaged $31 per megawatt-hour. By February of this year= ,=20 the average price had risen more than 700%, to $258 per megawatt-hour,=20 according to the state's filings. ?????Such prices have contributed to extraordinary profits for some=20 companies, including Williams, the state noted in its filings. ?????Williams reported first-quarter profit of $484 million in 2001, compar= ed=20 with $77.8 million for the same period last year. ?????"Frankly," the state charges, "it does not and should not require=20 detailed analysis by economists to recognize that the phenomenal transfer o= f=20 wealth is the product of supplier exploitation of the current market=20 situation." ?????Williams, which markets electricity produced by AES, was ordered April= =20 30 by FERC to refund $8 million in connection with allegations that power= =20 plants in Huntington Beach and Long Beach were improperly shut down to crea= te=20 scarcity that would boost prices. ?????The state filing asks FERC to set the prices Williams and AES can char= ge=20 based on what it costs to produce the power. ?????Representatives of Williams could not be reached for comment late=20 Friday, but AES spokesman Aaron Thomas said that stripping companies of the= =20 right to sell at whatever price the market bears would result in tremendous= =20 upheaval in California's power market. ?????In Washington, at a U.S. Chamber of Commerce energy conference, Cheney= =20 suggested that California officials were largely to blame for the state's= =20 energy problems.=20 ?????"They didn't address it soon enough," he said, referring to the power= =20 shortages. "They knew a year ago they had problems; they postponed taking= =20 action because all of the action was potentially unpleasant--[it] would hav= e=20 involved price increases, and so forth. ?????"The net result is, though, having postponed action and delayed, we're= =20 now in a situation where the prices [consumers pay] have to go up anyway;= =20 where, in effect, you're going to have blackouts this summer because even a= s=20 we had this flawed regulatory scheme, we've had demand grow in California= =20 with the economy, but no increase in power because nobody built a new plant= =20 out there for 10 years.=20 ?????"Long term, the answer is build more power plants, and that's exactly= =20 what they're doing," Cheney added. "But they're not going to have enough ne= w=20 capacity online this summer to be able to avoid blackouts." ?????Soaring market prices since May 2000 have financially crippled Pacific= =20 Gas & Electric and Southern California Edison, the state's two biggest=20 electricity utilities, which were forbidden by the state's deregulation pla= n=20 to pass on their higher costs to customers. ?????By mid-January, the utilities were so close to bankruptcy that power= =20 sellers refused to deal with them for fear of not getting paid. The state= =20 stepped in to buy electricity on their behalf and has so far committed $7= =20 billion from the general fund for such spending. ?????Even if it can't persuade FERC to reconsider its plan, the state could= ,=20 in effect, kill it outright. ?????Implementation of the plan is contingent upon the state submitting by= =20 June 1 a plan for joining a so-called regional transmission organization.= =20 FERC has made it a top priority to make the country's electricity system wo= rk=20 more efficiently and smoothly by linking operations through such regional= =20 organizations. ?????State officials said Friday they will decide next week whether to subm= it=20 such a plan to FERC.=20 Copyright 2001 Los Angeles Times=20 El Paso CEO Admits Approving Subsidiaries' Natural Gas Deal=20 By RICARDO ALONSO-ZALDIVAR, Times Staff Writer ?????WASHINGTON--The chief executive of a Texas energy company testified=20 Friday that he approved a controversial deal between two subsidiaries that= =20 critics allege contributed to Southern California's soaring natural gas=20 prices. ?????However, El Paso Corp. Chief Executive William A. Wise said he did not= =20 decree that El Paso Merchant Energy Group, which sells natural gas, enter= =20 into the $38.5-million deal with El Paso Natural Gas Co., which owns a majo= r=20 pipeline system. He also said he was unfamiliar with the details of=20 Merchant's bid for about one-third of the pipeline system's capacity. ?????"What I don't do is micromanage," Wise said under questioning by Judge= =20 Curtis L. Wagner Jr. in a trial-like hearing before the Federal Energy=20 Regulatory Commission. "I agreed we should go forward and bid on this=20 capacity . . . but I didn't direct them to bid or not to bid for it." ?????Describing his role in a meeting at which the plan was presented to hi= m,=20 Wise said, "I had no part in preparing for the meeting--I just showed up." ?????Wagner will now have to determine if Wise's role violated FERC rules o= n=20 arm's-length relationships within the same corporate family, essentially=20 circumventing federal policies to prevent pipeline companies from exercisin= g=20 monopolistic power. ?????The California Public Utilities Commission has alleged that El Paso=20 Merchant took advantage of the contract to withhold space on the pipeline,= =20 creating an artificial shortage that led to a price spike that raised=20 California's total energy costs by an estimated $3.7 billion. ?????El Paso counters that high prices are due to increased demand from pow= er=20 plants that burn natural gas, unusual weather and other factors--not market= =20 manipulation. They dismiss the $3.7-billion estimate. ?????Separately Friday, the Senate unanimously confirmed President Bush's= =20 nominations of Patrick Wood III and Nora Brownell to fill two empty seats o= n=20 FERC's five-member governing board. Wood, who heads the Texas Public Utilit= y=20 Commission, is widely expected to be named the next FERC chairman. The new= =20 board members are expected to bring a more activist style to the agency,=20 which functions like a national utility commission. ?????Also Friday, FERC issued a late-afternoon order clarifying technical= =20 details of its plan to keep California electricity prices in check during= =20 power emergencies this summer. The order addresses such issues as how to=20 compute a price for natural gas. ?????The El Paso case represents the closest yet to a trial of allegations= =20 that energy companies are manipulating the California market. Wagner, who i= s=20 FERC's chief judge, will render an initial decision to the agency's governi= ng=20 board, which has the power to order the return of ill-gotten profits. ?????Attorneys for the plaintiffs said Wise's testimony was important becau= se=20 it suggests an effort by a single corporate entity to use its subsidiaries = in=20 an end-run around FERC's system of checks and balances against monopoly pow= er. ?????"It shows it was a coordinated strategy at the highest levels of El Pa= so=20 Corp.," said Frank Lindh, a lawyer representing Pacific Gas & Electric, whi= ch=20 is one of the plaintiffs. ?????During his cross-examination, Lindh sought to emphasize that, as a=20 former executive of the pipeline company, Wise was intimately familiar with= =20 the workings of the industry and with federal curbs on monopoly power. Copyright 2001 Los Angeles Times=20 Police Support 48-Hour Alerts for Blackouts=20 Crisis: Law enforcement officials downplay crime fears, saying notice of=20 power outages will make their jobs easier.=20 By MITCHELL LANDSBERG, Times Staff Writer ?????Earlier this year, when widespread blackouts first began to roll their= =20 way across California, electric utility officials explained why they couldn= 't=20 give the public more than a few minutes' warning before pulling the plug. ?????Advance notice, they explained, would give the upper hand to criminals= ,=20 who could plan their day around out-of-service burglar alarms. ?????That was then. ?????This is now: On Friday, law enforcement officials throughout Southern= =20 California hailed a decision by Gov. Gray Davis to create an early-warning= =20 system that would give the public increasingly specific alerts during the 4= 8=20 hours leading up to a blackout. ?????"It's a huge improvement," Los Angeles County Sheriff Lee Baca said at= a=20 news conference, where he was joined by senior officials of the California= =20 Highway Patrol and the Los Angeles Police Department, among other agencies.= =20 The governor announced his plan Thursday. ?????The governor's plan was also endorsed by 35 police chiefs from=20 throughout Los Angeles County. The chiefs held their annual meeting Friday = in=20 Palm Springs. ?????Since the blackouts began, "one of the No. 1 issues has been the lack = of=20 notification," said Pasadena Police Chief Bernard Melekian, who is presiden= t=20 of the county police chiefs association. ?????What gives? What has changed since January, when officials from Southe= rn=20 California Edison insisted that they couldn't give more than five or 10=20 minutes' warning? ?????Richard Rosenblum, a senior vice president for Edison, said the utilit= y=20 had canvassed law enforcement officials earlier this year. "The general vie= w=20 at that time--and it certainly was not unanimous--was that for public safet= y=20 reasons, it would be better not to release that information." ?????Since then, he said, "there's been a good deal more thinking . . . and= =20 that view has changed." ?????Melekian (whose city is served by its own utility, not Edison) said he= 'd=20 heard that explanation before. ?????"I remember, when they were saying that, I had trouble finding anybody= =20 who had been canvassed," he said. "I certainly wasn't. Somebody may have=20 been." ?????Were police worried about looting and burglaries in a blackout? ?????"We never were worried about that," Melekian said. With blackouts=20 lasting only about an hour in any one place and always occurring during=20 daylight, "we haven't seen any crime issues emerge and we don't anticipate= =20 any." ?????Baca said he did have concerns, but they were erased Monday, when Davi= s=20 led a delegation of California officials to Chicago, where they met with=20 Mayor Richard Daley and top public safety officials to compare notes on the= =20 threat of crime during blackouts. Chicago has a plan in place for dealing= =20 with electricity outages by determining in advance which intersections and= =20 other public places should receive the most attention. ?????The Chicago officials told the Californians that public safety isn't= =20 jeopardized as long as law enforcement officials send forces to critically= =20 affected areas, Baca said. ?????"All of us were extremely relieved that . . . our fears about crime=20 increasing by advance notice are just totally unfounded," the sheriff said. ?????Baca said his department would be developing a plan for deploying=20 deputies when blackouts strike. Other agencies said they were doing the sam= e. ?????"We may contact businesses such as banks and jewelry stores, or any ty= pe=20 of businesses that the criminal type may target," said Lt. Clyde Stuart of= =20 the Huntington Beach Police Department. ?????Ventura County Sheriff Bob Brooks said he had been dreading this=20 summer's looming blackouts, but the 48-hour warning will make his job easie= r.=20 During the past few rounds of rolling outages, Brooks said he was notified= =20 just a few minutes before the power was yanked. ?????"There really wasn't time to do anything except shut our computers=20 down," he said. ?????Earlier this month, he met with several other sheriffs throughout the= =20 state to talk about how to cope with the power outages. "That was our No. 1= =20 priority--being able to have adequate time to mobilize," he said. "It was a= =20 good move on the part of the governor." --- ?????Times staff writers Anna Gorman in Ventura and Thuy-Doan Le in Orange= =20 County contributed to this story. Copyright 2001 Los Angeles Times=20 Outdoor Lights Still Burning=20 Energy: Despite threat of fines, few retailers are following order to cut= =20 usage in off hours.=20 By SARAH HALE, Times Staff Writer ?????It was almost midnight on auto row in Glendale recently, and although= =20 the car lots had been closed for nearly three hours, the lights still burne= d=20 brightly at Glendale Dodge, Guy Schmidt Cadillac and other dealerships alon= g=20 Brand Boulevard. ?????California regulators ordered retailers March 15 to cut their outdoor= =20 lighting in half during off hours, but so far it appears there is widesprea= d=20 disregard or ignorance of the plan, retailers acknowledge. Many auto dealer= s,=20 grocery stores and restaurants still keep the lights burning after hours. ?????Although the state order threatens retailers with fines of as much as= =20 $1,000 for disregarding the measure, no citations have been issued, accordi= ng=20 to state officials tracking the program. Police say they are paying little= =20 attention to the issue. ?????Despite that, Sheryl Tankersley of the Governor's Office of Emergency= =20 Services said she believes the program is working--even though she concedes= =20 there are no energy-use figures or other statistics to prove it. She also= =20 acknowledged that the state is at the mercy of local police to enforce the= =20 measure, who say they are more interested in fighting violent crime than=20 conservation scofflaws. ?????"It is our belief that the program is working," Tankersley said. "We= =20 assume businesses are complying. However, without law enforcement assistanc= e,=20 the order is difficult to moderate." ?????The energy conservation order by Gov. Gray Davis applies to all=20 California businesses, regardless of location or whether they are served by= =20 municipal utilities with power to spare. ?????In interviews, many business owners, including one of the Glendale car= =20 dealers whose lights were on after closing time, said they are complying wi= th=20 the law. ?????"Someone must have forgot [to turn off the lights]," said Myron=20 Grombacher, general manager of Glendale Dodge. "Or maybe the cleaning crew= =20 turned on the lights." ?????Some retailers say they've killed lights to save on energy bills, not= =20 for fear of being fined. Others say they were unaware of the rule or haven'= t=20 complied due to security concerns. The order applies only to "unnecessary"= =20 lighting, exempting lighting needed to protect workers, the public or=20 property. ?????"We understand the importance of turning off the lights, but we can't= =20 afford to black out the lot," said Bill Jaros, with Guy Schmidt Cadillac.= =20 "Theft is a problem and that's just as costly." ?????Glendale isn't alone--bright lights can be seen after midnight at car= =20 dealerships throughout the area, including lots in Van Nuys and Thousand=20 Oaks. After-hours lights also were spotted this week at a Smart & Final in= =20 Venice, a lamp store in Studio City and a Goodyear Tires store in Westwood,= =20 where the manager said the lights stay on till 3 a.m. ?????"We are obligated to the corporate office to keep our lights on," said= =20 the tire store manager, who would not give his name. "We do what they tell= =20 us. I didn't even know a fine could be issued." ?????In San Francisco's Union Square, retailers and restaurants also keep= =20 their windows lit long after closing time, according to area merchants. ?????"If stores are cutting back, I haven't noticed. The heart of Union=20 Square looks the same. Everything is bright, everything is on," said Brando= n=20 Koehl, manager of the Williams-Sonoma housewares store near Union Square. ?????The light-reduction order, signed by Davis on Feb. 1, called on "all= =20 California retail establishments" to "substantially reduce maximum outdoor= =20 lighting capability during nonbusiness hours." In a directive one week late= r,=20 the governor's office defined substantial as a 50% reduction in electrical= =20 power consumed--allowing retailers to meet the rule by either turning off= =20 lights or cutting the wattage. ?????Law enforcement honchos, including Los Angeles County Sheriff Lee Baca= ,=20 promised to enforce the measure at a Feb. 1 news conference with Davis. Sin= ce=20 then, police have expressed confusion about the 50% rule and whether cities= =20 such as Glendale and Los Angeles that have been spared from blackouts must= =20 comply. ?????Los Angeles County Sheriff's Deputy David Cervantes said his agency is= =20 focused on street crime, not store lights. ?????"We aren't issuing citations," Cervantes said, although he said that= =20 deputies have issued a few warnings to businesses that appeared to be in=20 violation. ?????Glendale Police spokesman Sgt. Rick Young said the late-night bright= =20 lights at the Brand Boulevard car dealerships aren't his problem. "We don't= =20 believe this is a police matter," Young said. "What do police officers know= =20 about monitoring energy use?" ?????(This week, after calls to Glendale city officials and car dealers, mo= re=20 lights appeared to be off along Brand Boulevard after hours.) ?????Norman Williams of the state Technology, Trade and Commerce Agency,=20 which was asked by Davis to help implement the order, said he was=20 disappointed to learn that police departments have been reluctant to devote= =20 resources to the issue. ?????"We need them to help us," Williams said. ?????Richard Giss, a retail analyst with Deloitte & Touche in Los Angeles,= =20 said many store managers may be unaware of the rules or are unable to easil= y=20 curtail power usage. ?????"Most retailers aren't scofflaws," Giss said. "Some may face issues th= at=20 aren't apparent on the surface. . . . There isn't always a switch that turn= s=20 off all the lights. It's not that easy." ?????Bob Israel, co-owner of Hungry Al's Bar-B-Que in West Covina, said the= =20 $1,000 fine didn't scare him into trimming his energy use. His monthly $500= =20 to $600 utility bills were a bigger threat. Israel raised his food prices a= nd=20 began to limit employee hours, but the high energy costs still were too muc= h. ?????He said he can't afford to turn on the restaurant's air conditioning= =20 this summer, when he expects his bill to approach $1,000. And the illuminat= ed=20 sign in front of Hungry Al's now goes off at 11 p.m. instead of staying on= =20 all night. "We've always left our outdoor lights on. We want people to see= =20 us. It just wasn't feasible anymore. The governor has nothing to do with it= ." ?????The bottom line also influenced Edwards Cinemas' energy conservation= =20 efforts, which have been implemented at the company's 55 California locatio= ns=20 since last summer. Illuminated theater displays and marquees go off when th= e=20 last show begins, rather than when it ends, saving the company about two=20 hours of energy use. Kevin Frabotta, vice president of theater operations,= =20 said the company has focused on long-term methods as well, including=20 electrical rewiring and using of more cost-efficient bulbs. ?????"It's an expensive transition," he said. "But we'll save money in the= =20 long haul." ?????Other local businesses have used the governor's order as a marketing= =20 tool, pushing the sale of energy-efficient products such as motion detector= s,=20 ceiling fans, weather stripping and improved windows. Home Depot, which=20 unveiled a hefty conservation plan in January, said it is important for=20 customers to see conservation products in action. ?????After rolling blackouts started sweeping the state, sales and interest= =20 in these items increased, said Chuck Sifuentes, company spokesman. Home Dep= ot=20 added a special section to its catalog devoted to energy-related tips and= =20 merchandise. ?????"It's important to lead by example," Sifuentes said. "If we cut back,= =20 the customers will cut back. They'll want to buy our products." Copyright 2001 Los Angeles Times=20 Businesses Hopeful on Blackout Warnings=20 Power: But some leaders worry that early outage notification won't be=20 accurate.=20 By MARLA DICKERSON, Times Staff Writer ?????Frustrated at being left in the dark about rolling blackouts, Californ= ia=20 business leaders expressed optimism Friday that a proposed early warning=20 system will help minimize the economic damage of power outages on the state= 's=20 industries. ?????Gov. Gray Davis ordered state officials Thursday to begin warning=20 residents and businesses of likely power outages up to two days in advance= =20 when power supplies appear scarce. Given the fluid nature of the state's=20 electricity grid, which can see its supplies swing from abundant to=20 inadequate in a matter of minutes, some of those predictions could prove=20 about as useful as a weather report six months in advance. ?????But business advocates say any information is better than no informati= on=20 when it comes to avoiding outages. ?????"Businesspeople are accustomed to assessing risk," said Jack Stewart,= =20 president of the California Manufacturers and Technology Assn. "We need to= =20 give them the best available information, as far ahead as possible, and let= =20 them make their own decisions." ?????Under Davis' order, blackouts will be issued under a three-tiered syst= em=20 beginning with a forecast 48 hours in advance of a projected electricity=20 shortfall. ?????General geographic areas to be blacked out will be identified in=20 warnings issued 24 hours before likely outages. Precise locations will be= =20 announced an hour before the power is cut. ?????Details are still being worked out, but the idea is to use data such a= s=20 weather patterns and scheduled power plant shutdowns to make the longer-ran= ge=20 projections. Information about communities and specific block numbers to be= =20 interrupted will be provided closer to the projected outages, as real-time= =20 usage and supply information becomes available to the grid operator. ?????Plans call for notifying electricity customers through a variety of=20 means, including the news media, the California Independent System Operator= =20 (Cal-ISO), utility Web sites and a proactive system being developed by=20 Cal-ISO to phone, page, fax or e-mail individual power users. Agency=20 officials say they plan to implement the governor's order by June 15. ?????Business interests have been beating the drum for early warning since= =20 the first rolling blackouts walloped companies last summer. Though resident= s=20 might find it inconvenient to have their dishwashers turned off, a sudden= =20 outage can wreak havoc on a company if an assembly line freezes or a comput= er=20 system crashes. ?????The stakes are enormous. A Silicon Valley business group estimated tha= t=20 a single blackout last June resulted in losses of $100 million for that=20 region's companies because of forfeited sales, squandered productivity,=20 wasted wages and ruined products. ?????A study released this month by a California business consortium=20 estimated that a projected 30-plus days of summer blackouts could cost stat= e=20 businesses $21.8 billion, reduce household income by $4.5 billion and resul= t=20 in 135,000 lost jobs. ?????Julie Puentes, a spokeswoman for the Orange County Business Council,= =20 said the governor's plan is consistent with what businesses have been=20 demanding. "If they can do this, companies will be able to use the backup= =20 generation that they've paid hundreds of thousands of dollars for," she sai= d.=20 "They will be able to prevent chaos for their workers, and they'll be able = to=20 maintain their business operations, which benefits the California economy." ?????The president of Aluminum Precision Products in Santa Ana, which has= =20 four manufacturing plants in Orange County, was equally enthusiastic. ?????"You have no idea what help [the warnings] would be," Philip S. Keeler= =20 said. "In our particular case, because of the heavy equipment, this could b= e=20 the difference between life and death, and I'm very serious. It will help= =20 tremendously." ?????Others are skeptical. ?????James Swartwout, chief executive of Torrance-based Summa Industries,= =20 said he's not counting on the system to protect his molded plastics=20 manufacturing company. ?????"How can they say with certainty that a blackout will occur?" Swartwou= t=20 asked. "It's my understanding that they have no real way of knowing until t= he=20 very last minute. Eventually, we'll get two or three warnings a week. I can= 't=20 promise we won't start to ignore them." ?????Indeed, while early warning sounds good in theory, implementing it is= =20 another story. The utilities long resisted such a system because they often= =20 get only a few minutes' notice from Cal-ISO, which in turn often isn't able= =20 to project a shortfall with absolute certainty until it is almost upon them= . ?????One of the big concerns with early warning is that it simply won't be= =20 accurate. Cal-ISO board member Mike Florio, a consumer advocate, said he=20 worries about crying wolf. ?????"After the third or fourth or 10th time," Florio said, "people start t= o=20 say, 'They're always calling these things, and nothing ever happens.' " ?????But board member Carl Guardino, who also is head of the Silicon Valley= =20 Manufacturing Group, sees that as a strength rather than a weakness of the= =20 program. ?????He said early warning will prompt businesses to redouble their=20 conservation efforts, which could help stave off many of the projected=20 blackouts. ?????"That's not crying wolf; that's popping the champagne," Guardino said.= =20 "Preventing blackouts from happening in the first place is precisely what w= e=20 want." --- ?????Times staff writers Sarah Hale, Leslie Earnest and Nancy Vogel=20 contributed to this report. Copyright 2001 Los Angeles Times=20 Power Crisis Has Mileage for Bush=20 By ROBERT SCHEER ?????The Bush administration is pulling a fast one on energy, and we will a= ll=20 pay dearly for decades to come. By panicking the public with oil industry= =20 propaganda of an energy shortage, the Bushies are building support for the= =20 most reckless energy policy since the days before the environmentalist=20 movement, when blackened skies and lungs represented the vision of progress= .=20 ?????To make things worse, to head off objections to their plans to plunder= =20 virgin lands and obliterate conservation measures, they have thrown in as a= =20 palliative the old oxymoron of "clean" nuclear power.=20 ?????Of course there is nothing clean about nuclear waste, which can never = be=20 rendered safe.=20 ?????The public may temporarily accept new nuclear power plants, as long as= =20 one is not built anywhere near their neighborhood and the radioactive=20 byproduct is shipped to another part of the country.=20 ?????But trust me, while these things may be better designed today, the=20 insurance companies are no dummies for still refusing to insure nuclear pow= er=20 plants. It is wildly irresponsible for the Bush administration to now insis= t=20 that U.S. taxpayers underwrite these inherently dangerous ventures.=20 ?????Does anyone even remember Three Mile Island? Or, more disastrously,=20 Chernobyl? I was the first foreign print journalist admitted to the Chernob= yl=20 plant after the explosion. Even a year after the fact, and with the benefit= =20 of the best of Western scientific advice, it was still a scene of chaos.=20 Nuclear power is like that--unpredictable, unstable and ultimately as=20 dangerous as it gets.=20 ?????The entire Chernobyl operation is now buried in a concrete-covered=20 grave, but the huge area under the radioactive plume emitted from the plant= =20 is a permanent cancer breeding ground, as is the sediment in the area's mai= n=20 rivers and throughout much of its farm land. I traveled from Moscow to=20 Chernobyl by train in the company of top U.S. and Soviet experts, but even= =20 they seemed to feel lost and frightened as they donned white coats and Geig= er=20 counters to tour Chernobyl. Nuclear power is just too risky a gamble to pus= h=20 because of a phony energy crisis.=20 ?????The desperation in the White House is palpable, but it is not over an= =20 "energy crisis," which Bush's buddies and campaign contributors manipulated= =20 in the Western electricity market.=20 ?????No, the fear of the Bush people, even before Jim Jeffords' defection,= =20 was that their political power would be short-lived and that they had best= =20 move as fast as possible on their pet projects, beginning with increasing t= he=20 profits of GOP energy company contributors.=20 ?????Why else the panic? There is no sudden energy crisis. Known world=20 reserves of fossil fuel are greater than ever, alternative energy sources a= re=20 booming, and conservation measures work. If the Federal Energy Regulatory= =20 Commission would do its legally required duty of capping wholesale prices t= o=20 prevent gouging, there would not be an electricity crisis in California or= =20 elsewhere.=20 ?????The FERC has not done its job. Clearly, as the New York Times reported= =20 last week, energy wholesalers are in cahoots with the Bush administration t= o=20 use the FERC as their personal marketing tool to drive up their already=20 obscene profits.=20 ?????Finally, there is simply no reason to rape America in pursuit of=20 something called "energy self-sufficiency." If the vast reservoirs of natur= al=20 energy resources--resources that are sitting under land controlled by regim= es=20 around the world that we've propped up at enormous military cost for half a= =20 century--are not available to be sold to us at a fair price, why continue t= o=20 prop up these regimes? What did President Bush's Dad, with his buddies Dick= =20 Cheney and Colin Powell, achieve in preserving Saudi Arabia and Kuwait if= =20 those degenerate monarchs they saved in the Gulf War will not now trade=20 fairly in the one commodity of value that they hold?=20 ?????We must make our quid pro quo clear: We will pay for a huge military t= o=20 keep these sheikdoms and other energy-rich regimes in power only if they=20 guarantee fair oil and natural gas prices for our retail consumers.=20 ?????Make that deal and the energy "crisis" is history.=20 - - - Robert Scheer Writes a Syndicated Column Bush announcing low-income aid, but no price caps=20 SCOTT LINDLAW, Associated Press Writer Tuesday, May 29, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/29/n= ation al0755EDT0488.DTL=20 (05-29) 04:55 PDT LOS ANGELES (AP) --=20 President Bush traveled across the country to deliver news Gov. Gray Davis= =20 doesn't want to hear: He won't force down soaring electricity prices that= =20 have cost California nearly $8 billion since January.=20 The Republican president and the embattled Democratic governor arranged a= =20 20-meeting Tuesday to talk about California's energy crisis, but there was = no=20 indication they would break their stalemate.=20 Bush opposes price limits on wholesale electricity that utilities buy,=20 arguing they do nothing to address supply-and-demand issues at the heart of= =20 the crisis.=20 Davis contends federal energy regulators are ignoring their mandate to ensu= re=20 "just and fair" electricity prices.=20 With no sign of a break in the deadlock, each side maneuvered for maximum= =20 advantage from Bush's first full day in California as president.=20 Davis, in an interview Tuesday on ABC's "Good Morning America," defended hi= s=20 record on licensing more power plants.=20 "We've licensed 15 plants. Ten are under construction, four will be online= =20 this summer, four next summer, and by the end of 2003 we will have built ou= r=20 way out of this problem. But between now and then, we are getting gouged=20 unbelievably," Davis said.=20 The Bush administration timed positive energy announcements to coincide wit= h=20 the president's visit.=20 At the Marine Corps base at Camp Pendleton, Bush was announcing the expansi= on=20 of a program that provides federal money to help low-income residents pay f= or=20 power.=20 Bush was proposing $150 million, in addition to $300 million already budget= ed=20 for a component of the Low Income Home Energy Assistance Program, to provid= e=20 special help to cash-strapped residents of California and certain Midwest= =20 areas such as Chicago, a senior administration aide said.=20 Bush was also reminding state residents of his order that military faciliti= es=20 in the state cut peak-hour usage by 10 percent.=20 To alleviate an electricity bottleneck on a crucial south-north transmissio= n=20 path, the Department of Energy announced that the Western Area Power=20 Authority will try to raise money from a variety of private and public=20 entities to finance a crucial additional lines.=20 "The Bush administration is taking a leadership role in addressing a=20 long-neglected problem in California's electricity transmission system," sa= id=20 Energy Secretary Spencer Abraham. "California's electricity problems=20 developed over a period of years and cannot be solved overnight. However, w= e=20 can move now on actions that will help avert the same types of problems fro= m=20 recurring year after year."=20 Davis had a letter for Bush from top economists who maintain price caps are= =20 justified and necessary.=20 Aides to the governor expressed amazement that Bush would travel all the wa= y=20 to California with no major announcement in hand, and predicted Davis would= =20 respond with "polite rage."=20 Mindful of the national stage he commanded, Davis planned a news conference= =20 to air his grievances. And he convened a panel of families he said have bee= n=20 victimized by the energy crisis in the same hotel where Bush was staying.= =20 Davis wants Bush to pressure the Federal Energy Regulatory Commission to=20 impose stiff price caps.=20 Tuesday, limited caps ordered last month by FERC go into effect in=20 California, but only when electricity reserves fall below 7.5 percent in th= e=20 state -- a step Davis called inadequate.=20 Protesters planned demonstrations in Los Angeles and at Camp Pendleton, in= =20 San Diego County.=20 Bush also arranged a speech on energy and trade to the Los Angeles World=20 Affairs Council and planned to president over a closed-door energy=20 round-table discussion.=20 ,2001 Associated Press ?=20 Bush facing Davis' heat over energy=20 In first visit to state as president, he'll hear governor's plea for help= =20 Carla Marinucci, Lynda Gledhill, Chronicle Political Writers Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/M N205743.DTL=20 President Bush wasn't on California soil for more than five minutes yesterd= ay=20 when he was drawn into his first debate on the state's power crunch.=20 Rep. Brad Sherman, a Democrat from Thousand Oaks who met Air Force One on t= he=20 tarmac at Los Angeles International Airport along with a group of high scho= ol=20 students, wasted no time button-holing the president for what appeared to b= e=20 an animated conversation.=20 "I brought up . . . the idea that after his meeting with our governor, I=20 hoped he would be in favor of wholesale regulation (of energy prices),"=20 Sherman said later. "He disagreed with me."=20 Sherman -- who two weeks ago suggested that the headline to the president's= =20 national energy policy should be "Bush to California: Drop Dead" -- didn't= =20 seem optimistic yesterday about Bush's 48-hour visit to the state. "I think= =20 that the president's policies show either a lack of understanding of what's= =20 really going on in California, or a lack of concern," he said.=20 That vignette underscored some of the challenges facing Bush, who arrived i= n=20 California as protesters geared up and Democratic Gov. Gray Davis prepared = to=20 press him for federal action on the state's power troubles.=20 Besides Sherman, Bush was greeted by a crowd of cheering Republicans,=20 including Secretary of State Bill Jones and Los Angeles Mayor Richard=20 Riordan, the former a declared GOP candidate for governor in 2002, the latt= er=20 a rumored one.=20 But today, Bush will sit down with the present governor, who lately has bee= n=20 blistering in his criticism of the president.=20 "The last time I looked, California was still part of the United States of= =20 America," Davis told reporters this weekend. "We have contributed=20 disproportionately to the economic growth of this country. There's no reaso= n=20 why a president should not respond to a legitimate request from the chief= =20 executive of the largest state in the union."=20 In his first visit to California since just before the election, Bush plans= =20 to emphasize the energy crisis -- but will focus on it through the lens of= =20 his own energy plan.=20 ENERGY SECRETARY ACTS Just hours before the president landed, Energy Secretary Spencer Abraham=20 ordered a speedup in planning to relieve a notoriously overloaded electrici= ty=20 transmission line in California.=20 Abraham's holiday action was timed to provide a bit of positive news for Bu= sh=20 to announce in California. He ordered the Western Area Power Administration= ,=20 a 15-state marketing arm of the Energy Department, to complete planning and= =20 seek outside financing to reduce the transmission bottleneck on California'= s=20 Path 15, which connects the northern and southern parts of the state.=20 This morning, Bush will visit the Marine Corps base at Camp Pendleton, near= =20 San Diego, to underscore his conservation order for a 10 percent cut in=20 energy usage in federal buildings and military facilities.=20 In Los Angeles, he will deliver a wide-ranging talk before the World Affair= s=20 Council and lead a discussion among business leaders about technological=20 advances in energy conservation.=20 Then, he will head to Fresno and Sequoia National Park to press his=20 initiative to improve national parks. Along the way, protesters have vowed = to=20 provide a vocal commentary on Bush's energy and environmental policies.=20 But the real drama of the trip will no doubt be the sit-down between Bush a= nd=20 Davis today. The governor pushed for a lengthy, open meeting with Bush that= =20 would include testimony from officials and consumers affected by the energy= =20 crisis. Bush's camp announced Friday the meeting would be 20 to 30 minutes = --=20 in private.=20 Davis plans to outline steps the state has taken to alleviate the energy=20 crisis, and what it wants the federal government to do -- including=20 implementing price caps on the wholesale cost of energy, cost-based pricing= ,=20 and the possibility of ordering refunds.=20 DAVIS THREATENING SUIT The governor has said he will consider suing the Federal Energy Regulatory= =20 Commission -- the agency charged with overseeing energy prices -- if it doe= s=20 not impose temporary price caps.=20 And the state Legislature has already filed a suit, saying the commission h= as=20 failed to stop what it has determined are "unjust and unreasonable prices."= =20 With California's energy woes worsening and a summer of rolling blackouts= =20 predicted, the Bush-Davis session holds potentially deep political pitfalls= =20 for both leaders, both of whom are suffering in state polls as a result of= =20 their handling of the energy crisis.=20 Bush needs to demonstrate his concern for California, a state that gave a= =20 12-point margin of victory to Al Gore in the presidential election.=20 But even as Bush adviser Karen Hughes told state reporters this week that t= he=20 president had arrived to show he cares, Vice President Dick Cheney again=20 chastised state officials for delaying their response to the energy crisis= =20 "because all of the action was potentially unpleasant."=20 And Cheney signaled that the administration would resist long-term price=20 caps, saying, "We think that's a mistake."=20 Such talk drew fire from Davis' senior political adviser, Garry South, who= =20 charged that Cheney's words demonstrated insensitivity to California's=20 troubles and only underscored the perception of an "all-oil, all-the-time= =20 ticket."=20 Davis, whose campaign for re-election next year will depend on his handling= =20 of the crisis, has stepped up his criticism of Bush and profit-hungry energ= y=20 firms, particularly those from Texas, in recent weeks.=20 And yesterday, signaling no letup, Davis' supporters made an unusual holida= y=20 conference call to again press his case for federal action. They argued tha= t=20 without immediate intervention from the Bush administration, the economy of= =20 California -- and potentially the entire nation -- was at risk.=20 'THIS ENORMOUS SHOCK'=20 "We have this enormous shock in prices that needs to be addressed and not= =20 ignored," said Joseph Fichero, head of Sabre Partners and a consultant to= =20 Davis.=20 Alan Blinder, a Princeton economist and former vice chairman of the Federal= =20 Reserve, warned that energy woes in California alone would "take almost a= =20 half a percent of the gross domestic product off of the national economy."= =20 Blinder and others argue that short-term relief -- for about 6 to 12 months= =20 -- is necessary while new power plants are being built.=20 "Most times and most places, I agree price caps are not the long-run=20 solution, but they can be part of a short-term solution," Blinder said.=20 "There really is a case for temporary price caps to shield consumers and th= e=20 California and national economy from the full force of the energy shock."= =20 Limited new price caps approved by the Federal Energy Regulatory Commission= =20 on the sale of wholesale electricity begin today in California. But the=20 temporary caps, which go into effect when the electricity reserves dip belo= w=20 7. 5 percent, have been lambasted by Davis as ineffective and inadequate.= =20 Political analysts say Bush's resistence on the issue could cost him in=20 California -- and elsewhere.=20 "(California) is probably an area where he is criticized more than any othe= r=20 region in the country," said Mark DiCamillo, director of the statewide Fiel= d=20 Poll. "Californians are looking to Bush for some relief -- and to the exten= t=20 they don't get it, Bush may be in some jeopardy here."=20 Chronicle news services contributed to this report. / E-mail the writers at= =20 cmarinucci@sfchronicle.com and lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Bush's first visit not so welcome=20 Medea Benjamin Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/E D10936.DTL=20 THIS WEEK, President Bush is making his first visit to California at a time= =20 when consumers have been socked with hefty electric rate increases, and $70= =20 million is being drained from our state budget each day as we buy wholesale= =20 energy at outrageous prices.=20 If Bush were serious about helping Californians, he would immediately tell= =20 the Federal Energy Regulatory Commission, FERC, to do its job. FERC's legal= =20 mandate is to ensure that wholesale electricity prices are "just and=20 reasonable." But current wholesale prices are not just and reasonable, and= =20 they are completely divorced from costs.=20 FERC has been ideologically fixated on the free market while ignoring the= =20 reality that companies controlling California's energy supply are=20 manipulating the market to make obscenely high profits at our expense.=20 During the past several months, the news media have unveiled how generators= =20 are turning power plants on and off as often as several times an hour; taki= ng=20 plants off line for "unscheduled maintenance," and simply refusing to sell= =20 California power. Investigators have determined that these energy companies= =20 have deliberately gouged consumers to the tune of billions of dollars.=20 State Senate figures show that profits of these energy companies rose more= =20 500 percent between 1999 and 2000.=20 If President Bush wanted FERC to control wholesale prices through a system = of=20 cost-plus pricing, it would happen overnight.=20 When it comes to long-term solutions, Bush's energy policy dangerously=20 promotes a continued reliance on polluting fossil fuels and a resurgence of= =20 unsafe nuclear energy. Bush pays lip service to smart, sustainable solution= s=20 such as solar, wind and other sources of renewable energy, and to energy=20 savings derived from conservation and improved efficiency.=20 Technologies proven to be dirty, dangerous and expensive will get the lion'= s=20 share of taxpayer subsidies, while the 2002 federal budget slashes funding= =20 for solar research by more than 50 percent, with major cuts in funding for= =20 geothermal, hydrogen and biomass technology, and fuel cell research.=20 If the Bush administration were to make sustainable energy sources a=20 priority, technologies such as wind, solar and some types of biomass could= =20 solve our long-term energy needs. While such a policy is anathema to oil,= =20 coal and utility industry leaders, it is central to any forward-looking=20 energy strategy.=20 The sensible responses to the energy crisis are clear: Control prices now a= nd=20 rely on renewable energy and conservation in the future.=20 It is up to us to let the president know he can't kowtow to the energy=20 industry interests. Hopefully, he'll respond to the angry Californians he= =20 will hear this week.=20 Medea Benjamin is founding director of Global Exchange, a San Francisco=20 corporate accountability organization.=20 ,2001 San Francisco Chronicle ? Page?A - 19=20 Californians revert to clotheslines, fans as they gear up for blackouts=20 MARGIE MASON, Associated Press Writer Tuesday, May 29, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/29/n= ation al0338EDT0451.DTL=20 (05-29) 00:38 PDT OAKLAND, Calif. (AP) --=20 Paul Goettlich's condo in the Oakland hills features vaulted ceilings and= =20 skylights, a sweeping view of San Francisco's bay and state-of-the-art=20 appliances.=20 But with the power crisis in full tilt, his dryer sits unused while he hang= s=20 clothes, sheets and towels on a wooden rack in the garage.=20 "Maybe somebody doesn't want to see somebody else's underwear or bras hangi= ng=20 out," Goettlich says. "But, hey, that's life."=20 As the state gears up for rolling blackouts and hefty energy bills this=20 summer, many Californians are changing their habits. The result: surging=20 sales of everything from low-energy light bulbs to fans to evaporative=20 coolers that blow misty air.=20 The Orchard Supply Hardware store a few miles down the road from Goettlich'= s=20 condo is having a hard time keeping clotheslines and retractable drying rac= ks=20 in stock.=20 At The Home Depot store in Colma, about 10 miles south of San Francisco,=20 energy-efficient compact fluorescent light bulbs are hot sellers, along wit= h=20 a $40 device called a Power Planner that's said to cut energy use by=20 appliances like refrigerators.=20 At the Wal-Mart in the Southern California suburb of Brea, customers are=20 buying blackout supplies along with fans and low-energy light bulbs.=20 Flashlights, camping lanterns and oil lamps are popular, according to manag= er=20 Rebecca Smith.=20 "We've quadrupled our fan sales this year, and it's not even summer," Smith= =20 said. "It doesn't seem to matter what kind. People are buying all of them."= =20 The rolling blackouts are proving a retail bonanza for some out-of-state=20 companies, like St. Louis-based Emerson, which is selling twice as many=20 ceiling fans in California than in any other state.=20 "They're energy efficient and use less electricity than a 100-watt bulb,"= =20 explains Emerson spokesman Walt Sharp. "They can make a room feel about sev= en=20 degrees cooler without air conditioning by circulating the air. They can sa= ve=20 up to 40 percent when used with air conditioning."=20 Industrial-sized floor fans -- used in manufacturing areas and large=20 warehouses -- also are a hot commodity in California, he said.=20 At Walnut-based Lights of America, sales of energy-efficient compact=20 fluorescent bulbs have increased 700 percent since last year. And with stat= e=20 rebates and incentives for consumers to switch to the new bulbs, sales are= =20 expected to continue soaring, said Brian Halliwell, vice president of=20 marketing sales.=20 Most bulbs average from $6 to $10, with 50-watt compact fluorescent bulbs= =20 providing the same amount of light as 300-watt halogens, Halliwell said.=20 Shopping the light bulb display at The Home Depot in Colma, Linda Shintaku= =20 said she's exploring all her options for conserving energy this summer.=20 "We lowered the thermostat, and we're trying not to turn lights on in rooms= =20 we're not in," Shintaku said. "I try to wash clothes at night during low-pe= ak=20 hours."=20 Energy experts note that homeowners can make the biggest dent in their powe= r=20 bills by switching to more efficient models of major appliances.=20 But despite the advice and an array of rebate programs, Home Depot manager= =20 Benefield says consumers aren't yet flocking to replace energy-sucking=20 appliances like refrigerators and dishwashers. People who are in the market= =20 for big appliances ask about the government's Energy Star ratings, which=20 bring rebates of up to $75, he noted.=20 The new vogue for conservation has some ecology-conscious Californians=20 shaking their heads. Berkeley resident Leona Benten has been hanging her=20 clothes outside to dry long before the power crisis came along and she's=20 hoping the energy crisis will push others to change their habits and their= =20 attitudes.=20 "It takes like two minutes," Benten said. "I think that people have succumb= ed=20 to incredible amounts of advertisements, and if it's mechanized, it's=20 better."=20 Crisis no sweat to some offices=20 Many offices keep cool in crisis=20 Air conditioners blast in state's energy centers=20 Steve Rubenstein, Chronicle Staff Writer Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/M N208422.DTL=20 Some very cool places to be during the dog days of spring and summer turn o= ut=20 to be the places with their fingers on California's air conditioning switch= .=20 If only the entire state could cram itself into the cavernous control room = in=20 Folsom of the Independent Systems Operator, where the air is a comfortable = 69=20 degrees and receptionists wear sweaters at high noon -- when it's upwards o= f=20 90 degrees outside.=20 Or the Pacific Gas and Electric Co. lobby in downtown San Francisco, where= =20 the air is an even chillier 65 degrees, which admittedly isn't much of a=20 bounty, considering it's usually that cool outside anyway.=20 Other cool places to be are the state Capitol, where legislators who=20 promulgate energy edicts hang out, and the headquarters of the state Public= =20 Utilities Commission, where bureaucrats who promulgate energy edicts hang= =20 out.=20 Armed with a high-tech digital thermometer, The Chronicle made the rounds o= f=20 the energy crisis poohbahs, to make sure they are practicing what they are= =20 preaching.=20 Some were, some weren't. Those that weren't blamed it all on that most=20 familiar of modern scapegoats, the computer.=20 Computers must be kept cool -- in the 60s for big mainframes and a bit more= =20 for the smaller units most folks use, though some can go into the 80s witho= ut=20 hiccuping. So generally, people who work alongside the computers get to kee= p=20 cool, by association, although it's the computer that counts.=20 The ISO headquarters, located in an industrial park 20 miles east of=20 Sacramento, is a delightfully cool and comfortable place when the outside= =20 temperature soars into the 90s and 100s.=20 The reception area, the only room accessible to the outraged public, is a= =20 fairly stiff 76 degrees -- only two degrees cooler than the 78 degrees=20 recommended by President Bush and the federal energy crisis czars and=20 czarinas.=20 But take a step past the lobby security doors and the temperature plummets.= =20 In the main hallway, the temperature is 73 degrees. And in the control room= ,=20 where two dozen engineers and technicians sit at consoles and monitor the= =20 flow of California electricity on a giant diagram of state power lines so= =20 they can order blackouts for everyone else -- the temperature is 69 degrees= .=20 NO SWEATING AT ISO Some managers do not take off their sports coats and jackets.=20 "We want these people to be comfortable," explained Tony Capasso, facilitie= s=20 manager for the ISO complex. "We don't want these people sweating bullets i= n=20 the middle of a crisis."=20 Inside the state Capitol, where legislators and the governor preach=20 compliance with federal guidelines calling for 78-degree thermostats, the= =20 temperature dips into the high 60s. The coolest spots are the press briefin= g=20 room and the treasurer's old office.=20 GOVERNOR'S OFFICE The governor's suite is in the mid-70s, apparently because folks are often= =20 coming by with thermometers and it wouldn't do not to set an example. Press= =20 secretary Steve Maviglio said Governor Gray Davis is a practice-what-he-=20 preaches kind of guy who keeps corridors dark, shades drawn, air conditione= rs=20 idle. His personal secretary works in short sleeves, with a cheap plastic f= an=20 humming nearby.=20 "It's so dark in the hall that we're always bumping into things," said one= =20 aide.=20 Even so, the temperature in the governor's suite of offices is three degree= s=20 cooler than the 78 degrees recommended by President Bush -- not the first= =20 time the two men have failed to agree.=20 THE LEGISLATURE The Assembly chamber is 71 degrees while the Senate chamber -- with 40 fewe= r=20 legislators spewing forth -- is 73 degrees. But the Senate chamber has a=20 southern exposure, one Capitol guide explained.=20 "Hot air from the people sitting inside has nothing to do with it," he said= .=20 In San Francisco, the temperature inside cavernous City Hall dips in spots = to=20 the mid-60s. College student Jasmine Westbrook, who dropped by with her art= =20 class on a project to sketch the interior of the building, was doing her=20 sketching while wearing a windbreaker to keep warm.=20 "I want to stay comfortable," she said. "It think it's supposed to be hotte= r=20 in here, isn't it?"=20 The mayor's office, at 73 degrees, was eight degrees warmer than another=20 office down the hall, even without the mayor sitting in it.=20 63 AT THE PUC=20 At the headquarters of the state Public Utilities Commission, which is=20 supposed to be keeping an eye on the self-declared bankruptcy of the utilit= y=20 that mails out the bills, the lobby temperature is 63 degrees.=20 Chief engineer David Omosheyin, eyeing The Chronicle's thermometer nervousl= y,=20 insisted the 63-degree reading was caused by the lobby's proximity to the= =20 front door, where the outside temperature at the moment was in the low 60s.= =20 He invited the thermometer to visit the upper floors, where the temperature= =20 was 70.=20 As for San Francisco's federal buildings: Bush would probably not frown.=20 His orders appeared to be followed during The Chronicle's visits, so much s= o=20 that it was actually hotter inside than out. Though that wouldn't be hard,= =20 considering it was in the low 60s outside. And the places measured happened= =20 to be courtrooms and tax offices, where the body heat from anxiety alone=20 could probably melt the paint some days.=20 San Franciscans, Omosheyin said, are losing their perspective when it comes= =20 to things like electricity, energy alerts and rolling blackouts. In his=20 native country of Nigeria, he said, the electricity runs sporadically, if a= t=20 all.=20 "There the power can go off for a week," he said. "The world goes on. Here,= =20 people take a lot of things for granted, and electricity is one of them."= =20 As for the offices of the places that report on such matters, they fared=20 about the same.=20 The Walnut Creek bureau of The Chronicle, where the sun sizzles into the 90= s=20 with regularity in the summer, is kept at 67 degrees because of all the=20 computers. The main newsroom of The Chronicle is kept at 71 degrees, becaus= e=20 of all the computers. But the reception room was 71 degrees, too, and there= =20 aren't any computers there, not a one.=20 E-mail Steve Rubenstein at srubenstein@sfchronicle.com.=20 Some offices keeping their cool Place Inside Outside temperature temperature Control Room, California Independent =20 Systems Operator (Folsom) 69 90 Governor's office, Capitol (Sacramento) 75 94 Press briefing room, Capitol (Sacramento) 68 94 Caltrans headquarters (Sacramento) 70 94 Chronicle bureau newsroom (Walnut Creek) 67 90 Mayor's Office, San Francisco City Hall 73 63 Calif. Public Utilities Commission lobby =20 (San Francisco) 63 63 State Building (San Francisco) 69 63 Courtroom, 19th floor, Federal Building =20 (San Francisco) 70 63=20 Lobby, Pacific Gas and Electric =20 headquarters (San Francisco) 65 65 IRS office, Federal Building=20 (San Francisco) 69 63 Main newsroom, =20 San Francisco Chronicle (San Francisco) 71 64 ,2001 San Francisco Chronicle ? Page?A - 1=20 Stakes are high for Davis meeting with Bush=20 GARY GENTILE, AP Business Writer Tuesday, May 29, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/29/s= tate0 731EDT0136.DTL=20 (05-29) 04:31 PDT LOS ANGELES (AP) --=20 With California facing a summer of outages, Gov. Gray Davis was to meet=20 President Bush to press for a federal cap on energy prices.=20 But Davis wasn't expected to win any concessions during the 20-minute Tuesd= ay=20 meeting where he's expected to point to Texas energy makers.=20 Davis has appeared on national news programs attacking Bush for opposing=20 price controls on wholesale electricity, and suggesting the president has= =20 ignored price-gouging by Texas-based electricity generators.=20 "The president did not create this problem, but he is uniquely situated to= =20 solve it," Davis said Monday. "What I'm going to ask him to do, with all=20 respect, is to enforce federal law. The money that leaves this state goes= =20 directly to energy companies in Texas and the Southwest."=20 If Bush refuses to administer price controls as expected, Davis can use tha= t=20 as ammunition in his sparring with the administration.=20 Bush has blamed California officials for the state's power woes and said=20 price controls won't solve shortages. Instead, they said, Bush plans to=20 stress his efforts to conserve energy in federal buildings and will bring o= ne=20 or two new initiatives to the table.=20 One of them commits the federal government to helping organize a consortium= =20 to build more power lines for the state.=20 Energy Secretary Spencer Abraham directed the Western Area Power=20 Administration, a federal agency, to take the first steps to clear the way= =20 for building more transmission capacity between southern and northern=20 California. That would help relieve a transmission bottleneck in the centra= l=20 part of the state.=20 While this will not help this summer, Abraham said in a statement the line= =20 improvements, when completed, "will help avert the same types of problems= =20 from recurring year after year."=20 The stakes of the meeting are high for both politicians.=20 Davis, who has been mentioned as a Democratic challenger to Bush in 2004,= =20 wants federal help to solve an energy crunch that threatens rolling outages= =20 this summer and has cost state taxpayers nearly $8 million since January --= =20 the price of buying power for two cash-starved private utilities. And his= =20 plan to rescue one of those companies reportedly is faltering.=20 Leaders of both the state Senate and Assembly oppose a $3 billion-plus plan= =20 to bail out Southern California Edison by buying its power lines, the Los= =20 Angeles Times reported Monday.=20 Bush, meanwhile, needs to mend fences in vote-heavy California. The=20 Republican president lost badly here in November, and polls show most=20 Californians dislike his handling of their energy crisis.=20 Bush's Tuesday agenda was heavy on energy issues. At the Marine Corps base = at=20 Camp Pendleton, near San Diego, Bush was to highlight his order that federa= l=20 agencies and installations cut back energy use. Then it was on to Los Angel= es=20 to discuss his energy plan in a speech to the Los Angeles World Affairs=20 Council.=20 Bush was confronted by the issue virtually as he stepped off the plane Mond= ay=20 in Los Angeles. Rep. Brad Sherman, D-Los Angeles, escorted the Academic=20 Decathlon national championship team from El Camino Real High School in=20 Woodland Hills to meet Bush. He told the president California needs=20 regulation of electric generators.=20 "The president seems to believe just by instinct that rate regulation reduc= es=20 supply and also by instinct that all those in the energy industry are fair= =20 people who are not trying to game the system," Sherman said. "Anyone who=20 studies the facts in California knows that power is being withheld in order= =20 to drive up the price."=20 ,2001 Associated Press ?=20 State gives president tepid ratings=20 Power crisis blamed for 42% approval=20 Carla Marinucci, Chronicle Political Writer Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/M N56632.DTL=20 As President Bush arrives in California for his first trip in seven months,= =20 many state residents give the former Texas governor lackluster approval=20 ratings - underscoring how even the nation's leader may be feeling the=20 effects of the worsening energy crunch, a new Field Poll shows.=20 The poll of 1,015 Californians, taken from May 11 to May 20, shows that 42= =20 percent approve of Bush's job performance to date, with 40 percent=20 disapproving, a nearly even split. Eighteen percent of those surveyed offer= =20 no views of Bush's performance, the poll showed.=20 A Field Poll last week showed that on energy issues specifically, more than= =20 half of Californians viewed the president's job performance as "poor" or=20 "very poor," compared with 38 percent who gave Democratic Gov. Gray Davis t= he=20 same rating.=20 "This should be a time when Bush is enjoying his honeymoon period," said Ma= rk=20 DiCamillo, director of the Field Poll, who pronounced the president's ratin= gs=20 "very mixed."=20 "If you compare Bush's 42 percent approval ratings in California, it's abou= t=20 12 points behind the national (ratings)," said DiCamillo. "He's not doing a= s=20 well as he should here, and one of the reasons is the energy crisis."=20 In the Field Poll's first measure for Bush since his election, "what stands= =20 out is the absence of any real honeymoon."=20 ". . . It's highly partisan," DiCamillo said.=20 CHENEY LOOKS RATHER POSITIVE Vice President Dick Cheney fares better, with 47 percent of Californians=20 viewing him in a positive light and 25 percent disapproving.=20 Much of the difference in the ratings comes because voters are not as likel= y=20 to hold the second-in-command responsible for their energy woes, DiCamillo= =20 said.=20 "Whenever there's a problem with the federal government, you're going to=20 focus your anger and attention at the guy at the top of the heap," he said.= =20 "Bush will be held responsible for his administration."=20 DAVIS' SHARP DECLINE The Field Poll reported last week that as the energy crisis has ramped up,= =20 the governor's overall approval ratings have fallen statewide. Today, 49=20 percent disapprove of his job performance and 42 percent approve -- a sharp= =20 decline from the favorable approval ratings he held in January.=20 But the new poll shows that the public's views of the Legislature has dropp= ed=20 dramatically in recent months as concerns about the energy crisis have=20 multiplied. Just 39 percent of Californians have a positive view of the=20 Legislature's job performance today, while 42 percent have a negative view.= =20 That's a stark contrast to January, when residents approved of the job the= =20 Legislature was doing by more than a 2-to-1 ratio, 52 percent to 25 percent= .=20 While state and local political leaders appear to bear the brunt of the=20 public's negative feelings regarding the recent energy crisis, Californians= =20 continue to give strong approval ratings to their two U.S. senators and to= =20 members of Congress, the poll showed.=20 Californians hold favorable views of Sen. Dianne Feinstein, who was re-=20 elected in November. By 54 percent to 27 percent, they like the job she is= =20 doing, the latest poll showed.=20 "She has always had good job ratings" among voters, said DiCamillo, "and th= is=20 is just an affirmation of that."=20 Sen. Barbara Boxer also continues to get high ratings, with 49 percent=20 approving of her performance and 28 percent disapproving. And Californians= =20 gave a generally favorable rating to their congressional representatives,= =20 with 53 percent approving and 35 percent disapproving.=20 PARTY LINE SPLITS Among the other findings of the new Field Poll:=20 -- Views about Bush's job performance are split along party lines, with=20 Democrats, by a more than 3-to-1 ratio, holding a negative view of him, and= =20 Republicans, by a 6-to-1 ratio, seeing him in a positive light. Independent= =20 voters gave him positive ratings, 39 percent approving of his job=20 performance, 31 percent disapproving and 30 percent holding no view.=20 -- Cheney had equally partisan approval ratings, although he received much= =20 stronger ratings from his own party and independents. Forty percent of=20 Democrats disapproved of him, compared with 30 percent who approved. But=20 Republicans approved of him by a 10-to-1 ratio. Independents, by a 2-to-1= =20 ratio, liked what he has done in office.=20 -- Congressional Democrats get particularly strong ratings from state voter= s.=20 Fifty-three percent of Californians approve of their job performance, while= =20 just 33 percent disapprove. Republicans in Congress get a less favorable 41= =20 percent approval, 46 percent disapproval rating, the poll showed.=20 The Field Poll carries a margin of error of plus or minus 3.2 percentage=20 points.=20 E-mail Carla Marinucci at cmarinucci@sfchronicle.com.=20 Field Poll / Job approval ratings -- Job approval of George W. Bush as president Approve Disapprove No opinion Statewide 42% 40% 18%=20 Democrats 18% 63% 19%=20 Republicans 76% 12% 12% Others/non-partisans 39% 31% 30% . -- Trend of job approval of Dianne Feinstein as senator Approve Disapprove No opinion Men 49% 35% 16% Women 60% 19% 21% Democrats 73% 12% 15% Republicans 33% 50% 17% Others/Non-partisans 44% 21% 35% . -- Trend of job approval of Barbara Boxer as senator Approve Disapprove No opinion Men 45% 36% 19% Women 53% 20% 27% Democrats 67% 12% 21% Republicans 29% 53% 18% Others/Non-partisans 37% 19% 44% The poll was conducted May 11-20, 2001. Results are from a telephone=20 survey=20 of 1,015 California adults, including 504 self-described Democrats, 390 sel= f- described Republicans and 121 others. The margin of error is 3.2 percentage= =20 points. Source: Field Institute Chronicle Graphic ,2001 San Francisco Chronicle ? Page?A - 1=20 Calif. pawn businesses boom as energy bills rise=20 Monday, May 28, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/28/n= ation al1807EDT0593.DTL=20 (05-28) 15:07 PDT SAN FRANCISCO (AP) --=20 Rising energy bills have some Californians pawning their valuables to pay f= or=20 power.=20 When an employee at an Oakland pawnshop asked N'Kechia Jackson last week ho= w=20 much she wanted for a gold necklace, Jackson had a specific amount in mind.= =20 "I need $113.86," she said. "That's how much my PG&E bill is."=20 Jackson, who got $125 for the chain, said her monthly energy bill from=20 Pacific Gas and Electric Co. is like a credit card balance that never=20 shrinks.=20 Bay Area pawnshop owners say similar scenes are becoming common as laid off= =20 dot-com workers and single mothers hock items like jewelry and laptop=20 computers to pay rising power bills.=20 "That's the number one reason people have been coming in to pawn right now,= "=20 said Bill Rager, assistant manager of Best Collateral Pawnbrokers in Oaklan= d.=20 "Basically, it's high-dollar items -- chains, watches, bracelets, engagemen= t=20 rings, wedding rings."=20 Pawnshops do not require credit checks, and they offer fast cash. They also= =20 allow people up to four months to repay a loan before their items are sold.= =20 Interest rates range from 5 percent to 20 percent.=20 "The sad thing about it is that I'd say 60 percent will lose their property= =20 because they can't afford to get it out," Rager said.=20 Another woman entered Rager's shop minutes after Jackson pawned her jewelry= .=20 The woman, who gave her name only as Sophia, used her children's Nintendo= =20 game set as collateral for a $65 loan.=20 The woman said she had scrambled since February to pay a $700 PG&E bill, an= d=20 now had no money to cover her $100 phone bill.=20 "When they come home and see their Nintendo gone, they'll be upset," she=20 said. "But my kids are understanding."=20 ,2001 Associated Press ?=20 Californians brace for a summer of blackouts=20 GARY GENTILE, Associated Press Writer Monday, May 28, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/28/n= ation al0501EDT0456.DTL=20 (05-28) 02:01 PDT LOS ANGELES (AP) --=20 While most people celebrate Memorial Day, Jan and Ralph Vazquez will=20 celebrate their own independence day -- energy independence.=20 Worried about a summer of rolling blackouts and fed up with rising utility= =20 bills, the couple installed a $33,000 solar system in their four-bedroom ho= me=20 in San Rafael a few weeks ago. It can store enough energy in batteries to= =20 power their refrigerator and other appliances for up to six hours if there = is=20 a blackout.=20 "I think there is a little bit of fear and concern about to what extent wou= ld=20 we be subject to blackouts and how much energy is going to cost us," Jan=20 Vazquez said. "The simple solution is to be independent, or as much so as= =20 possible."=20 The Vazquezes are among millions of Californians facing an uncertain summer= ,=20 wondering how they will cope with what is expected to be several months of= =20 rolling blackouts.=20 The prospect of daily power outages as the temperature rises and air=20 conditioning use peaks has left many people apprehensive, from parents of= =20 newborns who need warm bottles to people who require electric-powered medic= al=20 devices in their homes to office workers worried about getting stuck in an= =20 elevator.=20 California already has endured six days of rolling blackouts this year, eac= h=20 lasting about an hour and hitting different parts of the state. Estimates= =20 vary about what lies ahead.=20 One industry-sponsored watchdog group, the North American Electric=20 Reliability Council, predicted California would face an average of 20 hours= a=20 week of rolling blackouts.=20 Responding to complaints following the earlier outages, state power officia= ls=20 this month plan to begin issuing weather advisory-style warnings 24 hours= =20 before an expected blackout.=20 Chicago, faced with a deteriorated electrical system after years of neglect= =20 and severe weather, adopted a blackout plan in 1999 that is being studied a= s=20 a model by California officials.=20 Today, for example, Chicago police officers carry portable stop signs to=20 darkened intersections moments after a blackout hits.=20 "There's no just excuse for trapping people in elevators," said Bill Abolt,= =20 Chicago's commissioner of environment. "There's no excuse for shutting off= =20 power to an intersection with no notification to police and fire in advance= ."=20 Across the country, reduced hydroelectric production due to the Pacific=20 Northwest drought, an aging transmission system, rising costs for the natur= al=20 gas that fires many power plants and increasing demand for electricity is= =20 expected to produce shortages and higher prices in the Northwest, New Engla= nd=20 and other regions.=20 The stakes are high in California. It has the world's sixth largest economy= =20 and is home to bellwether high tech companies such as Intel and Cisco=20 Systems.=20 For some retailers, the impact is minimal. Clerks can switch from an=20 electric-powered cash register to battery-powered calculators. Some compani= es=20 can fire portable generators to power their phone system with minimal=20 disruption.=20 The California Manufacturing and Technology Association recently estimated = a=20 summer of blackouts could cost the state $21 billion and 136,000 jobs as=20 manufacturers curtail production and retail stores suffer a slowdown.=20 The Bay Area Economic Forum has estimated that rolling blackouts could cost= =20 as much as $15 billion and 15,000 jobs.=20 A summer of rolling blackouts also will test the emotional mettle of=20 Californians, who normally rally when faced with such natural disasters as= =20 earthquakes and wildfires.=20 "It's going to be an interesting natural experiment," said Mihaly=20 Csikszentmihalyi, Davidson professor of management at Claremont Graduate=20 University.=20 "When there is a natural calamity, people often respond really positively.= =20 This is different in the sense it is not a natural calamity and you can bla= me=20 politicians and gougers for it. It could turn into resentment against those= =20 in power and those who should be supplying the power."=20 California's plight already has become comic fodder.=20 From David Letterman to radio talk shows, the state has been the butt of=20 power-related jokes. On a recent episode of the game show "The Weakest Link= ,"=20 which is taped in Los Angeles, the acerbic host asked which player was havi= ng=20 a "rolling mental blackout."=20 Jan Vazquez, however, suggests that California has the chance to go from=20 punch line to role model.=20 "California has the opportunity to be a leader again," Vazquez said, urging= =20 more state investment in alternative energy rather than sinking billions mo= re=20 into buying power at inflated prices.=20 "If there were more homeowners like us and more businesses that were=20 generating their own electrical power, I think we would avoid blackouts=20 completely -- maybe not by this summer, but by next summer," she said.=20 ,2001 Associated Press ?=20 New Nevada-California energy plan surfaces at last minute=20 BRENDAN RILEY, Associated Press Writer Monday, May 28, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/28/s= tate2 242EDT0228.DTL=20 (05-28) 19:42 PDT CARSON CITY, Nev. (AP) --=20 An 11th-hour proposal to help ease Nevada's budget problems and provide mor= e=20 electrical power to neighboring California was outlined Monday by a key sta= te=20 lawmaker.=20 Assembly Ways and Means Chairman Morse Arberry, D-Las Vegas, said his plan,= =20 to be introduced Tuesday, would allow power plants to be built along the=20 Nevada-California border, on land that would be owned by this state.=20 "It could produce millions of dollars for the state," said Arberry, adding= =20 that he has asked researchers to determine the exact dollar benefit to Neva= da=20 to help get the proposal passed in the final week of the 2001 session.=20 Under the proposal, the state would negotiate with the federal Bureau of La= nd=20 Management to acquire BLM land on the border of the two states, especially = in=20 the southern Nevada desert region.=20 The state then could accept bids from companies that wanted to build=20 power-generating plants, and take the bid that would be the best deal for t= he=20 state, he said.=20 The benefit to the power plant builders would be a site as close to a prime= =20 market -- energy-starved California -- but located in industry-friendly=20 Nevada, which already has moved to speed up paperwork involved in power pla= nt=20 approvals.=20 Arberry said he wasn't approached by energy company lobbyists to introduce= =20 the idea. Instead, he said, "I was just talking to an old guy at the=20 barbershop, and he suggested it. I don't know if he even realized what he w= as=20 saying."=20 As part of a broad effort to ensure Nevada has enough energy, Gov. Kenny=20 Guinn already has worked with local government officials, especially in=20 southern Nevada, to speed up power plant permit processes.=20 Legislative efforts include SB362, which lets various local and state=20 agencies act simultaneously on permits for power plants, transmission lines= =20 and other related facilities.=20 Various power companies have come up with plans for Nevada plants that woul= d=20 supply more than 10,000 megawatts of energy by 2004.=20 Those proposals are among plans that would add more than 76,000 megawatts o= f=20 power in the Northwest, Southwest, Rocky Mountain and California-Mexico=20 regions, according to the California Energy Commission.=20 ,2001 Associated Press ?=20 New energy moves by W.House before Bush-Davis meet=20 Posted at 6:39 a.m. PDT Tuesday, May 29, 2001=20 BY RANDALL MIKKELSEN=20 WASHINGTON (Reuters) - On the eve of a showdown meeting on California's pow= er=20 crisis between California Gov. Gray Davis and President Bush, the Bush=20 administration Monday moved to help ease the crisis.=20 Energy Secretary Spencer Abraham unveiled plans to boost extra transmission= =20 capacity in California, which he said would be a ``big step'' in easing=20 rolling power blackouts.=20 Abraham ordered the Western Area Power Administration -- an Energy Departme= nt=20 arm responsible for marketing electricity from federal water projects in 15= =20 Western states -- to wrap up planning for building extra transmission=20 capacity.=20 The move came as Bush headed to California for his first presidential visit= ,=20 and a critical meeting on Tuesday in Los Angeles with the Democratic=20 governor.=20 Davis will ask Bush to impose wholesale electricity price controls and orde= r=20 refunds for overcharged consumers, aides said, but the White House on Monda= y=20 reiterated Bush's position that such steps would be counterproductive.=20 Davis spokesman Steven Maviglio said the steps announced by Abraham were no= t=20 new and were not the kind of help California needed to meet its immediate= =20 crisis. ``That's been kicked around for a while,'' he said.=20 Davis said last week he was prepared to ``go to court'' if Bush failed to= =20 act. ``The law says we're entitled to relief and it hasn't been coming,''= =20 Davis said.=20 White House spokeswoman Claire Buchan said that while Bush had ``worked ver= y=20 hard'' to help California, through measures such as ordering the Defense=20 Department to reduce its energy use by 10 percent in California and easing= =20 rules for using backup power generators, price controls ``make the problem= =20 worse.''=20 TRANSMISSION BOTTLENECK=20 At issue in Abraham's order is so-called Path 15, an 84-mile stretch of pow= er=20 lines with insufficient capacity to carry the necessary load between southe= rn=20 California and the northern part of the state, especially during peak hours= .=20 Abraham told WAPA to determine whether outsiders were interested in financi= ng=20 and co-owning a new transmission line. ''The level of interest will be a=20 factor in the decision to build the line later this year,'' the Energy=20 Department said in a statement.=20 The statement did not make clear whether the federal government would go=20 ahead with the project in the absence of outside financing, nor did it give= =20 cost details.=20 It said WAPA, which manages nearly 17,000 miles of transmission lines, woul= d=20 prepare the necessary environmental and feasibility studies and review=20 easement and land acquisition issues.=20 LEADERSHIP ROLE=20 ``The Bush administration is taking a leadership role in addressing a=20 long-neglected problem in California's electricity transmission system,''= =20 Abraham said. ``California's electricity problems developed over a period o= f=20 years and cannot be solved overnight. However, we can move now on actions= =20 that will help avert the same types of problems from recurring year after= =20 year.=20 ``Removing the so-called Path 15 bottleneck is a big step in the right=20 direction,'' he said.=20 The Energy Department said a new line could transmit across the state an=20 additional 1,500 megawatts of electricity, enough to power 1.5 million home= s.=20 Planning for additional transmission in the Path 15 area was started in the= =20 mid-1980s.=20 California's energy crisis is rooted in a flawed 1996 deregulation plan tha= t=20 allowed wholesale power prices to soar while capping retail rates.=20 The result has brought rolling blackouts, spotty power supplies and put=20 intense pressure on Davis to come up with ways to solve a worsening energy= =20 crunch that has also drained billions of dollars from state coffers.=20 It has also energized potential opposition to Davis's expected 2002=20 reelection bid. Bush has encouraged Los Angeles Mayor Richard Riordan to=20 challenge Davis. Tuesday, May 29, 2001=20 California should try true deregulation=20 Moving toward a government monopoly is the wrong prescription EDWARD R. MULLER=20 Mr. Muller is the former president and CEO of Edison Mission Energy, a=20 power-producing firm owned by Edison International and headquartered in=20 Irvine. This was co-authored by S. Linn Williams, former senior vice=20 president of Edison Mission Energy.=20 Capitalism won the Cold War because of better economics: Consumers make=20 better decisions than politicians, central planners or monopolists. That=20 lesson seems to have been learned better by those who lost the war than by= =20 those who won it. The failure to absorb the lesson is nowhere clearer than in the efforts to= =20 deregulate utilities. Deregulation, we are being told, has failed. The ligh= ts=20 are going out in California, and now politicians, governments, consumer=20 groups and the utilities themselves are rushing to hang out signs that read= =20 "Capitalism doesn't work here."=20 Principles matter, so let's start with some: The objective of government is= =20 to provide a framework for a better life for its people, and monopolies are= a=20 bad framework. They are inefficient, and when they include the government,= =20 whether as owner or comprehensive regulator, they are both inefficient and= =20 dogmatic because politics enters the equation. We pay for that inefficiency= =20 through higher taxes or higher prices. We must, of course, keep the lights on to maintain our standard of living.= =20 Does that mean that we just have to put up with the inefficiencies of=20 government-supported monopolies as a necessary evil to assure that importan= t=20 services are available? We do not. The problem has not been too little=20 regulation, but too much. California is an excellent example.=20 What has gone wrong? The finger pointing has been great sport, but the core= =20 of the problem is just the law of supply and demand. California flat ran=20 short of power. Many have wanted to build new power plants in California, b= ut=20 the regulatory hurdles have been insurmountable. In recent times, the=20 utilities themselves said that California didn't need more power plants and= =20 fought to stop the construction of new plants by others. The marketplace=20 didn't fail; regulation failed.=20 And California's vaunted "deregulation" was in reality just a botched=20 substitution of one form of regulation for another. When you deregulate a= =20 monopoly marketplace, you want all buyers and sellers to be subject to mark= et=20 forces. What California called "deregulation" didn't come close. First, the= =20 state and the utilities agreed on fixed retail prices for five years. As a result, consumers used electricity without knowing what it really cost= =20 to produce. Second, the state and the utilities agreed that the utilities= =20 would buy wholesale power through a system subject to market forces. As a= =20 result, the cost of power bought by the utilities fluctuated even though th= e=20 price they could charge was fixed. The utilities thought the retail prices were fixed high enough to more than= =20 cover what they expected power to cost them. For two years they were correc= t=20 and bought power for much less than the fixed prices they charged their=20 customers, but last year the cost of power soared way above the fixed price= s.=20 This wasn't deregulation, just another form of regulation. There were no=20 principles, just political expediency.=20 It didn't take long for economic reality to assert itself and the jury-rigg= ed=20 structure came tumbling down. Blackouts, high prices and insolvent utilitie= s=20 are not a failure of the marketplace; the marketplace never got a chance. N= ow=20 we are at a fork in the road. Should we go back to the regulation of the pa= st=20 or forward to full deregulation?=20 It's not fair to say that deregulation has failed. After all, we haven't=20 tried it yet. We should return to first principles: Deregulate properly by= =20 making all aspects of the system subject to market forces. True deregulatio= n=20 would include:=20 * Reducing the regulatory burdens on building new power plants. * Eliminating fixed prices.=20 * Making sure that there are enough players in the market to make it=20 competitive.=20 * Having shareholders, not customers, be responsible for the financial=20 effects of business decisions.=20 Prices will vary with supply and demand and may rise at the outset until=20 supply is added, but over time a deregulated market will give customers the= =20 lowest prices. The talk of a retreat to the regulation of the past is in pa= rt=20 a result of our failure to articulate why capitalism won the Cold War and= =20 competition makes the world a better place.=20 The tendencies of politicians to intervene, and of businessmen to ask=20 government to exempt their particular business from the marketplace, or som= e=20 of its effects, remain strong. Ironically, prosperous times reinforce those= =20 tendencies by masking their effects on the rest of us. Whether in good time= s=20 or in bad, the public interest is a David to the Goliath of politicians,=20 bureaucrats and businessmen who see governmental protection as safer for=20 themselves than the hurly burly of competition. Capitalism, like democracy, is imperfect, but both are far preferable to th= e=20 alternatives. Our laws and regulations should provide the structure for a= =20 marketplace where consumers vote many times a day, not a discredited and=20 dictatorial system in which only politicians and monopolists get to vote.= =20 By Rick Stouffer rstouffer@ftenergy.com Power generators and traders are finally realizing that the phrase "build i= t=20 and they will come" wasn't written with power plants and natural gas fuel i= n=20 mind. You can build all the new capacity you want=01*but if you don't have the na= tural=20 gas to fuel the turbines, all you have is a brand-new, very expensive white= =20 elephant.=20 With roughly 90% of the 155,000 MW to 200,000 MW of announced capacity to= =20 come on-line within the next few years firing with natural gas, executives= =20 are beginning to add two and two together and really getting four.=20 Back to the future with a twist Translation: The really smart power producers/traders are now locking in=20 proven natural gas reserves=01*insuring that when supply gets tight, they c= an=20 reach into the ground and pull out more fuel=01*their fuel.=20 For some players, it's back to the future, a return to the days when the sa= me=20 company owned the fuel, the generation, and the transmission=01*but with a = 21st=20 century twist. Today, the various factions are unregulated.=20 "What goes around comes around in this business," said Edward Tirello Jr.,= =20 managing director and senior power strategist-investment banking at Deutsch= e=20 Banc Alex. Brown. "The utilities used to own the various fuel sources, coal= ,=20 natural gas, and now they are getting back into it."=20 "Oil and natural gas firms are rebundling, reintegrating, but in an=20 unregulated sense," said John Olson, an energy analyst in Houston with=20 Sanders Morris Harris.=20 Can't burn paper in a turbine With volatility as much a part of deregulation as mergers and acquisitions,= =20 no power producer wants to be caught with its assets unproductive, i.e. wit= h=20 a shiny, new combined-cycle plant and no gas to fuel it.=20 "You can't put paper in a pipeline; you can't burn paper in a turbine," sai= d=20 Donato Eassey, head of natural gas analysis for Merrill Lynch in Houston,= =20 Texas.=20 "There are developing some real physical concerns for getting natural gas,= =20 and we will see some reneging on deals=01*even with contracts."=20 Olson has done the mathematics concerning the spike in demand related to ne= w=20 plants=01*and the numbers don't work.=20 "To feed all the plants expected to come on-line in the next few years woul= d=20 take an additional 13 billion cubic feet per day (Bcfd), and we are produci= ng=20 52 Bcfd," according to Olson. "Gas production has only been growing at a ra= te=20 of 0.4 Bcfd over the last 10 years=01*and well productivity has been down t= he=20 last two years. We've simply been replacing our natural declines."=20 Control what's there To put it in the vernacular: If enough gas isn't going to be there, you=20 better control what you can. Thus, Calpine Corp. in February announced a de= al=20 to acquire for $1.2 billion in stock and assumed debt the Calgary, Alberta,= =20 Canada-based exploration and production (E&P) firm Encal Energy Ltd.=20 No power producer wants to be caught with a shiny, new combined-cycle plant= =20 and no gas to fuel it.=20 The deal gave Calpine a solid foothold in satisfying part of its seemingly= =20 insatiable need for natural gas fuel, as it marches toward 70,000 MW of=20 capacity within the next three years. With Encal, San Jose, Calif.-based=20 Calpine's proven and probable reserves jumped to 1.7 trillion cubic feet=20 (Tcf), with a daily production capacity of 390 million cubic feet equivalen= t=20 (MMcfe).=20 Earlier this month, Williams Cos. pushed oil behemoth Royal Dutch/Shell Gro= up=20 out of the way and snared independent E&P player Barrett Resources Corp. fo= r=20 $1.5 billion in cash, stock and assumed debt.=20 Williams' offer was music to Barrett shareholders' ears: At $73 per share,= =20 the price was some 60% above Barrett's stock price the day before Shell's= =20 unsolicited bid became a hostile offer in March.=20 Two weeks ago, another independent E&P player took the money and ran. San= =20 Francisco-based HS Resources agreed to $66 a share=01*a 24% premium=01*$1.7= billion=20 in cash, stock and assumed debt from Kerr-McGee Corp. Not bad for a stock= =20 trading around $20 a year ago=01*and around $5 a share in early 1999.=20 As was the case with Calpine's swallowing of Encal, Williams and Kerr-McGee= =20 were thinking one thing when they bid the roof off: natural gas reserves.= =20 Williams' proven reserves, including Barrett, more than doubled to 3.3=20 trillion cubic feet equivalent (Tcfe), while average daily production jumpe= d=20 to 555 MMcfe.=20 Kerr-McGee gains via the HS Resources deal 1.3 Tcfe, about a 77% increase,= =20 while daily production will climb 45%. "Williams looked at Barrett using wellhead-to-power plant economics,"=20 according to Stuart Wagner, a principal in the Denver office of investment= =20 banking firm Petrie Parkman. "It was looking at long-lived, low-risk=20 reserves."=20 More deals a no-brainer Generators today cannot take the chance natural gas will not be available= =20 when that 500-MW or 1,000-MW plant is set to be primed.=20 "If you are building the plants and you don't have the gas, you are down th= e=20 tubes," Merrill Lynch's Eassey said. "If you are down a day in this market,= =20 you're sunk. And buying gas in the ground is cheaper than buying it on the= =20 market." "The firms already have a market for their power, now they are locking in= =20 margins," said Phillip Pace, an energy analyst in Houston with Credit Suiss= e=20 First Boston. "It depends on how short you want to be. One hundred percent= =20 short=01*you don't want to be."=20 Thus, there will be more plays made for sister firms to Barrett and HS=20 Resources, industry watchers believe. The acquisition of independent E&P=20 players is heating up.=20 "Will we see more deals? That's a no-brainer," said Merrill's Eassey. "You= =20 think Equitable (Pittsburgh, Pa.-based Equitable Resources Inc., the larges= t=20 holder of gas in the Appalachian region) is trading around $80 a share on i= ts=20 fundamental valuation? That's not fundamentals=01*that's takeout."=20 National Fuel is another takeout target, said Eassey. Another analyst, who= =20 requested anonymity, believes Mitchell Energy & Development Corp., Louis=20 Dreyfus Natural Gas and Burlington Resources are choice targets. Petrie=20 Parkman's Wagner sees Mitchell and Western Gas Resources Inc. as takeout=20 material. Olson calls Mitchell his "dream" acquisition. The 55-year-old firm, founded= =20 by 81-year-old wildcatter George Mitchell, may be the choicest plum still t= o=20 be picked. Mitchell put his firm on the block last year but has yet to hear= =20 numbers he likes.=20 "Gas production at Mitchell is up 25% this year, and is projected at 20%=20 through 2003," Olson said. "It's finding very rich gas in the Barnett=20 Formation in North Texas, but even if you're finding it at 70 cents per Mcf= =20 (thousand cubic feet), if you can sell it for $4 to $5 per Mcf, that works.= "=20 Proven gas reserves are in the 1.5 Tcf range, with daily production of=20 roughly 340 MMcfd. Mitchell's stock price has more than doubled in the last= =20 year, closing May 23 at $56.55.=20 A crowded field of acquirers With potential acquisitions awaiting, which companies are the promising=20 acquirers? Merrill's Eassey likes Reliant Energy, Aquila, possibly Mirant,= =20 even Calpine and Williams, which he believes remain natural gas-short if th= ey=20 stay on their capacity growth plans. Sanders Morris' Olson believes Duke=20 Energy clearly is looking for more natural gas, even with its access to=20 product via Duke Energy Field Services.=20 Credit Suisse's Pace said the field of potential acquirers could be crowded= =01* including every firm yet to be successful in acquiring reserves. That=20 includes Royal Dutch/Shell.=20 "Phillips already has stated it wants to be the largest coal-bed methane=20 player in the U.S.," Petrie Parkman's Wagner said. "Duke, Dynegy, Entergy a= nd=20 AES will also have to step up."=20 "The pressure is there definitely to act," Pace said. "I would be very=20 surprised if nothing else happened this summer."=20

dasovich-j/all_documents/13119.

dasovich-j

Subject: Energy Issues Sender: miyung.buster@enron.com Recipients: ['ann.schmidt@enron.com', 'bryan.seyfried@enron.com', 'elizabeth.linnell@enron.com'] File: dasovich-j/all_documents/13119. ===================================== Please see the following articles: Sac Bee, Tues, 5/29: Lodi just says no to powers that be:=20 Four times since March, the city kept the lights on as other towns went dar= k Sac Bee, Tues, 5/29: Dan Walters: Debt dilemmas plague energy executives,= =20 ordinary workers alike SD Union (AP), Tues, 5/29: Governor's rescue plan garners no support, a newspaper reports SD Union, Tues, 5/29: In power crisis, is there ray of light at end of mur= ky=20 tunnel? SD Union, Mon, 5/28: Bush, Davis on collision course SD Union, Sun, 5/27: Republicans fiddle while Californians burn SD Union (AP), Sun, 5/27: Energy executive seeks state GOP support (Enron= =20 mentioned) SD Union (AP), Sat, 5/26: State demands FERC close loopholes =20 SD Union, Sat, 5/26: Changes in Senate could offer state relief (Enr= on=20 mentioned) SD Union, Sat, 5/26: Natural gas CEO denies deal was improper LA Times, Tues, 5/29: Kern County Basks in Role as State's Blackout-Buster LA Times, Mon, 5/28: Plan to Rescue Edison Stalls LA Times, Mon, 5/28: Bush Could Boost Green Power With Buying Power LA Times, Sun, 5/27: Suddenly, Dirty Old Coal Is the Fossil Fuel of the=20 Future LA Times, Sun, 5/27: Power Firm Chief Lists Solutions for Crisis LA Times, Sat, 5/26: State Renews Demand for Power Price Relief LA Times, Sat, 5/26: El Paso CEO Admits Approving Subsidiaries' Natural Ga= s=20 Deal LA Times, Sat, 5/26: Police Support 48-Hour Alerts for Blackouts LA Times, Sat, 5/26: Outdoor Lights Still Burning LA Times, Sat, 5/26: Businesses Hopeful on Blackout Warnings LA Times, Tues, 5/29: Power Crisis Has Mileage for Bush =20 (Commentary) SF Chron (AP), Tues, 5/29: Bush announcing low-income aid, but no price ca= ps =09=09=09 SF Chron, Tues, 5/29: Bush facing Davis' heat over energy=20 In first visit to state as president, he'll hear governor's plea for help SF Chron, Tues, 5/29: Bush's first visit not so welcome=20 SF Chron (AP), Tues, 5/29: Californians revert to clotheslines, fans as th= ey=20 gear up for blackouts=20 SF Chron, Tues, 5/29: Crisis no sweat to some offices=20 Many offices keep cool in crisis=20 Air conditioners blast in state's energy centers=20 SF Chron (AP), Tues, 5/29: Stakes are high for Davis meeting with Bush SF Chron, Tues, 5/29: State gives president tepid ratings=20 Power crisis blamed for 42% approval SF Chron (AP), Mon, 5/28: Calif. pawn businesses boom as energy bills ris= e SF Chron (AP), Mon, 5/28: Californians brace for a summer of blackouts SF Chron, Mon, 5/28: New Nevada-California energy plan surfaces at last=20 minute Mercury News, Tues, 5/29: Bush feeling weight of state's energy crisis Mercury News, Tues, 5/29: New energy moves by W.House before Bush-Davis me= et OC Register, Tues, 5/29: California should try true deregulation =20 (Commentary) Energy Insight, Tues, 5/29: Look for more wellhead-power plant deals=20 ---------------------------------------------------------------------------= --- -------------------------------------------------------- Lodi just says no to powers that be: Four times since March, the city kept= =20 the lights on as other towns went dark. By Stuart Leavenworth Bee Staff Writer=20 (Published May 29, 2001) LODI -- In this old farm town, where ferment is largely confined to wine=20 bottles, leaders are staging a Boston Tea Party against California's energy= =20 crisis.=20 Lodi, population 57,000, is refusing to participate in the rolling blackout= s=20 that have swept across California. Four times since March, Lodi's electric= =20 utility has snubbed the state's power managers and kept its lights on while= =20 others went dark.=20 The rock band Creedence Clearwater Revival once derided Lodi as a=20 conservative backwater, but now, this town is leading an unlikely revolt th= at=20 is being picked up by others statewide.=20 "Lodi has something of an independent streak," said Steve Mann, a former ci= ty=20 councilman in Lodi and one of many residents who support the city's utility= .=20 "It doesn't make sense that we should participate in blackouts when we have= =20 done everything we can to make sure we can avoid that."=20 So far, Lodi has the only utility in the state to openly defy an on-the-spo= t=20 call for blackouts. They did so twice in March, then twice again this month= .=20 This week, however, Riverside's utility said it, too, would not participate= =20 in forced outages, and leaders of some other "munis" may follow suit.=20 Worried about a political snowball, Gov. Gray Davis met with leaders of the= =20 munis last week, but refused to exempt them from further blackouts. If that= =20 happened, the state's power managers would be unable to spread blackouts to= =20 25 percent of the state's households, putting the brunt on other parts of t= he=20 state.=20 "I'm sympathetic," said David Freeman, the governor's top energy adviser an= d=20 a former leader of municipal utilities in Sacramento and Los Angeles. But= =20 Freeman, speaking with uncharacteristic guardedness, said it may not be=20 practical "to separate out utilities that are an integral part of the grid.= "=20 The self-proclaimed "wine grape capital of the world," Lodi would seem an= =20 unlikely hotbed for dissent. Creedence Clearwater once bemoaned being "stuc= k=20 in Lodi." Instead of being offended by the song, many residents are glad=20 their town isn't inhabited by a bunch of long-haired rabble-rousers.=20 Even so, Lodi likes to defy convention when it comes to protecting its own.= =20 Two years ago, the city started waging battle against big insurance compani= es=20 that didn't want to pay to clean up toxic substances from local businesses= =20 that had trickled into water supplies.=20 In recent years, Lodi has spent millions sprucing up its once-dilapidated= =20 downtown, which soon will be crowned by a new 12-screen cineplex.=20 But the town's biggest source of pride is its taxpayer-owned utility, which= =20 started in the 1890s when two brothers, Ed and Fred Carey, launched a water= =20 and electric utility. In 1910, they sold it to the city of Lodi for $35,000= .=20 Now, the utility provides $4 million to the town's coffers every year, with= a=20 $30 million annual budget.=20 Like many other municipal utilities in Northern California, Lodi has more= =20 power lined up than it needs, but is dependent on Pacific Gas and Electric= =20 Co. to deliver that power to its doorstep.=20 As a result, "Lodi's relationship with PG&E has been tenuous throughout its= =20 history," said Mann. One point of contention is the interconnection agreeme= nt=20 among PG&E, Lodi and the town's fellow members in the Northern California= =20 Power Agency.=20 PG&E officials say the agreement requires Lodi to shed power during any pow= er=20 shortfall. But Lodi contends the pact obligates the utility to impose=20 blackouts only during "physical emergencies," such as a wind storm that=20 knocks out transformers.=20 "We don't see any compelling reason why Lodi should have to participate in= =20 rolling blackouts," said Alan Vallow, director of the city's utility. "You= =20 want me to turn customers off when we have the capacity to keep them on? Th= at=20 doesn't work for me."=20 During a statewide call for blackouts, PG&E conceivably could just switch o= ff=20 power for Lodi if the city's utility didn't heed the call voluntarily. But= =20 Vallow doubts PG&E would take such a step. "That would be pretty extreme," = he=20 said.=20 An engineer who used to work for Los Angeles' utility, Vallow has become=20 "something of a folk hero" because of his stance, said Mann. Vallow is=20 especially popular with Lodi's canneries, which need reliable power in the= =20 summer to pack fruit before it rots in the field. And most Lodites "are 100= =20 percent behind Mr. Vallow," said Marie Saunders, a longtime local resident.= =20 On the other hand, Lodi's City Council hasn't officially endorsed Vallow's= =20 decision, giving it an out should PG&E or state officials seek revenge.=20 "If we weren't supportive, we would let Alan know," said Alan Nakanishi, th= e=20 mayor of Lodi. "On the other hand, if we do get retribution, we may say to= =20 Al, 'Hey, what is all this about?' "=20 So far, PG&E hasn't threatened any action against Lodi, but experts say the= =20 town is venturing into murky legal territory.=20 "It is a legal question that hasn't been resolved," said John Fistolera,=20 legislative director of the Northern California Power Agency, a group of=20 municipal utilities that includes Lodi.=20 The Sacramento Municipal Utility District, which is not part of NCPA, also= =20 has taken a cautious approach. Earlier this year, at least one SMUD board= =20 member recommended the utility follow Lodi's example. But the idea was=20 dropped amid fears that SMUD, being a bigger utility, could face a legal=20 fight that PG&E wouldn't mount against little Lodi.=20 "I really admire what Lodi has done," said Linda Davis, a SMUD board member= .=20 "But I don't want to end up in court, and I fear SMUD would end up in court= ."=20 Instead of an open rebellion, SMUD has joined the Southern California town = of=20 Vernon and 13 other cities in appealing to the Federal Energy Regulatory=20 Commission. They want FERC to exempt them from blackouts ordered by the=20 state's grid manager, the Independent System Operator.=20 ISO officials argue that "load shedding" from the municipal utilities is=20 vital for maintaining balance on the grid during shortfalls. But SMUD and t= he=20 other municipalities say they shouldn't be penalized for lining up power=20 reserves that have eluded the state's big utilities, especially with the=20 state facing dozens of blackouts this summer.=20 "Like Vernon, SMUD has grave concerns over the prospect of sharply escalati= ng=20 the number and duration of blackout occurrences directed by the ISO on a=20 grid-wise basis over the upcoming summer months," SMUD wrote to FERC.=20 Last week, the Riverside City Council voted to stop participating in=20 blackouts ordered by the ISO. Like Lodi, Riverside says its conservation=20 programs should be taken into account in ISO's attempts to deal with power= =20 shortages.=20 Vallow says Lodi has done everything it can to help the state. In January,= =20 the city complied with blackout orders, then purchased long-term contracts= =20 that gave it a 40 percent surplus in power reserves.=20 To pay for those reserves, the utility increased customer rates by as much = as=20 15 percent.=20 Since then, the city has sold excess power back to the state to help with= =20 shortages. But Vallow also has told the state that Lodi will not participat= e=20 in further blackouts.=20 Vallow calls it the "SET" program, which stands for "System, Electric suppl= y=20 and Team."=20 "We've done everything the state should have done to avoid the crisis we ar= e=20 in now," said Vallow. "We are SET."=20 The Bee's Stuart Leavenworth can be reached at (916) 321-1185 or=20 sleavenworth@sacbee.com. Dan Walters: Debt dilemmas plague energy executives, ordinary workers alike (Published May 29, 2001)=20 The Bible, in one of its many warnings to the faithful about incurring debt= ,=20 makes this pithy observation: "The rich rule over the poor and the borrower= =20 is servant to the lender."=20 Credit may have become the essential underpinning of a modern industrial=20 society, from the billions of dollars in operational financing arranged by= =20 governments and corporations to the credit card transactions of everyday=20 consumers, but our uneasiness about debt continues.=20 California's two major utilities ran up more than $13 billion in debt to bu= y=20 power at prices far higher than consumers were paying, until lenders cut of= f=20 their credit. And the state government then stepped in and has incurred an= =20 additional $7.7 billion in debt -- with plans to nearly double its borrowin= g=20 to over $13 billion -- to keep the lights burning. One utility has sought= =20 bankruptcy protection and another is on the verge; the state's heavy power= =20 purchase debts have undermined its credit rating and its ability to finance= =20 other spending.=20 While the governor and state legislators ponder these multibillion-dollar= =20 questions of debt, they also must decide what to do, if anything, about the= =20 relatively tiny debts that poor Californians are incurring. The practices o= f=20 so-called "payday lenders" and those making home-secured loans to the elder= ly=20 and working poor are generating sharp conflicts in the Capitol.=20 The "payday loan" business has mushroomed since being expressly authorized = by=20 1996 state legislation. Storefront businesses offering short-term loans at= =20 high interest rates have exploded from almost none to more than 3,000 in th= e=20 state, often replacing pawnbrokers as lenders of last resort.=20 Critics see the trade as legalized usury, in which cash-poor borrowers not= =20 only are tapped for very high interest rates -- as much as 900 percent per= =20 year -- and are forced, in effect, to roll over the loans week after week.= =20 Sen. Don Perata, D-Alameda, is carrying a measure that would tighten up=20 payday loan practices, the latest in a long string of proposals that have= =20 died at the hands of fellow Democrats in legislative committees, thanks to= =20 the efforts of lenders and their lobbyists. Assemblyman Dario Frommer, D-Lo= s=20 Angeles, meanwhile, is carrying a measure that lenders back as a compromise= ,=20 although it's been denounced by consumerists as a smoke screen.=20 A similar battle is being waged over what critics describe as "predatory=20 lending" by home loan subsidiaries of major banks. Consumer activists argue= =20 that the lenders are enticing low-income and/or elderly borrowers into=20 pledging their homes for "subprime" loans -- even many who could qualify fo= r=20 more conventional, lower-cost mortgages. The borrowers, say critics, are=20 paying higher interest rates and higher fees, are being saddled with unneed= ed=20 mortgage life insurance and often are at risk of losing their homes to=20 foreclosures.=20 Sen. Joseph Dunn, D-Santa Ana, is carrying a consumer group-backed bill,=20 pending in the Senate Banking Committee, but bankers have mounted a stiff= =20 opposition campaign and the fate of the bill is in doubt. Dunn and his=20 supporters need five of the six Democrats on the committee to vote for the= =20 bill, and the heaviest lobbying attention is being focused on two uncommitt= ed=20 Democrats from conservative Central Valley districts -- Mike Machado of=20 Linden and Jim Costa of Fresno. Last week, consumer activists staged a=20 symbolic march on the Capitol to press their cause.=20 The questions that surround both issues are similar: Should the state prote= ct=20 borrowers from agreeing to loans that carry high interest rates and other= =20 charges, as long as they are aware of the risks and costs they are incurrin= g?=20 Are those rates and fees justified by the higher costs, including higher=20 default rates, that lenders experience in making loans to those of marginal= =20 creditworthiness?=20 They are not dissimilar to the questions that are being raised about the hu= ge=20 debts that the utilities and the state -- institutions presumably operated = by=20 sophisticated executives -- have assumed. The blue-collar worker who takes= =20 out a high-cost payday loan to keep his own lights burning is not that much= =20 different from the governor.=20 The Bee's Dan Walters can be reached at (916) 321-1195 or dwalters@sacbee.c= om . Governor's rescue plan garners no support, a newspaper reports=20 ASSOCIATED PRESS=20 May 28, 2001=20 LOS ANGELES =01) Leaders of both houses are against Gov. Gray Davis' plan t= o=20 rescue Southern California Edison from bankruptcy, the Los Angeles Times=20 reported Monday.=20 Not only has the more than $3 billion plan failed to garner support but=20 efforts by lawmakers to come up with an alternative are also falling by the= =20 wayside.=20 The stakes are high, because restoring Edison to financial health and=20 requiring Edison to temporarily sell power at lower prices are vital to=20 Davis' plan to get the state out of the business of buying electricity.=20 Nevertheless, leaders in the Legislature say the governor's approach has fe= w=20 backers.=20 "I don't think the governor's (plan) has support in either party in either= =20 house," Assembly Speaker Bob Hertzberg, D-Sherman Oaks, told the Times. "Th= e=20 issue is whether we can come up with something else, and I think we can."= =20 Senate leader John Burton, D-San Francisco, has been critical of the deal= =20 Davis and Edison put together from the outset. He said it is certainly dead= =20 in the Legislature, but that a more far-reaching proposal may still emerge.= =20 "Hopefully, we will find a long-term solution" to the state's energy crisis= ,=20 Burton said. The Edison deal alone "is not going to solve anything. It is n= ot=20 going to reduce rates, and it is not going to prevent blackouts," he said.= =20 In both the Assembly and Senate, most Democrats and Republicans are convinc= ed=20 there is no way for them to save Edison without appearing to sanction a hug= e=20 bailout. Therefore, they want to get something of value in return from Edis= on=20 =01) high-voltage transmission lines, hydroelectric power plants or guarant= ees=20 that the utility will boost energy supplies =01) but are sharply split on w= hat=20 is best.=20 Democrats, who hold majorities in both houses, cannot agree on how to save= =20 the utility =01) or whether it is even proper for the government to do so. = Some=20 believe that the state would be better off letting Edison file bankruptcy= =20 like Pacific Gas & Electric.=20 Meanwhile, their efforts to forge a bipartisan solution with Republicans ha= ve=20 are not going well.=20 Despite the setbacks, Davis and many lawmakers still say some form of the= =20 Edison rescue plan will clear the Senate and Assembly this summer. But sinc= e=20 Davis announced he had reached a deal with Edison executives to save the=20 utility in April, nothing has been accomplished in the Legislature to=20 implement it.=20 The rescue deal Davis reached with Edison calls for the state to pay the=20 utility $2.76 billion for its power transmission lines. It would allow the= =20 state to issue bonds to finance the purchase, and declares that Edison is t= o=20 use the money to reduce its estimated $3.5 billion debt.=20 The deal also would set aside a portion of ratepayers' monthly utility bill= s=20 to pay off Edison's "undercollections," huge debts the utility incurred las= t=20 year and early this year because it was not allowed by the state to pass on= =20 to consumers the full cost of wholesale power.=20 In return, Edison would agree to sell the electricity it generates from its= =20 power plants at cost for the next decade, lowering the state's overall=20 power-buying expenses.=20 Lawmakers from both parties have called the deal overly generous and=20 questioned the benefit to the public.=20 In power crisis, is there ray of light at end of murky tunnel?=20 By Ed Mendel=20 May 28, 2001=20 SACRAMENTO -- Is California, at long last, about to catch a break in the=20 electricity crisis, or will the cost of power this summer short-circuit the= =20 state budget, forcing painful cuts?=20 Among the doom and gloom of blackout preparations last week, there were a f= ew=20 faint flickers of hope.=20 Some prices for summer power have dropped. State power buyers smoothly=20 handled high loads during two hot days. A big generator, Mirant, unexpected= ly=20 agreed to provide 500 megawatts through the summer at a reasonable price.= =20 Davis administration officials are sticking with their forecast, derided by= =20 some as a "hope and expectation," that the average price the state will pay= =20 for non-contracted power will drop this summer.=20 "It's very doable," said Ray Hart, head of the power purchasing unit in the= =20 state Department of Water Resources.=20 The forecast by Davis consultants expects the average of $346 per megawatt= =20 hour paid by the state for non-contracted power in April through June to dr= op=20 to $195 in July through September.=20 But skeptics fear that as heat drives up the demand for power, the state wi= ll=20 get a double whammy -- soaring spot-market prices because of a regional pow= er=20 shortage, and a series of disruptive and dangerous blackouts.=20 The state, in what Vice President Dick Cheney calls a "harebrained scheme,"= =20 began buying power for utility customers in January after a failed=20 deregulation plan forced the utilities deep into debt.=20 The Davis administration notified the Legislature last Wednesday that in 10= =20 days the state general fund will begin spending another $500 million=20 increment for power, bringing the total since January to $7.7 billion.=20 Now it's nervous time at the Capitol until the general fund is repaid by a= =20 bond issue of up to $13.4 billion, which is expected to be issued in late= =20 August and September and paid off by ratepayers over 15 years.=20 What if there is a snag? Or spending on power soars? State Controller=20 Kathleen Connell is predicting that the state will have to borrow more mone= y=20 than planned, perhaps an additional $4 billion.=20 As for the flicker of hope, a reporter for a publication that tracks power= =20 said prices at the Palo Verde hub, which serves Southern California, have= =20 dropped significantly since April for deliveries in July through September.= =20 "My personal opinion is, they probably won't get back up to where they were= =20 during the highs," said Mike Wilczek of Platts Power Market Week.=20 Another journalist who tracks power prices, Arthur O'Donnell, editor of=20 California Energy Markets, sees no trend other than volatility.=20 "It depends largely on what the weather is," O'Donnell said. "The expectati= on=20 is that August is going to be the ugly month, and that is being reflected i= n=20 the future prices."=20 O'Donnell said he was encouraged that the state Department of Water=20 Resources, which lined up some power purchases in advance, handled=20 heat-driven high loads last Monday and Tuesday without declaring an=20 emergency.=20 "What it tells me is, DWR is learning its job," O'Donnell said.=20 The state is counting on an ad campaign and "sticker shock" from rate=20 increases to reduce power use this summer. And the amount of cheaper power= =20 obtained through contracts, now less than half the total, is expected to=20 increase to about two-thirds in June through August.=20 "I think this month is a harder month to get through than those months," sa= id=20 DWR's Hart.=20 Ed Mendel is Capitol bureau chief for the Union-Tribune.=20 Bush, Davis on collision course=20 President, Cheney firm: No price caps By Toby Eckert=20 COPLEY NEWS SERVICE=20 May 27, 2001=20 WASHINGTON -- When President Bush and Gov. Gray Davis meet this week to=20 discuss California's power crisis, it will be a close-up clash of ideologie= s=20 that until now have been playing out long distance.=20 To Californians struggling with rolling blackouts and skyrocketing power=20 bills, Bush's allegiance to free-market principles and his rejection of=20 electricity price controls can seem baffling -- if not payback for the=20 state's vote against him in the presidential election.=20 Yet a look at the record shows that Bush and his energy czar, Vice Presiden= t=20 Dick Cheney, share an unshakable faith in open power markets shaped by=20 conservative politics and their long association with an industry that has= =20 benefited greatly from deregulation. It is a view fortified by energy company executives who enjoy easy access t= o=20 top administration officials and counsel against measures like price=20 controls. One company in particular, power marketer Enron Corp., appears to= =20 wield great influence with the White House on energy policy.=20 Davis argues that because the deregulation plan adopted by the state in 199= 6=20 turned out to be deeply flawed, a truly free market doesn't exist. Power=20 marketers and generators now have enough leverage to charge, on average, mo= re=20 than $330 per megawatt-hour of electricity, 10 times what they were getting= =20 just a year ago.=20 Temporary Western price controls -- based on the cost of producing the powe= r=20 and a hefty, built-in profit margin for the power sellers -- would provide = a=20 respite until the problems are fixed, Davis contends. A recent Field Poll= =20 shows that an overwhelming majority of Californians, Republican and Democra= t,=20 share that view.=20 "It would be a grave mistake for the Bush administration to allow rigid=20 ideology to stand in the way of doing what's best for our country," a=20 frustrated Davis said recently. "Deregulation is not a religion."=20 The White House flatly denies it is looking at the issue with ideological= =20 blinders on, or through an energy industry prism. Bush and other=20 administration officials argue that price controls have a proven history of= =20 backfiring -- drying up energy supplies at the same time they encourage mor= e=20 consumption.=20 "The president and this administration do not support price caps because th= ey=20 don't work," said White House spokeswoman Claire Buchan.=20 The folly of price controls is an article of faith in the oil industry, whi= ch=20 was long subjected to them. Both Bush and Cheney prospered in that industry= .=20 Bush founded an oil company in his native West Texas in 1977, shortly after= =20 graduating from business school. Arbusto Energy didn't find much oil, but= =20 Bush profited greatly in the boom-and-bust industry through mergers with=20 bigger industry players.=20 Before Bush plucked him out of the private sector, Cheney headed Halliburto= n=20 Co., a leading oil-field services firm based in Dallas.=20 "I think there's no doubt that their views have been shaped by their=20 backgrounds in the industry and their broader ideological views about=20 markets," said political analyst Stuart Rothenberg.=20 Cheney in particular has expressed a visceral aversion to price controls. H= is=20 experience helping to craft broad wage and price limits in the Nixon=20 administration left an indelible mark.=20 "The night the control regulations went to the Federal Register to be=20 published, they were 14 pages long. I know, because I typed them," Cheney= =20 said recently. "When we got through a couple years later, we had a roomful = of=20 regulations."=20 The price controls aggravated the oil shortage that plunged the nation into= =20 an energy crisis in the 1970s, Cheney argues.=20 "You could control domestic oil prices, but you couldn't control the price = of=20 imports that were set by the international market. .?.?. A lot of companies= =20 shut down, quit producing domestically," he said.=20 The new breed of power generators and marketers spawned by the nationwide= =20 move toward electricity deregulation are also, by and large, fierce opponen= ts=20 of price controls. Houston-based Enron in particular has positioned itself = as=20 a major player in the world of freewheeling power sales, including in=20 California.=20 Enron and its executives have been among Bush's biggest supporters througho= ut=20 his political career and enjoy an unusually close relationship with the=20 president. Company Chairman Kenneth Lay was one of the "Pioneers" who raise= d=20 at least $100,000 for Bush during the presidential campaign.=20 Enron's political action committee and its executives poured $113,800 into= =20 Bush's coffers and put a corporate jet at his disposal, according to the=20 Center for Responsive Politics, which tracks political spending.=20 Two top Bush administration officials -- economic adviser Lawrence Lindsey= =20 and U.S. Trade Representative Robert Zoellick -- once served on an Enron=20 advisory board.=20 As Cheney was crafting the administration's recently unveiled energy policy= ,=20 Lay was one of the handful of people who got to meet with him. Lay presente= d=20 a three-page, eight-point list of priorities for open power markets,=20 including an admonition that the administration "should reject any attempt = to=20 re-regulate wholesale power markets" with price caps or other controls.=20 Davis, by contrast, was invited to simply submit a one-page memo to the=20 energy task force, his spokesman said.=20 Lay also reportedly advised the Bush administration on appointments to the= =20 Federal Energy Regulatory Commission. The commission has the power to impos= e=20 price controls, but has so far balked at Davis' proposal.=20 Enron's clout with the administration has stoked the suspicions of critics.= =20 "It's Lay that drives the policy," said Craig McDonald, director of Texans= =20 for Public Justice, which tracks political spending in that state.=20 Enron spokesman Mark Palmer dismissed such talk as "outrageous."=20 "The Cheney task force met with dozens of trade groups, industry=20 representatives, politicians, regulators," Palmer said.=20 But in recent weeks, even the normally cautious Davis has highlighted the= =20 Texas ties of the energy companies that have profited from California's=20 travails, saying at one point that the Bush administration was allowing the= =20 companies "to get away with murder."=20 The White House says such allegations are just overheated rhetoric.=20 "That's goofy. It doesn't even merit a response," Cheney said when asked=20 about Davis' comments. "The president and I are making decisions and policy= =20 based on what we think makes sense for the country."=20 Republicans fiddle while Californians burn=20 By Bill Ainsworth=20 UNION-TRIBUNE STAFF WRITER=20 May 27, 2001=20 CALIFORNIA'S POWER CRISIS=20 SACRAMENTO -- Once upon a time, California Republicans faced a Democratic= =20 governor with ratings in the stratosphere, a Legislature dominated by his= =20 party and no popular issues to help improve their lowly status.=20 Then the energy crisis hit. As power prices jumped, blackouts hit and the= =20 governor hesitated, the formerly unbeatable candidate and his party suddenl= y=20 seemed vulnerable.=20 Yet California Republicans are having trouble taking advantage of this=20 seemingly golden political opportunity. As Davis struggles to extricate=20 himself from the energy quagmire, GOP leaders are also flailing about, mire= d=20 in contradiction, indecision and debate.=20 Although most Californians blame the power generators for the crisis, the= =20 Republicans' reflexive support of big business makes them unwilling to=20 criticize the out-of-state "entrepreneurs." Meanwhile, the party's lack of = a=20 strong leader or well-known gubernatorial candidate means that it doesn't= =20 have a loud voice in the Capitol.=20 Republican consultant Dan Schnur, whose former boss, Gov. Pete Wilson, thru= st=20 deregulation upon the state, said Republican leaders made a mistake by not= =20 offering an alternative plan once the crisis hit.=20 "Keeping their heads down did nothing but leave the playing field open to= =20 Gray Davis," he said.=20 Republicans have recently sketched out some proposals, but these appear=20 contradictory and politically dangerous.=20 The party opposes Davis' creation of a state power authority, with some=20 blasting it as "socialism."=20 "America is built on a capitalist system -- not on socialization," said=20 Assembly Republican Leader Dave Cox, R-Fair Oaks. "Socialism has failed=20 throughout the rest of the world."=20 Yet Assembly Republicans want to make it easier for San Diego County to=20 create a publicly owned municipal utility district.=20 Cox said local power isn't socialism because its board members are elected.= =20 The board of the state authority is composed of appointed and elected=20 officials.=20 Assemblyman Mark Wyland, R-Escondido, who is pushing a San Diego utility=20 district, said he believes the difference is local control.=20 "People want to control their own energy destiny," he said. "They don't hav= e=20 any control over a statewide bureaucracy."=20 Davis chastised Republicans for putting ideology above pragmatism.=20 "They're very quick to say we need more supply, but when you have a measure= =20 that would lead to more supply, they quickly retreat to their ideological= =20 point of view and refuse to be problem solvers," he said.=20 Republicans also opposed the Democrats' plan to replenish the state treasur= y=20 for the money it has spent on buying power by floating a $13.4 billion bond= =20 that would be repaid by ratepayers. They claimed that the bond was so large= =20 it was fiscally irresponsible.=20 Yet the Assembly Republicans' alternative plan would have led to massive=20 budget cuts. They wanted the state to give away about $5 billion it had to= =20 spend to buy electricity on the spot market -- and that money would have be= en=20 a subsidy largely to business and large users of electricity.=20 Democrats passed the bond plan anyway, but the Republicans' opposition=20 delayed the sale until August. Davis charged the delay cost the state an=20 extra $50 million to $150 million in bond charges.=20 Republicans have also been hurt by their unwillingness to crack down on the= =20 mostly out-of-state generating companies and natural gas companies.=20 According to last week's nonpartisan Field Poll, the vast majority of=20 Californians believe that these companies are to blame for piling up enormo= us=20 profits at California's expense.=20 Davis and the Democratic leaders have proposed a windfall profits tax on=20 generators.=20 By contrast, Cox opposes the tax, worrying that it will hurt the business= =20 climate. Davis calls the power producers "price gougers," while Cox refers = to=20 them as "entrepreneurs trying to maximize profits."=20 A recent Assembly investigation into California's high natural gas prices= =20 highlighted the GOP's reluctance to criticize energy companies.=20 Assembly Democrats issued a report accusing a Texas natural gas company, El= =20 Paso Corp., of making a sweetheart deal with an affiliate that allowed it t= o=20 manipulate the natural gas market. That deal, the report charged, contribut= ed=20 to soaring prices for California consumers and astronomical profits for the= =20 company.=20 The key Republican committee member, Assemblyman John Campbell, R-Irvine,= =20 issued a dissenting report, attributing El Paso's profits to supply and=20 demand.=20 Assemblyman Juan Vargas, D-San Diego, said Republicans are backing the wron= g=20 side.=20 "They're siding with Texas oil interests and Texas gas interests and that's= =20 going to get them in trouble," he said.=20 Republicans may also suffer from association with President Bush, who is=20 visiting California this week. The Republican president's close ties to the= =20 oil industry and refusal to back wholesale electricity price caps have made= =20 him unpopular with California voters, said Bruce Cain, a UC Berkeley=20 political scientist whose view is backed by state polls.=20 Bill Jones, the only announced Republican candidate for governor, commended= =20 Bush's energy plan -- even without price caps.=20 Jones, secretary of state, released his plan so quietly some wondered wheth= er=20 he was trying to avoid publicity. Jones criticized Davis for "socializing t= he=20 delivery" of power and called on the state to help its utilities by loaning= =20 them money.=20 Despite their missteps, though, the Republicans still have time to develop = a=20 coherent alternative. The energy crisis isn't going away.=20 "Most voters understand that the Democratic plan hasn't worked," said Schnu= r,=20 "but at some point they'll want to see an alternative. The Republicans are= =20 starting to do that."=20 Republicans can claim credit for urging Davis to act more quickly. Last=20 summer when the price spikes hit San Diego and threatened to spread, they= =20 asked the governor to call a special session. He ignored their pleas.=20 And Republicans voted against the January measure that got the state into t= he=20 power buying business, a move that Democrats said was required to keep the= =20 lights on, but now threatens the state's fiscal health.=20 Still, if the generators remain unpopular, the GOP could suffer.=20 "The Republicans have an inability to distinguish between market manipulati= on=20 and a well-functioning market," said Cain. "The perception that the party i= s=20 tied to the big energy companies isn't helpful."=20 ANALYSIS Energy executive seeks state GOP support=20 Politicians, celebs at secret meeting ASSOCIATED PRESS=20 May 27, 2001=20 SAN FRANCISCO -- In a move to garner support from prominent California=20 Republicans, a Texas energy executive attended a secret meeting to push for= =20 the preservation of the state's deregulated power market, a newspaper=20 reported yesterday.=20 Houston-based Enron Corp. Chairman Kenneth Lay met with well-known=20 Republicans, including movie star Arnold Schwarzenegger, Los Angeles Mayor= =20 Richard Riordan and Michael Milken, who pleaded guilty to fraud charges in= =20 1990 as head of the Drexel Burnham Lambert investment banking firm, the San= =20 Francisco Chronicle reported. The 90-minute private meeting took place May = 11=20 at a Beverly Hills hotel.=20 Schwarzenegger and Riordan have both been courted as Republican candidates= =20 for California governor.=20 Enron distributed a four-page plan at the meeting calling for ratepayers to= =20 cover the billions in debt racked up by the state's public utilities and=20 contending that state and federal investigations of price gouging are=20 hindering the situation, the Chronicle reported after obtaining a copy of t= he=20 paper.=20 "Southern California Edison is very close to bankruptcy, and no one around= =20 the table wanted that to happen," Enron spokeswoman Karen Denne said=20 yesterday. "There was considerable frustration that a solution is not being= =20 advanced at the legislative level."=20 But Gov. Gray Davis' spokesman Steve Maviglio called the paper a "generator= 's=20 wish list," saying it goes against the governor's policy on the energy=20 crisis.=20 "The governor is not calling off the dogs," Maviglio said yesterday. "To=20 suggest that ratepayers should shoulder the entire burden of deregulation i= s=20 totally the opposite of what the governor is calling for."=20 Lay and Davis have disagreed about how California's power crisis should be= =20 handled, and Lay says his company is being used as a scapegoat.=20 The meeting was hosted by Kevin Sharer of biotech giant Amgen. About a doze= n=20 people attended, including chief executives Ray Irani of Occidental Petrole= um=20 and Bruce Karatz of home builder Kaufman & Broad, Denne said.=20 Lay, who is a friend of President Bush and one of his largest campaign=20 contributors, has built the world's largest energy-trading company by buyin= g=20 electricity from generators and selling it to consumers. During the first= =20 quarter of this year, Enron's revenue increased 281 percent to $50.1 billio= n.=20 State demands FERC close loopholes=20 By Jennifer Coleman=20 ASSOCIATED PRESS=20 May 26, 2001=20 SACRAMENTO -- California made new demands for tough federal electricity pri= ce=20 caps yesterday and singled out two generators that it said should roll back= =20 rates immediately.=20 The filings by several state agencies were in response to a Federal Energy= =20 Regulatory Commission order last month that offered limited price controls = in=20 exchange for concessions on control of the state's power grid.=20 "FERC's pricing plan is laced with loopholes," Gov. Gray Davis said. "It's= =20 worse than too little, too late. It's simply a fig leaf that does nothing t= o=20 address the impact of the energy crisis on California and our nation."=20 The state's multiple filings also said that two generators, Williams and AE= S,=20 have profited excessively by exercising market power.=20 The Electricity Oversight Board, the Public Utilities Commission and the=20 Independent System Operator asked FERC to require the generators to use=20 cost-based rates, which limit company profits to a percentage above the cos= ts=20 to produce power.=20 In order to escape charging cost-based rates, generators must prove to FERC= =20 that they don't have market power -- the ability to charge whatever price= =20 they want without consequence.=20 The ISO, keeper of the state's power grid, said the two companies have=20 exhibited that they have market power and the ability to charge market-base= d=20 rates should be revoked.=20 Aaron Thomas, spokesman for the Arlington, Va.-based AES, said the company= =20 has applied to have its ability to charge market-based rates renewed, and= =20 expects FERC to approve that request.=20 "The governor, for six months now, has been calling for a form of cost-base= d=20 rates from FERC, so I don't think anything has changed," said Thomas.=20 Earlier this month, Tulsa-based Williams agreed to pay $8 million to settle= =20 charges with FERC that the company was purposely withholding electricity fr= om=20 California's power market. The company admitted no wrongdoing, and official= s=20 said a full hearing would have cleared the company.=20 ISO attorney Charles Robinson said the agency is also considering similar= =20 requests for revocation of the market-power authority of three other=20 generators -- Duke Energy, Reliant and Mirant.=20 Sen. Joe Dunn, D-Garden Grove, chairman of the Senate subcommittee=20 investigating the electricity wholesale market, said FERC has never adopted= a=20 definition of market power, leaving open the question of how they can=20 determine if the generators don't have it.=20 "That calls into question whether FERC must revoke market-based rate=20 authority retroactively," Dunn said. "That may require a reimbursement of t= he=20 difference between what would have been cost-based rates and what they've= =20 been charging."=20 The FERC order in April establishes some price controls when the state's=20 power reserves drop below 7.5 percent. That is scheduled to take effect=20 Tuesday, unless the FERC orders otherwise over the holiday weekend, Robinso= n=20 said.=20 The state Assembly, in documents to be filed Tuesday, said those price=20 controls should cover all hours -- not just during power emergencies. The= =20 Assembly's filing calls that order "arbitrary and capricious," and says the= =20 order does nothing to curtail unreasonable prices unless reserves drop.=20 Earlier ISO studies have estimated that California was overcharged more tha= n=20 $6 billion in the last year. FERC has ordered refunds for a fraction of tha= t=20 -- $125 million -- saying it can only examine prices for power sold during= =20 Stage 3 emergencies, when reserves drop to below 1.5 percent.=20 The Assembly's filing also will object to FERC's requirement that the state= =20 join a regional transmission organization in order to get price controls.= =20 Robinson, the ISO attorney, said the ISO would make a decision next week=20 whether to file a plan to join an RTO.=20 The state agencies also objected to a FERC plan to put a surcharge on energ= y=20 rates to pay money owed to generators.=20 Changes in Senate could offer state relief=20 By Finlay Lewis and Toby Eckert=20 COPLEY NEWS SERVICE=20 May 26, 2001=20 WASHINGTON -- After weeks of impasse, a plan to bring emergency relief to= =20 California's suffering electricity customers suddenly seems likely in the= =20 Senate because a sympathetic friend unexpectedly finds himself in a positio= n=20 to help.=20 This dramatic reversal of fortune will occur when Sen. Jeff Bingaman, D-N.M= .,=20 becomes chairman of the Senate Energy and Natural Resources Committee becau= se=20 of Vermont Sen. James Jeffords' defection from the GOP.=20 Bingaman is expected to take control of the committee next week when Jeffor= ds=20 officially becomes a political independent and throws control of the chambe= r=20 to the Democratic Party. Bingaman will replace Sen. Frank Murkowski,=20 R-Alaska, a strong ally of the energy industry.=20 Unlike Murkowski, Bingaman supports a bill championed by Sens. Dianne=20 Feinstein, D-Calif., and Gordon Smith, R-Ore., to impose temporary restrain= ts=20 on wholesale power sales in the West. The bill is likely to command a=20 majority if it comes to a vote in the committee.=20 The price caps still face fierce resistance in the House and at the other e= nd=20 of Pennsylvania Avenue, where President Bush, armed with a veto pen, and Vi= ce=20 President Dick Cheney steadfastly resist movement toward any form of price= =20 controls.=20 But because of a committee chairman's agenda-setting power, Bingaman's=20 ascension would dramatically shift the prospects of the Feinstein bill and= =20 other energy issues in the Senate.=20 Bush's proposal to open the Arctic National Wildlife Refuge to oil=20 exploration already faced difficulty, but now opponents will have easier=20 means to block it. And other environmentally contentious energy proposals= =20 could face tough scrutiny from Jeffords, who is expected to become chairman= =20 of the Senate's Environment and Public Works Committee.=20 Still, the president will have the power to enact the bulk of his energy=20 program because fewer than two dozen of his 105 proposals need congressiona= l=20 action.=20 But the shift in the Senate allows Democrats to advance their own plan. At= =20 the top of the list are temporary price controls.=20 "It's a priority for Sen. Bingaman," said Jude McCartin, a spokeswoman for= =20 the senator. "He would like to act quickly to meet the challenges."=20 "Bingaman is from a Western state, unlike Murkowski," said Ashley Brown,=20 executive director of an electricity-policy think tank at Harvard Universit= y.=20 "His geographic outlook is going to be different. He is also going to be=20 sensitive to Democratic senators from California. It's going to mean more t= o=20 him than it meant to Murkowski."=20 McCartin and aides to Feinstein were guardedly optimistic about the measure= 's=20 prospects should the bill reach the Senate floor, where its bipartisan=20 parentage will likely guarantee bipartisan backing.=20 That does not mean Feinstein's bill is home-free.=20 Bush and Cheney's opposition to price caps is rooted firmly in their belief= =20 that they would discourage investment in the energy industry, thereby=20 resulting in even shorter power supplies and more California blackouts.=20 In the House, a companion bill to the Feinstein-Smith measure is snarled in= =20 complex and inconclusive negotiations in the House Energy and Commerce=20 Committee, and the House Republican leadership would be poised to bury any= =20 measure that might make it to the floor in defiance of Bush's wishes.=20 But other factors may be bolstering prospects for action to ease the=20 California crisis.=20 McCartin pointed to the Senate's unanimous vote yesterday afternoon=20 confirming two Bush nominees to posts on the Federal Energy Regulatory=20 Commission as signaling a possibly more activist bureaucratic policy in=20 dealing with the state's problems.=20 The two new members of the nation's major regulatory authority over the pow= er=20 industry are Pat Wood III, the head of the Texas Utility Commission, and No= ra=20 Brownell, a Pennsylvania utility regulator.=20 Bush reportedly plans to replace FERC Chairman Curtis Hebert with Wood.=20 While observers say it is unlikely that Wood and Brownell would defy the=20 White House, they note that the appointees have indicated they might take a= =20 more expansive view than most current FERC commissioners to bring relief to= =20 California.=20 Once the Democrats take formal control of the Senate, probably about June 5= ,=20 there could be other actions affecting California's power problems.=20 Feinstein yesterday urged the likely chairman of the Senate Governmental=20 Affairs Committee, Sen. Joseph Lieberman, D-Conn., to investigate whether= =20 energy companies are improperly influencing the FERC.=20 She cited a report in yesterday's New York Times that Kenneth Lay, the head= =20 of Enron Corp., a Houston-based power marketing company, had offered to bac= k=20 Hebert in his effort to remain at the commission's helm if Hebert supported= =20 Enron's positions on electricity deregulation.=20 Enron outpaced all other energy companies last year in contributing to GOP= =20 campaigns, while Lay has personally been one of Bush's most generous=20 financial backers.=20 "Since FERC has refused to fulfill its legally mandated function under the= =20 Federal Power Act to restore 'just and reasonable' electricity rates, we ne= ed=20 to ask whether undue influence by the companies that FERC regulates has=20 resulted in its failure to act," Feinstein wrote in a letter to Lieberman.= =20 Senate passage of the Feinstein-Smith bill would send the measure to the=20 House, where some Republican House members from California face close=20 re-election races next year.=20 A Field Poll recently showed that 75 percent of state residents view the=20 electricity situation as "very serious" and that 59 percent say it was caus= ed=20 by energy companies seeking to increase profits.=20 Democratic strategists, citing those findings, say some California lawmaker= s=20 visiting their districts over the Memorial Day recess may come under pressu= re=20 to take strong action to restrain energy prices.=20 Natural gas CEO denies deal was improper=20 By Joe Cantlupe=20 COPLEY NEWS SERVICE=20 May 26, 2001=20 WASHINGTON -- The head of a Texas energy company that is accused of=20 wrongfully driving up California's natural gas prices told a federal=20 administrative law judge yesterday that he approved a deal between two=20 subsidiaries, but denied that it was an improper, sweetheart arrangement.= =20 William Wise, the chief executive officer of El Paso Corp., said the=20 Houston-based company has "stringent" rules that separate the operations of= =20 its pipeline subsidiary, El Paso Natural Gas, from its gas marketing=20 division, El Paso Merchant Energy.=20 "Functionally, that is the way they perform," said Wise of the corporate=20 subsidiaries. "They can be very autonomous from each other and the parent= =20 company."=20 Wise defended the corporation's practices in testimony before Curtis L.=20 Wagner, Federal Energy Regulatory Commission administrative law judge.=20 Wagner is examining allegations by California officials that El Paso and it= s=20 divisions entered into improper business practices before the deal was=20 struck. California officials charge that El Paso bolstered profits by=20 withholding natural gas capacity, costing the state about $3.7 billion. El= =20 Paso officials deny the allegations.=20 FERC's governing body has dismissed allegations of an improper relationship= =20 between the subsidiaries, but Wagner said he is still examining the issue= =20 before making recommendations to FERC.=20 Wise was hastily summoned to testify yesterday, a day after Wagner sharply= =20 criticized the credibility of another top El Paso Corp. executive about=20 Wise's involvement in discussions about the Merchant bid.=20 In his testimony, Wise said he gave the OK, on Valentine's Day 2000, to all= ow=20 Merchant Energy officials to bid on the natural gas capacity within the El= =20 Paso Natural Gas Co. pipeline. Wise said he was unaware of details about th= e=20 bid.=20 The El Paso Merchant Energy subsidiary eventually won the $38.5 million bid= =20 on the pipeline, which supplies about one-sixth of the natural gas that=20 California imports from throughout the Southwest. The company earned more= =20 than $180 million in profits.=20 If El Paso is found to have manipulated the power market, it could face=20 hundreds of millions of dollars in penalties.=20 Kern County Basks in Role as State's Blackout-Buster=20 Electricity: Six new plants will bolster its status as energy center.=20 By MITCHELL LANDSBERG, Times Staff Writer=20 ?????McKITTRICK, Calif.--You could think of this as California's own little= =20 slice of west Texas. ?????Here in the scruffy brown hills of western Kern County, oil rigs grow= =20 more easily than trees, pickups are more common than cars, and chicken frie= d=20 steak is the most popular dish at Mike and Annie's McKittrick Hotel. Tom Romesberg, general manager of La Paloma plant being built in Kern Count= y,=20 stands next to the unit's cooling tower. AL SEIB / Los Angeles Times ?????The hotel--which no longer offers lodging, just food and drink, and=20 plenty of it--is bustling these days with the roustabout energy of a Lone= =20 Star construction camp. Just down the road, a mammoth electrical power plan= t=20 is rising out of the sagebrush, its generators housed in four boxy building= s=20 the size of airplane hangars. ?????It is one of six new major gas-fired power plants expected to be built= =20 in Kern County over the next several years, an electrical construction boom= =20 unmatched anywhere in California. Kern, which already has a large surplus o= f=20 electricity, is cementing its place as California's energy capital, assumin= g=20 far more than its share of the burden in recharging the state's drained pow= er=20 supplies. ?????Over the next several years, the county will add nearly 5,000 megawatt= s=20 of power to the statewide grid. That is more than California now imports, o= n=20 average, from out-of-state suppliers. It's enough to supply about five=20 counties the size of Kern, which fills the dusty southern rim of the San=20 Joaquin Valley and has a population of 662,000. ?????In some parts of the state, a proposal to build a new power plant is a= =20 call to throw up the barricades. In recent months, intense community=20 opposition has forced developers to pull back proposals to build major plan= ts=20 in South Gate and San Jose, although Gov. Gray Davis has tried to revive=20 plans for the San Jose plant. ?????You don't hear a lot of not-in-my-backyard talk in Kern County. ?????"There should be power plants in everybody's backyard," said Paul Gipe= ,=20 chairman of the Kern chapter of the Sierra Club, which did not oppose any o= f=20 the new plants. "If people are concerned about having too many power plants= ,=20 they should think twice when they flip on the light switch." ?????New, natural gas-fired power plants, Gipe reasoned, are relatively cle= an=20 and will not add significantly to the county's serious air pollution=20 problems. Ideally, he said, they will allow the state to close some older,= =20 dirtier plants that cause considerably more environmental damage. ?????If environmentalists don't oppose the plants, it's not too much of a= =20 leap to guess that some people might be positively thrilled about them. ?????Just try, for instance, asking somebody in Taft, an oil center south o= f=20 McKittrick. "It's more money coming into Kern County--that's the way I look= =20 at it," said Pamela Dunlap, who runs a downtown thrift shop. ?????An Economy Rooted in the Oil Industry ?????She stood in the twilight outside her shop, on a street that embodies= =20 many of the most attractive attributes of small town Americana--with one=20 small difference. Where some towns might have statues of their founders or= =20 war heroes in prominent public places, Taft has erected small oil rigs and= =20 other pieces of drilling machinery, a reminder of its economic roots. ?????That Kern County has stepped up as California's blackout-buster is,=20 perhaps, not surprising. ?????To begin with, there's geography. Kern stands astride California's maj= or=20 north-south electrical transmission lines at precisely the spot at which th= ey=20 divide between the service areas of Pacific Gas & Electric, which serves=20 Northern California, and Southern California Edison. That spot can be=20 pinpointed as the Midway substation, a vast jungle of humming wires,=20 transformers and circuit breakers that lies a short distance west of=20 Interstate 5 in the town of Buttonwillow. ?????Already, massive new circuit-breakers--they look like Frankenstein=20 helmets sprouting 5-foot-long sparkplugs--are being erected at Midway to=20 handle the power from two major plants that will be revving up in the comin= g=20 months: PG&E National Energy's La Paloma plant, the one near McKittrick; an= d=20 Edison Mission Energy's Sunrise plant, just south of Taft. ?????The county is served by two major natural gas pipelines, which will be= =20 tapped to run the plants. In fact, Kern contains the state's largest known= =20 reservoirs of natural gas. ?????Another of Kern's geographic advantages? ?????"You look around, and you'll see there aren't a lot of people living= =20 around here," observed Stephen Whaley, who is overseeing construction of th= e=20 Sunrise plant. In the surrounding hills, an orchard of oil rigs bobbed in t= he=20 morning haze. Dirt roads cut crudely across the landscape, bisecting a=20 crisscross of steam pipes, fuel lines and electrical wires. ?????"This area is all about oil," Whaley said. Casting a glance at the=20 modular 560-megawatt plant rising behind him, he added with a wry smile, "Y= ou=20 know, I guess you could look at this from the road, and you could make the= =20 argument that it improves the looks." ?????The Sunrise plant, a relatively simple single-cycle plant, is expected= =20 to fire up 320 megawatts of its total output by Aug. 1, a scant nine months= =20 after construction began. The other plants--more complex and efficient=20 dual-cycle operations--will be opening over the next several years, assumin= g=20 all receive final approval. ?????The lack of major opposition to the plants is, of course, another reas= on=20 developers see Kern County as a good place to build. The county has long ha= d=20 a more intimate relationship with energy--oil, gas, electricity--than most= =20 places. To people here, the link between a natural gas well and a lightbulb= ,=20 or an oil derrick and a gas pedal, is neither theoretical nor especially=20 threatening. They're comfortable with energy. ?????Kern produces more crude oil than any other county in the United State= s=20 outside Alaska. Property taxes from oil companies have helped build handsom= e=20 new schools in Bakersfield, the county seat and largest city. The companies= '=20 big payrolls have helped populate elegant subdivisions with names that soun= d=20 vaguely Houstonian: Seven Oaks, River Oaks, Landmark Estates. ?????Which brings us to the Texas connection. ?????It's hard to overlook it, in a county that runs on oil and cotton and= =20 boasts a country music scene to rival Austin's. Conversations in the finer= =20 Bakersfield restaurants are filled with references to trips to Texas, of=20 colleagues in Midland and Odessa. A Bakersfield radio station was running a= =20 contest recently: The winners would be flown to a bull riding championship = in=20 Houston. ?????Until December 1999, American Airlines offered direct jet service=20 between Bakersfield and Dallas. It stopped after Occidental Petroleum moved= =20 its headquarters from Bakersfield to Houston. ?????This is a county where President Bush received more support in the=20 November election than he did in Texas, his home state. But then, Bush=20 already had a Bakersfield connection: He lived there briefly as a child whe= n=20 his father, former President George Bush, worked in the Kern oil fields. ?????"You look at the topography around Bakersfield, and the county's moral= s=20 and ethics--that predominantly conservative attitude that we have around=20 here--and you look at the oil, and you could be in Midland," said John Alle= n,=20 the general manager of Occidental of Elk Hills, which is developing a power= =20 plant in tandem with Sempra Energy of San Diego. ?????A lot of people in Kern County will tell you they don't mind being an= =20 energy farm for the state. It's a living, after all. ?????"It's good to be working at home," said Joe Ryan, a Bakersfield pipe= =20 welder who has spent years on the road seeking the heavy construction work= =20 that seemed to have vanished in his hometown. Now he's working at the La=20 Paloma plant, a 1,048-megawatt behemoth that will come online in phases=20 beginning in December. ?????About 800 people are at work on the plant, and several hundred more wi= ll=20 be employed in the coming months. And after that plant is done, there will = be=20 others to build. ?????"This is a good job here, I tell you what," said Ryan, 47, who has bee= n=20 banking his overtime on six 10-hour days a week--sometimes more. ?????County Sees Itself as 'Part of the Solution' ?????But there are some signs of simmering resentment, especially among=20 county leadership. After all, if every other county produced just half the= =20 electricity that Kern generates, California wouldn't have an energy crisis.= =20 And people in Kern County are getting hit with the same spring-loaded=20 electricity bills, the same rolling blackouts as everybody else. ?????"I think the people of California are either going to be part of the= =20 solution or part of the problem," said Assemblyman Roy Ashburn=20 (R-Bakersfield). "And in Kern County, we have a long history of being part = of=20 the solution, especially when it comes to energy issues." ?????Elsewhere in the state, Ashburn sees "a lot of arrogance--people who= =20 enjoy the benefits of a very high quality of life, enjoy the benefits of=20 electric power for jobs and for their personal life, but with an exclusivit= y=20 that it's someone else's problem to create that for them. We don't have tha= t=20 attitude in Kern County." Copyright 2001 Los Angeles Times=20 Plan to Rescue Edison Stalls=20 Power: Few lawmakers back Davis in the deal he reached with the utility.=20 Alternatives are being crafted, but legislators are wary of being blamed fo= r=20 new failures. Some see benefits in bankruptcy.=20 By MIGUEL BUSTILLO and CARL INGRAM, Times Staff Writers=20 ?????SACRAMENTO--Despite months of negotiations, Gov. Gray Davis' plan to= =20 save Southern California Edison, one of California's biggest utilities, is= =20 effectively dead in the state Legislature, leaders of both houses now agree= . ?????Not only has Davis failed to garner support for his more than $3-billi= on=20 plan to keep the utility out of bankruptcy--in part by having the state=20 purchase its transmission lines--but follow-up efforts by leading lawmakers= =20 to fashion an alternative are also falling flat. As a result, any alternati= ve=20 proposal to rescue Edison will probably have to be approved on a party-line= =20 vote by Democrats. ?????The reasons are complex, according to legislators working to close the= =20 Edison deal, but ultimately come down to simple politics, and are emblemati= c=20 of what has been a plodding, partisan response in the state Capitol to the= =20 energy crisis. ?????The stakes are high, because restoring Edison to financial health and= =20 requiring the utility to temporarily sell power at lower prices are linchpi= ns=20 of Davis' plan to get the state out of the business of buying electricity. ?????Nevertheless, leaders in the Legislature say Davis' approach has few= =20 backers. ?????"I don't think the governor's [plan] has support in either party in=20 either house," said Assembly Speaker Bob Hertzberg (D-Sherman Oaks). "The= =20 issue is whether we can come up with something else, and I think we can." ?????Senate leader John Burton (D-San Francisco), who has been critical of= =20 the deal Davis and Edison put together from the outset, said it is certainl= y=20 dead in the Legislature, but that a more far-reaching proposal may still=20 emerge. ?????"Hopefully, we will find a long-term solution" to the state's energy= =20 mess, Burton said. The Edison deal alone "is not going to solve anything. I= t=20 is not going to reduce rates, and it is not going to prevent blackouts." ?????Since January, California has authorized more than $7 billion in=20 taxpayer money to buy power for private utilities in order to avoid mass=20 blackouts. It is a perilous fiscal situation that has drained the state=20 budget and led to downgrades of the state's credit rating on Wall Street. ?????Lawmakers are wary of making an even greater blunder than they did in= =20 1996, when they unanimously approved what is now widely considered to be a= =20 botched scheme to deregulate electricity in California. In both the Assembl= y=20 and Senate, most Democrats and Republicans are convinced there is no way fo= r=20 them to save Edison without appearing to sanction a huge bailout similar to= =20 the federal government's rescue of Chrysler in 1980--one with less financia= l=20 reward for the state. ?????As a result, they all want to get something of value in return from=20 Edison--high-voltage transmission lines, hydroelectric power plants or=20 guarantees that the utility will boost energy supplies--but are sharply spl= it=20 on what is best. ?????A core element of all Edison rescue programs being considered is a=20 proposal to use a chunk of customers' monthly electric bills to repay the= =20 utility's huge debt, a solution many election-conscious legislators find as= =20 appetizing as a suicide pill. ?????Consumer Activists Threaten Initiative ?????The deal only requires a majority vote, but without two-thirds approva= l=20 it would be wide open to an initiative challenge--a prospect that frightens= =20 politicians. Consumer activists have already threatened to strike back with= a=20 referendum next year, when Davis and lawmakers will be seeking reelection. ?????Democrats, who hold majorities in both houses, cannot agree on how to= =20 save Edison--or whether it is even proper for government to do so. Some hav= e=20 grown convinced that California would be better off letting Edison follow= =20 Pacific Gas & Electric Co. into U.S. Bankruptcy Court. Indeed, after PG&E= =20 filed for protection from creditors in Bankruptcy Court last month, and=20 massive blackouts failed to materialize, legislative momentum to save Ediso= n=20 from a similar fate all but vanished. ?????"The urgency of doing anything on behalf of Edison is gone," said Sen.= =20 Don Perata (D-Alameda). ?????Meanwhile, Democratic efforts to forge a bipartisan solution with=20 Republicans have unraveled, and GOP lawmakers are now advancing their own= =20 plan. Legislative leaders realized early on that liberals and conservatives= =20 were unlikely to ever agree on details of a deal, so some Democrats and=20 Republicans attempted to form a centrist coalition. But the parties have=20 become increasingly distrustful of each other as the climate in Sacramento= =20 over who is to blame for California's power problems grows ever more partis= an. ?????Sensing they were being frozen out of negotiations, Assembly Republica= ns=20 rolled out a rival proposal last week that was focused on increasing power= =20 supplies in exchange for the rescue. Assembly Republican leader Dave Cox=20 (R-Fair Oaks) said he had hoped to pursue a bipartisan solution, but,=20 "Regrettably, it appears that [the Legislature] is not moving in that=20 direction now." ?????The Republicans' decision surprised and angered members of the "Plan B= =20 Group," a loose-knit cadre of Democratic lawmakers that has been working wi= th=20 Republicans to hash out an alternative to Davis' proposal. Members of the= =20 group say they are close to unveiling a complex counterproposal that could= =20 garner greater support, but now fear that they may have to seek approval on= a=20 party-line basis. ?????Despite the setbacks, Davis and many lawmakers still say some form of= =20 the Edison rescue plan will clear the Senate and Assembly this summer. But= =20 since Davis announced he had reached a deal with Edison executives to save= =20 the utility in April, nothing has been accomplished in the Legislature to= =20 implement it. ?????The long delay is adding to the problem. Every day that passes increas= es=20 the likelihood that one of Edison's numerous creditors will drag the=20 debt-strapped utility into an involuntary bankruptcy. ?????The lack of progress also increases the chances that Edison, like PG&E= ,=20 will lose patience with politicians in Sacramento and take itself into=20 bankruptcy court. ?????Edison has ramped up its public relations efforts in recent weeks and= =20 has launched an aggressive multimedia campaign to pressure legislators into= =20 approving the deal, replete with firefighter testimonials on television and= =20 direct mail pitches to stockholders asking them to write their state=20 representatives. ?????The rescue deal Davis reached with Edison calls for the state to pay t= he=20 utility $2.76 billion for its network of high-voltage transmission lines. I= t=20 would allow the state to issue bonds to finance the purchase, and declares= =20 that Edison is to use the money to pare down its debt, estimated at $3.5=20 billion. ?????Most important, the deal would set aside a portion of ratepayers'=20 monthly utility bills to pay off Edison's "undercollections," huge debts th= e=20 utility incurred last year and early this year because it was not allowed b= y=20 the state to pass on to consumers the full cost of wholesale power. ?????In return, Edison would agree to sell the electricity it generates fro= m=20 its power plants at cost for the next decade, lowering the state's overall= =20 power-buying expenses. ?????From the minute it was announced, however, lawmakers from both parties= =20 have called Davis' deal overly generous and questioned the benefit to the= =20 public. ?????Republicans, who have opposed the takeover from the outset, are=20 supporting an alternative they call "Plan R." Like Davis' proposal, the=20 Assembly GOP plan allows Edison to recover debts by siphoning a portion of= =20 electric rates, but requires in to bolster power supplies in return. ?????"This whole electricity crisis is a supply-demand imbalance," said=20 Assemblyman Keith Richman (R-Northridge), one of the architects of the=20 Republican plan. "We need to get to a point where there is a supply surplus= ." ?????In addition, the GOP plan calls for the electricity generators owed=20 billions by Edison to "take a haircut," Capitol parlance for forgiving some= =20 of what they are owed. Davis and Burton have also called for the generators= =20 to accept a 30% reduction in outstanding payments, and the idea is part of= =20 the alternative Edison deal being pieced together by the Democrats' Plan B= =20 Group. ?????Assemblyman John Dutra (D-Fremont), one of the group's leaders, said i= ts=20 members have been meeting with consumer groups, Edison representatives and= =20 others, and believe they are close to satisfying the groups at odds over th= e=20 rescue plan. But because of lingering differences with Republicans, Dutra= =20 said they may have to try passing partisan legislation. ?????"This is not a situation where we should be playing a political game,"= =20 he said. "We have to find a solution, because the alternative for the state= =20 is social and economic chaos." ?????Assemblyman Bill Leonard (R-San Bernardino) said he was disappointed= =20 that what started out in January as a bipartisan effort to resolve energy= =20 issues had collapsed into a nasty partisan standoff. Leonard said he feared= =20 that the bipartisan spirit would not return. ?????"The reservoirs of goodwill are not full right now," Leonard said.=20 "We're in a goodwill drought." Copyright 2001 Los Angeles Times=20 WASHINGTON OUTLOOK Bush Could Boost Green Power With Buying Power=20 By RONALD BROWNSTEIN, Times Staff Writer=20 ?????Today, the south wall of the Energy Department's fortress-like=20 Washington headquarters is a fitting symbol for an agency that itself has= =20 never quite established an identity: a 32,100-square-foot blank slab of=20 concrete. ?????Shortly before leaving office, however, the Clinton administration=20 awarded a Chicago architectural firm a contract to explore converting the= =20 wall into something quite different: a vast solar array that would provide= =20 much of the building's heat and power. ?????The firm--Solomon Cordwell Buenz & Associates--has produced a=20 spectacular design of a graceful, canopy-like Sun Wall that utilizes both= =20 photovoltaic panels and hydronic systems, a liquid-filled vacuum tube that= =20 warms with the sun's rays and can heat the building in winter. Now the firm= =20 is working to estimate the cost of constructing its creation. "We think it= =20 would certainly draw attention to this whole new type of energy," says Mart= in=20 Wolf, one of the designers. "Which would be quite timely given where we are= =20 as a nation." ?????The Sun Wall stands as a riveting symbol of Washington's potential to= =20 advance the development of renewable energy through a tool that's received= =20 almost no attention in the energy debate: the purchasing power of the feder= al=20 government itself. Through all its departments and agencies, the federal=20 government spends about $8 billion a year on energy--probably more than any= =20 other single consumer in the world. That buying power gives the government= =20 enormous leverage to speed the growth of renewable energy sources such as= =20 solar, wind, geothermal and biomass. ?????Today, all of these renewable sources (leaving aside hydropower) provi= de=20 only 2% to 3% of the nation's electricity, mostly because they are too=20 expensive to compete with conventional sources. Renewables are in the same= =20 Catch-22 as many new technologies: Because they are too expensive, they=20 cannot attract the sales that their makers need to both generate economies = of=20 scale and invest in more advanced manufacturing techniques. ?????Government can break the logjam by providing a market that allows=20 renewable manufacturers to advance up the learning curve and lower the pric= e=20 of their technologies to a level that makes them commercially competitive. ?????Washington has done precisely this before, most important with a produ= ct=20 that has literally transformed modern life: the microchip at the heart of t= he=20 computer revolution. The first microchips were much too expensive to attrac= t=20 commercial customers, but in the early 1960s, both NASA (using the chips fo= r=20 the Apollo space program) and the Defense Department (embedding the chips i= n=20 nuclear weapons) provided a guaranteed market--buying the chips without=20 regard to cost. ?????As author T.R. Reid recounted in "The Chip," his history of the=20 microchip: "The government's willingness to buy chips in quantity at premiu= m=20 prices provided the money the semiconductor firms needed to hone their skil= ls=20 in designing and producing [the] circuits. . . . As experience taught ways = to=20 solve the most common production problems, the cost of making a chip began = to=20 fall." ?????Three years after the government first started buying, the cost fell f= ar=20 enough that the microchip attracted its first commercial customers. Its bee= n=20 a breakneck race to the future ever since. ?????An alliance of centrist House Democrats has sensibly proposed that=20 Washington do the same for renewables. Earlier this month, the House New=20 Democrat Coalition introduced legislation that would commit the federal=20 government to purchasing a fixed percentage of its power from renewable=20 sources; the bill also would provide grants and loans to encourage state=20 governments and nonprofit organizations to also buy green. "Today, you can'= t=20 generate the revenue to make these technologies more commercially viable,"= =20 says Rep. Adam Smith (D-Wash.), one of the bill's principal authors. "The w= ay=20 to get around that is to use the market power of the federal government to= =20 help create a market." ?????With little attention, former President Clinton already committed the= =20 federal government to that course. In 1999, he signed an executive order=20 mandating that Washington expand its use of renewable energy; later, his=20 administration set a goal of obtaining 2.5% of its electricity from renewab= le=20 sources by 2005, almost eight times more than today. Smith believes that go= al=20 is already too low, largely because renewables are becoming more competitiv= e=20 as conventional sources grow more expensive. ?????Even so, this initiative is already spurring new thinking. As part of= =20 the overall plan, the Clinton administration committed to installing 20,000= =20 solar systems on government facilities by 2010; by the time he left office,= =20 2,000 were already in place. ?????"It's out in the national parks, where instead of having to string pow= er=20 lines to remote buildings, they are putting up solar systems," says Dan=20 Reicher, the assistant secretary for energy efficiency and renewable energy= =20 under Clinton. "There are several thousand units of naval housing in Hawaii= =20 that are now using solar. They are being used at the Coast Guard Station in= =20 Boston, a post office in Nantucket." ?????Another dramatic project is underway in Nevada. Shortly before Clinton= =20 left office, his administration signed an agreement with a private consorti= um=20 to lease part of an old nuclear test site in the desert northwest of Las=20 Vegas as a giant wind power facility that would be the nation's second=20 largest. Eventually the site is expected to provide power for California an= d=20 Nevada and the Energy Department itself from 500 wind turbines. ?????President Bush hasn't tipped his hand entirely on leveraging governmen= t=20 buying power to boost renewables. Disturbingly, the national energy plan th= at=20 Bush released earlier this month says not a word about the use of governmen= t=20 procurement. But Jill Schroeder, an Energy Department spokeswoman, says the= =20 administration has indicated no intention to revoke the Clinton executive= =20 order--and the green power purchasing goal it includes. ?????As for the Sun Wall, Energy Department officials sound dubious--but th= ey=20 are reserving judgment until Wolf's firm completes its cost estimates. The= =20 cost could indeed be intimidating; even the Clinton team hadn't committed= =20 itself to construction. But such a strategic purchase can pay dividends for= =20 decades--a fact evident in the debt that everyone who uses a computer still= =20 owes to the critical investments NASA and the Defense Department made in=20 another technology 40 years ago. ---=20 ?????Ronald Brownstein's column appears every Monday.=20 Copyright 2001 Los Angeles Times=20 Suddenly, Dirty Old Coal Is the Fossil Fuel of the Future=20 Energy: The power crisis--and Bush's plan to deal with it--has lifted the= =20 mining lobby and the industry it promotes.=20 By GERALDINE BAUM, Times Staff Writer ?????WASHINGTON--The National Mining Assn. represents a fuel that many=20 Americans think went out with Charles Dickens. ?????Just last week, a California congressman's aide asked an association= =20 lobbyist wide-eyed: "Do we still use coal in this country?" ?????The answer is yes--and lots of it. More than half of America's=20 electricity is coal-fired, but polls show that most Americans don't know it= . ?????Considered the voice of coal in Washington, the mining association has= =20 been denigrated by critics as a venal hired gun for an industry that doesn'= t=20 give a whit about acid rain, global warming, black lung disease or slag hea= ps=20 that scar the land. The industry was under siege in the final years of the= =20 Clinton administration, when Washington launched an aggressive effort to ma= ke=20 owners of coal-fired power plants undertake expensive pollution control=20 improvements. ?????"It was like waking up every morning with a six-chamber gun pointed at= =20 your head, and each chamber contained a lethal bullet," said Thomas Altmeye= r,=20 the association's top lobbyist. ?????Suddenly, it's a new day for coal in America. That much became clear t= o=20 Altmeyer the other day as he found himself at the White House, where Vice= =20 President Dick Cheney personally briefed about 40 industry types on the Bus= h=20 administration's new energy plan. ?????"It was really nice to hear it from him," says Altmeyer.=20 ?????A lot has changed in the short time since George W. Bush beat Al Gore = in=20 West Virginia (and lots of other places), and California's power crisis=20 transformed dirty old coal into a fossil fuel of the future. ?????Now, when the mining association faxes position papers to the U.S.=20 Environmental Protection Agency, they are read. Now, when its lobbyists cal= l=20 over to the U.S. Interior Department with suggestions for job candidates,= =20 they talk with old friends occupying key positions. Now, those at the top= =20 don't need to be told that coal supplies more than half of America's=20 electricity: Bush comes from Texas, which uses more coal-fired power than a= ny=20 other state in the union; Cheney hails from Wyoming, the largest=20 coal-producing state. ?????When the Bush-Cheney team took over, mining association employees were= =20 invited to serve on transition teams. The White House had not had a new=20 occupant but two months before Bush reversed himself on carbon dioxide=20 emissions, deciding to forgo new rules on a gas that scientists say=20 contributes to global warming. Coal-fired power plants are a key source of= =20 the gas.=20 ?????Yet, like poor relatives who have finally been invited over for=20 Christmas dinner, the coal people are not quite comfortable with their=20 newfound popularity in Washington. When asked how it feels to go from class= =20 pariah to homecoming king, the best that Altmeyer and his boss, mining=20 association President Jack Gerard, can come up with is that they're, well .= .=20 . pleased. ?????But their friends know better: The chief of staff to a Southern=20 Republican senator said he saw the usually low-key, all-business Altmeyer a= t=20 an inaugural party in January. "He was downright elated," said the aide,=20 chuckling. ?????A coal-friendly Democratic senator slapped Altmeyer on the back at a= =20 fund-raiser recently and said, "Tom, I can't believe it, but we really have= =20 an opportunity to do something. All the liberal senators are running scared= =20 about this California energy crisis. Now they'll listen to us." The next da= y,=20 Altmeyer shipped him a list of suggestions to share with his liberal=20 colleagues. ?????"We're not going to waste this opportunity to educate people, no way,"= =20 says Altmeyer.=20 ?????The association's president, Gerard, 42, a native of Idaho and a forme= r=20 consultant to the mining industry, is not ready to celebrate. He is new at= =20 his job: He took over the NMA shortly before Bush took over the White House= ,=20 but he has been around mining long enough to remember other times when the= =20 industry was left for dead but rebounded with an energy crisis. ?????And so, he says, he is merely "cautiously optimistic." ?????"You might sense some excitement in the industry," he allows, "that we= =20 have a White House that recognizes the facts." He then rattles off a bunch:= =20 The U.S. has enough reserves in the ground to burn coal at its current rate= =20 for 250 years; since implementation of the 1970 Clean Air Act, coal use for= =20 electricity has tripled while emissions have dropped 30%. ?????"We play an important role in society and the White House knows it,"= =20 Gerard says. "Does that make us gleeful? Not necessarily." ?????Perhaps it's because coal is still a hard sell to many people.=20 ?????Gerard is the speaker at a conference of 400 scientists interested in= =20 "carbon sequestration," a theoretical solution to coal's contribution to=20 global warming. But he spends about half of his time attacking=20 environmentalists and saying things like, "California represents a failed= =20 experiment in energy policy." ?????When a professor takes issue with his combative "tone," Gerard smiles= =20 pleasantly. He is not fazed. On the cab ride back to his office, he explain= s,=20 "Look, the professor is looking for a technical paper. That's not what we d= o.=20 I'm trying to talk about what is at stake and the future." ?????In recent years, the NMA has tried to refashion its industry's dark=20 legacy and image. It spent less time calling scientific evidence against co= al=20 "bunk" and more time on the bandwagon to clean up three of the four main=20 pollutants caused by its use. And now coal-related businesses are trying to= =20 act like winners. Besides backing Bush's $2-billion plan for more "clean=20 coal" technology, they're spending $10 million of their own money on a=20 campaign to buff up their image.=20 ?????More than image-building, however, the real work of the mining=20 association these days is in the massive Capitol building and House and=20 Senate offices. There is where the administration's energy plan will be=20 fashioned into action; there is where the president's budget will buy the= =20 coal industry time to develop new anti-pollution technology; there is where= =20 they can get government to ease up. ?????Altmeyer is a tall, strapping fellow. But, although he was born in Wes= t=20 Virginia, he wasn't born to its coal. His father was an undertaker. ?????After earning degrees in law and business, Altmeyer went to work for t= he=20 late Democratic Sen. Jennings Randolph of West Virginia, and he got to know= =20 "lots of coal miners who were proud of what they're doing," he says.=20 ?????In the mid-1980s, he went with a trade association that evolved into t= he=20 NMA. He has spent most of his career shepherding companies through=20 anti-pollution legislation. ?????He can't quite abide the way coal is treated like a "black hat" in the= =20 media--even now. "You don't see banner headlines, 'U.S. has record coal=20 production in the year 2000, and we did it in a way much more environmental= ly=20 responsible.' " ?????Instead, he says, media reports emphasize renegade coal companies that= =20 break laws and exaggerated claims about climate change. ?????But coal has never been appealing to California, which uses very littl= e=20 coal-fired power because it's so dirty. California Resources Secretary Mary= =20 Nichols does not buy the coal lobby's Rodney Dangerfield act. ?????"They don't get no respect?" mocks Nichols, who ran the EPA's air and= =20 radiation department for President Clinton. "But they have over the years.= =20 We've spent billions trying to clean up coal. Nobody is suggesting we stop.= =20 But how much attention should it get as a fuel of the future? Not much,=20 because under any scenario, the cost of cleaning up carbon emissions and th= e=20 way it's mined is too high."=20 ?????Altmeyer is no fan of Nichols, either. It may be a new day, but the ol= d=20 battles remain fresh. ?????"It was like living in a banana republic with a dictator who made=20 arbitrary decisions," he says of the Clinton years. He won't even speculate= =20 what the industry would be facing if Gore had been elected president. "I=20 would have rather had Woody Allen in the White House." Copyright 2001 Los Angeles Times=20 Power Firm Chief Lists Solutions for Crisis=20 By KURT STREETER, Times Staff Writer ????? A Texas business executive whose company has profited enormously from= =20 California's energy crisis says California needs more deregulation, not les= s. ?????Kenneth Lay, the head of Houston-based Enron Corp., handed out a=20 four-page plan detailing his solution to California's energy crisis at a=20 meeting with Los Angeles Mayor Richard Riordan and other state business and= =20 political leaders at a Beverly Hills hotel May 17. ?????The report details several ways to solve California's energy crisis. ?????"Get deregulation right in California," it reads. "California never=20 deregulated. . . . There is more regulation than ever."=20 ?????Among the document's other points are calls for consumers to pay the= =20 billions of dollars in debt the state's public utilities have incurred, and= =20 an assertion that federal investigations into price gouging by private firm= s=20 such as Enron are contributing to the problems.=20 ?????Lay also suggests increasing conservation efforts, partly through=20 pricing that would cost consumers more for using electricity during peak=20 times. ?????Reached for comment, Steve Maviglio, a spokesman for Gov. Gray Davis,= =20 called the paper a "generator's wish list," saying it goes against the=20 governor's policy on the energy crisis. ?????"The governor is not calling off the dogs," Maviglio said Saturday. "T= o=20 suggest that ratepayers should shoulder the entire burden of deregulation i= s=20 totally the opposite of what the governor is calling for." ?????Lay, one of President Bush's biggest campaign contributors and a key= =20 advisor on the Bush energy plan, has built a powerful energy company by=20 buying electricity from generators and then selling it. Enron reported=20 first-quarter revenue of $50.1 billion, nearly a 281% increase over the sam= e=20 quarter last year.=20 ?????Lay met with Riordan and luminaries including actor Arnold=20 Schwarzenegger and financier Michael Milken--plus about a dozen others--at= =20 the Peninsula Hotel. ?????Enron spokesman Mark Palmer said: "Our position is simple." California= =20 needs to "increase the supply of energy and decrease the demand." --- ?????Associated Press contributed to this story.=20 Copyright 2001 Los Angeles Times=20 State Renews Demand for Power Price Relief=20 Energy: Officials ask FERC to reconsider ruling. Cheney reiterates oppositi= on=20 to caps.=20 By NANCY VOGEL and DAN MORAIN, Times Staff Writers ?????SACRAMENTO--California officials launched a full-scale formal effort= =20 Friday to persuade the federal government to act more forcefully to push do= wn=20 wholesale electricity prices, saying that existing plans have "utterly=20 failed." ?????At the same time, Vice President Dick Cheney strongly reiterated the= =20 Bush administration's opposition to any price caps. Price controls are "a= =20 mistake," he told a Washington audience. "It's not a solution; it's adding = to=20 the problem," he said. "There isn't anything that can be done short term to= =20 produce more kilowatts this summer." ?????State officials have repeatedly demanded price controls, only to be=20 rebuffed, and Cheney's remarks illustrate the depth of the administration's= =20 opposition to the idea. ?????But the politics of the energy crisis have changed since the last time= =20 the Federal Energy Regulatory Commission rejected broad price caps. The=20 Senate is about to move from Republican to Democratic control, giving=20 opponents of the administration's energy policies a much more potent=20 platform; the Senate has confirmed two new members to the five-member FERC;= =20 and the existing members of the commission have shown doubts about whether= =20 deregulation of energy prices is working. ?????Gov. Gray Davis described the state's actions--detailed in a set of=20 filings delivered Friday to FERC--as a "full frontal attack" on what he ter= ms=20 the commission's industry-friendly policies. ?????"This agency has failed its duties miserably," he said. "It's time for= =20 FERC to wake [up] and take action on a crisis that threatens our nation's= =20 economy." ?????With the governor's backing, the California Public Utilities Commissio= n,=20 California Independent System Operator and Electricity Oversight Board said= =20 FERC's actions to date have failed "to extinguish the fire that is rapidly= =20 consuming California's economy." They petitioned the commission to reconsid= er=20 its April 25 order to limit prices during power shortages in California. ?????A second petition asks the federal government to revoke the rights of= =20 Oklahoma-based Williams Cos. and Virginia-based AES Corp. to sell electrici= ty=20 at whatever price the market will bear. ?????The companies' right to do so was granted by FERC three years ago, whe= n=20 California opened its $28-billion electricity industry to competition, but= =20 that right has come up for renewal. State officials said they will similarl= y=20 challenge other power sellers, arguing that it is illegal for FERC to allow= =20 the companies to sell at whatever price the market will bear when the marke= t=20 is obviously broken. ?????The state's filings and the evidence about wholesale prices they conta= in=20 are sure to be fodder for Davis' scheduled meeting Tuesday with President= =20 Bush in Los Angeles. ?????California's petitions also come the day that Bush won Senate=20 confirmation of his two appointees to FERC. With the current members split = 2=20 to 1 on last month's FERC order, the new commissioners--Pat Wood III of Tex= as=20 and Nora Mead Brownell of Pennsylvania--would cast the deciding votes on=20 California's request for a rehearing. In their confirmation hearings, both= =20 Wood and Brownell expressed support for more aggressive federal efforts to= =20 protect California consumers. ?????Since last June, after prices began to soar in California's partly=20 deregulated electricity market, Davis has beseeched the federal agency to= =20 take swift action, including imposing price caps. The agency is charged by= =20 federal law with ensuring that prices for wholesale electricity are just an= d=20 reasonable. ?????But its commissioners have declined to cap prices across the West's=20 interconnected electrical transmission system. Instead, they have attempted= =20 to stabilize wholesale power costs through its April 25 order that would=20 limit how much power sellers can earn whenever California's reserves have= =20 slipped to 7% or less, which triggers what is known as a Stage 1 emergency. ?????But some economists have concluded that California's market is so flaw= ed=20 that sellers are able to boost prices even when electricity demand is not= =20 particularly high, such as at night or on weekends. ?????State officials have also faulted the federal plan for exempting=20 marketers--companies that trade electricity but do not generate it--from th= e=20 limited price caps. Such a loophole, they say, would allow power producers = to=20 escape the caps by making arrangements with marketers--a process called=20 "megawatt laundering." ?????"FERC's pricing plan is laced with loopholes," Davis said in a written= =20 statement. "It's simply a fig leaf that does nothing to address the impact = of=20 the energy crisis on California and our nation." ?????The state's filings homed in on wholesale electricity prices charged i= n=20 April, when electricity usage was down compared with that of a year earlier= .=20 Prices averaged $370 per megawatt-hour last month, significantly higher tha= n=20 those of January and February. (That's enough to supply 750 typical homes f= or=20 an hour.) ?????Officials with the California Independent System Operator, which manag= es=20 three-quarters of the state's electricity transmission grid, said they=20 measured greater manipulation of prices by power sellers in April than in a= ny=20 month since June 2000. ?????In 1999, the first full year of deregulation in California, wholesale= =20 electricity prices averaged $31 per megawatt-hour. By February of this year= ,=20 the average price had risen more than 700%, to $258 per megawatt-hour,=20 according to the state's filings. ?????Such prices have contributed to extraordinary profits for some=20 companies, including Williams, the state noted in its filings. ?????Williams reported first-quarter profit of $484 million in 2001, compar= ed=20 with $77.8 million for the same period last year. ?????"Frankly," the state charges, "it does not and should not require=20 detailed analysis by economists to recognize that the phenomenal transfer o= f=20 wealth is the product of supplier exploitation of the current market=20 situation." ?????Williams, which markets electricity produced by AES, was ordered April= =20 30 by FERC to refund $8 million in connection with allegations that power= =20 plants in Huntington Beach and Long Beach were improperly shut down to crea= te=20 scarcity that would boost prices. ?????The state filing asks FERC to set the prices Williams and AES can char= ge=20 based on what it costs to produce the power. ?????Representatives of Williams could not be reached for comment late=20 Friday, but AES spokesman Aaron Thomas said that stripping companies of the= =20 right to sell at whatever price the market bears would result in tremendous= =20 upheaval in California's power market. ?????In Washington, at a U.S. Chamber of Commerce energy conference, Cheney= =20 suggested that California officials were largely to blame for the state's= =20 energy problems.=20 ?????"They didn't address it soon enough," he said, referring to the power= =20 shortages. "They knew a year ago they had problems; they postponed taking= =20 action because all of the action was potentially unpleasant--[it] would hav= e=20 involved price increases, and so forth. ?????"The net result is, though, having postponed action and delayed, we're= =20 now in a situation where the prices [consumers pay] have to go up anyway;= =20 where, in effect, you're going to have blackouts this summer because even a= s=20 we had this flawed regulatory scheme, we've had demand grow in California= =20 with the economy, but no increase in power because nobody built a new plant= =20 out there for 10 years.=20 ?????"Long term, the answer is build more power plants, and that's exactly= =20 what they're doing," Cheney added. "But they're not going to have enough ne= w=20 capacity online this summer to be able to avoid blackouts." ?????Soaring market prices since May 2000 have financially crippled Pacific= =20 Gas & Electric and Southern California Edison, the state's two biggest=20 electricity utilities, which were forbidden by the state's deregulation pla= n=20 to pass on their higher costs to customers. ?????By mid-January, the utilities were so close to bankruptcy that power= =20 sellers refused to deal with them for fear of not getting paid. The state= =20 stepped in to buy electricity on their behalf and has so far committed $7= =20 billion from the general fund for such spending. ?????Even if it can't persuade FERC to reconsider its plan, the state could= ,=20 in effect, kill it outright. ?????Implementation of the plan is contingent upon the state submitting by= =20 June 1 a plan for joining a so-called regional transmission organization.= =20 FERC has made it a top priority to make the country's electricity system wo= rk=20 more efficiently and smoothly by linking operations through such regional= =20 organizations. ?????State officials said Friday they will decide next week whether to subm= it=20 such a plan to FERC.=20 Copyright 2001 Los Angeles Times=20 El Paso CEO Admits Approving Subsidiaries' Natural Gas Deal=20 By RICARDO ALONSO-ZALDIVAR, Times Staff Writer ?????WASHINGTON--The chief executive of a Texas energy company testified=20 Friday that he approved a controversial deal between two subsidiaries that= =20 critics allege contributed to Southern California's soaring natural gas=20 prices. ?????However, El Paso Corp. Chief Executive William A. Wise said he did not= =20 decree that El Paso Merchant Energy Group, which sells natural gas, enter= =20 into the $38.5-million deal with El Paso Natural Gas Co., which owns a majo= r=20 pipeline system. He also said he was unfamiliar with the details of=20 Merchant's bid for about one-third of the pipeline system's capacity. ?????"What I don't do is micromanage," Wise said under questioning by Judge= =20 Curtis L. Wagner Jr. in a trial-like hearing before the Federal Energy=20 Regulatory Commission. "I agreed we should go forward and bid on this=20 capacity . . . but I didn't direct them to bid or not to bid for it." ?????Describing his role in a meeting at which the plan was presented to hi= m,=20 Wise said, "I had no part in preparing for the meeting--I just showed up." ?????Wagner will now have to determine if Wise's role violated FERC rules o= n=20 arm's-length relationships within the same corporate family, essentially=20 circumventing federal policies to prevent pipeline companies from exercisin= g=20 monopolistic power. ?????The California Public Utilities Commission has alleged that El Paso=20 Merchant took advantage of the contract to withhold space on the pipeline,= =20 creating an artificial shortage that led to a price spike that raised=20 California's total energy costs by an estimated $3.7 billion. ?????El Paso counters that high prices are due to increased demand from pow= er=20 plants that burn natural gas, unusual weather and other factors--not market= =20 manipulation. They dismiss the $3.7-billion estimate. ?????Separately Friday, the Senate unanimously confirmed President Bush's= =20 nominations of Patrick Wood III and Nora Brownell to fill two empty seats o= n=20 FERC's five-member governing board. Wood, who heads the Texas Public Utilit= y=20 Commission, is widely expected to be named the next FERC chairman. The new= =20 board members are expected to bring a more activist style to the agency,=20 which functions like a national utility commission. ?????Also Friday, FERC issued a late-afternoon order clarifying technical= =20 details of its plan to keep California electricity prices in check during= =20 power emergencies this summer. The order addresses such issues as how to=20 compute a price for natural gas. ?????The El Paso case represents the closest yet to a trial of allegations= =20 that energy companies are manipulating the California market. Wagner, who i= s=20 FERC's chief judge, will render an initial decision to the agency's governi= ng=20 board, which has the power to order the return of ill-gotten profits. ?????Attorneys for the plaintiffs said Wise's testimony was important becau= se=20 it suggests an effort by a single corporate entity to use its subsidiaries = in=20 an end-run around FERC's system of checks and balances against monopoly pow= er. ?????"It shows it was a coordinated strategy at the highest levels of El Pa= so=20 Corp.," said Frank Lindh, a lawyer representing Pacific Gas & Electric, whi= ch=20 is one of the plaintiffs. ?????During his cross-examination, Lindh sought to emphasize that, as a=20 former executive of the pipeline company, Wise was intimately familiar with= =20 the workings of the industry and with federal curbs on monopoly power. Copyright 2001 Los Angeles Times=20 Police Support 48-Hour Alerts for Blackouts=20 Crisis: Law enforcement officials downplay crime fears, saying notice of=20 power outages will make their jobs easier.=20 By MITCHELL LANDSBERG, Times Staff Writer ?????Earlier this year, when widespread blackouts first began to roll their= =20 way across California, electric utility officials explained why they couldn= 't=20 give the public more than a few minutes' warning before pulling the plug. ?????Advance notice, they explained, would give the upper hand to criminals= ,=20 who could plan their day around out-of-service burglar alarms. ?????That was then. ?????This is now: On Friday, law enforcement officials throughout Southern= =20 California hailed a decision by Gov. Gray Davis to create an early-warning= =20 system that would give the public increasingly specific alerts during the 4= 8=20 hours leading up to a blackout. ?????"It's a huge improvement," Los Angeles County Sheriff Lee Baca said at= a=20 news conference, where he was joined by senior officials of the California= =20 Highway Patrol and the Los Angeles Police Department, among other agencies.= =20 The governor announced his plan Thursday. ?????The governor's plan was also endorsed by 35 police chiefs from=20 throughout Los Angeles County. The chiefs held their annual meeting Friday = in=20 Palm Springs. ?????Since the blackouts began, "one of the No. 1 issues has been the lack = of=20 notification," said Pasadena Police Chief Bernard Melekian, who is presiden= t=20 of the county police chiefs association. ?????What gives? What has changed since January, when officials from Southe= rn=20 California Edison insisted that they couldn't give more than five or 10=20 minutes' warning? ?????Richard Rosenblum, a senior vice president for Edison, said the utilit= y=20 had canvassed law enforcement officials earlier this year. "The general vie= w=20 at that time--and it certainly was not unanimous--was that for public safet= y=20 reasons, it would be better not to release that information." ?????Since then, he said, "there's been a good deal more thinking . . . and= =20 that view has changed." ?????Melekian (whose city is served by its own utility, not Edison) said he= 'd=20 heard that explanation before. ?????"I remember, when they were saying that, I had trouble finding anybody= =20 who had been canvassed," he said. "I certainly wasn't. Somebody may have=20 been." ?????Were police worried about looting and burglaries in a blackout? ?????"We never were worried about that," Melekian said. With blackouts=20 lasting only about an hour in any one place and always occurring during=20 daylight, "we haven't seen any crime issues emerge and we don't anticipate= =20 any." ?????Baca said he did have concerns, but they were erased Monday, when Davi= s=20 led a delegation of California officials to Chicago, where they met with=20 Mayor Richard Daley and top public safety officials to compare notes on the= =20 threat of crime during blackouts. Chicago has a plan in place for dealing= =20 with electricity outages by determining in advance which intersections and= =20 other public places should receive the most attention. ?????The Chicago officials told the Californians that public safety isn't= =20 jeopardized as long as law enforcement officials send forces to critically= =20 affected areas, Baca said. ?????"All of us were extremely relieved that . . . our fears about crime=20 increasing by advance notice are just totally unfounded," the sheriff said. ?????Baca said his department would be developing a plan for deploying=20 deputies when blackouts strike. Other agencies said they were doing the sam= e. ?????"We may contact businesses such as banks and jewelry stores, or any ty= pe=20 of businesses that the criminal type may target," said Lt. Clyde Stuart of= =20 the Huntington Beach Police Department. ?????Ventura County Sheriff Bob Brooks said he had been dreading this=20 summer's looming blackouts, but the 48-hour warning will make his job easie= r.=20 During the past few rounds of rolling outages, Brooks said he was notified= =20 just a few minutes before the power was yanked. ?????"There really wasn't time to do anything except shut our computers=20 down," he said. ?????Earlier this month, he met with several other sheriffs throughout the= =20 state to talk about how to cope with the power outages. "That was our No. 1= =20 priority--being able to have adequate time to mobilize," he said. "It was a= =20 good move on the part of the governor." --- ?????Times staff writers Anna Gorman in Ventura and Thuy-Doan Le in Orange= =20 County contributed to this story. Copyright 2001 Los Angeles Times=20 Outdoor Lights Still Burning=20 Energy: Despite threat of fines, few retailers are following order to cut= =20 usage in off hours.=20 By SARAH HALE, Times Staff Writer ?????It was almost midnight on auto row in Glendale recently, and although= =20 the car lots had been closed for nearly three hours, the lights still burne= d=20 brightly at Glendale Dodge, Guy Schmidt Cadillac and other dealerships alon= g=20 Brand Boulevard. ?????California regulators ordered retailers March 15 to cut their outdoor= =20 lighting in half during off hours, but so far it appears there is widesprea= d=20 disregard or ignorance of the plan, retailers acknowledge. Many auto dealer= s,=20 grocery stores and restaurants still keep the lights burning after hours. ?????Although the state order threatens retailers with fines of as much as= =20 $1,000 for disregarding the measure, no citations have been issued, accordi= ng=20 to state officials tracking the program. Police say they are paying little= =20 attention to the issue. ?????Despite that, Sheryl Tankersley of the Governor's Office of Emergency= =20 Services said she believes the program is working--even though she concedes= =20 there are no energy-use figures or other statistics to prove it. She also= =20 acknowledged that the state is at the mercy of local police to enforce the= =20 measure, who say they are more interested in fighting violent crime than=20 conservation scofflaws. ?????"It is our belief that the program is working," Tankersley said. "We= =20 assume businesses are complying. However, without law enforcement assistanc= e,=20 the order is difficult to moderate." ?????The energy conservation order by Gov. Gray Davis applies to all=20 California businesses, regardless of location or whether they are served by= =20 municipal utilities with power to spare. ?????In interviews, many business owners, including one of the Glendale car= =20 dealers whose lights were on after closing time, said they are complying wi= th=20 the law. ?????"Someone must have forgot [to turn off the lights]," said Myron=20 Grombacher, general manager of Glendale Dodge. "Or maybe the cleaning crew= =20 turned on the lights." ?????Some retailers say they've killed lights to save on energy bills, not= =20 for fear of being fined. Others say they were unaware of the rule or haven'= t=20 complied due to security concerns. The order applies only to "unnecessary"= =20 lighting, exempting lighting needed to protect workers, the public or=20 property. ?????"We understand the importance of turning off the lights, but we can't= =20 afford to black out the lot," said Bill Jaros, with Guy Schmidt Cadillac.= =20 "Theft is a problem and that's just as costly." ?????Glendale isn't alone--bright lights can be seen after midnight at car= =20 dealerships throughout the area, including lots in Van Nuys and Thousand=20 Oaks. After-hours lights also were spotted this week at a Smart & Final in= =20 Venice, a lamp store in Studio City and a Goodyear Tires store in Westwood,= =20 where the manager said the lights stay on till 3 a.m. ?????"We are obligated to the corporate office to keep our lights on," said= =20 the tire store manager, who would not give his name. "We do what they tell= =20 us. I didn't even know a fine could be issued." ?????In San Francisco's Union Square, retailers and restaurants also keep= =20 their windows lit long after closing time, according to area merchants. ?????"If stores are cutting back, I haven't noticed. The heart of Union=20 Square looks the same. Everything is bright, everything is on," said Brando= n=20 Koehl, manager of the Williams-Sonoma housewares store near Union Square. ?????The light-reduction order, signed by Davis on Feb. 1, called on "all= =20 California retail establishments" to "substantially reduce maximum outdoor= =20 lighting capability during nonbusiness hours." In a directive one week late= r,=20 the governor's office defined substantial as a 50% reduction in electrical= =20 power consumed--allowing retailers to meet the rule by either turning off= =20 lights or cutting the wattage. ?????Law enforcement honchos, including Los Angeles County Sheriff Lee Baca= ,=20 promised to enforce the measure at a Feb. 1 news conference with Davis. Sin= ce=20 then, police have expressed confusion about the 50% rule and whether cities= =20 such as Glendale and Los Angeles that have been spared from blackouts must= =20 comply. ?????Los Angeles County Sheriff's Deputy David Cervantes said his agency is= =20 focused on street crime, not store lights. ?????"We aren't issuing citations," Cervantes said, although he said that= =20 deputies have issued a few warnings to businesses that appeared to be in=20 violation. ?????Glendale Police spokesman Sgt. Rick Young said the late-night bright= =20 lights at the Brand Boulevard car dealerships aren't his problem. "We don't= =20 believe this is a police matter," Young said. "What do police officers know= =20 about monitoring energy use?" ?????(This week, after calls to Glendale city officials and car dealers, mo= re=20 lights appeared to be off along Brand Boulevard after hours.) ?????Norman Williams of the state Technology, Trade and Commerce Agency,=20 which was asked by Davis to help implement the order, said he was=20 disappointed to learn that police departments have been reluctant to devote= =20 resources to the issue. ?????"We need them to help us," Williams said. ?????Richard Giss, a retail analyst with Deloitte & Touche in Los Angeles,= =20 said many store managers may be unaware of the rules or are unable to easil= y=20 curtail power usage. ?????"Most retailers aren't scofflaws," Giss said. "Some may face issues th= at=20 aren't apparent on the surface. . . . There isn't always a switch that turn= s=20 off all the lights. It's not that easy." ?????Bob Israel, co-owner of Hungry Al's Bar-B-Que in West Covina, said the= =20 $1,000 fine didn't scare him into trimming his energy use. His monthly $500= =20 to $600 utility bills were a bigger threat. Israel raised his food prices a= nd=20 began to limit employee hours, but the high energy costs still were too muc= h. ?????He said he can't afford to turn on the restaurant's air conditioning= =20 this summer, when he expects his bill to approach $1,000. And the illuminat= ed=20 sign in front of Hungry Al's now goes off at 11 p.m. instead of staying on= =20 all night. "We've always left our outdoor lights on. We want people to see= =20 us. It just wasn't feasible anymore. The governor has nothing to do with it= ." ?????The bottom line also influenced Edwards Cinemas' energy conservation= =20 efforts, which have been implemented at the company's 55 California locatio= ns=20 since last summer. Illuminated theater displays and marquees go off when th= e=20 last show begins, rather than when it ends, saving the company about two=20 hours of energy use. Kevin Frabotta, vice president of theater operations,= =20 said the company has focused on long-term methods as well, including=20 electrical rewiring and using of more cost-efficient bulbs. ?????"It's an expensive transition," he said. "But we'll save money in the= =20 long haul." ?????Other local businesses have used the governor's order as a marketing= =20 tool, pushing the sale of energy-efficient products such as motion detector= s,=20 ceiling fans, weather stripping and improved windows. Home Depot, which=20 unveiled a hefty conservation plan in January, said it is important for=20 customers to see conservation products in action. ?????After rolling blackouts started sweeping the state, sales and interest= =20 in these items increased, said Chuck Sifuentes, company spokesman. Home Dep= ot=20 added a special section to its catalog devoted to energy-related tips and= =20 merchandise. ?????"It's important to lead by example," Sifuentes said. "If we cut back,= =20 the customers will cut back. They'll want to buy our products." Copyright 2001 Los Angeles Times=20 Businesses Hopeful on Blackout Warnings=20 Power: But some leaders worry that early outage notification won't be=20 accurate.=20 By MARLA DICKERSON, Times Staff Writer ?????Frustrated at being left in the dark about rolling blackouts, Californ= ia=20 business leaders expressed optimism Friday that a proposed early warning=20 system will help minimize the economic damage of power outages on the state= 's=20 industries. ?????Gov. Gray Davis ordered state officials Thursday to begin warning=20 residents and businesses of likely power outages up to two days in advance= =20 when power supplies appear scarce. Given the fluid nature of the state's=20 electricity grid, which can see its supplies swing from abundant to=20 inadequate in a matter of minutes, some of those predictions could prove=20 about as useful as a weather report six months in advance. ?????But business advocates say any information is better than no informati= on=20 when it comes to avoiding outages. ?????"Businesspeople are accustomed to assessing risk," said Jack Stewart,= =20 president of the California Manufacturers and Technology Assn. "We need to= =20 give them the best available information, as far ahead as possible, and let= =20 them make their own decisions." ?????Under Davis' order, blackouts will be issued under a three-tiered syst= em=20 beginning with a forecast 48 hours in advance of a projected electricity=20 shortfall. ?????General geographic areas to be blacked out will be identified in=20 warnings issued 24 hours before likely outages. Precise locations will be= =20 announced an hour before the power is cut. ?????Details are still being worked out, but the idea is to use data such a= s=20 weather patterns and scheduled power plant shutdowns to make the longer-ran= ge=20 projections. Information about communities and specific block numbers to be= =20 interrupted will be provided closer to the projected outages, as real-time= =20 usage and supply information becomes available to the grid operator. ?????Plans call for notifying electricity customers through a variety of=20 means, including the news media, the California Independent System Operator= =20 (Cal-ISO), utility Web sites and a proactive system being developed by=20 Cal-ISO to phone, page, fax or e-mail individual power users. Agency=20 officials say they plan to implement the governor's order by June 15. ?????Business interests have been beating the drum for early warning since= =20 the first rolling blackouts walloped companies last summer. Though resident= s=20 might find it inconvenient to have their dishwashers turned off, a sudden= =20 outage can wreak havoc on a company if an assembly line freezes or a comput= er=20 system crashes. ?????The stakes are enormous. A Silicon Valley business group estimated tha= t=20 a single blackout last June resulted in losses of $100 million for that=20 region's companies because of forfeited sales, squandered productivity,=20 wasted wages and ruined products. ?????A study released this month by a California business consortium=20 estimated that a projected 30-plus days of summer blackouts could cost stat= e=20 businesses $21.8 billion, reduce household income by $4.5 billion and resul= t=20 in 135,000 lost jobs. ?????Julie Puentes, a spokeswoman for the Orange County Business Council,= =20 said the governor's plan is consistent with what businesses have been=20 demanding. "If they can do this, companies will be able to use the backup= =20 generation that they've paid hundreds of thousands of dollars for," she sai= d.=20 "They will be able to prevent chaos for their workers, and they'll be able = to=20 maintain their business operations, which benefits the California economy." ?????The president of Aluminum Precision Products in Santa Ana, which has= =20 four manufacturing plants in Orange County, was equally enthusiastic. ?????"You have no idea what help [the warnings] would be," Philip S. Keeler= =20 said. "In our particular case, because of the heavy equipment, this could b= e=20 the difference between life and death, and I'm very serious. It will help= =20 tremendously." ?????Others are skeptical. ?????James Swartwout, chief executive of Torrance-based Summa Industries,= =20 said he's not counting on the system to protect his molded plastics=20 manufacturing company. ?????"How can they say with certainty that a blackout will occur?" Swartwou= t=20 asked. "It's my understanding that they have no real way of knowing until t= he=20 very last minute. Eventually, we'll get two or three warnings a week. I can= 't=20 promise we won't start to ignore them." ?????Indeed, while early warning sounds good in theory, implementing it is= =20 another story. The utilities long resisted such a system because they often= =20 get only a few minutes' notice from Cal-ISO, which in turn often isn't able= =20 to project a shortfall with absolute certainty until it is almost upon them= . ?????One of the big concerns with early warning is that it simply won't be= =20 accurate. Cal-ISO board member Mike Florio, a consumer advocate, said he=20 worries about crying wolf. ?????"After the third or fourth or 10th time," Florio said, "people start t= o=20 say, 'They're always calling these things, and nothing ever happens.' " ?????But board member Carl Guardino, who also is head of the Silicon Valley= =20 Manufacturing Group, sees that as a strength rather than a weakness of the= =20 program. ?????He said early warning will prompt businesses to redouble their=20 conservation efforts, which could help stave off many of the projected=20 blackouts. ?????"That's not crying wolf; that's popping the champagne," Guardino said.= =20 "Preventing blackouts from happening in the first place is precisely what w= e=20 want." --- ?????Times staff writers Sarah Hale, Leslie Earnest and Nancy Vogel=20 contributed to this report. Copyright 2001 Los Angeles Times=20 Power Crisis Has Mileage for Bush=20 By ROBERT SCHEER ?????The Bush administration is pulling a fast one on energy, and we will a= ll=20 pay dearly for decades to come. By panicking the public with oil industry= =20 propaganda of an energy shortage, the Bushies are building support for the= =20 most reckless energy policy since the days before the environmentalist=20 movement, when blackened skies and lungs represented the vision of progress= .=20 ?????To make things worse, to head off objections to their plans to plunder= =20 virgin lands and obliterate conservation measures, they have thrown in as a= =20 palliative the old oxymoron of "clean" nuclear power.=20 ?????Of course there is nothing clean about nuclear waste, which can never = be=20 rendered safe.=20 ?????The public may temporarily accept new nuclear power plants, as long as= =20 one is not built anywhere near their neighborhood and the radioactive=20 byproduct is shipped to another part of the country.=20 ?????But trust me, while these things may be better designed today, the=20 insurance companies are no dummies for still refusing to insure nuclear pow= er=20 plants. It is wildly irresponsible for the Bush administration to now insis= t=20 that U.S. taxpayers underwrite these inherently dangerous ventures.=20 ?????Does anyone even remember Three Mile Island? Or, more disastrously,=20 Chernobyl? I was the first foreign print journalist admitted to the Chernob= yl=20 plant after the explosion. Even a year after the fact, and with the benefit= =20 of the best of Western scientific advice, it was still a scene of chaos.=20 Nuclear power is like that--unpredictable, unstable and ultimately as=20 dangerous as it gets.=20 ?????The entire Chernobyl operation is now buried in a concrete-covered=20 grave, but the huge area under the radioactive plume emitted from the plant= =20 is a permanent cancer breeding ground, as is the sediment in the area's mai= n=20 rivers and throughout much of its farm land. I traveled from Moscow to=20 Chernobyl by train in the company of top U.S. and Soviet experts, but even= =20 they seemed to feel lost and frightened as they donned white coats and Geig= er=20 counters to tour Chernobyl. Nuclear power is just too risky a gamble to pus= h=20 because of a phony energy crisis.=20 ?????The desperation in the White House is palpable, but it is not over an= =20 "energy crisis," which Bush's buddies and campaign contributors manipulated= =20 in the Western electricity market.=20 ?????No, the fear of the Bush people, even before Jim Jeffords' defection,= =20 was that their political power would be short-lived and that they had best= =20 move as fast as possible on their pet projects, beginning with increasing t= he=20 profits of GOP energy company contributors.=20 ?????Why else the panic? There is no sudden energy crisis. Known world=20 reserves of fossil fuel are greater than ever, alternative energy sources a= re=20 booming, and conservation measures work. If the Federal Energy Regulatory= =20 Commission would do its legally required duty of capping wholesale prices t= o=20 prevent gouging, there would not be an electricity crisis in California or= =20 elsewhere.=20 ?????The FERC has not done its job. Clearly, as the New York Times reported= =20 last week, energy wholesalers are in cahoots with the Bush administration t= o=20 use the FERC as their personal marketing tool to drive up their already=20 obscene profits.=20 ?????Finally, there is simply no reason to rape America in pursuit of=20 something called "energy self-sufficiency." If the vast reservoirs of natur= al=20 energy resources--resources that are sitting under land controlled by regim= es=20 around the world that we've propped up at enormous military cost for half a= =20 century--are not available to be sold to us at a fair price, why continue t= o=20 prop up these regimes? What did President Bush's Dad, with his buddies Dick= =20 Cheney and Colin Powell, achieve in preserving Saudi Arabia and Kuwait if= =20 those degenerate monarchs they saved in the Gulf War will not now trade=20 fairly in the one commodity of value that they hold?=20 ?????We must make our quid pro quo clear: We will pay for a huge military t= o=20 keep these sheikdoms and other energy-rich regimes in power only if they=20 guarantee fair oil and natural gas prices for our retail consumers.=20 ?????Make that deal and the energy "crisis" is history.=20 - - - Robert Scheer Writes a Syndicated Column Bush announcing low-income aid, but no price caps=20 SCOTT LINDLAW, Associated Press Writer Tuesday, May 29, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/29/n= ation al0755EDT0488.DTL=20 (05-29) 04:55 PDT LOS ANGELES (AP) --=20 President Bush traveled across the country to deliver news Gov. Gray Davis= =20 doesn't want to hear: He won't force down soaring electricity prices that= =20 have cost California nearly $8 billion since January.=20 The Republican president and the embattled Democratic governor arranged a= =20 20-meeting Tuesday to talk about California's energy crisis, but there was = no=20 indication they would break their stalemate.=20 Bush opposes price limits on wholesale electricity that utilities buy,=20 arguing they do nothing to address supply-and-demand issues at the heart of= =20 the crisis.=20 Davis contends federal energy regulators are ignoring their mandate to ensu= re=20 "just and fair" electricity prices.=20 With no sign of a break in the deadlock, each side maneuvered for maximum= =20 advantage from Bush's first full day in California as president.=20 Davis, in an interview Tuesday on ABC's "Good Morning America," defended hi= s=20 record on licensing more power plants.=20 "We've licensed 15 plants. Ten are under construction, four will be online= =20 this summer, four next summer, and by the end of 2003 we will have built ou= r=20 way out of this problem. But between now and then, we are getting gouged=20 unbelievably," Davis said.=20 The Bush administration timed positive energy announcements to coincide wit= h=20 the president's visit.=20 At the Marine Corps base at Camp Pendleton, Bush was announcing the expansi= on=20 of a program that provides federal money to help low-income residents pay f= or=20 power.=20 Bush was proposing $150 million, in addition to $300 million already budget= ed=20 for a component of the Low Income Home Energy Assistance Program, to provid= e=20 special help to cash-strapped residents of California and certain Midwest= =20 areas such as Chicago, a senior administration aide said.=20 Bush was also reminding state residents of his order that military faciliti= es=20 in the state cut peak-hour usage by 10 percent.=20 To alleviate an electricity bottleneck on a crucial south-north transmissio= n=20 path, the Department of Energy announced that the Western Area Power=20 Authority will try to raise money from a variety of private and public=20 entities to finance a crucial additional lines.=20 "The Bush administration is taking a leadership role in addressing a=20 long-neglected problem in California's electricity transmission system," sa= id=20 Energy Secretary Spencer Abraham. "California's electricity problems=20 developed over a period of years and cannot be solved overnight. However, w= e=20 can move now on actions that will help avert the same types of problems fro= m=20 recurring year after year."=20 Davis had a letter for Bush from top economists who maintain price caps are= =20 justified and necessary.=20 Aides to the governor expressed amazement that Bush would travel all the wa= y=20 to California with no major announcement in hand, and predicted Davis would= =20 respond with "polite rage."=20 Mindful of the national stage he commanded, Davis planned a news conference= =20 to air his grievances. And he convened a panel of families he said have bee= n=20 victimized by the energy crisis in the same hotel where Bush was staying.= =20 Davis wants Bush to pressure the Federal Energy Regulatory Commission to=20 impose stiff price caps.=20 Tuesday, limited caps ordered last month by FERC go into effect in=20 California, but only when electricity reserves fall below 7.5 percent in th= e=20 state -- a step Davis called inadequate.=20 Protesters planned demonstrations in Los Angeles and at Camp Pendleton, in= =20 San Diego County.=20 Bush also arranged a speech on energy and trade to the Los Angeles World=20 Affairs Council and planned to president over a closed-door energy=20 round-table discussion.=20 ,2001 Associated Press ?=20 Bush facing Davis' heat over energy=20 In first visit to state as president, he'll hear governor's plea for help= =20 Carla Marinucci, Lynda Gledhill, Chronicle Political Writers Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/M N205743.DTL=20 President Bush wasn't on California soil for more than five minutes yesterd= ay=20 when he was drawn into his first debate on the state's power crunch.=20 Rep. Brad Sherman, a Democrat from Thousand Oaks who met Air Force One on t= he=20 tarmac at Los Angeles International Airport along with a group of high scho= ol=20 students, wasted no time button-holing the president for what appeared to b= e=20 an animated conversation.=20 "I brought up . . . the idea that after his meeting with our governor, I=20 hoped he would be in favor of wholesale regulation (of energy prices),"=20 Sherman said later. "He disagreed with me."=20 Sherman -- who two weeks ago suggested that the headline to the president's= =20 national energy policy should be "Bush to California: Drop Dead" -- didn't= =20 seem optimistic yesterday about Bush's 48-hour visit to the state. "I think= =20 that the president's policies show either a lack of understanding of what's= =20 really going on in California, or a lack of concern," he said.=20 That vignette underscored some of the challenges facing Bush, who arrived i= n=20 California as protesters geared up and Democratic Gov. Gray Davis prepared = to=20 press him for federal action on the state's power troubles.=20 Besides Sherman, Bush was greeted by a crowd of cheering Republicans,=20 including Secretary of State Bill Jones and Los Angeles Mayor Richard=20 Riordan, the former a declared GOP candidate for governor in 2002, the latt= er=20 a rumored one.=20 But today, Bush will sit down with the present governor, who lately has bee= n=20 blistering in his criticism of the president.=20 "The last time I looked, California was still part of the United States of= =20 America," Davis told reporters this weekend. "We have contributed=20 disproportionately to the economic growth of this country. There's no reaso= n=20 why a president should not respond to a legitimate request from the chief= =20 executive of the largest state in the union."=20 In his first visit to California since just before the election, Bush plans= =20 to emphasize the energy crisis -- but will focus on it through the lens of= =20 his own energy plan.=20 ENERGY SECRETARY ACTS Just hours before the president landed, Energy Secretary Spencer Abraham=20 ordered a speedup in planning to relieve a notoriously overloaded electrici= ty=20 transmission line in California.=20 Abraham's holiday action was timed to provide a bit of positive news for Bu= sh=20 to announce in California. He ordered the Western Area Power Administration= ,=20 a 15-state marketing arm of the Energy Department, to complete planning and= =20 seek outside financing to reduce the transmission bottleneck on California'= s=20 Path 15, which connects the northern and southern parts of the state.=20 This morning, Bush will visit the Marine Corps base at Camp Pendleton, near= =20 San Diego, to underscore his conservation order for a 10 percent cut in=20 energy usage in federal buildings and military facilities.=20 In Los Angeles, he will deliver a wide-ranging talk before the World Affair= s=20 Council and lead a discussion among business leaders about technological=20 advances in energy conservation.=20 Then, he will head to Fresno and Sequoia National Park to press his=20 initiative to improve national parks. Along the way, protesters have vowed = to=20 provide a vocal commentary on Bush's energy and environmental policies.=20 But the real drama of the trip will no doubt be the sit-down between Bush a= nd=20 Davis today. The governor pushed for a lengthy, open meeting with Bush that= =20 would include testimony from officials and consumers affected by the energy= =20 crisis. Bush's camp announced Friday the meeting would be 20 to 30 minutes = --=20 in private.=20 Davis plans to outline steps the state has taken to alleviate the energy=20 crisis, and what it wants the federal government to do -- including=20 implementing price caps on the wholesale cost of energy, cost-based pricing= ,=20 and the possibility of ordering refunds.=20 DAVIS THREATENING SUIT The governor has said he will consider suing the Federal Energy Regulatory= =20 Commission -- the agency charged with overseeing energy prices -- if it doe= s=20 not impose temporary price caps.=20 And the state Legislature has already filed a suit, saying the commission h= as=20 failed to stop what it has determined are "unjust and unreasonable prices."= =20 With California's energy woes worsening and a summer of rolling blackouts= =20 predicted, the Bush-Davis session holds potentially deep political pitfalls= =20 for both leaders, both of whom are suffering in state polls as a result of= =20 their handling of the energy crisis.=20 Bush needs to demonstrate his concern for California, a state that gave a= =20 12-point margin of victory to Al Gore in the presidential election.=20 But even as Bush adviser Karen Hughes told state reporters this week that t= he=20 president had arrived to show he cares, Vice President Dick Cheney again=20 chastised state officials for delaying their response to the energy crisis= =20 "because all of the action was potentially unpleasant."=20 And Cheney signaled that the administration would resist long-term price=20 caps, saying, "We think that's a mistake."=20 Such talk drew fire from Davis' senior political adviser, Garry South, who= =20 charged that Cheney's words demonstrated insensitivity to California's=20 troubles and only underscored the perception of an "all-oil, all-the-time= =20 ticket."=20 Davis, whose campaign for re-election next year will depend on his handling= =20 of the crisis, has stepped up his criticism of Bush and profit-hungry energ= y=20 firms, particularly those from Texas, in recent weeks.=20 And yesterday, signaling no letup, Davis' supporters made an unusual holida= y=20 conference call to again press his case for federal action. They argued tha= t=20 without immediate intervention from the Bush administration, the economy of= =20 California -- and potentially the entire nation -- was at risk.=20 'THIS ENORMOUS SHOCK'=20 "We have this enormous shock in prices that needs to be addressed and not= =20 ignored," said Joseph Fichero, head of Sabre Partners and a consultant to= =20 Davis.=20 Alan Blinder, a Princeton economist and former vice chairman of the Federal= =20 Reserve, warned that energy woes in California alone would "take almost a= =20 half a percent of the gross domestic product off of the national economy."= =20 Blinder and others argue that short-term relief -- for about 6 to 12 months= =20 -- is necessary while new power plants are being built.=20 "Most times and most places, I agree price caps are not the long-run=20 solution, but they can be part of a short-term solution," Blinder said.=20 "There really is a case for temporary price caps to shield consumers and th= e=20 California and national economy from the full force of the energy shock."= =20 Limited new price caps approved by the Federal Energy Regulatory Commission= =20 on the sale of wholesale electricity begin today in California. But the=20 temporary caps, which go into effect when the electricity reserves dip belo= w=20 7. 5 percent, have been lambasted by Davis as ineffective and inadequate.= =20 Political analysts say Bush's resistence on the issue could cost him in=20 California -- and elsewhere.=20 "(California) is probably an area where he is criticized more than any othe= r=20 region in the country," said Mark DiCamillo, director of the statewide Fiel= d=20 Poll. "Californians are looking to Bush for some relief -- and to the exten= t=20 they don't get it, Bush may be in some jeopardy here."=20 Chronicle news services contributed to this report. / E-mail the writers at= =20 cmarinucci@sfchronicle.com and lgledhill@sfchronicle.com.=20 ,2001 San Francisco Chronicle ? Page?A - 1=20 Bush's first visit not so welcome=20 Medea Benjamin Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/E D10936.DTL=20 THIS WEEK, President Bush is making his first visit to California at a time= =20 when consumers have been socked with hefty electric rate increases, and $70= =20 million is being drained from our state budget each day as we buy wholesale= =20 energy at outrageous prices.=20 If Bush were serious about helping Californians, he would immediately tell= =20 the Federal Energy Regulatory Commission, FERC, to do its job. FERC's legal= =20 mandate is to ensure that wholesale electricity prices are "just and=20 reasonable." But current wholesale prices are not just and reasonable, and= =20 they are completely divorced from costs.=20 FERC has been ideologically fixated on the free market while ignoring the= =20 reality that companies controlling California's energy supply are=20 manipulating the market to make obscenely high profits at our expense.=20 During the past several months, the news media have unveiled how generators= =20 are turning power plants on and off as often as several times an hour; taki= ng=20 plants off line for "unscheduled maintenance," and simply refusing to sell= =20 California power. Investigators have determined that these energy companies= =20 have deliberately gouged consumers to the tune of billions of dollars.=20 State Senate figures show that profits of these energy companies rose more= =20 500 percent between 1999 and 2000.=20 If President Bush wanted FERC to control wholesale prices through a system = of=20 cost-plus pricing, it would happen overnight.=20 When it comes to long-term solutions, Bush's energy policy dangerously=20 promotes a continued reliance on polluting fossil fuels and a resurgence of= =20 unsafe nuclear energy. Bush pays lip service to smart, sustainable solution= s=20 such as solar, wind and other sources of renewable energy, and to energy=20 savings derived from conservation and improved efficiency.=20 Technologies proven to be dirty, dangerous and expensive will get the lion'= s=20 share of taxpayer subsidies, while the 2002 federal budget slashes funding= =20 for solar research by more than 50 percent, with major cuts in funding for= =20 geothermal, hydrogen and biomass technology, and fuel cell research.=20 If the Bush administration were to make sustainable energy sources a=20 priority, technologies such as wind, solar and some types of biomass could= =20 solve our long-term energy needs. While such a policy is anathema to oil,= =20 coal and utility industry leaders, it is central to any forward-looking=20 energy strategy.=20 The sensible responses to the energy crisis are clear: Control prices now a= nd=20 rely on renewable energy and conservation in the future.=20 It is up to us to let the president know he can't kowtow to the energy=20 industry interests. Hopefully, he'll respond to the angry Californians he= =20 will hear this week.=20 Medea Benjamin is founding director of Global Exchange, a San Francisco=20 corporate accountability organization.=20 ,2001 San Francisco Chronicle ? Page?A - 19=20 Californians revert to clotheslines, fans as they gear up for blackouts=20 MARGIE MASON, Associated Press Writer Tuesday, May 29, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/29/n= ation al0338EDT0451.DTL=20 (05-29) 00:38 PDT OAKLAND, Calif. (AP) --=20 Paul Goettlich's condo in the Oakland hills features vaulted ceilings and= =20 skylights, a sweeping view of San Francisco's bay and state-of-the-art=20 appliances.=20 But with the power crisis in full tilt, his dryer sits unused while he hang= s=20 clothes, sheets and towels on a wooden rack in the garage.=20 "Maybe somebody doesn't want to see somebody else's underwear or bras hangi= ng=20 out," Goettlich says. "But, hey, that's life."=20 As the state gears up for rolling blackouts and hefty energy bills this=20 summer, many Californians are changing their habits. The result: surging=20 sales of everything from low-energy light bulbs to fans to evaporative=20 coolers that blow misty air.=20 The Orchard Supply Hardware store a few miles down the road from Goettlich'= s=20 condo is having a hard time keeping clotheslines and retractable drying rac= ks=20 in stock.=20 At The Home Depot store in Colma, about 10 miles south of San Francisco,=20 energy-efficient compact fluorescent light bulbs are hot sellers, along wit= h=20 a $40 device called a Power Planner that's said to cut energy use by=20 appliances like refrigerators.=20 At the Wal-Mart in the Southern California suburb of Brea, customers are=20 buying blackout supplies along with fans and low-energy light bulbs.=20 Flashlights, camping lanterns and oil lamps are popular, according to manag= er=20 Rebecca Smith.=20 "We've quadrupled our fan sales this year, and it's not even summer," Smith= =20 said. "It doesn't seem to matter what kind. People are buying all of them."= =20 The rolling blackouts are proving a retail bonanza for some out-of-state=20 companies, like St. Louis-based Emerson, which is selling twice as many=20 ceiling fans in California than in any other state.=20 "They're energy efficient and use less electricity than a 100-watt bulb,"= =20 explains Emerson spokesman Walt Sharp. "They can make a room feel about sev= en=20 degrees cooler without air conditioning by circulating the air. They can sa= ve=20 up to 40 percent when used with air conditioning."=20 Industrial-sized floor fans -- used in manufacturing areas and large=20 warehouses -- also are a hot commodity in California, he said.=20 At Walnut-based Lights of America, sales of energy-efficient compact=20 fluorescent bulbs have increased 700 percent since last year. And with stat= e=20 rebates and incentives for consumers to switch to the new bulbs, sales are= =20 expected to continue soaring, said Brian Halliwell, vice president of=20 marketing sales.=20 Most bulbs average from $6 to $10, with 50-watt compact fluorescent bulbs= =20 providing the same amount of light as 300-watt halogens, Halliwell said.=20 Shopping the light bulb display at The Home Depot in Colma, Linda Shintaku= =20 said she's exploring all her options for conserving energy this summer.=20 "We lowered the thermostat, and we're trying not to turn lights on in rooms= =20 we're not in," Shintaku said. "I try to wash clothes at night during low-pe= ak=20 hours."=20 Energy experts note that homeowners can make the biggest dent in their powe= r=20 bills by switching to more efficient models of major appliances.=20 But despite the advice and an array of rebate programs, Home Depot manager= =20 Benefield says consumers aren't yet flocking to replace energy-sucking=20 appliances like refrigerators and dishwashers. People who are in the market= =20 for big appliances ask about the government's Energy Star ratings, which=20 bring rebates of up to $75, he noted.=20 The new vogue for conservation has some ecology-conscious Californians=20 shaking their heads. Berkeley resident Leona Benten has been hanging her=20 clothes outside to dry long before the power crisis came along and she's=20 hoping the energy crisis will push others to change their habits and their= =20 attitudes.=20 "It takes like two minutes," Benten said. "I think that people have succumb= ed=20 to incredible amounts of advertisements, and if it's mechanized, it's=20 better."=20 Crisis no sweat to some offices=20 Many offices keep cool in crisis=20 Air conditioners blast in state's energy centers=20 Steve Rubenstein, Chronicle Staff Writer Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/M N208422.DTL=20 Some very cool places to be during the dog days of spring and summer turn o= ut=20 to be the places with their fingers on California's air conditioning switch= .=20 If only the entire state could cram itself into the cavernous control room = in=20 Folsom of the Independent Systems Operator, where the air is a comfortable = 69=20 degrees and receptionists wear sweaters at high noon -- when it's upwards o= f=20 90 degrees outside.=20 Or the Pacific Gas and Electric Co. lobby in downtown San Francisco, where= =20 the air is an even chillier 65 degrees, which admittedly isn't much of a=20 bounty, considering it's usually that cool outside anyway.=20 Other cool places to be are the state Capitol, where legislators who=20 promulgate energy edicts hang out, and the headquarters of the state Public= =20 Utilities Commission, where bureaucrats who promulgate energy edicts hang= =20 out.=20 Armed with a high-tech digital thermometer, The Chronicle made the rounds o= f=20 the energy crisis poohbahs, to make sure they are practicing what they are= =20 preaching.=20 Some were, some weren't. Those that weren't blamed it all on that most=20 familiar of modern scapegoats, the computer.=20 Computers must be kept cool -- in the 60s for big mainframes and a bit more= =20 for the smaller units most folks use, though some can go into the 80s witho= ut=20 hiccuping. So generally, people who work alongside the computers get to kee= p=20 cool, by association, although it's the computer that counts.=20 The ISO headquarters, located in an industrial park 20 miles east of=20 Sacramento, is a delightfully cool and comfortable place when the outside= =20 temperature soars into the 90s and 100s.=20 The reception area, the only room accessible to the outraged public, is a= =20 fairly stiff 76 degrees -- only two degrees cooler than the 78 degrees=20 recommended by President Bush and the federal energy crisis czars and=20 czarinas.=20 But take a step past the lobby security doors and the temperature plummets.= =20 In the main hallway, the temperature is 73 degrees. And in the control room= ,=20 where two dozen engineers and technicians sit at consoles and monitor the= =20 flow of California electricity on a giant diagram of state power lines so= =20 they can order blackouts for everyone else -- the temperature is 69 degrees= .=20 NO SWEATING AT ISO Some managers do not take off their sports coats and jackets.=20 "We want these people to be comfortable," explained Tony Capasso, facilitie= s=20 manager for the ISO complex. "We don't want these people sweating bullets i= n=20 the middle of a crisis."=20 Inside the state Capitol, where legislators and the governor preach=20 compliance with federal guidelines calling for 78-degree thermostats, the= =20 temperature dips into the high 60s. The coolest spots are the press briefin= g=20 room and the treasurer's old office.=20 GOVERNOR'S OFFICE The governor's suite is in the mid-70s, apparently because folks are often= =20 coming by with thermometers and it wouldn't do not to set an example. Press= =20 secretary Steve Maviglio said Governor Gray Davis is a practice-what-he-=20 preaches kind of guy who keeps corridors dark, shades drawn, air conditione= rs=20 idle. His personal secretary works in short sleeves, with a cheap plastic f= an=20 humming nearby.=20 "It's so dark in the hall that we're always bumping into things," said one= =20 aide.=20 Even so, the temperature in the governor's suite of offices is three degree= s=20 cooler than the 78 degrees recommended by President Bush -- not the first= =20 time the two men have failed to agree.=20 THE LEGISLATURE The Assembly chamber is 71 degrees while the Senate chamber -- with 40 fewe= r=20 legislators spewing forth -- is 73 degrees. But the Senate chamber has a=20 southern exposure, one Capitol guide explained.=20 "Hot air from the people sitting inside has nothing to do with it," he said= .=20 In San Francisco, the temperature inside cavernous City Hall dips in spots = to=20 the mid-60s. College student Jasmine Westbrook, who dropped by with her art= =20 class on a project to sketch the interior of the building, was doing her=20 sketching while wearing a windbreaker to keep warm.=20 "I want to stay comfortable," she said. "It think it's supposed to be hotte= r=20 in here, isn't it?"=20 The mayor's office, at 73 degrees, was eight degrees warmer than another=20 office down the hall, even without the mayor sitting in it.=20 63 AT THE PUC=20 At the headquarters of the state Public Utilities Commission, which is=20 supposed to be keeping an eye on the self-declared bankruptcy of the utilit= y=20 that mails out the bills, the lobby temperature is 63 degrees.=20 Chief engineer David Omosheyin, eyeing The Chronicle's thermometer nervousl= y,=20 insisted the 63-degree reading was caused by the lobby's proximity to the= =20 front door, where the outside temperature at the moment was in the low 60s.= =20 He invited the thermometer to visit the upper floors, where the temperature= =20 was 70.=20 As for San Francisco's federal buildings: Bush would probably not frown.=20 His orders appeared to be followed during The Chronicle's visits, so much s= o=20 that it was actually hotter inside than out. Though that wouldn't be hard,= =20 considering it was in the low 60s outside. And the places measured happened= =20 to be courtrooms and tax offices, where the body heat from anxiety alone=20 could probably melt the paint some days.=20 San Franciscans, Omosheyin said, are losing their perspective when it comes= =20 to things like electricity, energy alerts and rolling blackouts. In his=20 native country of Nigeria, he said, the electricity runs sporadically, if a= t=20 all.=20 "There the power can go off for a week," he said. "The world goes on. Here,= =20 people take a lot of things for granted, and electricity is one of them."= =20 As for the offices of the places that report on such matters, they fared=20 about the same.=20 The Walnut Creek bureau of The Chronicle, where the sun sizzles into the 90= s=20 with regularity in the summer, is kept at 67 degrees because of all the=20 computers. The main newsroom of The Chronicle is kept at 71 degrees, becaus= e=20 of all the computers. But the reception room was 71 degrees, too, and there= =20 aren't any computers there, not a one.=20 E-mail Steve Rubenstein at srubenstein@sfchronicle.com.=20 Some offices keeping their cool Place Inside Outside temperature temperature Control Room, California Independent =20 Systems Operator (Folsom) 69 90 Governor's office, Capitol (Sacramento) 75 94 Press briefing room, Capitol (Sacramento) 68 94 Caltrans headquarters (Sacramento) 70 94 Chronicle bureau newsroom (Walnut Creek) 67 90 Mayor's Office, San Francisco City Hall 73 63 Calif. Public Utilities Commission lobby =20 (San Francisco) 63 63 State Building (San Francisco) 69 63 Courtroom, 19th floor, Federal Building =20 (San Francisco) 70 63=20 Lobby, Pacific Gas and Electric =20 headquarters (San Francisco) 65 65 IRS office, Federal Building=20 (San Francisco) 69 63 Main newsroom, =20 San Francisco Chronicle (San Francisco) 71 64 ,2001 San Francisco Chronicle ? Page?A - 1=20 Stakes are high for Davis meeting with Bush=20 GARY GENTILE, AP Business Writer Tuesday, May 29, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/29/s= tate0 731EDT0136.DTL=20 (05-29) 04:31 PDT LOS ANGELES (AP) --=20 With California facing a summer of outages, Gov. Gray Davis was to meet=20 President Bush to press for a federal cap on energy prices.=20 But Davis wasn't expected to win any concessions during the 20-minute Tuesd= ay=20 meeting where he's expected to point to Texas energy makers.=20 Davis has appeared on national news programs attacking Bush for opposing=20 price controls on wholesale electricity, and suggesting the president has= =20 ignored price-gouging by Texas-based electricity generators.=20 "The president did not create this problem, but he is uniquely situated to= =20 solve it," Davis said Monday. "What I'm going to ask him to do, with all=20 respect, is to enforce federal law. The money that leaves this state goes= =20 directly to energy companies in Texas and the Southwest."=20 If Bush refuses to administer price controls as expected, Davis can use tha= t=20 as ammunition in his sparring with the administration.=20 Bush has blamed California officials for the state's power woes and said=20 price controls won't solve shortages. Instead, they said, Bush plans to=20 stress his efforts to conserve energy in federal buildings and will bring o= ne=20 or two new initiatives to the table.=20 One of them commits the federal government to helping organize a consortium= =20 to build more power lines for the state.=20 Energy Secretary Spencer Abraham directed the Western Area Power=20 Administration, a federal agency, to take the first steps to clear the way= =20 for building more transmission capacity between southern and northern=20 California. That would help relieve a transmission bottleneck in the centra= l=20 part of the state.=20 While this will not help this summer, Abraham said in a statement the line= =20 improvements, when completed, "will help avert the same types of problems= =20 from recurring year after year."=20 The stakes of the meeting are high for both politicians.=20 Davis, who has been mentioned as a Democratic challenger to Bush in 2004,= =20 wants federal help to solve an energy crunch that threatens rolling outages= =20 this summer and has cost state taxpayers nearly $8 million since January --= =20 the price of buying power for two cash-starved private utilities. And his= =20 plan to rescue one of those companies reportedly is faltering.=20 Leaders of both the state Senate and Assembly oppose a $3 billion-plus plan= =20 to bail out Southern California Edison by buying its power lines, the Los= =20 Angeles Times reported Monday.=20 Bush, meanwhile, needs to mend fences in vote-heavy California. The=20 Republican president lost badly here in November, and polls show most=20 Californians dislike his handling of their energy crisis.=20 Bush's Tuesday agenda was heavy on energy issues. At the Marine Corps base = at=20 Camp Pendleton, near San Diego, Bush was to highlight his order that federa= l=20 agencies and installations cut back energy use. Then it was on to Los Angel= es=20 to discuss his energy plan in a speech to the Los Angeles World Affairs=20 Council.=20 Bush was confronted by the issue virtually as he stepped off the plane Mond= ay=20 in Los Angeles. Rep. Brad Sherman, D-Los Angeles, escorted the Academic=20 Decathlon national championship team from El Camino Real High School in=20 Woodland Hills to meet Bush. He told the president California needs=20 regulation of electric generators.=20 "The president seems to believe just by instinct that rate regulation reduc= es=20 supply and also by instinct that all those in the energy industry are fair= =20 people who are not trying to game the system," Sherman said. "Anyone who=20 studies the facts in California knows that power is being withheld in order= =20 to drive up the price."=20 ,2001 Associated Press ?=20 State gives president tepid ratings=20 Power crisis blamed for 42% approval=20 Carla Marinucci, Chronicle Political Writer Tuesday, May 29, 2001=20 ,2001 San Francisco Chronicle=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2001/05= /29/M N56632.DTL=20 As President Bush arrives in California for his first trip in seven months,= =20 many state residents give the former Texas governor lackluster approval=20 ratings - underscoring how even the nation's leader may be feeling the=20 effects of the worsening energy crunch, a new Field Poll shows.=20 The poll of 1,015 Californians, taken from May 11 to May 20, shows that 42= =20 percent approve of Bush's job performance to date, with 40 percent=20 disapproving, a nearly even split. Eighteen percent of those surveyed offer= =20 no views of Bush's performance, the poll showed.=20 A Field Poll last week showed that on energy issues specifically, more than= =20 half of Californians viewed the president's job performance as "poor" or=20 "very poor," compared with 38 percent who gave Democratic Gov. Gray Davis t= he=20 same rating.=20 "This should be a time when Bush is enjoying his honeymoon period," said Ma= rk=20 DiCamillo, director of the Field Poll, who pronounced the president's ratin= gs=20 "very mixed."=20 "If you compare Bush's 42 percent approval ratings in California, it's abou= t=20 12 points behind the national (ratings)," said DiCamillo. "He's not doing a= s=20 well as he should here, and one of the reasons is the energy crisis."=20 In the Field Poll's first measure for Bush since his election, "what stands= =20 out is the absence of any real honeymoon."=20 ". . . It's highly partisan," DiCamillo said.=20 CHENEY LOOKS RATHER POSITIVE Vice President Dick Cheney fares better, with 47 percent of Californians=20 viewing him in a positive light and 25 percent disapproving.=20 Much of the difference in the ratings comes because voters are not as likel= y=20 to hold the second-in-command responsible for their energy woes, DiCamillo= =20 said.=20 "Whenever there's a problem with the federal government, you're going to=20 focus your anger and attention at the guy at the top of the heap," he said.= =20 "Bush will be held responsible for his administration."=20 DAVIS' SHARP DECLINE The Field Poll reported last week that as the energy crisis has ramped up,= =20 the governor's overall approval ratings have fallen statewide. Today, 49=20 percent disapprove of his job performance and 42 percent approve -- a sharp= =20 decline from the favorable approval ratings he held in January.=20 But the new poll shows that the public's views of the Legislature has dropp= ed=20 dramatically in recent months as concerns about the energy crisis have=20 multiplied. Just 39 percent of Californians have a positive view of the=20 Legislature's job performance today, while 42 percent have a negative view.= =20 That's a stark contrast to January, when residents approved of the job the= =20 Legislature was doing by more than a 2-to-1 ratio, 52 percent to 25 percent= .=20 While state and local political leaders appear to bear the brunt of the=20 public's negative feelings regarding the recent energy crisis, Californians= =20 continue to give strong approval ratings to their two U.S. senators and to= =20 members of Congress, the poll showed.=20 Californians hold favorable views of Sen. Dianne Feinstein, who was re-=20 elected in November. By 54 percent to 27 percent, they like the job she is= =20 doing, the latest poll showed.=20 "She has always had good job ratings" among voters, said DiCamillo, "and th= is=20 is just an affirmation of that."=20 Sen. Barbara Boxer also continues to get high ratings, with 49 percent=20 approving of her performance and 28 percent disapproving. And Californians= =20 gave a generally favorable rating to their congressional representatives,= =20 with 53 percent approving and 35 percent disapproving.=20 PARTY LINE SPLITS Among the other findings of the new Field Poll:=20 -- Views about Bush's job performance are split along party lines, with=20 Democrats, by a more than 3-to-1 ratio, holding a negative view of him, and= =20 Republicans, by a 6-to-1 ratio, seeing him in a positive light. Independent= =20 voters gave him positive ratings, 39 percent approving of his job=20 performance, 31 percent disapproving and 30 percent holding no view.=20 -- Cheney had equally partisan approval ratings, although he received much= =20 stronger ratings from his own party and independents. Forty percent of=20 Democrats disapproved of him, compared with 30 percent who approved. But=20 Republicans approved of him by a 10-to-1 ratio. Independents, by a 2-to-1= =20 ratio, liked what he has done in office.=20 -- Congressional Democrats get particularly strong ratings from state voter= s.=20 Fifty-three percent of Californians approve of their job performance, while= =20 just 33 percent disapprove. Republicans in Congress get a less favorable 41= =20 percent approval, 46 percent disapproval rating, the poll showed.=20 The Field Poll carries a margin of error of plus or minus 3.2 percentage=20 points.=20 E-mail Carla Marinucci at cmarinucci@sfchronicle.com.=20 Field Poll / Job approval ratings -- Job approval of George W. Bush as president Approve Disapprove No opinion Statewide 42% 40% 18%=20 Democrats 18% 63% 19%=20 Republicans 76% 12% 12% Others/non-partisans 39% 31% 30% . -- Trend of job approval of Dianne Feinstein as senator Approve Disapprove No opinion Men 49% 35% 16% Women 60% 19% 21% Democrats 73% 12% 15% Republicans 33% 50% 17% Others/Non-partisans 44% 21% 35% . -- Trend of job approval of Barbara Boxer as senator Approve Disapprove No opinion Men 45% 36% 19% Women 53% 20% 27% Democrats 67% 12% 21% Republicans 29% 53% 18% Others/Non-partisans 37% 19% 44% The poll was conducted May 11-20, 2001. Results are from a telephone=20 survey=20 of 1,015 California adults, including 504 self-described Democrats, 390 sel= f- described Republicans and 121 others. The margin of error is 3.2 percentage= =20 points. Source: Field Institute Chronicle Graphic ,2001 San Francisco Chronicle ? Page?A - 1=20 Calif. pawn businesses boom as energy bills rise=20 Monday, May 28, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/28/n= ation al1807EDT0593.DTL=20 (05-28) 15:07 PDT SAN FRANCISCO (AP) --=20 Rising energy bills have some Californians pawning their valuables to pay f= or=20 power.=20 When an employee at an Oakland pawnshop asked N'Kechia Jackson last week ho= w=20 much she wanted for a gold necklace, Jackson had a specific amount in mind.= =20 "I need $113.86," she said. "That's how much my PG&E bill is."=20 Jackson, who got $125 for the chain, said her monthly energy bill from=20 Pacific Gas and Electric Co. is like a credit card balance that never=20 shrinks.=20 Bay Area pawnshop owners say similar scenes are becoming common as laid off= =20 dot-com workers and single mothers hock items like jewelry and laptop=20 computers to pay rising power bills.=20 "That's the number one reason people have been coming in to pawn right now,= "=20 said Bill Rager, assistant manager of Best Collateral Pawnbrokers in Oaklan= d.=20 "Basically, it's high-dollar items -- chains, watches, bracelets, engagemen= t=20 rings, wedding rings."=20 Pawnshops do not require credit checks, and they offer fast cash. They also= =20 allow people up to four months to repay a loan before their items are sold.= =20 Interest rates range from 5 percent to 20 percent.=20 "The sad thing about it is that I'd say 60 percent will lose their property= =20 because they can't afford to get it out," Rager said.=20 Another woman entered Rager's shop minutes after Jackson pawned her jewelry= .=20 The woman, who gave her name only as Sophia, used her children's Nintendo= =20 game set as collateral for a $65 loan.=20 The woman said she had scrambled since February to pay a $700 PG&E bill, an= d=20 now had no money to cover her $100 phone bill.=20 "When they come home and see their Nintendo gone, they'll be upset," she=20 said. "But my kids are understanding."=20 ,2001 Associated Press ?=20 Californians brace for a summer of blackouts=20 GARY GENTILE, Associated Press Writer Monday, May 28, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/28/n= ation al0501EDT0456.DTL=20 (05-28) 02:01 PDT LOS ANGELES (AP) --=20 While most people celebrate Memorial Day, Jan and Ralph Vazquez will=20 celebrate their own independence day -- energy independence.=20 Worried about a summer of rolling blackouts and fed up with rising utility= =20 bills, the couple installed a $33,000 solar system in their four-bedroom ho= me=20 in San Rafael a few weeks ago. It can store enough energy in batteries to= =20 power their refrigerator and other appliances for up to six hours if there = is=20 a blackout.=20 "I think there is a little bit of fear and concern about to what extent wou= ld=20 we be subject to blackouts and how much energy is going to cost us," Jan=20 Vazquez said. "The simple solution is to be independent, or as much so as= =20 possible."=20 The Vazquezes are among millions of Californians facing an uncertain summer= ,=20 wondering how they will cope with what is expected to be several months of= =20 rolling blackouts.=20 The prospect of daily power outages as the temperature rises and air=20 conditioning use peaks has left many people apprehensive, from parents of= =20 newborns who need warm bottles to people who require electric-powered medic= al=20 devices in their homes to office workers worried about getting stuck in an= =20 elevator.=20 California already has endured six days of rolling blackouts this year, eac= h=20 lasting about an hour and hitting different parts of the state. Estimates= =20 vary about what lies ahead.=20 One industry-sponsored watchdog group, the North American Electric=20 Reliability Council, predicted California would face an average of 20 hours= a=20 week of rolling blackouts.=20 Responding to complaints following the earlier outages, state power officia= ls=20 this month plan to begin issuing weather advisory-style warnings 24 hours= =20 before an expected blackout.=20 Chicago, faced with a deteriorated electrical system after years of neglect= =20 and severe weather, adopted a blackout plan in 1999 that is being studied a= s=20 a model by California officials.=20 Today, for example, Chicago police officers carry portable stop signs to=20 darkened intersections moments after a blackout hits.=20 "There's no just excuse for trapping people in elevators," said Bill Abolt,= =20 Chicago's commissioner of environment. "There's no excuse for shutting off= =20 power to an intersection with no notification to police and fire in advance= ."=20 Across the country, reduced hydroelectric production due to the Pacific=20 Northwest drought, an aging transmission system, rising costs for the natur= al=20 gas that fires many power plants and increasing demand for electricity is= =20 expected to produce shortages and higher prices in the Northwest, New Engla= nd=20 and other regions.=20 The stakes are high in California. It has the world's sixth largest economy= =20 and is home to bellwether high tech companies such as Intel and Cisco=20 Systems.=20 For some retailers, the impact is minimal. Clerks can switch from an=20 electric-powered cash register to battery-powered calculators. Some compani= es=20 can fire portable generators to power their phone system with minimal=20 disruption.=20 The California Manufacturing and Technology Association recently estimated = a=20 summer of blackouts could cost the state $21 billion and 136,000 jobs as=20 manufacturers curtail production and retail stores suffer a slowdown.=20 The Bay Area Economic Forum has estimated that rolling blackouts could cost= =20 as much as $15 billion and 15,000 jobs.=20 A summer of rolling blackouts also will test the emotional mettle of=20 Californians, who normally rally when faced with such natural disasters as= =20 earthquakes and wildfires.=20 "It's going to be an interesting natural experiment," said Mihaly=20 Csikszentmihalyi, Davidson professor of management at Claremont Graduate=20 University.=20 "When there is a natural calamity, people often respond really positively.= =20 This is different in the sense it is not a natural calamity and you can bla= me=20 politicians and gougers for it. It could turn into resentment against those= =20 in power and those who should be supplying the power."=20 California's plight already has become comic fodder.=20 From David Letterman to radio talk shows, the state has been the butt of=20 power-related jokes. On a recent episode of the game show "The Weakest Link= ,"=20 which is taped in Los Angeles, the acerbic host asked which player was havi= ng=20 a "rolling mental blackout."=20 Jan Vazquez, however, suggests that California has the chance to go from=20 punch line to role model.=20 "California has the opportunity to be a leader again," Vazquez said, urging= =20 more state investment in alternative energy rather than sinking billions mo= re=20 into buying power at inflated prices.=20 "If there were more homeowners like us and more businesses that were=20 generating their own electrical power, I think we would avoid blackouts=20 completely -- maybe not by this summer, but by next summer," she said.=20 ,2001 Associated Press ?=20 New Nevada-California energy plan surfaces at last minute=20 BRENDAN RILEY, Associated Press Writer Monday, May 28, 2001=20 ,2001 Associated Press=20 URL:=20 http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2001/05/28/s= tate2 242EDT0228.DTL=20 (05-28) 19:42 PDT CARSON CITY, Nev. (AP) --=20 An 11th-hour proposal to help ease Nevada's budget problems and provide mor= e=20 electrical power to neighboring California was outlined Monday by a key sta= te=20 lawmaker.=20 Assembly Ways and Means Chairman Morse Arberry, D-Las Vegas, said his plan,= =20 to be introduced Tuesday, would allow power plants to be built along the=20 Nevada-California border, on land that would be owned by this state.=20 "It could produce millions of dollars for the state," said Arberry, adding= =20 that he has asked researchers to determine the exact dollar benefit to Neva= da=20 to help get the proposal passed in the final week of the 2001 session.=20 Under the proposal, the state would negotiate with the federal Bureau of La= nd=20 Management to acquire BLM land on the border of the two states, especially = in=20 the southern Nevada desert region.=20 The state then could accept bids from companies that wanted to build=20 power-generating plants, and take the bid that would be the best deal for t= he=20 state, he said.=20 The benefit to the power plant builders would be a site as close to a prime= =20 market -- energy-starved California -- but located in industry-friendly=20 Nevada, which already has moved to speed up paperwork involved in power pla= nt=20 approvals.=20 Arberry said he wasn't approached by energy company lobbyists to introduce= =20 the idea. Instead, he said, "I was just talking to an old guy at the=20 barbershop, and he suggested it. I don't know if he even realized what he w= as=20 saying."=20 As part of a broad effort to ensure Nevada has enough energy, Gov. Kenny=20 Guinn already has worked with local government officials, especially in=20 southern Nevada, to speed up power plant permit processes.=20 Legislative efforts include SB362, which lets various local and state=20 agencies act simultaneously on permits for power plants, transmission lines= =20 and other related facilities.=20 Various power companies have come up with plans for Nevada plants that woul= d=20 supply more than 10,000 megawatts of energy by 2004.=20 Those proposals are among plans that would add more than 76,000 megawatts o= f=20 power in the Northwest, Southwest, Rocky Mountain and California-Mexico=20 regions, according to the California Energy Commission.=20 ,2001 Associated Press ?=20 New energy moves by W.House before Bush-Davis meet=20 Posted at 6:39 a.m. PDT Tuesday, May 29, 2001=20 BY RANDALL MIKKELSEN=20 WASHINGTON (Reuters) - On the eve of a showdown meeting on California's pow= er=20 crisis between California Gov. Gray Davis and President Bush, the Bush=20 administration Monday moved to help ease the crisis.=20 Energy Secretary Spencer Abraham unveiled plans to boost extra transmission= =20 capacity in California, which he said would be a ``big step'' in easing=20 rolling power blackouts.=20 Abraham ordered the Western Area Power Administration -- an Energy Departme= nt=20 arm responsible for marketing electricity from federal water projects in 15= =20 Western states -- to wrap up planning for building extra transmission=20 capacity.=20 The move came as Bush headed to California for his first presidential visit= ,=20 and a critical meeting on Tuesday in Los Angeles with the Democratic=20 governor.=20 Davis will ask Bush to impose wholesale electricity price controls and orde= r=20 refunds for overcharged consumers, aides said, but the White House on Monda= y=20 reiterated Bush's position that such steps would be counterproductive.=20 Davis spokesman Steven Maviglio said the steps announced by Abraham were no= t=20 new and were not the kind of help California needed to meet its immediate= =20 crisis. ``That's been kicked around for a while,'' he said.=20 Davis said last week he was prepared to ``go to court'' if Bush failed to= =20 act. ``The law says we're entitled to relief and it hasn't been coming,''= =20 Davis said.=20 White House spokeswoman Claire Buchan said that while Bush had ``worked ver= y=20 hard'' to help California, through measures such as ordering the Defense=20 Department to reduce its energy use by 10 percent in California and easing= =20 rules for using backup power generators, price controls ``make the problem= =20 worse.''=20 TRANSMISSION BOTTLENECK=20 At issue in Abraham's order is so-called Path 15, an 84-mile stretch of pow= er=20 lines with insufficient capacity to carry the necessary load between southe= rn=20 California and the northern part of the state, especially during peak hours= .=20 Abraham told WAPA to determine whether outsiders were interested in financi= ng=20 and co-owning a new transmission line. ''The level of interest will be a=20 factor in the decision to build the line later this year,'' the Energy=20 Department said in a statement.=20 The statement did not make clear whether the federal government would go=20 ahead with the project in the absence of outside financing, nor did it give= =20 cost details.=20 It said WAPA, which manages nearly 17,000 miles of transmission lines, woul= d=20 prepare the necessary environmental and feasibility studies and review=20 easement and land acquisition issues.=20 LEADERSHIP ROLE=20 ``The Bush administration is taking a leadership role in addressing a=20 long-neglected problem in California's electricity transmission system,''= =20 Abraham said. ``California's electricity problems developed over a period o= f=20 years and cannot be solved overnight. However, we can move now on actions= =20 that will help avert the same types of problems from recurring year after= =20 year.=20 ``Removing the so-called Path 15 bottleneck is a big step in the right=20 direction,'' he said.=20 The Energy Department said a new line could transmit across the state an=20 additional 1,500 megawatts of electricity, enough to power 1.5 million home= s.=20 Planning for additional transmission in the Path 15 area was started in the= =20 mid-1980s.=20 California's energy crisis is rooted in a flawed 1996 deregulation plan tha= t=20 allowed wholesale power prices to soar while capping retail rates.=20 The result has brought rolling blackouts, spotty power supplies and put=20 intense pressure on Davis to come up with ways to solve a worsening energy= =20 crunch that has also drained billions of dollars from state coffers.=20 It has also energized potential opposition to Davis's expected 2002=20 reelection bid. Bush has encouraged Los Angeles Mayor Richard Riordan to=20 challenge Davis. Tuesday, May 29, 2001=20 California should try true deregulation=20 Moving toward a government monopoly is the wrong prescription EDWARD R. MULLER=20 Mr. Muller is the former president and CEO of Edison Mission Energy, a=20 power-producing firm owned by Edison International and headquartered in=20 Irvine. This was co-authored by S. Linn Williams, former senior vice=20 president of Edison Mission Energy.=20 Capitalism won the Cold War because of better economics: Consumers make=20 better decisions than politicians, central planners or monopolists. That=20 lesson seems to have been learned better by those who lost the war than by= =20 those who won it. The failure to absorb the lesson is nowhere clearer than in the efforts to= =20 deregulate utilities. Deregulation, we are being told, has failed. The ligh= ts=20 are going out in California, and now politicians, governments, consumer=20 groups and the utilities themselves are rushing to hang out signs that read= =20 "Capitalism doesn't work here."=20 Principles matter, so let's start with some: The objective of government is= =20 to provide a framework for a better life for its people, and monopolies are= a=20 bad framework. They are inefficient, and when they include the government,= =20 whether as owner or comprehensive regulator, they are both inefficient and= =20 dogmatic because politics enters the equation. We pay for that inefficiency= =20 through higher taxes or higher prices. We must, of course, keep the lights on to maintain our standard of living.= =20 Does that mean that we just have to put up with the inefficiencies of=20 government-supported monopolies as a necessary evil to assure that importan= t=20 services are available? We do not. The problem has not been too little=20 regulation, but too much. California is an excellent example.=20 What has gone wrong? The finger pointing has been great sport, but the core= =20 of the problem is just the law of supply and demand. California flat ran=20 short of power. Many have wanted to build new power plants in California, b= ut=20 the regulatory hurdles have been insurmountable. In recent times, the=20 utilities themselves said that California didn't need more power plants and= =20 fought to stop the construction of new plants by others. The marketplace=20 didn't fail; regulation failed.=20 And California's vaunted "deregulation" was in reality just a botched=20 substitution of one form of regulation for another. When you deregulate a= =20 monopoly marketplace, you want all buyers and sellers to be subject to mark= et=20 forces. What California called "deregulation" didn't come close. First, the= =20 state and the utilities agreed on fixed retail prices for five years. As a result, consumers used electricity without knowing what it really cost= =20 to produce. Second, the state and the utilities agreed that the utilities= =20 would buy wholesale power through a system subject to market forces. As a= =20 result, the cost of power bought by the utilities fluctuated even though th= e=20 price they could charge was fixed. The utilities thought the retail prices were fixed high enough to more than= =20 cover what they expected power to cost them. For two years they were correc= t=20 and bought power for much less than the fixed prices they charged their=20 customers, but last year the cost of power soared way above the fixed price= s.=20 This wasn't deregulation, just another form of regulation. There were no=20 principles, just political expediency.=20 It didn't take long for economic reality to assert itself and the jury-rigg= ed=20 structure came tumbling down. Blackouts, high prices and insolvent utilitie= s=20 are not a failure of the marketplace; the marketplace never got a chance. N= ow=20 we are at a fork in the road. Should we go back to the regulation of the pa= st=20 or forward to full deregulation?=20 It's not fair to say that deregulation has failed. After all, we haven't=20 tried it yet. We should return to first principles: Deregulate properly by= =20 making all aspects of the system subject to market forces. True deregulatio= n=20 would include:=20 * Reducing the regulatory burdens on building new power plants. * Eliminating fixed prices.=20 * Making sure that there are enough players in the market to make it=20 competitive.=20 * Having shareholders, not customers, be responsible for the financial=20 effects of business decisions.=20 Prices will vary with supply and demand and may rise at the outset until=20 supply is added, but over time a deregulated market will give customers the= =20 lowest prices. The talk of a retreat to the regulation of the past is in pa= rt=20 a result of our failure to articulate why capitalism won the Cold War and= =20 competition makes the world a better place.=20 The tendencies of politicians to intervene, and of businessmen to ask=20 government to exempt their particular business from the marketplace, or som= e=20 of its effects, remain strong. Ironically, prosperous times reinforce those= =20 tendencies by masking their effects on the rest of us. Whether in good time= s=20 or in bad, the public interest is a David to the Goliath of politicians,=20 bureaucrats and businessmen who see governmental protection as safer for=20 themselves than the hurly burly of competition. Capitalism, like democracy, is imperfect, but both are far preferable to th= e=20 alternatives. Our laws and regulations should provide the structure for a= =20 marketplace where consumers vote many times a day, not a discredited and=20 dictatorial system in which only politicians and monopolists get to vote.= =20 By Rick Stouffer rstouffer@ftenergy.com Power generators and traders are finally realizing that the phrase "build i= t=20 and they will come" wasn't written with power plants and natural gas fuel i= n=20 mind. You can build all the new capacity you want=01*but if you don't have the na= tural=20 gas to fuel the turbines, all you have is a brand-new, very expensive white= =20 elephant.=20 With roughly 90% of the 155,000 MW to 200,000 MW of announced capacity to= =20 come on-line within the next few years firing with natural gas, executives= =20 are beginning to add two and two together and really getting four.=20 Back to the future with a twist Translation: The really smart power producers/traders are now locking in=20 proven natural gas reserves=01*insuring that when supply gets tight, they c= an=20 reach into the ground and pull out more fuel=01*their fuel.=20 For some players, it's back to the future, a return to the days when the sa= me=20 company owned the fuel, the generation, and the transmission=01*but with a = 21st=20 century twist. Today, the various factions are unregulated.=20 "What goes around comes around in this business," said Edward Tirello Jr.,= =20 managing director and senior power strategist-investment banking at Deutsch= e=20 Banc Alex. Brown. "The utilities used to own the various fuel sources, coal= ,=20 natural gas, and now they are getting back into it."=20 "Oil and natural gas firms are rebundling, reintegrating, but in an=20 unregulated sense," said John Olson, an energy analyst in Houston with=20 Sanders Morris Harris.=20 Can't burn paper in a turbine With volatility as much a part of deregulation as mergers and acquisitions,= =20 no power producer wants to be caught with its assets unproductive, i.e. wit= h=20 a shiny, new combined-cycle plant and no gas to fuel it.=20 "You can't put paper in a pipeline; you can't burn paper in a turbine," sai= d=20 Donato Eassey, head of natural gas analysis for Merrill Lynch in Houston,= =20 Texas.=20 "There are developing some real physical concerns for getting natural gas,= =20 and we will see some reneging on deals=01*even with contracts."=20 Olson has done the mathematics concerning the spike in demand related to ne= w=20 plants=01*and the numbers don't work.=20 "To feed all the plants expected to come on-line in the next few years woul= d=20 take an additional 13 billion cubic feet per day (Bcfd), and we are produci= ng=20 52 Bcfd," according to Olson. "Gas production has only been growing at a ra= te=20 of 0.4 Bcfd over the last 10 years=01*and well productivity has been down t= he=20 last two years. We've simply been replacing our natural declines."=20 Control what's there To put it in the vernacular: If enough gas isn't going to be there, you=20 better control what you can. Thus, Calpine Corp. in February announced a de= al=20 to acquire for $1.2 billion in stock and assumed debt the Calgary, Alberta,= =20 Canada-based exploration and production (E&P) firm Encal Energy Ltd.=20 No power producer wants to be caught with a shiny, new combined-cycle plant= =20 and no gas to fuel it.=20 The deal gave Calpine a solid foothold in satisfying part of its seemingly= =20 insatiable need for natural gas fuel, as it marches toward 70,000 MW of=20 capacity within the next three years. With Encal, San Jose, Calif.-based=20 Calpine's proven and probable reserves jumped to 1.7 trillion cubic feet=20 (Tcf), with a daily production capacity of 390 million cubic feet equivalen= t=20 (MMcfe).=20 Earlier this month, Williams Cos. pushed oil behemoth Royal Dutch/Shell Gro= up=20 out of the way and snared independent E&P player Barrett Resources Corp. fo= r=20 $1.5 billion in cash, stock and assumed debt.=20 Williams' offer was music to Barrett shareholders' ears: At $73 per share,= =20 the price was some 60% above Barrett's stock price the day before Shell's= =20 unsolicited bid became a hostile offer in March.=20 Two weeks ago, another independent E&P player took the money and ran. San= =20 Francisco-based HS Resources agreed to $66 a share=01*a 24% premium=01*$1.7= billion=20 in cash, stock and assumed debt from Kerr-McGee Corp. Not bad for a stock= =20 trading around $20 a year ago=01*and around $5 a share in early 1999.=20 As was the case with Calpine's swallowing of Encal, Williams and Kerr-McGee= =20 were thinking one thing when they bid the roof off: natural gas reserves.= =20 Williams' proven reserves, including Barrett, more than doubled to 3.3=20 trillion cubic feet equivalent (Tcfe), while average daily production jumpe= d=20 to 555 MMcfe.=20 Kerr-McGee gains via the HS Resources deal 1.3 Tcfe, about a 77% increase,= =20 while daily production will climb 45%. "Williams looked at Barrett using wellhead-to-power plant economics,"=20 according to Stuart Wagner, a principal in the Denver office of investment= =20 banking firm Petrie Parkman. "It was looking at long-lived, low-risk=20 reserves."=20 More deals a no-brainer Generators today cannot take the chance natural gas will not be available= =20 when that 500-MW or 1,000-MW plant is set to be primed.=20 "If you are building the plants and you don't have the gas, you are down th= e=20 tubes," Merrill Lynch's Eassey said. "If you are down a day in this market,= =20 you're sunk. And buying gas in the ground is cheaper than buying it on the= =20 market." "The firms already have a market for their power, now they are locking in= =20 margins," said Phillip Pace, an energy analyst in Houston with Credit Suiss= e=20 First Boston. "It depends on how short you want to be. One hundred percent= =20 short=01*you don't want to be."=20 Thus, there will be more plays made for sister firms to Barrett and HS=20 Resources, industry watchers believe. The acquisition of independent E&P=20 players is heating up.=20 "Will we see more deals? That's a no-brainer," said Merrill's Eassey. "You= =20 think Equitable (Pittsburgh, Pa.-based Equitable Resources Inc., the larges= t=20 holder of gas in the Appalachian region) is trading around $80 a share on i= ts=20 fundamental valuation? That's not fundamentals=01*that's takeout."=20 National Fuel is another takeout target, said Eassey. Another analyst, who= =20 requested anonymity, believes Mitchell Energy & Development Corp., Louis=20 Dreyfus Natural Gas and Burlington Resources are choice targets. Petrie=20 Parkman's Wagner sees Mitchell and Western Gas Resources Inc. as takeout=20 material. Olson calls Mitchell his "dream" acquisition. The 55-year-old firm, founded= =20 by 81-year-old wildcatter George Mitchell, may be the choicest plum still t= o=20 be picked. Mitchell put his firm on the block last year but has yet to hear= =20 numbers he likes.=20 "Gas production at Mitchell is up 25% this year, and is projected at 20%=20 through 2003," Olson said. "It's finding very rich gas in the Barnett=20 Formation in North Texas, but even if you're finding it at 70 cents per Mcf= =20 (thousand cubic feet), if you can sell it for $4 to $5 per Mcf, that works.= "=20 Proven gas reserves are in the 1.5 Tcf range, with daily production of=20 roughly 340 MMcfd. Mitchell's stock price has more than doubled in the last= =20 year, closing May 23 at $56.55.=20 A crowded field of acquirers With potential acquisitions awaiting, which companies are the promising=20 acquirers? Merrill's Eassey likes Reliant Energy, Aquila, possibly Mirant,= =20 even Calpine and Williams, which he believes remain natural gas-short if th= ey=20 stay on their capacity growth plans. Sanders Morris' Olson believes Duke=20 Energy clearly is looking for more natural gas, even with its access to=20 product via Duke Energy Field Services.=20 Credit Suisse's Pace said the field of potential acquirers could be crowded= =01* including every firm yet to be successful in acquiring reserves. That=20 includes Royal Dutch/Shell.=20 "Phillips already has stated it wants to be the largest coal-bed methane=20 player in the U.S.," Petrie Parkman's Wagner said. "Duke, Dynegy, Entergy a= nd=20 AES will also have to step up."=20 "The pressure is there definitely to act," Pace said. "I would be very=20 surprised if nothing else happened this summer."=20 =====================================